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The Canadian dollar has reversed directions on Tuesday and is in negative territory. Currently, USD/CAD is trading at 1.2582, up 0.30%.

It has been a frigid summer for the Canadian dollar, as USD/CAD has jumped 4.3% since June 1. The 1.20 level seems like a distant memory for the Canadian currency, which is within striking distance of the 1.26 line. The Bank of Canada was the first major central bank to tighten policy and oil prices have moved higher in recent months, but these factors have not been enough to prop up the wobbly Canadian dollar.

This week, the sell-off in China’s stock markets has dampened risk sentiment, and real US bond yields have declined ahead of the FOMC policy meeting on Wednesday. This has raised speculation that global growth could be facing headwinds, which has soured sentiment towards the commodity-based Canadian dollar.

Markets eye Canada CPI, FOMC

Canada releases CPI on Wednesday, with a consensus of 3.2% for June. This is lower than the May reading of 3.6%. With US inflation well over the Fed target of 2%, the markets and the Bank of Canada will be closely following to see if Canada’s inflation is also heading higher.

The FOMC policy meeting is the key event of the week and marks the last meeting before the Jackson Hole Symposium in August and the September policy meeting. The markets are becoming restless, looking for the Fed to provide some guidance, preferably a timeline, as to a taper of asset purchases, given the US economy’s impressive recovery. Investors will be looking for more from the Fed meeting than another declaration that inflation is transitory. Nobody is really expecting that the Fed will oblige with a timeline of a taper, but hints about a potential taper would likely provide the US dollar with some much-needed support.

USD/CAD Technical

• USD/CAD faces resistance at 1.2777. Above, there is resistance at 1.2916
• On the downside, there is support at 1.2459. Below, there is support at 1.2352

The Swiss franc is showing limited movement in the Tuesday session. In the North American session, USD/CHF is trading at 0.9140, down 0.15% at the day.

The US dollar has retreated against the majors this week, and the Swiss franc has also made inroads against the greenback. The round number of 0.9100 has held in support since mid-June, but this line could face pressure if the dollar continues to weaken.

On the fundamental front, Switzerland releases ZEW survey expectations for July on Wednesday. The indicator is a useful gauge of business conditions. The June release wasn’t pretty, as the index slumped to 51.3, down from 72.2 in the previous release. The June figure pointed to stagnation, barely above the 50-level which separates contraction from expansion. The index has been in expansion territory throughout 2021, and a drop below 50 could sour investors on the Swiss franc. We’ll get another look at the health of the Swiss economy on Friday, with the release of the well-respected KOF Economic Barometer. The index has looked strong and came in at 133.4 in June. The consensus for July is 130.0.

The FOMC policy meeting is the highlight of the week and marks the last meeting before the Jackson Hole Symposium in August and the September policy meeting. The markets are looking for the Fed to provide some guidance, preferably a timeline, on plans to scale back asset purchases, given the economy’s impressive recovery from the Covid-19 downturn. Investors will be looking for more from the Fed meeting than another declaration that inflation is transitory. It’s unlikely that the Fed will announce a taper timeline, but hints about a taper would likely provide the US dollar with some much-needed support.

USD/CHF Technical

• USD/CHF is testing resistance at 0.9227. Above, there is resistance at 0.9258
• On the downside, the pair put pressure on 0.9141 earlier in the day. This is followed by support at 0.9086

Markets

Yesterday, US and European investors throughout the day gradually decoupled from the negative spill-over effects of the China equity sell-off. This looked promising. However, today the glass of investor sentiment again was half empty rather than half full. While still at lofty levels, European equity indices today are losing 0.5%/1.0%. US losses again remain more modest (0.5%) as investors await the results from several US tech bellwethers after the close. Equity losses after all maybe aren’t that worrisome. However, the price action in the bond markets is still signals deep-rooted doubts and uncertainty. Especially US yields resumed their aggressive flattening trend with yields declining up to 5.0 bp+ for the 10/30 year sector. The US 10-y real yield is further heading into uncharted territory (new all time low at -1.15%). Headline June US durable goods orders were softer than expected at 0.8% M/M. However, taking into account an upward revision for the previous month, core capital goods orders were still OK. This also applies to capital goods shipment data. Looking at this data series, equipment investment still should be a supportive for the Q2 GDP release expected on Thursday. The S&P Corelogic House prices data also showed a faster than expected rise in May. So, the data were no reason for the new spike in uncertainty. Interesting to see whether Fed chair Powell has some insights on this development tomorrow. German/European yields follow the broader trend but de decline is again less aggressive than in the US. The German yield curve also bull flattens with yields declining between 1 bp (2y) and 2.5 bp (30-y). Intra-EMU spreads versus Germany are only little affected by the broader uncertainty (widening 1-2 bp). Also commodities are hardly ceding any ground.

Persistent global uncertainty but at the same time a further sharp decline in US (Real) yields is sending mixed signals for the dollar. EUR/USD initially dropped to the 1.1770 area but in nervous trade jumped back north of 1.18 this afternoon. The yen outperforms, with USD/JPY falling back below 110 (109.90). The DXY USD index eases slightly (92.55 area). Sterling was in good shape of late, but showed no clear directional trend. EUR/GBP to some extent followed the intraday EUR/USD pattern. The pair currently trades little changed in the 0.8550 area.

News Headlines

The National Bank of Hungary (MNB) today raised its policy rate at a faster pace than most in the markets expected. The base rate was lifted from 0.90% to 1.20%. At the same time, the bank also increased the overnight deposit rate from -0.05% to 0.25% and the collateralized loan rate (2.15% from 1.85%), reinforcing its commitment to cap an unexpected sharp rise in inflation. Inflation printed at 0.6% M/M and 5.3% Y/Y in June. The MNB has an inflation target of 3.0% with a tolerance band of +/- 1.0%. The MNB indicated at the time of the first rate hike in June that they started a real rate hike cycle. The forint after today’s rate hike ended recent weakening trend which as such was at risk of adding to inflationary pressures. EUR/HUF is trading near 359,75 compared to 362 early this morning. A negative global risk sentiment maybe prevented a bigger gain.

According to data of the Confederation of British industry (CBI) released today, activity among UK retailers remained strong in July. The measure of reported sales eased only slightly from the peak level in June (23 from 25). The June figure was the highest since August 2018. Growth in orders even accelerated the fastest level since 2010. Even so, sales for the time of the year (~ excluding the impact of the corona lockdowns) were reported as usual (0). Expected sales for August still signal a positive momentum. However, stocks remain at a very low level and this is expected to worsen further, pointing to ongoing supply issues.

US Conference Board Consumer Confidence rose to 129.1 in July, up from 128.9, above expectation of 123.9. Present Situation index rose from 159.6 to 160.3. Expectations index ticked lower from 108.5 to 108.4.

Consumer confidence was flat in July but remains at its highest level since February 2020 (132.6)," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. "Consumers' appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start. Consumers' optimism about the short-term outlook didn't waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve. Short-term inflation expectations eased slightly but remained elevated. Spending intentions picked up in July, with a larger percentage of consumers saying they planned to purchase homes, automobiles, and major appliances in the coming months. Thus, consumer spending should continue to support robust economic growth in the second half of 2021."

Full release here.

The Australian dollar has recorded losses in the Tuesday session. Currently, AUD/USD is trading at 0.7359, down 0.26% on the day.

Markets await Australian CPI

Australia releases its consumer inflation figures each quarter, so there is plenty of anticipation before each release. The consensus for second-quarter CPI is 0.7% for Headline CPI, a slight improvement over the Q1 reading of 0.6%. Trimmed Mean CPI will be closely watched, as the RBA sets its policy based on this index. The estimate stands at 0.5%, compared to 0.3% beforehand.

Unlike the Federal Reserve, the RBA doesn’t have inflation as one of its most pressing concerns. Inflation remains within the Bank’s range of 2-3%, and with lockdowns in place due to a rise in Covid cases, inflationary pressures don’t appear to be on the increase. Unless the forecasts are well off target, I expect a muted reaction from the Australian dollar.

At the RBA’s July meeting, RBA Governor Philip Lowe announced that the central bank would taper the asset purchase program from AUD 5 billion to 4 billion each week, starting in September, with a review in November. This is not a massive reduction by any means, but it is nonetheless an important signal to the markets that the RBA is tightening policy, and this should continue as long as the economy continues to perform well.

The markets are awaiting the FOMC policy meeting on Wednesday. The US dollar has been under some pressure, but concerns that the Fed could show a hawkish side and announce a taper will likely keep the sellers at bay until after the meeting. If the Fed sounds dovish, the dollar could face some headwinds in the latter part of the week.

AUD/USD Technical

• AUD/USD has support at 0.7297. Below, there is support at 0.7231
• There is resistance at 0.7422, followed by resistance at 0.7481

WTI crude oil futures are moving sideways, finding strong resistance at the 200-period simple moving average (SMA) and support at the 20-period SMA. The RSI indicator is falling in the positive region, while the MACD is losing momentum in the bullish region. Both are suggesting that a potential downside pullback may be on the cards in the next sessions.

A successful attempt below the short-term SMA could send the price towards the 70.60 support and the upper surface of the Ichimoku cloud, which overlaps with the 40-period SMA at 69.90. Slipping below these lines, the 67.60 support may act as a turning point for traders.

Otherwise, a jump above the 200-period SMA and the 72.41 resistance could add optimism for more bullish moves towards the 74.85 resistance and the almost three-year high of 76.20.

Summarizing, the commodity has been in a bullish phase over the last week, but the 200-period SMA behaves as an obstacle for further buying interest.

Daily Pivots: (S1) 1.1772; (P) 1.1795; (R1) 1.1825; More...

EUR/USD is still bounded in range above 1.1751 and intraday bias remains neutral. On the downside, break of 1.1751 will resume the fall from 1.2265, as the third leg of correction from 1.2348, to 1.1703 support. However, on the upside, break of 1.1880 resistance will indicate short term bottoming and turn bias back to the upside, for stronger rebound to 1.1974 resistance first.

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.

Daily Pivots: (S1) 1.3758; (P) 1.3796; (R1) 1.3855; More....

Focus stays on 1.3908 resistance in GBP/USD. Firm break there will argue that fall from 1.4248 has completed. Intraday bias will be turned back to the upside for retesting this high. On the downside, below 1.3719 minor support will turn bias to the downside for 1.3570. Break there will resume the fall from 1.4248 to 1.3482 resistance turned support first.

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.

Daily Pivots: (S1) 0.9137; (P) 0.9170; (R1) 0.9191; More....

Intraday bias in USD/CHF remains neutral as range trading continues. On the downside, break of 0.9116 support will affirm the case that rebound from 0.8925 has completed at 0.9273. Deeper fall would then be seen back to retest 0.8925 low. On the upside, however, break of 0.9273 and sustained trading above 61.8% retracement of 0.9471 to 0.8925 at 0.9262 will target 0.9471 resistance next.

In the bigger picture, medium term outlook is currently neutral with focus on 0.9471 resistance. Sustained break there will indicate completion of whole decline from 1.0342 (2016 high). Medium term outlook will be turned bullish for a test on 1.0342 high. But, rejection by 0.9471 again will revive bearishness for another fall through 0.8756 low.