Sample Category Title

Daily Pivots: (S1) 109.77; (P) 110.05; (R1) 110.38; More...

USD/JPY's fall from 111.65 resumes by breaking through 109.52 support and reaches as low as 109.05 so far. Intraday bias is back on the downside. Current development suggests that such decline is at least correcting the rise from 102..58. Deeper fall would be seen to 38.2% retracement of 102.58 to 111.65 at 108.18. On the upside, break of 110.33 resistance is needed to indicate short term topping. Otherwise, outlook will stay bearish.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Sustained trading below 55 day EMA would argue that the pattern from 101.18 is starting another falling leg, that could head back to 102.58 support and below. For now, outlook won't turn bullish as long as 111.71 resistance holds, even in case of strong rebound.

Yen and Swiss Franc dominates the markets for the day, as selloff in stocks spread from Asia to Europe, to US. Risk aversion intensified with DOW down over -800 pts in initial trading, while 10-year yield breaks1.2 handle. Canadian Dollar is the worst performing one, as WTI crude oil breaks below 70 handle. However, Australian and New Zealand Dollar are not too far away. The greenback is mixed for the moment, a touch weaker than Euro, but firmer against Sterling. We'd now see if US indices could bend upward before close. Or, the selloff would spillover back to Asian markets tomorrow.

Technically, one thing to note is USD/JPY's break of 109.52 support, that resume the fall from 111.65. We'd not firstly see if USD/CHF would break through corresponding support at 0.9116 too. Additionally, we'd see if that would also result in EUR/CHF's break of 1.0802 support. Or, EUR/USD could indeed ride on Dollar's selloff and rebound through 1.1880 resistance. The interactions would be interesting.

In US markets, at the time of writing, DOW is down -2.27%, S&P 500 is down -1.83%. NADSAQ is down -1.61%. 10-year yield is down -0.0009 at 1.194. In Europe, FTSE is down -2.76%. DAX is down -2.97%. CAC is down -3.00%. Germany 10-year yield is down -0.048 at -0.399. Earlier in Asia, Nikkei dropped -1.25%. Hong Kong HSI dropped -1.84%. China Shanghai SSE dropped -0.01%. Singapore Strait Times dropped -1.30%. Japan 10-year JGB yield rose 0.0012 to 0.019.

BoE Haskel: Risk management considerations lean against pre emptive tightening

BoE policymaker Jonathan Haskel said in a speech, "in the immediate term, the risk of a pre emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above target inflation. For the foreseeable future, in my view, tight policy isn't the right policy."

He also noted "two headwinds" oer the coming months, the "highly transmissible Delta variant" and a "tightening of the fiscal stance". "Against this backdrop, risk management considerations lean against a pre emptive tightening of monetary policy until we can be more sure the economy is recovering in a manner consistent with the sustained achievement of the inflation target," he said.

Bundesbank: German economic rose strongly in Q2, to be even stronger in Q3

Bundesbank said in the latest monthly report, "the German economic output increased strongly again in the second quarter of 2021."

"Provided that there are no significant setbacks with a view to the pandemic and the supply bottlenecks in the industry at least gradually decrease, the overall economic expansion rate is likely to be even stronger in the summer quarter," it added.

Real GDP could finally reach pre-pandemic level again in Q3.

A look at EUR/CAD and AUD/CAD as Canadian Dollar dives

Canadian Dollar tumbles broadly today as dragged by risk off sentiments, as well as the fall in oil price. WTI is pressing 70 handle after OPEC+ agreed over the weekend to boost production by 400k barrels a day, reversing some of the pandemic production cuts.

EUR/CAD surges to as high as 1.5041 today as rebound from 1.4580 resumes and accelerates. Current development now suggest that whole pattern from 1.5991 has completed at 1.4580 already, on bullish convergence condition in daily MACD. Next focus is 38.2% retracement of 1.5991 to 1.4580 at 1.5119. Sustained break there will pave the way to 61.8% retracement at 1.5452 and above.

As for AUD/CAD, focus is now on 0.9394 resistance. Firm break there and sustained trading above 55 day EMA confirm short term bottoming at 0.9245. That would also argue that correction form 0.9991 has completed after drawing support from 0.9247 key support level. Stronger rise should then be seen to 38.2% retracement of 0.9991 to 0.9245 at 0.9530, and then 61.8% retracement at 0.9706.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 109.77; (P) 110.05; (R1) 110.38; More...

USD/JPY's fall from 111.65 resumes by breaking through 109.52 support and reaches as low as 109.05 so far. Intraday bias is back on the downside. Current development suggests that such decline is at least correcting the rise from 102..58. Deeper fall would be seen to 38.2% retracement of 102.58 to 111.65 at 108.18. On the upside, break of 110.33 resistance is needed to indicate short term topping. Otherwise, outlook will stay bearish.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Sustained trading below 55 day EMA would argue that the pattern from 101.18 is starting another falling leg, that could head back to 102.58 support and below. For now, outlook won't turn bullish as long as 111.71 resistance holds, even in case of strong rebound.

Economic Indicators Update

Markets

Core bond yields collapsed again at the start of the new week. Without a specific trigger but in an outright risk-off mood, US bond yields shed 1.4 bp (2y) to 8.4 bps (30y) in another aggressive bull flattening. The 10y yield (1.212%) tumbles more than 7 bps and is on the verge of closing the February gap that opens at 1.21%. Volumes are a bit lower compared to Q1 and Q2 but are actually higher compared to the same period last year. So liquidity elements don’t cover today’s moves completely. Looking at rate dynamics, it’s both inflation expectations and real yields that drive the decline with the latter nearing the previous all-time lows of -1.11% (US 10-y). Lingering growth worries thus are currently the best explanation one can offer. The delta variant of the coronavirus that is for example pushing daily cases in the UK beyond 50 000 is often referred to as the reason why. The idea of a policy mistake by the Fed by hiking rates faster than markets expected in a way the dot plot suggested mid-June is gaining traction as well. Either way, it’s impressive. German Bund yields got caught in the slipstream with the curve flattening more than 5 bps at the very long end. The 10y yield over there is testing intermediate support at -0.38%, the final hurdle before returning to the February gap that opened around -0.42%. It’s Freedom Day in the UK but the happiness and joy isn’t shared by UK financial markets. Gilt yields tank a whopping 8.7 bps at the 30y tenor. Comments from BoE’s Haskel (see below) conflict with views expressed by Saunders and Ramsden last week and are obviously no help either. Stocks are being dumped. European losses mount to almost 3% with cyclicals leading the decline. WS gives up 1.3% in all three of the major indices. Commodities are drowning: copper is 3% down, oil is closing in on a 4% loss.

The usual suspects on the FX market gain on days like these, with in the first place the Japanese yen soaring. USD/JPY held up well initially but bowed to pressure eventually, slipping from 110 to 109.27 currently. EUR/JPY forfeits 130 support to change hands at around 129.09. The dollar is doing well but the euro’s show of strength at the start of US dealings is nothing but remarkable. EUR/USD totally reversed early losses to trade even higher at 1.182. Sterling is being sold easily, along with other smaller currencies (including the NOK, CAD, AUD and NZD). EUR/GBP jumps beyond 0.86, escaping the downward trend channel.

News Headlines

Labour market data as published Polish Central Statistical Office indicate the economic rebound continues to feed through into the labour market. Employment rose 0.3% M/M to be up 2.8 Y/Y (from 2.7% in May). Average gross wage growth strengthened with 2.9% M/M to be up 9.8% Y/Y. Both data were slightly above market expectations. Today, NBP member Eric Lon was quoted from an article at wGOSpodarce.pl that he favours to keep the policy rate unchanged until the November inflation and growth forecast will be available. If the November projections would indicate inflation staying longer above the upper end of the tolerance than in July, he indicated that the NBP might consider taking action. Still, the NBP should still take into account the situation with respect to economic growth. The zloty today extends its recent decline. However, at EUR/PLN 4.59, PLN- losses are modest given the overall risk-off sentiment.

After more hawkish comments from BoE members Saunders and Ramsden last week, MPC member Haskel today sounded more dovish. "In the immediate term, the risk of a pre-emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above-target inflation", Haskel said in a speech at the University of Liverpool. He admits that inflation can go above 3%, but said that these ‘price pressures and erratic data readings should be temporary and therefore could be looked through’. Aside from the impact of the Delta variant he also sees fiscal tightening as a headwind for the economy. The debate on the August BoE policy meeting remains open and the outcome inconclusive.

The euro has started the week with limited gains. In North American trade, EUR/USD is trading at 1.1817, up 0.12% on the day.

ECB expected to adjust forward guidance

ECB monetary policy meetings are generally tame affairs that cause limited movement in the markets. The meeting this coming Thursday is likely to be different, and could well be a market-moving event. The reason is that the ECB is expected to implement significant changes in policy. The ECB presented a strategy review earlier this week and ECB President Christine Lagarde said that there would be a review of forward guidance to align it to the strategy review. This means that we could see some important changes to forward guidance at the meeting.

The strategy review raised the inflation to 2% (up from “below, but close to 2%) and also stated that the central bank would accept “a transitory period in which inflation is moderately above target.” These changes are likely to be incorporated into the bank’s forward guidance. 

The key question is whether these expected changes in policy have been priced into EUR/USD? The ECB remains dovish and shows no signs of raising interest rates anytime soon. Barring any hawkish surprises at this week’s meeting, the current weakness of EUR/USD is likely to continue.

The ECB is viewed by the markets are very dovish, along with the Swiss and Japanese central banks. With the ECB expected to continue its dovish stance, the euro is unlikely to show any significant upswing this week. Once the ECB meeting is behind us, investors will be able to focus on some “hard” data, including consumer confidence and eurozone PMI reports.

EUR/USD Technical

• EUR/USD dropped close to 1.1759 before recovering. Below, there is support at 1.1711
• There is resistance at 1.1867 and 1.1927

Early in another July week, the major currency pair is falling amid market players’ sympathies towards the American currency. EUR/USD is trading at 1.1810.

The 'greenback' got some significant support from the latest report on the retail sales in the USA, which showed 0.6% m/m in June after being -1.7% m/m the month before and against the expected reading of -0.4% m/m. The Core Retail Sales report showed 1.3% m/m against market expectations of 0.4% m/m. Despite the fact that Americans are currently spending more money on services, the demand for goods remains quite high.

The preliminary report on the Consumer Sentiment from the University of Michigan disappointed but was barely noticed by investors. Nevertheless, the indicator dropped to 80.0 points in July after being 85.5 points in the previous months, although it was expected to reach 86.5 points.

In the H4 chart, EUR/USD is forming another descending wave with the target at 1.1725. After testing this level, the instrument may continue falling. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line is moving below 0, thus indicating that the descending wave continues.

As we can see in the H1 chart, the asset is also trading downwards and may soon reach 1.1750. Later, the market may form a new correction and then resume trading downwards with the target at 1.1725. From the technical point of view, this scenario is confirmed by the Stochastic Oscillator: its signal line is steadily moving downwards below 25.

The Australian dollar has started the week in negative territory and fallen below the 0.74 line. Currently, AUD/USD is trading at 0.7345, down 0.74% on the day.

The Aussie isn’t getting much love from the markets lately, and the current downswing could continue this week. AUD/USD fell to a low of 0.7343 earlier in the day, its lowest level since November 2020. Traditionally, July is one the best months for the Australian dollar, but so far, the currency is down 2.04% in July.

Investors are keeping a close eye on the RBA minutes from the July meeting, which will be released on Tuesday (1:30 GMT). The RBA has been consistent and clear in its message to the markets, which has been largely dovish, even with a taper of the QE programme. At the meeting, the bank stated that it will maintain its stimulus programme until headline inflation rises to the bank’s target band of 2-3%. Given that the figure in Q1 was only 1.1%, it appears that stimulus is here to stay for quite some time.

At the policy meeting on July 6, the RBA announced that it would reduce QE purchases from AUD 5 billion per week to 4 billion per week as of September, with this move to be reassessed in November. Still, the RBA’s forward guidance remained dovish, with policymakers saying that conditions were unlikely to warrant a rate hike prior to 2024. The Aussie moved higher after the RBA meeting, but then retreated and has been on a downswing for much of the time since the meeting.

If the minutes are essentially a repeat of the rate statement and follow-up comments from RBA Governor Lowe, then we could see some slight easing from the Australian dollar.

AUD/USD Technical

• AUD/USD is down sharply and is testing 0.7358. Below, there is support at 0.7319
• On the upside, there is resistance at 0.7469 and 0.7541

Notes/Observations

• Risk aversion sentiment over the spread of the delta coronavirus variant and renewed skepticism over the potential for a strong economic rebound.

Asia

• China Army and Navy held a joint drill on beach assault near Taiwan, the day after the 2nd US military aircraft landed in Taiwan.

Coronavirus

• Tokyo officials confirm a positive Covid case at Olympic athlete's village ( 2 South African soccer players at the Olympics have tested positive for COVID).

Europe

• UK PM Johnson and Chancellor Sunak to self-isolate after coming in contact with health Sec Javid (who tested positive for COVID); reversing their earlier plan to continue on as normal.
• UK Chancellor of the Exchequer Sunak (Fin Min) said to see the cost of UK debt rise by £10B due to debt tied to inflation.

Americas

• Fed's Kashkari (dove, non-voter) stated that not seeing evidence that there would be sustained inflation beyond the re-opening period; reiterated expected people to return to labor market in the fall.
• Treasury Sec Yellen noted that some tariffs have hurt customers, doubted the overall results of China Trade deal signed under President Trump.
• Senator Portman (R-Ohio): Bipartisan negotiators have dropped plans for stronger tax enforcement from the $579B infrastructure bill.

Energy

• OPEC+ said to agree to ease oil output cuts from Aug 2021 and to extend the supply agreement until the end-2022. The agreed new baseline for UAE at 3.5M BPD and increase production by 400K BPD per month until end of Sept 2022. OPEC+ also agree to use new oil output baselines from May 2022 which would raise Saudi and Russian oil output baseline to 11.5M BPD from May 2022 (now 11Mbpd).

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -1.74% at 446.84, FTSE -2.00% at 6,867.75, DAX -1.94% at 15,238.60, CAC-40 -2.01% at 6,330.58, IBEX-35 -1.84% at 8,349.00, FTSE MIB -2.73% at 24,116.50, SMI -0.93% at 11,914.56, S&P 500 Futures -0.68%].
• Market Focal Points/Key Themes: European indices open broadly lower and continued to sell off as the session wore on; sectors starting the day least in the negative territory include health care and telecom; energy and financials sectors among those leading to the downside; French cabinet member would not rule out the return of curfews if covid numbers worsen; Sumo to be acquired by Tencent; Partners acquires EOLO in Italy; Ermenegildo Zegna looking to come public in US through SPAC deal; Pershing Square desists from Vivendi deal; reportedly National Grid to lose regulatory responsibilities; NKT resumes strategic review of Photonics unit; earnings expected during the upcoming US session include IBM, AutoNation and TractorSupply.

Equities

• Consumer discretionary: Vivendi [VIV.FR] -1% (PSTH decides not to proceed with Universal Music Group deal), Ubisoft [UBI.FR] -2% (postpones some games releases).
• Financials: Sumo [SUMO.UK] +42% (to be acquired).
• Materials: Bekaert [BEKB.BE] -2% (earnings).
• Technology: Barco [BAR.BE] -12% (earnings).

Speakers

• Poland Central Bank's Lon stated that might consider rate hike if Nov forecast showed higher CPI.
• India Fin Min Sitharaman: Fundamentals of domestic economy remain strong.
• Japan Cabinet Office (Govt) July Economic Report maintained its overall economic assessment of seeing further weakness in parts of the economy. Domestic economy showed increased weakness in some parts, though it continued picking up amid severe conditions due to the coronavirus. Raised view on business conditions.

Currencies/Fixed Income

• Safe haven flows aid the USD and JPY currencies in the session. Risk aversion sentiment percolated over spread of the delta coronavirus variant and renewed skepticism over the potential for a strong economic rebound.
• EUR/USD hovering around the 1.18 area. Focus on Thursday ECB where the new inflation strategy likely to set the bar higher for an exit from its ultra-relaxed monetary policy. ECB's forward guidance poised to be recalibrated according to the new strategy.
• Renewed pressures on equities helped bond yield to move lower. US 10-year down over 3bps to approach 1.25%.

Economic data

• (TR) Turkey July Consumer Confidence: 79.5 v 81.7prior.
• (CH) Swiss weekly Total Sight Deposits (CHF): 711.9B v 711.7B prior; Domestic Sight Deposits: 636.5B v 637.5B prior.
• (PL) Poland Jun Employment M/M: 0.3% v 0.3%e; Y/Y: 2.8% v 2.7%e.
• (PL) Poland Jun Average Gross Wages M/M: 2.9% v 2.6%e; Y/Y: 9.8% v 9.2%e.
• (EU) Euro Zone May Construction Output M/M: +0.9% v 0.4% prior; Y/Y: 13.6% v 45.2% prior.

Fixed income Issuance

• None seen.

Looking Ahead

• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 ((DE) Germany to sell combined €6.0B in 6-month and 12-month BuBills.
• 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €1.5-2.5B in 3-month bills.
• 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).
• 06:00 (IL) Israel to sell bonds.
• 06:45 (US) Daily Libor Fixing.
• 07:25 (BR) Brazil Central Bank Weekly Economists Survey.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).
• 09:00 (FR) France Debt Agency (AFT) to sell €5.1-6.3B in 3-month, 6-month and 12-month bills.
• 09:45 (EU) ECB weekly QE bond buying update.
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation.
• 10:00 (US) July NAHB Housing Market Index: 82e v 81 prior.
• 11:00 (CO) Colombia May Trade Balance: -$1.0Be v -$1.5B prior; Total Imports: $4.3Be v $4.7B prior.
• 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.
• 12:00 (CO) Colombia May Economic Activity Index (Monthly GDP) Y/Y: 13.1%e v 28.7% prior.
• 16:00 (US) Weekly Crop Progress Report.
• 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 110.0 prior.
• 19:30 (JP) Japan Jun National CPI Y/Y: +0.2%e v -0.1% prior; CPI Ex-fresh food (core) Y/Y: 0.2%e v 0.1% prior; CPI Ex-fresh food/energy (core-core) Y/Y: -0.2%e v -0.2% prior;.
• 21:30 (CN) China Monthly LPR setting for 1-Year Loan Prime Rate and 5-year Loan Prime Rate.
• 21:30 (AU) RBA July Minutes.
• 21:30 (CN) China Monthly Loan Prime Rate Setting (LPR).
• 23:30 (HK) Hong Kong to sell 3-month and 6-month Bills.
• 22:30 (JP) Japan to sell 6-Month Bills.

My Oil trade has been more than 400-500 pips in profit as the move happened exactly as planned. I went against the big majority of long traders and it is paying off now.

Historical selling has been aligned with the present moment. Shorting above the 73.50 zone has been an excellent way to position as the market is bearish now. 69.00 is support. If we see a daily close below, we will probably reach the next support 65.00 and 64.03. Enjoy the profits.

Bitcoin could be due to rebound this week as sellers have failed to gain traction below the lower daily Bollinger Band, despite numerous attempts. The Stochastic indicator is also extremely oversold on the daily time frame, meaning that the BTCUSD pair could rebound at any time. The $33,000 level is a likely bullish target, although the $35,000 resistance level is also possible.

The BTCUSD pair is only bullish while trading above the $33,000 level, key resistance is found at the $34,000 and the $35,000 levels.

If the BTCUSD pair trades below the $33,000 level, sellers may test the $31,000 and $30,000 levels.

Ripple has started to recover after falling towards the 0.5500 support level over the weekend as a bearish head and shoulders pattern played out. The XRPUSD pair may have formed an important price floor and could recover higher if Bitcoin starts to find strength this week. Negative MACD price divergence continues to warn that the XRPUSD pair could rebound to the 0.8000 level.

The XRPUSD pair is only bullish while trading above the 0.6500 level, key resistance is found at the 0.7000 and the 0.8000 levels.

If the XRPUSD pair trades below the 0.6500 level, sellers may test the 0.5800 and 0.5500 levels.