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Global stocks declined sharply as investors started worrying about growth. In the United States, the Dow Jones, S&P 500, and Nasdaq 100 indices declined by more than 0.70%. Similarly, in Europe, the DAX and FTSE 100 indices declined by more than 1%. The decline contrasted with what happened in the bond market as the benchmark 10-year yield declined to 1.276%. This yield, which influences companies and consumer borrowing costs, declined to the lowest level since February. This price action came after the latest FOMC minutes that warned about uncertainty around the economic outlook. Also, in China, the government said that it would use timely cuts in banks’ reserve ratios.

The euro rose after the European Central Bank unveiled its first strategy change in more than two decades. The bank set a new 2% inflation target and hinted that it will tolerate moves above that level. The previous target was “close to, but below, 2%.” As a result, this was interpreted to mean that the bank will leave interest rates low for longer. The bank also unveiled new plans to deal with climate change. It will achieve that by tilting its asset purchases to low-carbon industries. The euro will react to a speech by Christine Lagarde, the European Central Bank president.

The economic calendar will have several important events today. The UK will publish the latest GDP, manufacturing and industrial production, trade, and construction output data. Analysts expect that these numbers made some improvement in May as the UK continued to reopen its economy. The Norwegian statistics agency will publish the latest inflation data while the Fed will publish its monetary policy report. Most importantly, Canada will publish the latest employment numbers. Economists expect that the economy created 195k jobs while the unemployment change declined to 7.7%.

EURUSD

The EURUSD pair rose to 1.1836 after the latest ECB strategy release. On the four-hour chart, the pair has formed a descending channel. It is currently below the upper side of this channel. It is also slightly below the 25-day moving average while the signal and histogram of the MACD are below the neutral line. The DeMarker indicator has also moved from the oversold level of 0.033 to 0.64. Therefore, the pair will likely resume the downward trend as bears target the lower side of the channel at 1.1775.

AUDUSD

The AUDUSD pair declined to 0.7400, which was the lowest level since April. As it dropped, it moved below the important support level at 0.7440. It also declined below the 25-day and 15-day moving averages and is along the lower side of the Bollinger Bands. Oscillators like the Relative Strength Index (RSI) and MACD have also declined. Therefore, the pair will likely keep falling as bears target the next key support at 0.7350.

NDX100

The Nasdaq 100 declined by more than 100 points on Thursday as the global sell-off accelerated. The index declined to $14,550, which was below the all-time high of $14,900. It is still above the short and longer-term moving averages while the MACD and Relative Strength Index (RSI) have declined. Therefore, the index will likely keep falling today and rebound next week.

Daily Pivots: (S1) 0.9101; (P) 0.9181; (R1) 0.9228; More....

Intraday bias in USD/CHF stays neutral with focus on 0.9141 support. Firm break there will argue that whole rebound from 0.8925 has completed. Intraday bias will be turned to the downside for 55 day EMA (now at 0.9121). Sustained break there will pave the way back to retest 0.8925 low. On the upside, though, break of 0.9273 will resume the rally to 0.9471 key resistance instead.

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.

Yen and Swiss Franc turn softer today as overall sentiments stabilized. US stocks once again pared back much of earlier losses overnight and closed just slightly down. Asian markets were just mixed only, with Nikkei also reversing most of earlier losses. Dollar is currently the stronger one for today, followed by commodity currencies. As for the week, however, Yen and Swiss Franc remain the best performer followed by Dollar. Canadian Dollar is the worst one, followed by Aussie and Kiwi. A focus now is whether Canadian job data could give the Loonie some much needed lifts.

Technically, the lost of downside momentum in EUR/USD is a development to note. Bullish divergence condition is clear in 4 hour MACD. Break of 1.1894 resistance will suggest short term bottoming and target 1.1974 resistance for confirmation. Meanwhile, break of 0.9141 support in USD/CHF would also indicate short term topping at 0.9273 and bring deeper fall. Such developments, if happen, could signal near term bearish reversal in the greenback.

In Asia, Nikkei closed down -0.63%. Hong Kong HSI is up 0.72%. China Shanghai SSE is down -0.04%. Singapore Strait Times is up 0.68%. Japan 10-year JGB yield is up 0.0024 at 0.030. Overnight, DOW dropped -0.75%. S&P 500 dropped -0.86%. NASDAQ dropped -0.72%. 10-year yield dropped -0.033 to 1.288.

Fed Daly: We're not through the pandemic, just getting through

San Francisco Fed President Mary Daly said in an FT interview, "I think one of the biggest risks to our global growth going forward is that we prematurely declare victory on Covid." She emphasized, "we are not through the pandemic, we are getting through the pandemic."

"If the global economy . . . can't get . . . higher rates of vaccination, really get Covid behind, then that's a headwind on US growth," Daly said. "Good numbers on the vaccinations are terrific, but look at all the pockets where that isn't yet happening."

On stimulus withdrawal, she said, "we're ready to taper at the appropriate time." But she added, "then I'd like to see, how is that going? How does the economy respond to that? Because we can forecast, we can project, but we need to know in order to actually say, 'oh, OK, now it's time to move on to the next phase', which is discussing policy normalization and the fed funds rate coming up a bit."

UK GDP grew 0.8% mom in May, still -3.1% below pre-pandemic level

UK GDP grew 0.8% mom in May, well below expectation of 1.9% mom. That's still the fourth consecutive month of growth. Service sector grew 0.9% mom. Production grew 0.8% mom, returned to growth. Manufacturing contracted -0.1% mom. Construction contracted for a second consecutive month, by -0.8% mom.

Overall GDP was still -3.1% below pre-pandemic level seen in February 2020. Services was -3.4% low, production -2.6% lower, while manufacturing was -3.0% lower. But construction was 0.3% above the pre-pandemic level.

Elsewhere

China CPI slowed to 1.1% yoy in June, below expectation of 1.4% yoy. PPI slowed to 8.8% yoy, matched expectations. UK will also release trade balance today. Canada employment will be a major focus.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9101; (P) 0.9181; (R1) 0.9228; More....

Intraday bias in USD/CHF stays neutral with focus on 0.9141 support. Firm break there will argue that whole rebound from 0.8925 has completed. Intraday bias will be turned to the downside for 55 day EMA (now at 0.9121). Sustained break there will pave the way back to retest 0.8925 low. On the upside, though, break of 0.9273 will resume the rally to 0.9471 key resistance instead.

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.

Economic Indicators Update

UK GDP grew 0.8% mom in May, well below expectation of 1.9% mom. That's still the fourth consecutive month of growth. Service sector grew 0.9% mom. Production grew 0.8% mom, returned to growth. Manufacturing contracted -0.1% mom. Construction contracted for a second consecutive month, by -0.8% mom.

Overall GDP was still -3.1% below pre-pandemic level seen in February 2020. Services was -3.4% low, production -2.6% lower, while manufacturing was -3.0% lower. But construction was 0.3% above the pre-pandemic level.

Full release here.

Upside risks dominated the EUR/USD currency pair on Thursday. As a result, the common European currency rose by 77 pips or 0.65% against the US Dollar during Thursday's trading session.

The exchange rate is currently trading near the upper boundary of a descending channel pattern and could be set for a breakout.

If the breakout occurs, a surge towards the 1.1920 area could be expected within this session.

However, if the channel pattern holds, sellers could target the weekly support level at 1.1801 during the following trading session.

On Thursday, the British Pound fell by 51 pips or 0.36% against the US Dollar. The currency pair was pressured lower by the 55– hour simple moving average during Thursday's trading session.

Given that the 55-, 100– and 200– hour SMAs are above the price level, bearish traders could continue to drive the exchange rate lower during the following trading session.

However, the GBP/USD currency exchange rate might find support at 1.3733 within this session.

Downside risks pressured the US Dollar lower against the Japanese Yen on Thursday. AS a result, the USD/JPY currency pair fell by 112 pips or 1.01% during Thursday's trading session.

By and large, the exchange rate is likely to continue to edge lower during the following trading session. The potential target for bearish traders will be near the 109.00 level.

However, the currency exchange rate could find support near the Fibonacci retracement level at 109.55 within this session.

The yellow metal plunged by 208 pips or 1.14% against the US Dollar on Thursday. The decline was stopped by the 100– hour simple moving average during Thursday's trading session.

Currently, the commodity is trading near the lower boundary of an ascending channel pattern and could be set for a breakout.

If the breakout occurs, a decline towards the 200– hour SMA at 1785.6 could be expected within this session.

However, if the ascending channel pattern holds, buyers might aim at the 1830.00 level today.

Markets

PBOC RRR cut rumours and the resulting risk-off were yesterday’s main drivers, totally eclipsing the ECB’s strategy review announcement. Stocks tumbled more than 2% in Europe as lingering growth concerns reached a culmination point. US stocks shed more than 1.5% in early trading but an intraday recovery capped losses at less than 1% eventually. We saw a similar pattern in core bond yields as well. Long tenors first tanked 4 (Germany) to 6 (US) bps only to pare losses as some calm returned. The US curve bull steepened with markets further pricing out Fed rate hikes, pushing yields 2.1 bps to 3.7 bps lower in the 2y-5y segment. The decline in the 10y and 30y eased with losses of ‘only’ 2.3 bps and 1.1 bps and were, unlike previously, driven by faltering inflation expectations. The German curve fully reversed an initial bull flattening to finish unchanged. The euro shook off an ugly two days and excelled along with safe havens including the yen and Swiss Franc. That happened even before panic on bond markets ebbed away. EUR/USD rebounded from south of 1.18 to close at 1.1845. USD/JPY slid to below 110. Euro strength and minor sterling weakness propelled EUR/GBP from the 0.855 June support area towards but below 0.86.

Core bond yields hold up pretty well during Asian dealings after more or less stabilizing yesterday. US yields rebound almost 4 bps, confirming (for now) the hammer candlestick painted on the technical charts yesterday. Equity sentiment remains fragile though with most indices in the red. SK underperforms after imposing stricter corona measures. Other news is limited to Chinese inflation figures (cf. infra). The dollar is strengthening a tad, the yen lags.

In absence of a meaningful economic calendar, general sentiment will be in the driver’s seat once more. We have to watch our words but it looks like the outright panic and aggressive bond repositioning of earlier this week might ease. We’ll be looking for the start of some bottoming. First resistance lies at 1.35% for the US 10y and -0.3019% followed by -0.287% for the German variant. While EUR/USD’s downside still eyes fragile from a technical point of view, we assume the overall easing of market tensions to provide at least some protection if not more. This week’s low at 1.1782 in any case must hold to call off the immediate downside alert. The bickering between the UK and the EU doesn’t ever stop it seems. Earlier it was about the NI protocol, now it’s about the money the UK would pay the EU related to commitments made when it was still a member state. Both had an agreement in the so-called divorce bill though the EU suggested the due amount has risen. For the moment, sterling doesn’t really care and the issue probably won’t break the EUR/GBP stalemate either. The pair remains trapped in a protracted downward channel.

News headlines

The National Bank of Poland kept its policy rate unchanged at 0.1%. The NBP will continue to buy government securities. The policy statement was similar to last month’s. Annual inflation will probably stay above the upper band for deviations from the inflation target (2.5% +/- 1.0%) in the coming months. However, an important part of this rise is seen as temporary and due to factors that are beyond control of monetary policy. At the same time, growth and inflation projections were upwardly revised from March. Growth for the years 2021/23 is seen near 5%. While keeping an optimistic tone on growth, the NBP still mentions that the pace of the recovery will depend on further developments of the zloty. Interventions remain a policy option. The NBP didn’t give hints on policy normalization, but given high inflation and strong growth, conditions might evolve. Next forecasts are available at the November policy meeting. The zloty yesterday weakened toward EUR/PLN 4.55, but that was mainly due to the global risk-off.

Chinese price data published this morning showed a tentative easing of the inflationary momentum. June producer prices eased from to 8.8% from 9.0% in May as policies to ensure the supply and stabilize commodity prices began to take effect. Consumer price inflation slowed from 1.3% to 1.1%. Food prices contributed to the decline. Non-food prices and fuel prices fueled to inflationary pressures. Core inflation was 0.9% Y/Y (unchanged from May) and shows limited pass-through effects from producer price to end users.

Technical analysis

The price lies between EMA(50) and EMA(100)

EMA(50) is higher than EMA(100), which is advantageous for bulls

The RSI is slightly above 50, showing a potential uprise

The MACD signal line is above 0, indicating a decline.

What the possible outcomes are

EURUSD sharply recovered from 1.17800 to 1.18600 and now consolidates at 1.18300. The greenback kept its sustained strength. Meanwhile, the ECB officials statement about the new monetary policy strategy gave the currency pair room to rise.

Bulls may target the 1.18695 resistance level. If this happens, the uptrend may extend to 1.19059.

Contrarily, if the price fails to break the resistance level of 1.18695, it may slide down the support level of 1.18032, with the next support level lying at 1.17659.

Key levels

Support 1.18032 1.17659

Resistance 1.18695 1.19059