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Markets

Markets started slow but after all constructive to the new trading week, with bonds and equities closing in green. Upcoming event risk (French confidence vote a.o.) for now didn’t spoil the game. US interest rate markets facilitated a further easing of global financing conditions, with today’s BLS benchmark revision for the US payrolls a potential catalyst for more aggressive Fed easing. The US yield curve in a nice bull flattening move eased between 2.3 bps (2-y) and 6.7 bps (30-y). Fiscal worries/risk premia have subsided a bit, at least for now. EMU/German yields followed this trend, albeit at a distance as the ECB has ended its easing cycle. Bund yields declined between 0.3 bps (2-y) and 3.3 bps (30-y). The French-German 10-y spread was unchanged (77 bps), slightly off last week’s peak levels. After the close of European markets, French PM Bayrou as expected lost the confidence vote in Parliament over his budget plans, highlighting the political stalemate. However, for now, markets apparently feel no need to push French risk premia even wider as long as president Macron doesn’t call new snap elections. Short-term, Friday’s rating review by Fitch (AA- with negative outlook) still might cause some additional jitters. The global easing of financing conditions also supported equites (Nasdaq +0.45%, EuroStoxx 50 +0.84%). On FX markets, the dollar on Friday only lost modest ground in the wake of much weaker than expected payrolls. Still, losses were extended in yesterday’s ‘risk-on’ context. DXY (Close 97.45) is at risk of slipping below the July/August lows near 97.55. Dollar weakness also dominated in the EUR/USD cross rate, with the pair drifting higher in the 1.17 big figure (close 1.1763).

Today’s eco calendar is thin. European markets will keep an eye on how French president Macron manages the political crisis. In the US, NFIB small business confidence is interesting when assessing the broader picture on the US economy, but no market mover. The market focus will be on the BLS benchmark revision of the US payrolls’ statistics. Consensus sees a potential downward revision of US payrolls in the year up to March 2025 by 700K. Whatever the number, the report probably will indicate a much weaker starting point as the Fed is embarking for a next phase in its policy normalization process. This might cause the central bank to add further weight to labour market conditions and raise expectations on accelerated easing. The US 2-y yield has downward potential towards a neutral 3% and also trigger further USD weakness. EUR/USD 1.1789 is final intermediate resistance ahead of the YTD top at 1.1829. Later today, the US Treasury starts its mid-month refinancing operation with a $58bn 3-y Note sale.

News & Views

Inflation expectations ticked up 0.1 ppt to 3.2% at the one-year-ahead horizon, the New York Fed August survey revealed yesterday. The gauge hasn’t been below 3% this year so far and the closest it got to the Fed’s 2% target since the start of 2024 was in October (2.9%). The 3-yr and 5-yr horizon expectations were unchanged at 3% and 2.9% respectively. Job market sentiment showed further cracks with the perceived probability of finding a job fell 5.8 ppt to a series low (since June 2013) of 44.9%. Consumers also find it more likely that the unemployment rate will rise one year from now (+1.7ppt to 39.1%) and that they’ll lose their jobs (+0.1 ppt to 14.5%). Income expectations remain unchanged for a second month straight (2.9%) while those for spending growth rose marginally to 5%.

Data from the US Treasury Department showed that India has been steadily reducing its purchases of US bonds. Investment in June dropped to $227.4bn from $235.3bn in May and around $242bn a year ago. India’s central bank (RBI) has also increased the amount of gold reserves, other data revealed. The country’s finance minister said last week the RBI was taking a “very considered decision” to diversify its reserves, which are the world’s fourth-largest. The moves are seen as geopolitically inspired and happen against the backdrop of a trade dispute with the US. The latter in August imposed a 50% levy on Indian exports, with half of that being a penalty for buying Russian oil..

Daily Pivots: (S1) 199.34; (P) 199.85; (R1) 200.32; More...

GBP/JPY failed to break through 200.26 resistance decisively and retreated. Intraday bias remains neutral first. Further rise is expected as long as 197.93 support holds. Firm break of 200.26 resistance will resume the rally from 184.35 to 100% projection of 180.00 to 199.79 from 184.35 at 204.14. On the downside, however, break of 197.93 support will turn bias to the downside for 195.01 support next.

In the bigger picture, price actions from 208.09 (2024 high) are seen as a correction to rally from 123.94 (2020 low). The pattern might still extend with another falling leg. But in that case, strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. Meanwhile, decisive break of 208.09 will confirm long term up trend resumption.

Daily Pivots: (S1) 173.10; (P) 173.50; (R1) 173.94; More...

EUR/JPY failed to break through 173.87 resistance decisively and retreated. Intraday bias is turned neutral first. Some consolidations could be seen first. On the upside, firm break of 173.87 will resume larger rise to retest 175.41 key resistance. On the downside, though, break of 172.47 support will extend the corrective pattern from 173.87 with another falling leg, before rally resumption.

In the bigger picture, current rally from 154.77 is still tentatively seen as resuming the larger up trend. Firm break of 175.41 (2024 high) will confirm and target 61.8% projection of 124.37 to 175.41 from 154.77 at 186.31. However, sustained break of 38.2% retracement of 161.06 to 173.87 at 168.97 will delay this bullish case, and probably extend the correction from 175.41 with another fall.

Daily Pivots: (S1) 0.8670; (P) 0.8678; (R1) 0.8693; More...

No change in EUR/GBP's outlook. Intraday bias stays neutral and further rise is mildly in favor with 0.8636 minor support intact. On the upside above 0.8711 will bring retest of 0.8752 high. However, break of 0.8636 will extend the pattern from 0.88752 with another falling leg, and target 0.8959 support.

In the bigger picture, the structure from 0.8221 medium term bottom are not impulsive enough to suggest that it's reversing the down trend from 0.9267 (2022 high). But even if it's a correction, further rise could still be seen to 61.8% retracement of 0.9267 to 0.8221 at 0.8867. Nevertheless, sustained trading below 55 W EMA (now at 0.8519) will argue that the pattern has completed and bring retest of 0.8221 low.

Daily Pivots: (S1) 1.7792; (P) 1.7840; (R1) 1.7892; More...

EUR/AUD is still struggling to sustain below 38.2% retracement of 1.7245 to 1.8155 at 1.7807 and intraday bias stays neutral first. Firm break of 1.7807 will should confirm that whole rise from 1.7245 has completed at 1.8155. Corrective pattern from 1.8554 should then be in its third leg. Further decline should be seen to 61.8% retracement at 1.7593. On the upside, break of 1.7932 resistance will retain near term bullishness and bring retest of 1.8155 resistance instead.

In the bigger picture, price actions from 1.8554 medium term top are seen as a corrective pattern. Such pattern could extend further with another falling leg. But even in that case, downside should be contained by 38.2% retracement of 1.4281 (2022 low) to 1.8554 at 1.6922 to bring rebound. Uptrend from 1.4281 is expected to resume at a later stage.

Daily Pivots: (S1) 0.9313; (P) 0.9338; (R1) 0.9358; More....

Intraday bias in EUR/CHF remains on the downside at this point. Firm break of 0.9317 would resume the decline from 0.9452. That would also solidify the bearish case that corrective pattern from 0.9218 has completed with three waves up to 0.9452 already. Deeper fall should then be seen to 0.9265 support, and then 0.9204 low. On the upside, above 0.9359 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 0.9394 resistance holds, in case of recovery.

In the bigger picture, the down trend from 0.9204 (2018 high) might still be in progress considering that EUR/CHF is staying well inside the long term falling channel. However, with bullish convergence condition in W MACD, downside potential should be limited in case of another fall. Instead, firm break of 0.9660 resistance will be an important sign of medium term bullish trend reversal.

Daily Pivots: (S1) 1.3779; (P) 1.3812; (R1) 1.3836; More...

Intraday bias in USD/CAD is turned neutral again with current retreat. On the upside, firm break of 13.923 resistance will resume whole corrective rebound from 1.3538. However, sustained break of 1.3725 will argue that the rebound has completed at 1.3923, and turn near term outlook bearish.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 cluster resistance (38.2% retracement of 1.4791 to 1.3538 at 1.4017) holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.

Daily Pivots: (S1) 0.6559; (P) 0.6579; (R1) 0.6612; More...

Intraday bias in AUD/USD remains on the upside for retesting 0.6624 high. Firm break there will resume larger rally from 0.5913 to 0.6713 fibonacci level. On the downside, below 0.6580 minor support will turn intraday bias neutral first. But risk will stay on the upside as long as 0.6500 support holds, in case of retreat.

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. While stronger rally cannot be ruled out, outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Nevertheless, considering bullish convergence condition in W MACD, even in case of another fall through 0.5913, downside should be contained above 0.5506 (2020 low).

Daily Pivots: (S1) 147.05; (P) 147.82; (R1) 148.29; More...

Range trading continues in USD/JPY and intraday bias stays neutral. On the downside, break of 146.65 will suggest that fall from 150.90 is resuming. More importantly, sustained trading below 55 D EMA (now at 147.15) will argue that whole rebound from 139.87 has completed with three waves up to 150.90. Deeper decline should then be seen to 142.66 support next. However, break of 149.12 will turn bias back to the upside for retesting 150.90.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). Decisive break of 61.8% retracement of 158.86 to 139.87 at 151.22 will argue that it has already completed with three waves at 139.87. Larger up trend might then be ready to resume through 161.94 high. In case the corrective pattern extends with another fall, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.

Daily Pivots: (S1) 0.7908; (P) 0.7952; (R1) 0.7976; More….

USD/CHF's decline is in progress and intraday bias stays on the downside for retesting 0.7871 low. Firm break there will resume larger down trend. Next target is 61.8% projection of 0.8475 to 0.7871 from 0.8170 at 0.7797. On the upside, above 0.7984 resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 0.8071 resistance holds, in case of recovery.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8475 resistance holds.