EUR/USD: It was a subdued session for EUR/USD—as well as other major currency pairs—on Wednesday as investors brace for the beginning of the Jackson Hole Symposium, held for three days. We also look forward to the US Q2 GDP print today, although it is expected to remain unchanged at -0.9 per cent. The technical environment on the bigger picture remains toying with support: weekly support in the shape of a 1.272% Fibonacci projection at $0.9925 (alternate AB=CD bullish formation), a daily support coming in from $0.9919, and the daily chart’s relative strength index (RSI) shaking hands with indicator trendline resistance-turned-support (drawn from the high 58.91), situated just ahead of oversold territory. While the noted supports offer technical confluence, direction in this market continues to favour sellers. The currency pair has chalked up a dominant primary bear trend since pencilling in a top around $1.2350 in early 2021. Secondary trends, as you can see, have been short-lived, though provided willing sellers ample opportunity to get involved. If the weekly timeframe steps under $0.9925, limited (obvious) support is not visible until $0.9606, while the daily timeframe’s downside support target rests at $0.9668 (Quasimodo support). Meanwhile on the H4 timeframe, buyers and sellers are seen battling for position between H4 Quasimodo support-turned resistance at $0.9998 and the bearish pennant pattern’s profit objective drawn at $0.9928. Drilling lower to the H1 timeframe, however, price has discovered willing sellers at the lower side of parity ($1.00), with $0.99 still calling for attention as support, and H1 resistance seen above at $1.0046. This is the lowest the euro has been against the US dollar since 2002, and now the euro is WORTH LESS than the US dollar. Technical Expectation: I noted the following in Wednesday’s technical briefing, and given the lacklustre performance on Wednesday, the analysis remains valid heading into Thursday’ sessions (italics): It’s an interesting situation for the EUR/USD currently. On the one hand, the currency pair has been entrenched within a dominantly bearish downtrend since the beginning of 2021, yet on the other hand, support emerged from weekly, daily and H4 timeframes and, for now, has offered a floor to work with. I feel attention, therefore, will be directed to $1.00 on the H1 scale. As highlighted above, price on the H1 chart is retesting the underside of the noted psychological figure. Sellers defending this number places a question mark on the higher timeframe supports and essentially trades in line with the overall downtrend (and could be viewed as a bearish cue back to $0.99). A break above $1.00, nonetheless, signals bullish strength and reinforces current support structure, opening the door to short-term breakout buying opportunities towards H1 resistance at $1.0046. AUD/USD: The Australian dollar eked out modest losses against the buck on Wednesday, yet doing little in the way of damage to higher timeframe technical structure. The daily timeframe’s support at $0.6901 continues to welcome price movement as buyers and sellers square off for position. I noted the following in Wednesday’s report regarding the daily and weekly structure (italics): Buyers gaining ground here shines the technical spotlight on the 200-day simple moving average, currently circling $0.7133 (accompanied by a 50.0% retracement value at $0.7167 and a 78.6% Fibonacci retracement at $0.7156). Assuming buyers lack fuel above $0.6901, this swings the pendulum in favour of reaching trendline resistance-turned support, drawn from the high $0.7661, as well as support at $0.6678. Interestingly, the daily chart’s relative strength index (RSI) is testing space just under the 50.00 centreline (resistance). Until we breach this value, this timeframe (according to the indicator) reflects negative momentum. The weekly timeframe’s support likely remains on the radar for longer-term players between $0.6632 and $0.6763, built from a 100% Fibonacci projection, horizontal price support, and a 50% retracement. This follow’s last week’s 3.5 per cent tumble, in a market that’s been entrenched within a primary bear trend since $0.8007 (22nd Feb high [2021]). Leaving prime resistance at $0.7004-0.6972 unchallenged on the H4 chart, supply-turned demand at $0.6901-0.6862 is under pressure once again. Overthrowing the aforementioned demand zone unearths prime support from $0.6774-0.6815. From the H1 timeframe, price reclaimed $0.69+ territory during the early hours of US trading on Wednesday; resistance is seen between Quasimodo resistance at $0.6961 and resistance from $0.6947. Assuming a lack of grip above $0.69, dropping to Quasimodo resistance-turned support at $0.6843 could unfold. Technical Expectation: With the overall trend facing southbound (in spite of daily price climbing above resistance at $0.6901) and the H4 supply-turned demand at $0.6901-0.6862 echoing weakness (the recent rebound from here failed to reach H4 prime resistance at $0.7004-0.6972), this places a bold question mark on buyers holding ground north of $0.69 on the H1 timeframe. As a result, a close back under $0.69 could be viewed as a cue to begin seeking bearish...

The annual Jackson Hole Economic Symposium is scheduled for August 25-27. Fed Chair Jerome Powell could use his speech to double down on the hawkish stance. US dollar set to rock on Powell’s pivot predictions on policy tightening as inflation rages on. The US dollar made another attempt to take on the two-decade peak heading into the Jackson Hole  Symposium, which is crucial for the market’s pricing of the Fed’s rate hike expectations in the coming months. Will Fed Chair Jerome Powell’s speech provide additional legs to the dollar rally? Jackson Hole Economic Symposium: Overview The Federal Reserve Bank (Fed) of Kansas City has been organizing an annual economic policy symposium in Jackson Hole, Wyoming, since 1978. The Kansas City Fed hosts a number of central bankers, academics and economists from all around the world and central bankers have taken the opportunity to direct their monetary policy at this Summit. It’s worth mentioning that in 2020, Powell announced the incorporation of the new average inflation targeting (AIT) framework into the Fed's forecasts. This year’s event  is held from August 25 to August 27, with the main theme centered on "Reassessing Constraints on the Economy and Policy."  What to expect from Fed Chair Powell? A week ahead of the much-awaited Fed’s Jackhole Sympoisum, markets repriced expectations of an outsized rate hike as early as next month, triggering an impressive recovery in the US dollar as well as the Treasury yields. Softer US inflation, earlier this month, had doused hopes for a 75 bps September Fed rate hike despite outstanding Nonfarm Payrolls. With renewed hawkish expectations surrounding the Fed’s tightening path, benchmark 10-year Treasury yields recaptured the 3% level while the US dollar index tested the 19-year high of 109.29 on Tuesday. Powell’s keynote address, scheduled on Friday, is eagerly awaited by traders, as his speech will be closely examined for fresh signals on the policy outlook. Economists widely expected Powell to reiterate that “the Fed’s commitment to controlling inflation will require an extended period of restrictive policy and thus below-potential growth and higher unemployment.” Also, Powell could use his speech to push back expectations that the world’s most powerful central bank will start easing policy next year. In doing so, the Fed President will likely join the chorus of his colleagues who have recently dampened speculations of the Fed’s pivoting from its hawkish stance, despite mounting recession risks. As we progress towards the event, however, the market’s expectations of a potential super-sized rate hike next month are vaporing out, courtesy of the weak US S&P Global business PMI surveys and housing data. The same is being reflected by the CME Group’s FedWatch Tool, which now shows a 48% chance of a 75 bps September Fed rate hike, down from a 55% probability seen a day ago. Source: CME Economists at the US banking giants, Goldman Sachs and JP Morgan, now see Powell hinting at pulling the plug on aggressive Fed rate increases. JP Morgan said, “we expect the Fed to become more sensitive to softer activity dataflow now that they have moved policy rates above what was historically considered as neutral. September could be the last of the outsized Fed hikes.” Meanwhile, Goldman Sachs noted, “He is likely to balance that message by stressing that the FOMC remains committed to bringing inflation down and that upcoming policy decisions will depend on incoming data.” US dollar index: Technical outlook At the time of writing, the US dollar is looking to resume its bullish momentum against its main competitors while the 10-year Treasury yields defend the 3% level. The greenback’s fate hinges on Powell’s words, which could turn out to be more hawkish, as suggested by the bullish short-term technical structure on the daily chart. US dollar index: Daily chart Following a bullish wedge confirmed on August 15, dollar bulls have been on a roll but capped by the only hurdle at the July 14 high of 109.29. Powell could provide that much-needed push to bulls, which may prompt the buck to record a new 20-year high. The next upside target is aligned at the 109.50 psychological level before the 110.00 threshold could come into play. The dollar gauge trades well above all the major Daily Moving Averages (DMA) and the 14-day Relative Strength Index (RSI) holds firmer just beneath the overbought region, suggesting that there is more room for the upside. However, if Powell’s speech signals a slower pace of tightening in the months ahead, then that would be a serious setback to the ongoing dollar. The index could fall back towards Tuesday’s low of 108.06. The last line of defense for buyers is envisioned at 107.29. 

EUR/USD - 0.9962 Euro's break of July's 0.9953 low to a fresh 20-year trough of 0.9927 Monday confirms long term downtrend has resumed and despite staging a strong rebound from 0.9001 (Europe) to 1.0018 in New York yesterday, subsequent retreat has retained daily bearishness and below 0.9901 would yield 0.9868. On the upside, only a daily close above 1.0018 would risk stronger retracement of recent decline towards 1.0046, break, 1.0070/80. Data to be released on Wednesday U.S. MBA mortgage application, durable goods, durables ex-transport, durables ex-defense and pending home sales.

The S&P US Composite PMI™ shows a steep decline in business activity in August. Global Flash PMI courtesy of S&P. Yellow highlights and dashed line added.  Faster Fall in US Private Sector Output Amid Weak Client Demand The S&P reports a Faster Fall in US Private Sector Output Amid Weak Client Demand Flash US PMI Composite Output Index at 45.0 (July: 47.7). 27-month low. Flash US Services Business Activity Index at 44.1 (July: 47.3). 27-month low. Flash US Manufacturing Output Index at 49.3 (July: 49.5). 26-month low. Flash US Manufacturing PMI at 51.3 (July: 52.2) 25-month low. Sharp Decline  US private sector firms signaled a sharper fall in business activity during August, according to latest ‘flash’ PMI™ data from S&P Global. The decrease in output was the fastest seen since May 2020 and solid overall. The rate of contraction also outpaced anything recorded outside of the initial pandemic outbreak since the series began nearly 13- years ago.   Though modest, the drop in new orders was the sharpest in over two years. New sales were weighed down by weak domestic and foreign client demand, as new export orders fell further and at a solid pace.    The rate of input cost inflation eased for the third month running midway through the third quarter, with input prices rising at the slowest pace for a year-and-a-half. That said, the pace of increase in operating expenses remained historically marked, with firms linking hikes in cost burdens to increased interest rates, and higher prices for a range of raw materials and transportation.   Weak client demand and lower new orders led firms to scale back their hiring efforts, as employment rose at the slowest pace in 2022 to date. Although some companies continued to note challenges finding suitable replacements for voluntary leavers, a growing number of firms stated that uncertainty and rising costs led them to delay the immediate replacement of staff.   Consistent With Recession The entire report is consistent with recession, in contrast to ISM which allegedly covers the same things. On August 3, I reported ISM Services Smashes Estimates to the Upside, S&P Services Is Deeply Negative Given that the S&P PMI for services weakened further, from 47.3 to 44.1, the next ISM report rates to be interesting. Negative surprises in ISM reports tend to result in a steep dive in the Atlanta Fed GDPNow forecast.  Housing is also very consistent with recession. Note that the New Home Sales Crash Accelerates, Sales Down 12.6 Percent in July Hello Recession Doubters New home sales are down a whopping 38.5 percent since January! When have we seen housing data this week when the economy was not in recession? The S&P PMI report confirms. 

EUR/USD - 1.0032 Euro's recent decline from August's 1.0368 peak to a 1-month low of 1.0033 in New York last Friday due to broad-based usd's strength in tandem with rally in U.S. yields suggests re-test of July's 20-year bottom at 0.9953 would be seen later today or tomorrow before prospect of minor recovery. On the upside, only a daily close abovw 1.0095 would risk retracement towards 1.0123. Data to be released today U.S. national activity index and Canada new housing price index on Monday.

Europe After four weeks of gains, European markets appear to have run out of puff this week, spooked in some part perhaps by the big jumps in inflation we’ve seen in UK CPI this week, as well as this morning’s eye-watering surge in German PPI for July.   This has been another week that has seen European and UK gas prices trade at record highs, and the penny appears to have dropped that central banks’ are likely to have to go much harder on rates if they are to have any chance of getting on top of the inflation genie.   The FTSE100 is outperforming largely due to the weakness of the pound which is helping the big US dollar earners on the index, as well as a strong showing from the more defensive areas of the index, notably health care and GSK and AstraZeneca. With Just Eat shares down at 5-year lows and down over 80% from their October peaks last year the air has been slowly coming out of the online delivery sector, as higher costs and more competition eat into its margins. In April the company announced that it was considering offloading its US GrubHub business, less than a year after completing the deal for the price tag of £5.8bn. So far there doesn’t appear to have been much in the way of progress on this front, although they have bitten the bullet on it by taking a €3bn write down on it earlier this month. Today the company announced it had agreed a deal to sell its stake in Latin American online portal iFood to Prosus for an initial €1.5bn, as it looks to bolster its balance sheet further sending the shares sharply higher, while the company also reaffirmed its full year guidance. It looks like the end is in sight for Cineworld after the shares imploded again today on a Wall Street Journal report that US management are in talks to file for Chapter 11 bankruptcy in a matter of weeks. In light of this week’s announcement about its finances, this isn’t too surprising. It was clear something drastic needs to be done given its high debt levels, and in the absence of further leeway on the part of its creditors an asset sale could well be the next way to go, if bankruptcy is to be avoided. US US markets have taken their cues from the weaker European session, opening lower as concerns about the global economic outlook prompt profit taking after several weeks of gains. There still seems to be a great deal of uncertainty about the prospect of a Fed pivot and whether we’ll see one in the next few months. Given that we have Jackson Hole next week, and US policymakers have leant to the hawkish side in comments made this week, we could be starting to see some evidence of risk being taken off the table. Bed Bath and Beyond shares have fallen again today, after the GameStop chairman Ryan Cohen sold out of all of his stake that prompted the big short squeeze in the first place. GameStop shares have also slipped back as the recent enthusiasm for meme stocks that we’ve seen this month continues to deteriorate.   Agricultural machinery company Deere and Co has seen its shares slip back after revising its full year revenue outlook slightly lower. Q3 revenues rose to $14.1bn, comfortably beating estimates of $12.9bn. Profits came in below forecasts at $6.16c a share, with the company citing disruptions in supply chains, and higher costs. This has put downward pressure on operating margins, with most of the weakness in the small agriculture and turf division. Consequently, Deere has downgraded the upper end of expectations for full year income to between $7bn to $7.2bn, from $7bn to $7.4bn. The slide in bitcoin and other crypto assets is also seeing the likes of Coinbase, MicroStrategy, and Riot Blockchain all come under selling pressure.   FX The US dollar has swept all before it this week with strong gains across the board, as currency markets start to price in the prospect that the Federal Reserve is unlikely to soft pedal when it comes to raising rates heading into the end of the year. This message doesn’t appear to be cutting through when it comes to equity markets, but at some point, it will, probably at Jackson Hole next week when Fed chair Jay Powell gives his keynote speech. In the meantime, the US dollar is benefitting from the fact it has more headroom to raise rates than its peers, given its economy is in better shape than most of its peers. The pound has continued to look weak, sliding further below the 1.2000 level against the US dollar as UK consumer confidence fell to a new record...

The equity rally ran out of steam on Friday as options-related selling hit. Momentum also stalled as investor sentiment moved to more neutral readings. Short covering also slowed the latest data showed. The equity rally ran out of steam on Friday with all main indices closing in the red. The S&P 500 finished down a little over 1% while the Nasdaq lost close to 2%. The major forces at play were a stall in recent short covering and equity purchases from fund managers and hedge funds as well as a shift in sentiment readings from overly bearish to neutral. The rally has led to some strong gains across the big tech space and investors began to once more reassess the valuations. Yields have remained pretty calm which helped the rally but bets were also removed following the release of the Fed minutes and upcoming symposium at Jackson Hole.  Oil prices have continued to remain under pressure as fears over a global slowdown weigh as well as a surprising large drag from US inventories last week. Bitcoin too came under pressure as the risk-off narrative hit one of the more speculative risk assets. Bitcoin fell 10% on Friday and is now down at $21,000.  As ever the will we won't we enter recession argument continues and this has fuelled the rally also, that of recession fatigue. Everyone was expecting it and waiting for it and positioned for it. Then we got some strong employment data and slowing CPI data and a dovish Fed. This meant a reversal was perfectly set up and so it ensued. Now, much of that has changed if the latest from Goldman Sachs Prime brokerage and JPMorgan is to be believed.

Macroeconomic indicators this week pointed to further headwinds for the global economy. In the US, the New York Empire Manufacturing Index slumped to -31.3 (from 11.1) in August, the lowest level since slump after the first Covid-19 lockdown. The sharp drop was driven by weaker current conditions, while the expectations index improved slightly. The current Empire level implies US Manufacturing PMI clearly below 50, in line with what the new orders index predicted already in July. Also in Europe, there were weak indicators with the German ZEW expectations diving further during August to the lowest level since October 2008. The ZEW signals further declines in PMI ahead and increasing recession risk in the German economy, which is also our base case for the second half of this year, see Research Germany - Zeitenwende, 25 July. Our forward looking macroeconomic model, Macroscope, this week also pointed to further weakening momentum in the global economy across regions over the next six months, 18 August. On the inflation front, UK CPI inflation surprised to the upside creeping above 10% in July. The UK is thereby joining the “club” of countries, mostly in Eastern Europe and emerging markets, with double digit inflation rate. We think this highlights the need for Bank of England (BoE) to continue to frontload rate hikes, although a looming recession may curtail its hiking intentions into next year. The EUR/GBP cross initially moved lower on the back of the print, but later rebounded amid weak global risk sentiment. Another central bank that is upping its policy rate hikes is Norges Bank, which yesterday as expected carried out a 50bps rate hike. The move comes after the upward inflation surprise in July. The central bank dropped its specific forward guidance for the September meeting, just indicating that the policy rate “will most likely be raised further in September”. We expect the Bank to raise its policy rate at that meeting by 25bps against market expectation of a bigger 50bps move. In financial markets the clear winner was the USD while both equity markets and rates markets traded mostly sideways. We published our new FX Forecast Update this week, FX Forecast Update - USD to shrug off recession fears, 17 August, and see USD strength continuing with EUR/USD falling below parity over the next 12M due to Europe suffering from an energy related negative terms of trade shock and further tightening of global financial conditions. Looking into next week, a key focus will be August flash PMIs out in most western economies on Tuesday. In Europe, further declines – as also signaled by ZEW – will probably be in store, as the energy crisis is taking its toll on demand in manufacturing and services and recession fears are rising. In the US, lower gasoline prices and rebound in real incomes may support service sector demand. Look also out for the US personal expenditure data on Friday. The Jackson Hole Symposium will take place from Thursday until Saturday. Here Federal Reserve officials may outline their view on monetary policy amid a weakening economy. Download The Full Weekly Focus

Daily market outlook on major Update Time: 19 Aug 2022 09:30GMT. USD/JPY - 136.51 Dollar's intra-day rally in tandem with U.S. yields to a 2-week high of 135.49 in New York suggests re-test of Aug's 135.57 high would be forthcoming next, above would extend upmove from Aug's 130.41 7-week trough at 130.41 towards 135.96 before prospect of decline later. On the downside, only a daily close below 134.68 would prolong choppy swings and risk weakness towards 134.43, break would head to 133.92/97. Data to be released on Friday U.K. Gfk consumer confidence, Germany producer prices, U.K. PSNB GBP, PSNCR GBP, retail sales, Swiss industrial production, EU current account. Canada retail sales.

The Canadian dollar is lower for a third straight day. In the European session, USD/CAD is trading at 1.2984, up 0.29% on the day. Markets brace for soft Canadian Retail Sales The US dollar has rebounded this week against the majors, including the Canadian dollar. USD/CAD is on the verge of breaking above the 1.30 line, which has held firm since July 18th. A weak Canadian retail sales report later today could send the Canadian dollar into 130-territory. Retail sales for July is expected to slow to 0.3% MoM, down sharply from the 2.2% gain in June. Core retail sales is projected to drop to 0.9% MoM, down from 1.9%. Canadian consumers have been hit hard by the cost-of-living crisis, and a natural response has been to cut down on spending. This could prove a major headache for the economy, as domestic demand is a key driver of growth. Canada’s inflation has been heading toward double-digits, but as in the US, inflation dropped in July. Canada’s CPI slowed to 7.6% YoY, down from 8.1% in June, which marked a 40-year high. However, CPI common, a core CPI indicator, rose to 5.5% YoY in July, up from 5.3% in June. This is the Bank of Canada’s preferred gauge and means that the BoC, like the Fed, is not planning any U-turns in policy. We’ll have to wait for additional data to determine if headline inflation has peaked or whether the July release was a one-time blip. Even if inflation is easing, it is expected to fall very slowly, which means that consumers will feel the economic pain for some time to come. The BoC meets again next month, and the markets are expecting a 50 basis point increase, with a 25% of a 75bp hike. In July, the central bank surprised the markets with a super-size 100bp increase, the first G-7 country to deliver such a large rate hike in the post-Covid era. USD/CAD technical There is resistance at 1.3040 and 1.3131. USD/CAD has support at 1.2909 and 1.2818.

Following yesterday‘s weak rally and bonds showing, S&P 500 bears have the upper hand (timely announcement). Then, the crypto plunge is adding to downswing‘s credibility – about to spill over into tech. Note it didn‘t and doesn‘t take much of a dollar upswing – continuing the rise is enough. Yesterday‘s positive economic data are to be overshadowed by the Fed pronouncements sinking in. Yes, Daly, Kashkari spoke, even mentioning recession uncertainty… And it‘s clear we‘re likely to face quite some tightening ahead, more so than the markets are discounting – and any swift moves in inflation, are faciliated by economic contraction. The bull trap has been set. Next week won‘t be much better – I‘m looking for grim German PMIs Tuesday, challenged GDP readings on Thursday, and especially the hawkish Jackson Hole. It should be becoming increasingly clear that the risk-on rally is to meet serious reality check, and that lower stock (and other) market data are ahead. The sentiment of my Wednesday‘s recap of deteriorating economy, is to set the tone – and thankfully won‘t be as bad as the German persistently high PPI. Strong dollar to the rescue, a helpful tool in alleviating domestic inflation pressure in the States (yes, U.S. inflation peaked as I was advising you of in advance). To feel the daily pulse, let‘s move right into the charts – today‘s full scale article features good 6 ones. S&P 500 and Nasdaq Outlook S&P 500 bears have the initiative, and Nasdaq is likely to confirm that. Such a setup is where large downswings can be born – not guaranteed today, but quite possible. Credit Markets Fine picture in bonds for the bears – this weak daily pause is likely to give way to lower values. Tightening is putting pressure on inflation trades. Bitcoin and Ethereum The crypto break is finally here, presaging more trouble ahead still – putting to rest notions of Ethereum decoupling, at least relatively decoupling. Let the open profits grow!

Following yesterday‘s weak rally and bonds showing, S&P 500 bears have the upper hand (timely announcement). Then, the crypto plunge is adding to downswing‘s credibility – about to spill over into tech. Note it didn‘t and doesn‘t take much of a dollar upswing – continuing the rise is enough. Yesterday‘s positive economic data are to be overshadowed by the Fed pronouncements sinking in. Yes, Daly, Kashkari spoke, even mentioning recession uncertainty… And it‘s clear we‘re likely to face quite some tightening ahead, more so than the markets are discounting – and any swift moves in inflation, are faciliated by economic contraction. The bull trap has been set. Next week won‘t be much better – I‘m looking for grim German PMIs Tuesday, challenged GDP readings on Thursday, and especially the hawkish Jackson Hole. It should be becoming increasingly clear that the risk-on rally is to meet serious reality check, and that lower stock (and other) market data are ahead. The sentiment of my Wednesday‘s recap of deteriorating economy, is to set the tone – and thankfully won‘t be as bad as the German persistently high PPI. Strong dollar to the rescue, a helpful tool in alleviating domestic inflation pressure in the States (yes, U.S. inflation peaked as I was advising you of in advance). S&P 500 and Nasdaq outlook S&P 500 bears have the initiative, and Nasdaq is likely to confirm that. Such a setup is where large downswings can be born – not guaranteed today, but quite possible. Credit markets Fine picture in bonds for the bears – this weak daily pause is likely to give way to lower values. Tightening is putting pressure on inflation trades. Bitcoin and Ethereum The crypto break is finally here, presaging more trouble ahead still – putting to rest notions of Ethereum decoupling, at least relatively decoupling. Let the open profits grow!