Currency Pairs Market Analysis

[Solid ECN]

Chart of the Day - Wheat

In terms of market-moving news, this past weekend has been very calm with neither politicians, nor central bankers delivering any significant comments. However, recent developments in the Russia-Ukraine war are pushing wheat as well as crude prices higher at the beginning of this week.

Russia has intensified shelling of Ukrainian ports after withdrawing from the Black Sea grain export agreement. Also, attacks of Ukrainian maritime drones on Russian Navy vessels have become more frequent recently. It was reported that apart from Russian Navy warships, a Russian oil tanker was also targeted this past weekend. This has led to a small jump in oil prices at the beginning of new week's trade as investors fear that it may limit Russia's ability to export its crude via Black Sea. However, it also means that return to the Black Sea grain export deal may be harder as hostilities at sea are picking up. As a result, we are observing an over-3% jump in wheat prices today.

Taking a look at WHEAT at D1 interval, we can see that the commodity has recently made another failed attempt at breaking above the 765 cents per bushel resistance zone. Price pulled back later on and declines were once again halted at the 625 cents per bushel support zone. Price is trying to bounce off this area today. A near-term resistance zone to watch can be found ranging around 665 cents per bushel, marked with previous price reactions as well as 50-session moving average (green line). However, if bulls fail to maintain control over the market and the price breaks below the aforementioned 625 support, a deeper drop may be looming. This is because the zone marks the neckline of a double top pattern. A break below the neckline would confirm the pattern and may trigger a drop with a textbook target range of 475 cents per bushel.​

 

[Solid ECN]

Chart of the Day - USDJPY

The Bank of Japan (BoJ) clarified that its recent yield curve adjustment, announced on July 28th, was intended to sustain the current loose monetary policy rather than indicate policy normalization. The BoJ allowed the 10-year Japanese Government Bond yield to trade above 0.5% in a flexible manner, deviating from a strict cap approach. Despite global anticipation of policy normalization due to rising wages and inflation, the BoJ remains cautious, questioning whether inflation's rise is demand-driven and durable enough to exceed 2%, indicating that a shift in policy direction is not imminent.

USDJPY currency pair rises as the US dollar is recovering from losses experienced toward the end of the previous week. The positive momentum in the 10-year US treasury yield is playing a role in bolstering the dollar's performance, despite a retracement on Friday that didn't fully negate the broader upward trend. Investors are eagerly awaiting the upcoming release of the US Consumer Price Index (CPI), which is anticipated to be higher than the last month figures and expected to reach 3.3% Y/Y and core inflation to be the same as previous month at 4.8% Y/Y.

USDJPY currency pair is currently trading at 143.1, indicating a 0.43% increase for the day. The price recently found support at the level of 137.8 and has been steadily advancing since then. The next key target level is the previous local high at 145, which is anticipated to act as a significant resistance level. However, if the price fails to breach this level, a potential downward move to the levels of 143 or 140.4 could be anticipated.​

 

[Solid ECN]

AUDUSD - Chart of the day

The Australian dollar is one of the worst performing G10 currencies today. AUD is underperforming following the rate decision of the People's Bank of China. PBoC announced a 10 basis point cut to 1-year lending rate, to 3.45%, and decided to keep the 5-year rate unchanged at 4.20%. This was a disappointment as economists hoped that PBoC would decide on 15 basis point cuts to both 1- and 5-year rates. These expectations were propped up further over the weekend by reports saying that officials from People's Bank of China and Chinese financial market regulator met with Chinese bank executives and asked them to boost credit action in order to support economic recovery.

Decision made Chinese equities clear underperformers during today's Asia-Pacific trading session. However, it has also had a negative impact on Antipodean currencies with AUD and NZD being clear laggards among G10 currencies during the Asian session. This should not come as a surprise, especially in case of AUD, as China is a key trading partner for Antipodean countries.

Taking a look at AUDUSD chart at F1 interval, we can see that the pair has recently broken below the lower limit of the trading range, marked with 61.8% retracement of the upward impulse launched in October 2022. AUDUSD continued to move lower until the decline was halted at the 0.6400 support zone. While sellers fail to break below this hurdle, buyers also struggle to regain control and the pair continues to trade in the 0.6400 area. However, should we finally see a break below this zone, a downward move may deepen towards the textbook range of the breakout from the aforementioned trading range, which is around 0.6250.​

 

[Solid ECN]

Economic Calendar: Second-tier US Data, Speaches from Fed members​

• European indices set for higher opening.​
• Second-tier data from the United States​
• Possible decision on Grayscale Bitcoin ETF​

Index futures point to a higher opening of the European cash session today. This comes after solid performance of tech shares fuelled gains on S&P 500 and Nasdaq during the Wall Street session yesterday and later on regional indices during the Asia-Pacific session as well. These gains come in spite of a renewed sell-off on US Treasuries market, which led 10-year yields to 16-year highs above 4.30%.

Economic calendar for the day ahead is light. Traders will be offered second-tier data from Poland and the United States. Some USD volatility may be present around 3:00 pm BST when existing home sales data for July and Richmond Fed index for August will be released. USD volatility may also be present during speeches from Fed members Barkin, Goolsebee & Bowman. Oil traders will focus on API report on inventories, which is expected to show a big draw but smaller than last week.

Also, SEC decision on Grayscale's application to convert its Bitcoin Trust into Bitcoin Exchange-Trade Fund (ETF) is expected today, somewhere around 4:00 pm BST. However, it should be said that the timing is tentative and that the SEC has already delayed the decision twice so it may not even be announced today. Nevertheless, positive ruling could give cryptocurrencies a boost so it is worth watching.​

• 9:00 am BST - Poland, retail sales for July. Expected: 2.5% YoY. Previous: 2.1% YoY​
• 3:00 pm BST - US, existing home sales for July. Expected: 4.15 million. Previous: 4.16 million​
• 3:00 pm BST - US, Richmond Fed index for August. Expected: -8. Previous: -9​
• 9:40 pm BST - API report on US oil inventories. Expected: -2.9 mb. Previous: -6.19 mb​

Central bankers' speeches​

• 12:30 pm BST - Fed Barkin​
• 7:30 pm BST - Fed Goolsebee​
• 8:30 am BST - Fed Goolsebee & Bowman​

 

[Solid ECN]

USDTRY Surges After Massive Interest Hike

Central Bank of Republic of Turkey (CBRT) announced its latest monetary policy decision today at 12:00 pm BST. CBRT was expected to deliver a 250 basis points rate hike, bring the 1-week repo rate to 20.00%. However, the actual hike turned out to be much bigger than expected with 1-week repo rate being hiked to 25%!

Turkish lira surged following the decision as it looks like new Turkish monetary authorities are indeed taking inflation fight seriously. Increase in underlying inflation trend was given as a reason behind such a massive hike. USDTRY and EURTRY plunged more than 2% following the decision.

USDTRY plunged after a bigger-than-expected CBRT rate hike and is attempting to break below the 50-session moving average (green line).​

 

[Solid ECN]

EURUSD

The value of the EURUSD is at a 2.5-month low as people wait for speeches from Christine Lagarde, the President of the European Central Bank, and Jerome Powell, the Chairman of the Federal Reserve. The US economy is doing well and there are no signs of a recession, which makes the US Dollar stronger and the Euro weaker.​

• Earlier in the day, Joachim Nagel from the European Central Bank and Boris Vujčić from the Croatian National Bank said that they think interest rates should stay high. However, there are concerns that the economy might slow down, which could mean that interest rates will have to be lowered.​
• In the US, James Bullard and Susan Collins from the Federal Reserve said that they think interest rates should stay high. Patrick Harker from the Federal Reserve in Philadelphia said that interest rates might not go up anymore.​
• The value of US government bonds is going up, which makes the US Dollar stronger. People think that Jerome Powell will say that interest rates will stay high for a long time.​
• The US economy is doing well. There are more orders for durable goods and more jobs. This makes the US Dollar stronger.​
• The value of the US Dollar is at its highest since June 07. The value of stocks is going down. The interest rate on 10-year US government bonds is going up.​
• In Germany, there will be new information about how well the economy did in the second quarter of this year. There will also be new information about how people feel about the economy. This will affect the value of the Euro compared to the US Dollar.​

Speeches from Christine Lagarde and Jerome Powell will be important to watch.

In technical analysis, if the value of the Euro compared to the US Dollar goes below 1.0765, it could decline more. If it doesn't break the 1.0765 barrier, it could return to 1.0805.​

 

[Solid ECN]

Chart of the Day - CNH Cash

Chinese equities were outperformers during today's Asia-Pacific session and there was a good reason behind this outperformance. A number of measures was announced over the weekend by Chinese authorities with an aim of supporting domestic equity markets. Those measures include:​

• Halving stamp tax on securities trading (from 0.10% to 0.05%).​
• Relaxing deposit requirements while trading at margin (from 100 to 80%).​
• Imposing limits on stock selling by some institutions.​

While the first two measures listed are clearly positive for stock markets and have a potential to boost liquidity as well as encourage more investors to trade, the impact of the third measure is not so simple. Of course, putting restrictions on stock selling by major shareholders will reduce downward pressure on prices but it is a short-term measure. After all, putting restrictions on how investors can manage their portfolios is not a move that inspires confidence. It looks like that after an initial euphoria, the market seems to have realized it and started to shed gains.

Taking a look at Chinese index CHN.cash chart at H4 interval, we can see that the index launched today's trading with a big bullish price gap (over 3.5%) and traded near the downward trendline at the start of today's trading. However, no breakout above the trendline occurred and gains started to be trimmed after session launch. Price dropped back below the 6,300-pts price zone and reduced daily gain to below 1%. The key question now is whether the sell-off will continue and the stock drops below the 6,150-pts zone.​

 

[Solid ECN]

Fundamental Outlook

The US dollar has risen slightly after a strong run, but traders are waiting for more economic data before making any big bets. The Japanese yen, on the other hand, is near levels that triggered intervention last year.

The dollar index is up over 2% this month and has had six weeks of gains due to strong US economic data. This has led to expectations that interest rates may stay higher for longer. Federal Reserve Chairman Jerome Powell suggested that further rate increases may be needed to control inflation, but he also promised to move with care.

This week, there will be several important economic data releases, including personal consumption expenditure data and non-farm payrolls. Markets are currently pricing in a 78% chance that the Fed will not change interest rates next month, but the odds of a hike by November have increased.

In Europe, the euro zone CPI report will be released on Thursday and is expected to have a big impact on the market. The euro is currently flat at $1.081.

The yen has been under pressure due to the widening gap in interest rates between Japan and the US. The currency is currently at 146.69 per dollar, near its weakest level since November 9th. Traders are watching for any signs of intervention from Japanese authorities.

If US data continues to be strong, there could be more pressure on the yen. However, the threat of intervention has retreated at sub-150 levels due to a lack of comments from Bank of Japan Governor Kazuo Ueda and no signs of verbal intervention yet.​

 

[Solid ECN]

Euro's Recovery Hinges on Inflation Data and US PCE Price Index

The Euro is trying to recover against the US Dollar and British Pound before the release of Euro area inflation data and US core PCE price index data. The Euro area economy has had some recent positive surprises, while the US economy has been less overwhelming. However, there is a risk that activity in the Euro area could contract again due to a drop in services PMI.

The key focus is on Euro area inflation data and US core PCE price index data. If the data meets expectations, the Euro's rebound could struggle. However, if the US core PCE figure is lower than expected and the drop in Euro area inflation is smaller than expected, it could be a bonus for the Euro.

There is still resistance for the Euro to clear before its short-term outlook turns positive again. The immediate hurdle is at last week's high of 1.0930, followed by a stronger barrier at the early-August high of 1.1065. A break below 1.0500-1.0600 area is needed to pose a threat to the multi-month uptrend.​

 

[Solid ECN]

CPI in France Significantly Higher

France inflation data for August was published at 7:45 am BST time today:​

• CPI: actual 4,8% y/y; expected 4,6% y/y; previously 4,3% y/y​
• HICP: actual 5,7% y/y; expected 5,4% y/y; previously 5,1% y/y​

Inflation data came in worse than expected. France is the only country among major EU members today that was expected to publish higher CPI data. Later today, investors will be presented with HICP and HICP core inflation data from the EU. EUR is clearly appreciating after the publication and EURUSD is trading higher.

​

 

[Solid ECN]

Chart of the Day - USDCAD

This week, there have been several important reports about the economy of the United States, and more are expected. One report showed that the number of new job openings is decreasing, which means the job market is not as strong as it was. Another report showed that the growth of the US economy was lower than expected. If future reports show that the job market and economy are getting weaker, the value of the US dollar could decrease. This could also mean that the Federal Reserve will stop increasing interest rates. On the other hand, the Canadian dollar is doing well because of high oil prices and good economic data. The Canadian economy is strong, and inflation has decreased to 3.3%.

From a technical standpoint, USDCAD reacted to the key resistance zone around 1.365. This level has repeatedly thwarted growth in this currency pair in the past, and it was the same this time. If USDCAD returns to growth and breaks this level, we may see a sharp rise, at least in the short term—historically, USDCAD hasn't stayed above this level for long. Otherwise, if the current trend continues, the next support zones worth noting are 1.335 and 1.308, marked on the chart with a green line.​

 

[Solid ECN]

Chart of the Day - USDCAD

The value of the US dollar compared to the Canadian dollar (USDCAD) might change a lot today in the early afternoon. This is because two important reports will be released at 1:30 pm BST. One report is about jobs in the US for August and the other is about Canada's economy for April-June 2023. People will pay more attention to the US jobs report.

The US jobs report for August is one of the last two important reports before a meeting on September 20, 2023. The other report is about US prices for August and will be released on September 13, 2023. The jobs report today is expected to show that 170,000 more people have jobs, and that the unemployment rate and how much people earn did not change (3.5% and 4.4% more than last year). If the report shows fewer new jobs, it will mean that the job market in the US is not doing well.

For Canada, people expect that the economy grew less from April-June 2023 (1.2%) than from January-March 2023 (3.1%).

If we look at a chart of USDCAD, we can see that it is close to an important value of 1.3500. If it goes below this value, it could mean that the value of the US dollar will keep going down compared to the Canadian dollar. We will know more around 1:30 pm BST when the reports are released.​

 

[Solid ECN]

Will the Price Drop Below $25,000

Bitcoin's price is falling and is currently around $25,400. A few days ago, the price went up after Grayscale won a court case against the SEC. However, the excitement didn't last long. Major cryptocurrencies are having trouble keeping their value because there aren't enough new investors. The SEC didn't accept other applications for funds, including one from BlackRock. The next deadline for reviewing applications is in mid-October.

Technically looking at the D1 interval, Bitcoin prices recently reacted at the support level of $26,000 (slightly breaching it earlier). This level stemmed from the lower limit of a broad 1:1 pattern. According to the Overbalance methodology, defending this level could result in a move to new highs. However, the upward movement was halted at the level of the 100-day EMA, after which the price dynamically moved downward. We are currently observing another attempt to negate the 1:1 geometry. Attention should be paid to the horizontal support zone at the level of $25,300, which is currently being tested. If this level is breached, the price drop may intensify. The next noteworthy support level is only at $23,600, which results from a 50% measurement of the last upward wave.​

 

[Solid ECN]

EURUSD

PMI indexes in Europe mostly performed weaker than preliminary readings. In countries that reported data for the first time today, the readings were also worse than expected. Those are services PMI readings from European countries:​

• Spain: 49.3 (expected 51.5; previous: 52.8)​
• Italy: 49.8 (expected: 50.3; previous: 51.5)​
• France (fin.): 46 (expected: 46.7; previous: 47.1)​
• Germany (fin.): 47.3 (expected: 47.3; previous: 52.3)​
• EMU (fin.: 47.9 (expected: 48.3; previous: 50.9)​
• Eurozone composite drops to 46.7 with 47 points expected.​

We have the lowest reading since 2020. HCOB writes in a commentary that the eurozone did not fall into recession in the first half of the year, but the second half of the year comes into big question. The services sector, which had been a stabilizing force for the economy for many months, now appears to be a strong drag, and the industrial sector is likely to decline further. HCOB forecasts -0.1% change in GDP for Q3 in EMU.

EURUSD continues its declines and is currently testing the 1.0750 levels.​

 

[Solid ECN]

EURUSD

Christopher J. Waller, a voting member of the Fed's Governing Council, delivered some comments on monetary policy and economy this afternoon. Comments can be seen as dovish with Waller hinting that the September meeting may see rates being kept unchanged.

Key takeaways from Waller today​

• Data released last week allows Fed to proceed carefully​
• Data doesn't say we need to do anything imminent​
• Data is looking 'pretty good' for no recession​
• Whether more rate hikes are needed depends on data​
• Want to be careful on saying inflation job done​
• Don't think one more hike would trigger recession​
• Not obvious one more rate hike would damage job market​
• Need to keep rates up until inflation eases​
• Treasury yields are about where they should be​
• Fed takes fiscal policy as a given​
• Trillion dollar deficits sustained don't look good for the US fiscal position​
• We are keeping a close eye on the commercial real estate sector​
• I'm not seeing anything in commercial estate that will threaten the economy​

Markets saw dovish reactions to Waller's comments, especially to bolded lines. EURUSD bounced off the daily lows and attempted to climb back above 1.0750 mark while European and US index futures revisited daily highs.

EURUSD bounced off the daily lows following dovish comments from Fed Waller.​

 

[Solid ECN]

Bank of Canada Expected to Keep rates unchanged tomorrow

USDCAD enjoyed strong gains between June 2021 and October 2022, gaining over 15% over the period. However, the advance was halted in the final quarter of 2022 and the pair has traded largely sideways since. Recent USD strengthening allowed the pair to bounce off 10-month lows in the 1.3100 area and climb towards the upper limit of the trading range at 1.3650. An attempt to break above this zone was made today but so far, bulls failed to deliver a breakout. Decision from Bank of Canada tomorrow could be crucial for whether the pair breaks above this zone or pulls back from it. Should we see a strong hint that incoming data doesn't support rate hikes at future meetings, CAD may find itself under pressure with USDCAD potentially breaking above 1.3650 area.

​

 

[Solid ECN]

Japanese Government Considers Intervention as Yen Volatility Continues

The yen in Japan has been quite unpredictable lately, which is causing worry for the country's leaders. Masato Kanda, the Vice Minister of Finance for International Affairs, and other officials have hinted that they might step in to keep the yen stable and control speculative trading. They believe that activities not aligned with basic economic indicators are causing this unpredictability.

Last year in October, the government took similar steps, showing that they are serious and ready to act firmly. However, when the USDJPY fell below 145 in August, the government softened its warnings. This left traders unsure about what the government might do next. Recently, the yen fell to its lowest point in ten months, getting close to levels that have led to government intervention in the past. Market experts have noted that if USDJPY falls to 150, the government might be forced to intervene in the market again.​

 

[Solid ECN]

Apple Sanctions Shake Wall Street

Wall Street is down today. This is due to a strong reading of US claims, a sell-off in China, and sanctions against Apple. The strong claims reading shows that the labor market is doing well. This fits with the higher-than-expected ISM services report from yesterday.

The dollar is up because people are avoiding risk. Yields are also up, and the chances of the Fed raising interest rates have increased. In China, both imports and exports fell in August compared to last year. This shows that the economy is still weak. The rising dollar is also adding to people's worries. It is being supported by strong labor market data, which is causing people to sell stocks. Unemployment claims fell again, and productivity and labor costs were revised up more than expected. Markets think there is a 7% chance that the Fed will raise interest rates in September.

Investors are worried about China's decision to ban state employees from using iPhones. They say this is because of spying concerns. Apple is losing the most out of all the big tech companies today. Its stock is down 3.2% as people wait for the release of the iPhone 15. Investors are worried that China's decision about iPhones could be part of a bigger plan. They think it could lead to more tension between China and the US, which are still very dependent on each other economically.

The background to today's decline in the US stock market is the loss of momentum in China. This has happened many times this year, despite efforts to stimulate the economy and help the banking and real estate sectors. Chinese index futures are down nearly 3%. Imports fell 7.2% compared to last year, and exports fell more than 9%.

The US100 index is trying to recover from earlier losses, but sentiment is still down in the short term. The key resistance level on the M15 chart is 15317 points.​

 

[Solid ECN]

China Inflation to Rebound on Economic Recovery

China's consumer price inflation, which measures the average change in prices over time that consumers pay for a basket of goods, is expected to increase in the coming months. This is due to the economy's moderate recovery, which is being driven by various policy measures.

In August, consumer prices rose by 0.1% compared to the previous year. This was a reversal from July, when prices fell by 0.3%. This was the first decrease since February 2021.

The Chinese government has set an inflation target of around 3% for this year. The rise in prices was mainly due to a 0.5% increase in non-food prices, while food prices fell by 1.7%.

Core inflation, which excludes food and energy prices, remained steady at 0.8% in August. This was the highest level since January.

Meanwhile, the annual decrease in producer prices (the prices that producers get for their products) slowed to 3.0% in August from 4.4% in July.

Economists Zichun Huang and Julian Evans-Pritchard predict that producer prices will stop falling by the end of the year and consumer prices will continue to rise over the coming months. They expect an average inflation rate of around 1.0% in 2024 and 2025.

They also believe that core inflation will increase in the coming months as excess stock from the pandemic export boom is sold off and policy support leads to a partial recovery in domestic demand.

Despite a slump in the property market, Beijing expects to achieve a growth target of around 5% this year. The Chinese government has introduced several measures to combat the economic downturn following the reopening related bounce back at the start of the year.

The People's Bank of China has also relaxed its borrowing rules and reduced mortgage rates for first-time home buyers.

In August, bank lending increased sharply to CNY 1.36 trillion from CNY 345.9 billion in July, exceeding the expected level of CNY 1.2 trillion. Total social financing (a broad measure of credit and liquidity in the economy) increased to CNY 3.12 trillion in August from CNY 528.2 billion in July.​

 

[Solid ECN]

UK GDP Below Expectations, GBPUSD Ticks Lower!

The UK's Gross Domestic Product (GDP) data, which measures the size of the economy, didn't grow at all over the past year (0.0%), which was less than what was predicted (0.4%). It was also less than the growth seen in the previous period (0.9%). Over a three-month period, the GDP grew by 0.2%, which was also less than the forecasted 0.3% but equal to the previous period's growth. In July, the economy actually shrank by 0.5%, which was more than the predicted shrinkage of 0.2% and a reversal from the previous month's growth of 0.5%.

This shrinkage in July is attributed to poor weather affecting spending and strikes in the public sector. This makes it increasingly likely that the UK might experience a recession this year.

As for Industrial Production, specifically manufacturing, there was a decrease of 0.8% in a month, which is actually better than the predicted decrease of 1%. However, it's a significant drop from the previous month's increase of 2.4%. Over a year, manufacturing grew by 3.0%, slightly less than the previous year's growth of 3.1%. The overall industrial production over a year grew by 0.4%, which was as predicted but less than the previous year's growth of 0.7%.

In summary, the UK's economic activity is weaker than expected based on GDP readings, and while manufacturing production was slightly better than anticipated, it still shows a downward trend. This resulted in a sudden drop in the value of GBPUSD (British Pound to US Dollar exchange rate) after this data was published.​