What happened in the US session?
US flash Composite PMI for the month of August stagnated as this index hit a 6-month low of 50.4 as companies signalled a slower rise in output. Demand continues to decelerate as total new orders declined for the first time in six months. This stalling of business activity raises doubt over the strength of US economic growth causing the dollar index (DXY) to fall from 104.00 to 103.30.
Meanwhile, EIA crude oil inventories experienced a stronger than expected drawdown – which signals higher demand in the US – as 6.1M barrels of crude were drawn versus the forecast of a 2.9M drop. This higher drawdown provided a short-term lift to crude prices as WTI bounced from a low of $77.50 to a high of $79.30 before weaker macro fundamentals such as the recent deteriorating PMI activity in Europe took over once more and prices resumed the downtrend, falling under the $79.00-mark.
What does it mean for the Asia Session?
The DXY found support around 103.30 before climbing higher as traders assess the latest flash Composite PMI reports out of the Eurozone and the US. With Europe’s PMI readings far worse than the US as a whole, demand for the US dollar could keep the DXY elevated today.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
FOMC Member Harker Speaks (4:00 pm GMT)
What can we expect from DXY today?
Last week’s unemployment claims came in slightly lower than the forecast and the prior week’s reading which functioned as a bullish catalyst for the DXY. Another ‘softer’ reading is likely to spur renewed demand for the greenback.
Federal Reserve Bank of Philadelphia President Patrick Harker will be discussing the economic outlook of the US in an interview conducted by CNBC where he could share his views and those of his fellow committee members on the key topics of inflation, economic growth and of course monetary policy. His comments and remarks are likely to have a profound impact on the demand of the US dollar and thus drive the direction for the DXY.
Technical:
The DXY chart currently exhibits a bullish momentum, indicating a prevalent upward trend in the market.
This bullish momentum is supported by the fact that the price is above a major ascending trend line, signifying the potential for further upward movement. Additionally, the price remains above the bullish Ichimoku cloud, contributing to the overall positive momentum.
In this context, there’s a possibility that the price could experience a bullish rebound upon reaching the 1st support level at 103.20. This support level gains significance as an overlap support and aligns with the 23.60% Fibonacci Retracement level. Similarly, the 2nd support at 102.82 holds importance as an overlap support and corresponds to the 50% Fibonacci Retracement level.
On the resistance side, the 1st resistance level at 103.92 stands out as a swing high resistance, potentially posing a hurdle to further upward movement. Similarly, the 2nd resistance at 104.50 gains significance as a multi-swing high resistance.
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Deteriorating flash PMI data in the Eurozone, most notably Germany and France who are also the growth engines of the EU, sent the Euro tumbling towards 1.0800 yesterday. Business activity in the Eurozone contracted at an accelerating pace in August as the region’s downturn spread further from manufacturing to services with other sectors reported falling output and new orders. The Euro managed to bounce strongly in the aftermath of a somewhat ‘weak’ PMI report from the US but the downtrend is likely to resume today.
Technical
The EUR/USD chart currently demonstrates a bearish momentum, characterized by its position within a descending channel. This channel suggests a likelihood of continued downward movement due to the prevailing bearish momentum.
In this context, there’s a potential scenario where the price could undergo a bearish continuation towards the 1st support level at 1.0739. This support level is notable as an overlap support and is reinforced by the presence of the 127.20% Fibonacci Extension.
Additionally, an intermediate support level at 1.0802 holds significance due to its identification as a swing low support, potentially adding to the potential support structure.
On the resistance side, the 1st resistance at 1.0923 stands out as an overlap resistance, potentially acting as a barrier to upward price movement. Similarly, the intermediate resistance level at 1.0877 is significant as another overlap resistance.
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Similarly to the Eurozone, UK flash PMI data was no better as the Pound nose dived in the aftermath of this new release. UK private sector firms signalled a renewed downturn in business activity in August, thereby ending a six-month period of expansion. This mostly reflected a faster fall in new orders as sluggish domestic economic conditions and higher borrowing costs led to caution among clients. The Pound managed to bounce strongly in the aftermath of a somewhat ‘weak’ PMI report from the US but the downtrend is likely to resume today.
Technical
The GBP/USD chart currently reflects a neutral momentum, suggesting a lack of clear directional bias.
Within this context, there’s a potential scenario in which the price might exhibit fluctuations between the 1st support level at 1.2619 and the 1st resistance level at 1.2787.
The significance of the 1st support at 1.2619 is underlined by its identification as a multi-swing low support, with an additional reinforcement from the presence of the 61.80% Fibonacci Retracement.
On the other hand, the 2nd support at 1.2545 is noted as a pullback support, which could contribute to supporting the price during downward movements.
Regarding resistance, the 1st resistance at 1.2787 is considered a swing high resistance, which might act as a hurdle for upward price movement. Similarly, the 2nd resistance level at 1.2873 is significant due to its nature as an overlap resistance.
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Retail sales increased 0.1% MoM to $65.9B in June while core retail sales were down 0.9% MoM, falling for the second consecutive month. In addition, sales volume also fell 0.2% MoM potentially signalling a slow down in spending by Canadian consumers. Despite retail sales stalling, USD/CAD fell to as low as 1.3530 in the aftermath of a somewhat ‘weak’ PMI report from the US and could remain under pressure today.
Technical
The USD/CAD chart’s momentum indicates a neutral stance, suggesting a lack of a clear directional trend.
Given this neutral momentum, there is a potential for price to fluctuate within a range defined by the 1st support level at 1.3502 and the 1st resistance level at 1.3593.
The significance of the 1st support level at 1.3502 is attributed to its identification as an overlap support that aligns with the 23.60% Fibonacci retracement level. In addition, the 2nd support level at 1.3387 is also identified as an overlap support that aligns with the 50.00% Fibonacci retracement level.
To the upside, the 1st resistance level at 1.3593 is identified as a swing-high resistance while the 2nd resistance level at 1.3650 is identified as a multiple swing-high resistance.
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie bounced strongly overnight coming close to 0.6500 before losing steam around this level. This currency is now pulling back and could continue to slide lower today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 5 September 2023.
Technical
The AUD/USD chart currently indicates a weak bearish momentum, implying a prevalent downward trend in the market. There is a potential for price to pull back towards the 1st support level at 0.6458.
This 1st support level at 0.6458 is identified as an overlap support. Additionally, the 2nd support level at 0.6386 is identified as a multiple swing-low support, potentially acting as a strong barrier.
To the upside, the 1st resistance level at 0.6508 is identified as an overlap resistance that aligns with a confluence of Fibonacci levels i.e. the 38.20% and 61.80% retracement levels. Similarly, the 2nd resistance level at 0.6609 is also identified as an overlap resistance that aligns with the 61.80% Fibonacci retracement level.
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi hit a high of 0.5985 overnight before running out of steam to fall lower. It is likely to slide lower just like its Pacific neighbour.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Technical
The NZD/USD chart currently reflects a bearish momentum, suggesting a prevailing downward trend. Given this bearish momentum, it is possible that price could pull back towards the 1st support level at 0.5954.
This 1st support level at 0.5954 is identified as an overlap support. Additionally, the 2nd support level at 0.5910 is identified as a multiple swing-low support, potentially offering a robust level of support.
To the upside, the 1st resistance level at 0.5993 is identified as an overlap resistance that aligns with the 23.60% Fibonacci retracement level. Similarly, the 2nd resistance level at 0.6044 is also identified as an overlap resistance that aligns with the 38.20% Fibonacci retracement level.
The Japanese Yen (JPY)
Key news events today
Tokyo Core CPI (11:30 pm GMT)
What can we expect from JPY today?
The Tokyo core CPI has been trending lower on an annualised basis since April of 2023 with July’s reading printing at 3.0% YoY. The estimate for August points to a modest decline to 2.9% YoY. The Japanese yen has seen relatively strong demand over the past week with USD/JPY falling under 145.00 overnight but this currency pair is rebounding strongly this morning.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields around +0.5%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually.
- Next meeting is on 22 September 2023.
Technical
The USD/JPY chart currently indicates a bearish momentum, suggesting a prevailing downward trend.
Within this context, there’s a potential scenario where the price might experience a bearish pullback upon reaching the 1st resistance level at 145.00, potentially leading to a drop towards the 1st support level at 143.73.
The significance of the 1st support at 143.73 lies in its identification as a pullback support, further reinforced by its alignment with both the 50% Fibonacci Retracement and the 161.80% Fibonacci Extension, indicating a convergence of Fibonacci levels and potentially a stronger support zone.
Similarly, the 2nd support level at 141.97 is noted as an overlap support, providing additional reinforcement to its potential as a significant price level.
On the resistance side, the 1st resistance at 145.00 is notable due to its designation as a pullback resistance, which could potentially hinder upward price movement. The 2nd resistance at 146.47 gains importance as a multi-swing high resistance, indicating a strong historical level where selling interest might arise.
