bearish bias

The market hardly reacts to final data on PMIs as they mostly coincide with preliminary estimates. Any significant trading movements usually occur during the release of the preliminary estimates. By the time the final data is published, the market has already taken these indicators into account. Furthermore, the preliminary estimates are released simultaneously for all indexes, while the final data is released at different times.   For example, today, only the manufacturing PMIs are slated for release, which have the lowest value among all business activity indexes. In other words, even if today's data differs from the preliminary estimates, which is possible, the market response will be relatively moderate, and so we shouldn't expect any significant movements. The preliminary estimate of the UK manufacturing PMI already revealed a decline from 47.1 points to 46.2 points.   The US PMI also fell from 48.4 points to 46.3 points. Therefore, the preliminary estimate already indicated a noticeable decline in the state of the industry. The GBP/USD pair has slowed down its downward cycle around the 1.2600 level, where a reversal occurred amid the weakening of the dollar positions.       As a result, the price returned above the 1.2700 level. On the four-hour chart, the RSI indicated the possibility of a price reversal when reaching oversold territory. On the same time frame, the Alligator's MAs reversed, indicating a slowdown in the downward cycle. Outlook In order to raise the volume of long positions, the quote needs to stay above the 1.2750 level. In this case, there may be a subsequent stage of recovery in the value of the British pound relative to the recent corrective move.   As for a subsequent downward move, falling below the 1.0650 level could easily reignite short positions. This will result in updating the local low of the corrective cycle. The complex indicator analysis unveiled that in the short-term period, technical indicators are pointing to a bearish bias from the 1.2700 level. In the intraday period, there is a primary signal of the end of the corrective phase. In the mid-term, the indicators are pointing to an uptrend.  

Analyzing Friday's trades: GBP/USD on 30M chart     On Friday, the GBP/USD pair traded flat with a slight bearish bias. The new, upcoming, ascending trend line has not been broken. At the moment, the price has only tested it. However, since the market has entered a flat phase, breaking this trend line will not be a strong signal for a trend reversal.   Of course, the British currency cannot continue to rise indefinitely, especially considering the lack of reasons and grounds for such a move. A correction should start sooner or later, but it is extremely difficult to predict when it will start because the market is currently hardly reacting to fundamental and macroeconomic factors, as confirmed by the entire week.   There was only one report on Friday, and it was the consumer sentiment from the University of Michigan in the US. This indicator unexpectedly showed a much stronger increase than forecasted and... triggered a 20-25 point rise in the dollar. As before, all reports in favor of the dollar were ignored, while any reason to buy the British pound was used to its fullest extent, resulting in a 200% increase.   GBP/USD on 5M chart A huge number of signals materialized on the 5M chart, while the movement was sideways and volatility was only 55 pips, which is very low for the pound. Therefore, almost any level that the price encountered automatically became a source of false signals. Thus, beginners could attempt to execute one or two signals during the European trading session. It is highly likely that the first one resulted in a small loss, while the second one was closed at breakeven when the stop loss was triggered. It was quite challenging to expect other results in a flat market. Trading tips on Monday: As seen on the 30M chart, the GBP/USD pair continues to show strong growth despite the Friday flat. Even if the price consolidates below the trend line, it does not mean that a downtrend is brewing, as traders remain bullish, and crossing the trend line during a flat phase is not a strong signal. The key levels on the 5M chart are 1.2779-1.2801, 1.2848-1.2860, 1.2913, 1.2981-1.2993, 1.3043, 1.3107, 1.3145, 1.3210, 1.3241, 1.3272. When the price moves 20 pips in the right direction after opening a trade, a stop loss can be set at breakeven.   On Monday, there are no important events lined up in the UK or the US, but it is extremely difficult to predict the price movement in conditions of extreme overbought levels and without any news. It could be a correction, a continuation of the rise, or a flat market.     Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.

USD/JPY  Yen dives on reports BOJ sees little need to adjust YCC   Central bank-a-palooza was supposed to start next week, but traders got a head start after reports surfaced that the BOJ saw little urgency to adjust their yield curve control program (YCC).  It looks like FX traders are expecting the BOJ to maintain their ultra-loose monetary policy and for the Fed to deliver a quarter-point rate rise and to have a wait-and-see approach about the September meeting.  The Japanese yen is the weakest major currency and that could remain the case if risk appetite remains healthy.  It seems that while the BOJ stands pat, the other major central banks are tightening and that should continue to drive that interest rate differential trade. Soft landing hopes are not getting derailed by earnings season so far, in fact market breadth in the stock market continues to improve which could help keep the rally going strong.   Initial Rate Decision Expectations The Fed will raise rates by 25bps and likely signal a wait-and-see approach for the September meeting (saving that decision for the end of August at Jackson Hole). Analysts are unanimously expecting the ECB to raise all three key rates by 25bps but are unsure what will happen in September The BOJ is expected to keep rates steady, no change to YCC, and revise up its inflation forecasts for this year alone.     Soft stochastics suggest euro pullback       The EUR/USD weekly chart shows a bearish bias could be emerging as the slow stochastics overbought conditions is seeing a tentative drop below the 200-week SMA.  If bearish momentum accelerates key support will come from the 1.1080 level, with major support eyeing the heavily tested 1.1030 price level.  Intraday resistance resides at the 1.1150 level, with major resistance be provided by the psychological 1.1200 handle.   Nasdaq Friday Volatility The Nasdaq could see excessive volatility at the close as a special rebalancing will address overconcentration in the index by redistributing the weights.  In addition to this special rebalancing, traders will have to deal with options expiration. Three mega-cap tech giants (Apple, Nvidia and Microsoft) make up almost 30% of the weight in the fund, which is not diverse enough for a key index.  Some profit-taking might occur ahead of busy next week that contains handful of market moving events that include three big rate decision, several key earnings, and key GDP, ECI , and PCE data.  

The Kiwi is the worst-performing currency among the majors where it depreciated by -7.1% against the USD on a rolling one-month basis. RBNZ Is expected to maintain its OCR at 5.50% since the last interest hike in May. Watch the key medium-term support of 0.5900/5860 where the downside momentum of NZD/USD may start to pause after declining for six months. New Zealand central bank, RBNZ will announce its latest monetary policy decision today at 0200 GMT followed by a press conference one hour later. The consensus is calling for another round of pause to its interest rate hiking cycle to maintain the official cash rate (OCR) at 5.50% since its last 25 basis points (bps) hike that was implemented in May. So far, the RNBZ has raised borrowing costs by a total of 525 bps since October 2021. Also, the RBNZ will release their latest OCR track today which likely shows they will remain on hold into 2024 and the in the previous May meeting, the forecasted path of the OCR was to remain at 5.50% until August 2024 when the first interest rate cut would be enacted. So far, the Kiwi has come under downside pressure in the past month where it depreciated by -7.10% against the USD, making it the worst-performing currency among the majors based on a rolling one-month basis. The current bout of weakness seen in the NZD/USD has been primarily driven by weak external demand and jitters over China’s ongoing deflationary risk.   Approaching the lower boundary of medium-term “Expanding Wedge”       Fig 1:  NZD/USD medium-term trend as of 16 Aug 2023 (Source: TradingView, click to enlarge chart) Since its 2 February 2023 high of 0.6538, the price actions of NZD/USD have been oscillating within a medium-term “Expanding Wedge” configuration. Its recent 4-week of impulsive minor down move sequence has it towards key medium-term support of 0.5900/5860 (the lower boundary of the “Expanding Wedge”, 61.8% Fibonacci retracement of the prior medium-term up move from 13 October 2022 low to 2 February 2023 high & 1.00 Fibonacci extension from of the on-going medium-term down move from 2 February 2023 high).   Short-term downside momentum remains intact Fig 2:  NZD/USD minor short-term trend as of 16 Aug 2023 (Source: TradingView, click to enlarge chart) Short-term price actions of the NZD/USD have drifted lower within a minor descending channel in place since the 14 July 2023 high. Watch the 0.5995 key short-term pivotal resistance to maintain the bearish bias for the next supports to come in at 0.5900 and 0.5860 before price actions start to shape a potential consolidation after six months of down move. However, a clearance above 0.5995 negates the bearish tone to expose the next intermediate resistance at 0.6050 (also the upper boundary of the minor descending channel).  

EUR: Surprisingly resilient After a week that has brought to the table some serious concerns about China’s near and medium-term outlook, it is quite a success for EUR/USD to be trading around 1.0900. The pair is not just exposed to Chinese sentiment via the risk-environment channel, but more directly given the eurozone’s economic exposure to China. The question now remains: will the Chinese story catch up with the euro? For now, it really appears that markets are welcoming Beijing’s forceful reaction, although much will probably depend on the developments in the distressed shadow bank Zhongzhi and the actual depth of the real estate slump. All in all, it does look like there is a path for the euro and other pro-cyclical currencies to weather this Chinese turmoil without taking much damage, but that also means a delay in any substantial rally against the dollar. Data-wise, we’ll take a look at the final inflation figures in the eurozone today. Markets are currently pricing in a 50% implied probability of a European Central Bank (ECB) rate hike in September, and have marginally scaled back expectations along the curve in the past few days. A full rate hike is not priced before the end of the year, which probably leaves some upside room for short-term rates in the eurozone should ECB officials come back after the summer holidays with some hawkish comments. EUR/USD may keep trading in narrow ranges for now, with a modestly bearish bias to the 1.0850 level.