US labor market

Early in the European session, the British pound is trading around 1.2443 below the 21 SMA and the 200 EMA. The 1-hour chart shows that the British pound reached the 1.2542 level and failed to consolidate above that level. We see a strong technical correction today, and the instrument is likely to continue falling towards the 5/8 Murray level over the next few days around 1.2329.   GBP/USD pair fell more than 100 pips in light of the solid data from the US labor market to a daily low of 1.2426 reached today in the European session. The upbeat US data indicates a possible reconsideration of further interest rate hikes by the Federal Reserve. So, GBP/USD will be under bearish pressure in the short term and could reach the psychological level of 1.20.   In the chart above, we can see that the British pound broke the downtrend channel but left a gap at about 1.24494. In the next few hours, GBP/USD could rebound and cover this gap. It could reach 1.2451 (6/8 Murray) and the 21 SMA around 1.2476. In case the British pound falls below 1.2420, it is expected to extend its decline.       Hence, GBP/USD could reach 5/8 Murray at 1.2329. The eagle indicator is giving a negative signal. Therefore, any technical bounce below the psychological level of 1.25 will be considered an opportunity to sell.   On the other hand, a pullback towards the SMA 21 located at 1.2476 or towards 1.2480 could be seen as a signal to sell, since the daily pivot point is located there. This serves as a signal that the pound could continue falling in the next few days.

US ADP and JOLTs data a key focus today. European markets have fallen every day this week, although yesterday's losses were by far the worst, and look set to continue again today. US markets also struggled yesterday, although their losses have been much more modest. Yesterday's weakness was driven by concerns over softer than expected Chinese as well as European services PMIs, which fed into increased slowdown worries, as well as rising interest rate risk, which fed into weakness in basic resources, energy and financials, and has translated into further weakness in Asia markets.     Today's Germany factory orders numbers for May could signal a brief respite after 2 months of weakness with a rebound of 1%, up from -0.4% in April, although on an annualised basis it is expected to decline by -9.7%, the 15th month in a row it's been in negative territory.       The release of last night's Fed minutes showcased some significant splits amongst policymakers over the decision to signal a rate pause in June, citing "few clear signs" of progress that US inflation was falling quickly enough.     Some officials wanted to carry on with rate hikes of 25bps but given the "uncertainty" about the outlook it was decided a pause would be preferable, just so long as it was made clear that the door to a July hike, as well as further hikes was pushed to the top of the narrative. This helps to explain the very hawkish guidance with no rate cuts expected by Fed officials until 2024.     The publication of the minutes, and the clear willingness amongst many members to do more on rates saw US 2-year yields close higher on the day, wiping out their early declines.     The committee noted the strength of the US labour market saying it "remained very tight" evidence of which is likely to be borne out by today's data from the JOLTS data for May, the latest weekly jobless claims and the June ADP payrolls report, as well as the latest ISM services numbers.     The resilience of the US labour market was no better illustrated than in the April JOLTS report which saw vacancy numbers surge back above 10m from 9.7m in March. Today's May numbers are expected to see this number drop back to 9.9m, still an eye wateringly higher number, and well above the levels we saw pre-pandemic.     Weekly jobless claims also appear to have hit a short-term peak sliding back from 265k to 239k last week and are expected to edge higher to 245k. While weekly claims have been rising in recent weeks continuing claims have been falling, slipping to a 3-month low last week of 1,742k.     Today's ADP payrolls report is expected to see another solid number of 225k, down slightly from 278k.     While the number of job vacancies available remains at current levels it's hard to imagine a scenario where we might see a weak jobs report in the coming months, which means that its unlikely to be the labour market that prompts the Fed to signal a pause in the near term.     Services inflation has been the one area which the Fed has expressed concern that it might be stickier than it needs to be.     Today's ISM services report is expected to see headline activity edge higher to 51.3, while a close eye will be kept on prices paid which slowed to 56.2 in May, and a 3-year low.        EUR/USD – looks set for a test of support around the 1.0830/40 area and 50-day SMA, with resistance remaining at the 1.1000 area. A break below the lows last week opens the way for a potential move towards 1.0780.   GBP/USD – still in a tight range with support above the 50-day SMA at 1.2540, as well as trend line support from the March lows, bias remains higher for a move back to the 1.3000 area. Currently have resistance at 1.2770.     EUR/GBP – looks set to retarget the 0.8515/20 area and June lows, while below resistance at the 0.8570/80 area. Below 0.8510 targets the 0.8480 area. We also have resistance remaining at the 50-day SMA which is now at 0.8655. Behind that we have 0.8720.   USD/JPY – looks set for a test of the 143.80 area, while below the key resistance at 145.20. A break below 143.80 targets a move back to the 142.50 area. Above 145.20 opens up 147.50.    FTSE100 is expected to open 30 points lower at 7,412   DAX is expected to open 84 points lower at 15,853   CAC40 is expected to open 50 points lower at 7,260

Manufacturing PMIs in focus, as RBA keeps rates unchanged     European markets finished the month of July on a rather subdued note, even allowing for another month of solid gains, although we did see another new record high for the DAX, while the CAC 40 posted a record monthly close. The euro Stoxx 50 also posted its highest monthly finish since October 2007. Both the FTSE100 and FTSE250 also fared reasonably well, with the FTSE100 closing at a 2-month high, helped by a rebound in house builders on the back of easing interest rate rise expectations. US markets also started the final day of July on the front foot before slipping back from their intraday highs, on the back of some end of month profit taking, drawing a line under a 5th successive month of gains. While there is a growing degree of confidence that last week's rate hikes from the Federal Reserve and the European Central Bank might be the prelude to a lengthy pause, there is rising realisation that rates may well have to stay at current levels for quite a while yet.     Nonetheless, despite this apprehension Asia markets have seen a positive session, despite weaker Chinese PMI numbers and this looks set to translate into a modestly positive start for markets in Europe this morning. This week we can expect the Bank of England to follow suit with another rate hike of its own, while this morning the RBA took the decision to keep rates unchanged at 4.1%. The decision was finely balanced with many expecting a rate hike, however the Australian central bank appears to have erred on the side of caution, given last week's weaker than expected Q2 CPI reading, and the weakness in recent PMI numbers.     The RBA went on to alter their inflation forecast to predict that prices would return to target in late 2025, while also revising up their GDP growth targets for this year and next year. The central bank did keep the door open to further hikes in the future. The Australian dollar slid back giving up some of the gains it made yesterday, while the ASX200 pushed back up towards its recent highs.     Today's economic agenda shifts the focus back to the weakness of the manufacturing sector, as well as the resilience of the US labour market, as we look to a flat open. In Germany especially, the performance of the manufacturing sector has been dire with July manufacturing PMI expected to be confirmed at 38.8, the lowest level since the manufacturing sector was shut down due to Covid. In France, manufacturing PMI is expected to slow to 44.5, while only modest improvements are expected in Spain and Italy of 48.3 and 44.3. The UK manufacturing numbers are expected to slow to 45, from 46.5.     Even the US economy hasn't managed to escape the manufacturing slump with the latest ISM manufacturing survey for July expected to show a modest improvement from 46 to 46.9, with prices paid expected to see a modest improvement to 44, from 41.8. It is clear that the manufacturing sector is experiencing a clear deflationary impulse which is likely to continue to act as a drag on prices in the coming months. The bigger question is whether this translates into a similar drag on the services sector, and here prices are proving to be slightly stickier.     One major concern to the slowing prices narrative has been the recent gains in oil prices, which yesterday saw their biggest monthly gain in over a year, over concerns that Saudi Arabia will go further and extend their production cuts into September. This rise in prices over the last 4 weeks is already feeding into higher prices at the fuel pumps, which if sustained could impact on consumer demand in the coming weeks.      We also get an insight into the US labour market with the latest JOLTS job openings numbers for June which are expected to show a fall from 9.82m vacancies to 9.6m, which would be a 2-year low. While such a move would be welcome it's also important to remember that vacancies are still over 2m higher than they were at their pre-pandemic peaks, back in mid-2018. This number needs to come down a lot further before we can infer that the falls in vacancies might lead to a moderation in wage growth.     EUR/USD – currently have support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – support currently at the 1.2750 area as well as trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – currently range trading between resistance at the 0.8600 area, with the risk of a return to the recent lows at 0.8500/10. Above the 0.8600 area targets the July highs at 0.8700/10.     USD/JPY – broken above the 142.00 area, opening up the risk of a move back to the previous peaks at 145.00. We need to see a move back above 142.60 for this to unfold. Support comes in at yesterday's lows at 140.70.     FTSE100 is expected to open 3 points higher at 7,702     DAX is expected to open 13 points higher at 16,459     CAC40 is expected to open 5 points higher at 7,502     By Michael Hewson (Chief Market Analyst at CMC Markets UK)

European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  

European markets set to open lower after US rating downgrade     We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   Yesterday's weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year. US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.     This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.   The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we've seen over the last few months might start to hit a floor and start rising again. Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic. The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.     Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday's more important non-farm payrolls numbers. While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.     EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 30 points lower at 7,636     DAX is expected to open 88 points lower at 16,152     CAC40 is expected to open 36 points lower at 7,370   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  

Bank of England set to raises rates to a new 15 year high European markets underwent another negative session yesterday, clobbered by concerns over weaker than expected economic activity, which in turn is raising concern for earnings growth heading into the second half of the year. Throw in a US credit rating downgrade from Fitch and the catalyst for further profit taking after recent record highs for the DAX completed the circle of negativity.     US markets also underwent a negative session, with the Nasdaq 100 undergoing its worst session since February, while the US dollar acted as a haven and the yield curve steepened. As a result of the continued sell-off in the US, and weakness in Asia markets, European markets look set to open lower later today, and while the Fitch downgrade doesn't tell us anything about the US political governance that we don't already know investors appear to be looking to test the extent of the downside in the market.     Earlier this week we saw some poor manufacturing PMI numbers which showed that the European economy was very much in recession, with disinflation very much front and centre. This has raised questions as to whether the services sector will eventually succumb to similar weakness. There has been some evidence of that in recent readings but by and large services activity has been reasonably robust. In Spain services activity is expected to remain steady at 53.4, along with Italy at 52.2. The recent flash numbers from France saw further weakness to 47.4, while in Germany we can expect to see a resilient 52, down from 54.1.         EU PPI for June is expected to slip further into deflation to -3.2% year on year. In the UK services activity is expected to slow to 51.5 from 53.7. With inflation unexpectedly slowing more than expected in June to 7.9% it could be argued that the pressure on the Bank of England to hike by another 50bps has eased somewhat, especially since the Fed and the ECB both hiked by 25bps last week.     Having seen core CPI slow by more than expected to 6.9% forward rate expectations have eased quite markedly in the past few weeks. Forward market expectations of where the terminal rate is likely to be, have slipped from 6.5%, to below 6%. It's also likely that inflation for July will slow even more markedly as the effects of the energy price cap get adjusted lower which might suggest there is an argument that we might be close to the end of the current rate hiking cycle.     The fly in the ointment for the Bank of England is the rather thorny issue of wage growth which has moved above core CPI, and could prompt the MPC to err towards the hawkish side of monetary policy and raise rates by 50bps, with a view to suggesting that this could signal a pause over the coming weeks as the central bank gets set to consider how quickly inflation falls back over the course of Q3. Such an aggressive move would be a mistake given that a lot of the pass-through effects of previous rate increases haven't fully filtered down with some suggesting that the Bank of England should pause. In the current environment this seems unlikely given a 25bps is priced in already.       In a nutshell we can expect to see a hawkish 25bps as a bare minimum, and we could also see a split with some pushing for 50bps. We could also get an insight into how new MPC member Megan Greene views the current situation when it comes to casting her vote. One thing seems certain, she is unlikely to be dovish as Tenreyro whom she replaced on the MPC.     We'll also get a further insight into the US labour market after another bumper ADP payrolls report yesterday which saw another 324k jobs added in July. Weekly jobless claims are expected to come in at 225k, while we'll also get an insight into the services sector with the ISM services index for July which is expected to come in at 53. The employment component will be of particular interest, coming in at 53.1 in June, having jumped from 49.2 in May.       EUR/USD – managed to hold above the 50-day SMA for the time being, with a break below targeting further losses towards 1.0830. Resistance currently at last week's high at 1.1150.     GBP/USD – also flirting with the 50-day SMA with a clean break targeting a move towards the 1.2600 area.  Resistance at the 1.2830 area as well as 1.3000.         EUR/GBP – continues to edge higher drifting up to the 0.8630 level before slipping back, although it is now finding some support at the 0.8580 area. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.     USD/JPY – continues to look well supported above the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week's lows at 140.70.     FTSE100 is expected to open 10 points lower at 7,551     DAX is expected to open 22 points lower at 15,998     CAC40 is expected to open 15 points lower at 7,297   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  

Analysis of transactions and tips for trading GBP/USD The test of 1.2720 on Friday afternoon, coinciding with the rise of the MACD line from zero, prompted a buy signal that led to a price increase of around 50 pips.   Weak data on the US labor market led to a sharp rise in GBP/USD. However, this did not last long, as already during today's Asian session, the pair fell, compensating for most of Friday's growth. In addition, buyers should not expect much today because only good data on the UK housing price index and confident defense of the level of 1.2705 will there be chances of a rally. For long positions: Buy when pound hits 1.2736 (green line on the chart) and take profit at the price of 1.2772 (thicker green line on the chart). Growth may occur. However, when buying, ensure that the MACD line lies above zero or rises from it. Pound can also be bought after two consecutive price tests of 1.2705, but the MACD line should be in the oversold area as only by that will the market reverse to 1.2736 and 1.2772. For short positions: Sell when pound reaches 1.2705 (red line on the chart) and take profit at the price of 1.2673. Pressure will increase with weak data and inactivity around 1.2705. However, when selling, ensure that the MACD line lies below zero or drops down from it. Pound can also be sold after two consecutive price tests of 1.2736, but the MACD line should be in the overbought area as only by that will the market reverse to 1.2705 and 1.2673.   What's on the chart: Thin green line - entry price at which you can buy GBP/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell GBP/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes.   And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.    

Analysis of transactions and tips for trading GBP/USD The test of 1.2720 on Friday afternoon, coinciding with the rise of the MACD line from zero, prompted a buy signal that led to a price increase of around 50 pips.     Weak data on the US labor market led to a sharp rise in GBP/USD. However, this did not last long, as already during today's Asian session, the pair fell, compensating for most of Friday's growth. In addition, buyers should not expect much today because only good data on the UK housing price index and confident defense of the level of 1.2705 will there be chances of a rally. For long positions: Buy when pound hits 1.2736 (green line on the chart) and take profit at the price of 1.2772 (thicker green line on the chart). Growth may occur. However, when buying, ensure that the MACD line lies above zero or rises from it. Pound can also be bought after two consecutive price tests of 1.2705, but the MACD line should be in the oversold area as only by that will the market reverse to 1.2736 and 1.2772. For short positions: Sell when pound reaches 1.2705 (red line on the chart) and take profit at the price of 1.2673. Pressure will increase with weak data and inactivity around 1.2705. However, when selling, ensure that the MACD line lies below zero or drops down from it. Pound can also be sold after two consecutive price tests of 1.2736, but the MACD line should be in the overbought area as only by that will the market reverse to 1.2705 and 1.2673.   What's on the chart: Thin green line - entry price at which you can buy GBP/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell GBP/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.    

Analysis of transactions and tips for trading EUR/USD The test of 1.0961 on Friday afternoon, coinciding with the rise of the MACD line from zero, prompted a buy signal that led to a price increase of over 40 pips.     Reports on the volume of orders in Germany and industrial output in France and Italy did not help euro rise last Friday. However, weak data on the US labor market favored bullish traders, leading to a sharp increase in EUR/USD during the US trading session. Today, pressure may return on the pair, unless the data on industrial production in Germany and investor confidence in the eurozone show very good values. Although disappointing reports will continue the pair's decline, a lower-priced euro will certainly attract more buyers.   For long positions: Buy when euro hits 1.0989 (green line on the chart) and take profit at the price of 1.1035. Bullish traders will return to the market in the event of very good reports on the eurozone. However, before buying, ensure that the MACD line lies above zero or just starting to rise from it. Euro can also be bought after two consecutive price tests of 1.0960, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0989 and 1.1035   For short positions: Sell when euro reaches 1.0960 (red line on the chart) and take profit at the price of 1.0919. Pressure will intensify in the case of weak data from the eurozone. However, before selling, ensure that the MACD line lies below zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0989, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0960 and 1.0919.     What's on the chart: Thin green line - entry price at which you can buy EUR/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell EUR/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely.   MACD line- it is important to be guided by overbought and oversold areas when entering the market Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.    

The resilience of the eurozone's economy breeds complacency. This is an extremely dangerous feeling given the ongoing monetary policy tightening by the European Central Bank, which is in effect with a time lag. According to Bloomberg's research, a 425 bps increase in the interest rate since the beginning of the cycle will harm the currency bloc's GDP by 3.8%. Taking into account the negative impact of the energy crisis and the withdrawal of fiscal stimulus measures, this figure will rise to 5%. It's no wonder that members of the Governing Council are starting to doubt whether monetary tightening should be continued in September, and EUR/USD is falling.     In reality, most investors, according to ING's opinion, still believe that the euro will rise against the US dollar by the end of the year. Bloomberg's expert consensus on the main currency pair stands at 1.12. Moreover, the corrections of 5% in February, 4% in May, and 3% in July-August in EUR/USD indicate the strength of the uptrend. It is becoming more challenging for the bears to push the quotes lower. However, expectations are one thing, and reality is another.   Strengthening the euro requires an improvement in the health of the global economy. Then procyclical currencies will become the favorites. Unfortunately, this is not happening at the moment. Meanwhile, the strength of the US labor market makes the Federal Reserve keep its finger on the pulse. FOMC official Michelle Bowman believes that the central bank will need to raise the federal funds rate from 5.5% to 5.75%. The US dollar is supported by a favorable external backdrop, such as rising bond yields due to massive Treasury issuances, credit rating downgrades by Fitch, and the start of the normalization of the Bank of Japan's monetary policy.   At the same time, there is a pullback in stock markets that have been surging for five consecutive months. The worsening global risk appetite is a powerful driver of EUR/USD's decline. In this scenario, investors' demand for the dollar as a safe-haven asset increases. The bears have one more trump card up their sleeve.   Despite the stability of the US economy, the business cycle has not been canceled. 67% of investors-respondents of MLIV PULSE believe that by the end of 2024 a recession will hit the US. Moreover, 20% of those polled predict a recession already in the current year. It's as if they don't believe the Fed, which no longer considers a downturn scenario in 2023.       Thus, the euro is currently not living up to expectations, and the weakness of the eurozone's economy could lead to a premature end to the cycle of monetary tightening by the ECB. On the contrary, the US dollar is in demand among investors due to the strength of the US economy, its safe-haven status, and the rally in Treasury bond yields.   Technically, on the daily chart of EUR/USD, the Three Indians pattern continues to unfold. We successfully utilized the retracement by shorting on the bounce from the resistance at 1.1035. We are holding the position and raising it on a breakthrough below the support level at 1.0965    

Germany to release CPI on Wednesday, Eurozone on Thursday US consumer confidence and jobs data disappoint   The euro’s mini-rally has run out of steam. EUR/USD climbed 0.80% over the past two days but is trading in negative territory on Wednesday. In the European session, the euro is trading at 1.0867, down 0.11%. The markets will be keeping a close eye on European inflation releases today and Thursday. Germany releases the July CPI report later today, with a consensus estimate of 6.0%, compared to 6.2% in July. The once-formidable German juggernaut is in trouble and inflation remains high. The eurozone releases July CPI on Thursday, which is expected to drop from 5.3% to 5.1%. The ECB meets next on September 14th and ECB President Lagarde may have signalled that another rate hike is coming. Lagarde attended the Jackson Hole summit last week and said that interest rates would remain high “as long as necessary” in order to bring inflation back to the ECB’s 2% target. Lagarde’s hawkish remarks were more hawkish than her comments at the July meeting, where she said that ECB policy makers had an “open mind” about the September decision.   There’s no arguing that eurozone inflation remains too high, but the argument against raising rates even higher is that the eurozone economy is not in great shape, and nine straight rate hikes from the ECB have cooled economic growth. Further hikes could tip the economy into a recession, which means that the ECB has its work cut out in deciding whether to raise rates again or take a pause in September. The Federal Reserve is widely expected to hold rates at next week’s meeting, and disappointing data on Tuesday may have cemented a pause. The Conference Board Consumer Confidence Index fell sharply to 106.1 in July, compared to 116.0 in August, marking a two-year low. As well, JOLTS Job Openings slowed to 8.82 million in July, down from 9.16 million in June and well off the estimate of 9.46 million. This was the sixth decline in the past seven months, a sign that the resilient US labour market is showing cracks.   EUR/USD Technical EUR/USD is putting strong pressure on resistance at 1.0896. The next resistance line is 1.0996 1.0831 and 1.0731 are providing support    

The US non-farm payroll report for August, published on Friday, turned out to be perfect for the Federal Reserve. It's not so much about the figures, which were quite moderate, but about how they perfectly supported the Fed's strategy. The chances of a rate hike at the Fed's September meeting have dropped to 7%, which means it's safe to say that the rate hike cycle is over. Unless, of course, something unbelievable happens, but such assumptions should hardly be expected.   The first rate cut is expected in May 2024, and this forecast has not changed.   What was positive in the report? First and foremost, it was the fact that average hourly earnings increased 0.2% for the month, against the expectations of 0.3%. This is the smallest increase in the last 12 months. Slower wage growth is an important basis for reducing overall inflationary pressure. Nonfarm payrolls grew by 187,000 for the month, defying expectations, which could have been seen as a high level of activity had it not been for a revision to the previous two months' figures of 110,000, which more than offset the excess. The unemployment rate rose from 3.5% to 3.8%, the highest since February 2022. Overall, we can say that the Fed is consistently achieving its goal of cooling the economy to reduce inflationary pressure. Another significant release on Friday was the US ISM manufacturing index, which showed that the slowdown in the US manufacturing sector continues, albeit at a slower pace than expected (47.6 versus a consensus 47). Market activity was reduced on Monday due to the holiday in the United States. EUR/USD The Eurozone Harmonised Index of Consumer Prices jumped 0.6% in August, exceeding expectations of 0.4%. The annual eurozone HICP remained at 5.3% against a forecast of 5.1%. However, the data did not cause any surprise as the core index decreased in line with expectations from 5.5% to 5.3% y/y. After the report, European Central Bank Vice President Guindos stated that the new ECB forecasts would show that inflation prospects had not changed significantly over the summer, although economic prospects had deteriorated. The data indicates a decrease in economic activity in the third and possibly fourth quarters, and the rate decision in September is still open for debate. Earlier on the same day, ECB representative Schnabel (a hawk) stated that underlying inflationary pressure remains high, but economic activity has noticeably decreased. In her opinion, monetary policy remains a topic of discussion at every meeting, so she could not offer a view on what should happen this month. Thus, there is no clear position from the ECB. On Monday, ECB President Christine Lagarde was scheduled to speak, as well as Lane and Panetta, and on Tuesday, Lagarde will speak again with Schnabel and Guindos. Investors are eyeing the speeches for clues on the ECB's plans. If something different from the market consensus on this issue is voiced, increased volatility is inevitable. The net long position on the EUR decreased by 0.4 billion to 21.1 billion over the reporting week, with positioning remaining bullish. However, the trend toward selling the euro is becoming increasingly noticeable. The price remains below the long-term average and is falling again.     A week ago, we anticipated that EUR/USD would attempt a shallow correction after a pronounced two-month decline. This attempt took place, but then the bears attacked, and the euro fell to the recent low of 1.0764, failing to break it on the first attempt. We assume that after a brief consolidation, the downward movement will resume, the lower band of the channel will not hold, and the euro will move towards the nearest target of 1.0634. The dynamics will depend primarily on the stability of the US economic recovery and the Federal Reserve's future course of actions. GBP/USD Bank of England Chief Economist Huw Pill noted that services price inflation has become less favorable recently and that the UK is facing the effects of "second-round" effects (i.e., wage-driven) and that the Committee needs to see through the job aimed at suppressing inflation. Pill referred to two scenarios, the first of which involves a succeeding increase in rates followed by a rapid decrease, and the second involves maintaining high interest rates for an extended period. In his opinion, the profile of the inflation trajectory in both cases will be almost identical, but personally, he leans towards the second approach due to risks to financial stability. In any case, markets are anticipating a rate hike in September to 5.5%, which is already priced in, but a higher rate level appears increasingly unlikely. The net long position on GBP decreased by 0.6 billion to 4.1 billion over the reporting week, and the price dropped sharply.     Within the framework of a short-term correction, the pound rose above the resistance area of 1.2680/90, which we identified in the previous review as a likely level for a sell-off, but after the correction, it went down as expected. We assume that the sell-offs will intensify, the support at 1.2545 will not hold, and the long-term target of 1.2290/2310 remains relevant.  

FX Daily: Resistance to dollar strength is futile The dollar remains well-bid across the board as a relentless run of above-consensus US data suggests the Federal Reserve will be in no mood to relax its hawkish stance. Resistance to the strong dollar is crumbling - most notably in China where a higher USD/CNY fixing suggests the People's Bank of China is becoming more tolerant of renminbi weakness.   USD: No reason to unwind dollar longs The dollar is consolidating near the highest levels since March as US data continues to surprise on the upside. Following the above-expected ISM Services index on Wednesday, yesterday it was the turn of the weekly initial jobless claims to drop back to the lowest levels since February and question the narrative that tightness in the US labour market is easing. With activity data staying strong, it seems the market may be more minded to buy into the idea of another 'skip' - i.e. the Fed not hiking in September but hiking again later in the year. Clearly, this pushes the idea of a Fed easing cycle later and keeps the dollar stronger for longer. As has been the case so often, the dollar is the United States currency and everyone else's problem. Here, both Japanese and Chinese officials are fighting against dollar strength - with limited degrees of success. Japanese officials are sounding like we could well see intervention shortly - e.g. in the 148-150 window in USD/JPY. The highlight of the overnight session, however, has been the People's Bank of China (PBoC) allowing a higher fixing in the onshore USD/CNY. They have maintained the spread of the fixings to the model-implied fixings of around 1100 CNY pips, but the higher fixing has put paid to ideas that Chinese officials have some kind of line in the sand for USD/CNY at 7.35. USD/CNH is currently trading above that level. Low Chinese CPI next week and a PBoC rate decision with the one-year lending rate will keep expectations alive of further rate cuts too. The weaker CNY/CNH will continue to keep EM FX broadly offered and the dollar bid. There is very little in the way of US speakers or US data today. The weekend sees a G20 meeting in New Delhi, with much focus on how new alliances develop following the recently announced expansion plans of the BRICS.  We cannot see investors wanting to offload dollar balances anytime soon. This suggests DXY stays bid near 105.00.

Weekly jobless claims set to tee up tomorrow's US payrolls report By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets stabilised somewhat yesterday, although the FTSE100 slid for the third day in succession due to a sharp slide in commodity prices, which weighed on the big caps of basic resources and energy. There was a respite in the big surge we've seen in bond yields, which retreated from intraday and multiyear highs after the September ADP jobs report saw its weakest monthly job gain since January 2021, of 89k. This stabilisation in yields helped temper the downside for US markets, with the S&P500 rebounding from its 200-day SMA, which has acted as a key support area in the past couple of trading days. The retreat in yields also helped US markets rebound and close higher on the day, breaking a 3-day losing streak, with the biggest decline coming with a 10-point fall in the 2-year yield.     This rebound in US markets has translated into a rebound in Asia markets and looks set to translate into a positive start for European markets this morning as we look ahead to the latest German trade import and export data for August, as well as French industrial and manufacturing production data, all of which are forecast to show weak economic performance for both. German exports are forecast to decline by -0.6%, with imports expected to rise by 0.5%, while in France manufacturing output is expected to decline by 0.4%.     The US dollar fell victim to some modest profit taking, slipping back from 10-month highs as yields declined across the board. The US labour market is set to remain in the spotlight today, as well as tomorrow when we get the September non-farm payrolls report, which after yesterday's slowdown in the ADP numbers, could set the seal on another rate hike in November, or keep markets guessing ahead of next week's CPI report.     Before that, later today we get the latest weekly jobless claims numbers which are expected to show that claims increased slightly from 204k to 210k. Continuing claims are forecast to remain steady at 1.67m.       EUR/USD – the next support remains at the 1.0400 level which is 50% pullback of the 0.9535/1.1275 up move, followed by 1.0200. To stabilise we need to move through 1.0620 for a retest of the 1.0740 area.       GBP/USD – strong rebound yesterday from the 1.2030/40 area with support below that at the 1.1835 area which equates to a 50% retracement of the move from the record lows at 1.0330 to the recent peaks at 1.3145. We need to overcome the 1.2300 area to signal a move back the 1.2430 area and 200-day SMA.        EUR/GBP – still range bound with resistance at the 0.8700 area and resistance at the 200-day SMA at 0.8720, which is capping the upside. A break of 0.8720 targets the 0.8800 area, however while below the bias remains for a move back to the 0.8620 area.     USD/JPY – made a 12-month high of 150.16 earlier this week before plunging to 147.35 on the back of possible intervention from the Bank of Japan. With no confirmation that intervention took place, any further moves higher could be choppy. Below 147.30 signals the top is in.     FTSE100 is expected to open 32 points higher at 7,444     DAX is expected to open 62 points higher at 15,162     CAC40 is expected to open 30 points higher at 7,026  

Services PMIs in focus as stock markets struggle By Michael Hewson (Chief Market Analyst at CMC Markets UK)   Yesterday saw another day where rising US yields and a strong US dollar continued to exert downward pressure on stock markets with the DAX sinking to a fresh 6-month low, while the FTSE250 fell below its July lows to its lowest levels this year.   US markets also fell back with the S&P500 closing just above its 200-day SMA, as well as at a 4-month low. The Nasdaq 100 also had a poor day after the latest numbers for job openings jumped sharply in August by 600k, while the Dow slipped into negative territory for the year. The sharp rise in long term rates relative to short term rates suggests investors think that US interest rates are likely to remain higher for longer due to the continued resilience of the US economy. Consequently, this bear steepening is slowly unwinding the inversion of the 2/10s from the -105bps we saw at the end of June and where we are now at -35bps. If this trend of rising long-term rates continues, then stock markets could well be in for even more volatility in the days and weeks ahead. Let's not forget 2-year yields are still above 10-year yields, a situation which is far from normal. Under normal circumstances long term rates would be above short-term rates, which means this yield adjustment still has some way to go. How it plays out will be key to how stock markets perform over the next few weeks.     Also weighing on US markets was the voting out of US House speaker Kevin McCarthy, by fellow dissident Republicans on disappointment over the weekend agreement of a deal to avert a US government shutdown until November 17th. With the House now without a majority leader, a new leader will need to be appointed, a time-consuming process if the McCarthy experience is any guide, which could complicate the prospect that we might get a new deal when the current deal expires next month. If you thought UK politics was dysfunctional, then the US runs it a close second.       The weak finish in the US looks set to translate into a weak European open, with Asia markets falling sharply this morning with the focus today on the services sector and the latest US ADP jobs report.     The recent flash PMIs for France, Germany and the UK suggest further economic weakness in the services sector in September. France especially has seen a sharp slowdown despite hosting the Rugby World Cup with the flash services number falling to 43.9 from 46. Germany, on the other hand, saw a modest pickup from 47.3 to 49.8. In the UK we also saw a modest slowdown from 49.5 to 47.2, as concerns about a Q3 contraction across Europe continued to gain strength.       The weak flash readings from France and Germany make it even more puzzling as to why the ECB felt it necessary to raise rates at its last meeting, although one suspects it may well have been its last. In the US the services sector is proving to be more resilient at 50.2, while the ISM services survey has tended to be more resilient and is expected to come in at a fairly solid 53.5. Yesterday the latest JOLTS numbers for August showed a big jump in vacancies to 9.6m in a sign that the US labour market remains surprisingly resilient driving long term US yields to new multiyear highs. Today's ISM as well as ADP payrolls report could add further fuel to that yield fire with another set of strong numbers, ahead of Friday's September payrolls report. ADP payrolls saw 177k jobs added in August, falling slightly short of forecasts of 195k. Slightly offsetting that was sizeable upward revision to July from 324k to 371k, but overall, the main gains have been in services. Expectations are for 150k jobs to be added.        EUR/USD – has slipped below the 1.0480 lows of last week, opening up the potential for a return towards parity, with the next support at 1.0400 which is 50% pullback of the 0.9535/1.1275 up move, followed by 1.0200. The main resistance remains back at the 1.0740 area, which we need to get above to stabilise and minimise the risk of further weakness.       GBP/USD – looks set for a test of the 1.2050 area with a break targeting the 1.1835 area which equates to a 50% retracement of the move from the record lows at 1.0330 to the recent peaks at 1.3145. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.         EUR/GBP – appears range bound with resistance at the 0.8700 area and resistance at the 200-day SMA at 0.8720, which is capping the upside. A break of 0.8720 targets the 0.8800 area, however while below the bias remains for a move back to the 0.8620 area.     USD/JPY – made a 12-month high of 150.16 yesterday before plunging to 147.35 on the back of possible intervention from the Bank of Japan. With no confirmation at the time of writing that intervention took place, any further moves higher could be choppy. Below 147.30 signals the top is in.     FTSE100 is expected to open 6 points lower at 7,464     DAX is expected to open 33 points lower at 15,052     CAC40 is expected to open 12 points lower at 6,985  

USD A mixed payrolls report for December offered some contradictory signals: steady job creation and healthy wage growth in the establishment survey, contrasted with a sizable drop in labour force participation in the household one. Investors initially reacted to the strong December job creation number by sending the dollar higher, although the greenback quickly reversed course on realisation that the 71k downward revision to the October and November data more than made up for the upside surprise in the final month of the year. All in all, the US labour market continues to enjoy full employment, but signs of cooling are accumulating. All this will be overshadowed by the key December CPI inflation report on Wednesday. A two-in-three chance of a March cut from the Federal Reserve currently priced in by markets still strikes us as too high, and this week's inflation number will go a long way towards settling the debate.