USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 109.77; (P) 109.86; (R1) 110.03; More…

Intraday bias in USD/JPY remains neutral as range trading continues. On the downside, break of 109.10 will target 108.71 support first. Firm break there will resume the decline from 111.65 and target 38.2% retracement of 102.58 to 111.65 at 108.18 next. On the upside, break of 110.79 will resume the rebound from 108.71 to retest 111.65 high.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. Nevertheless, strong break of 111.71 resistance will confirm completion of the corrective decline from 118.65 (2016 high). Further rise should then be seen to 114.54 and then 118.65 resistance.

September 01, 2021 at 01:12AM
ActionForex.com
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USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9122; (P) 0.9154; (R1) 0.9205; More….

Range trading continues in USD/CHF and intraday bias remains neutral first. On the downside, break of 0.9098 will target 0.9017 support first. Further break there will likely resume the decline from 0.9471 through 0.8925 low. On the upside, break of 0.9241 resistance should resume the rise from 0.8925 through 0.927.

In the bigger picture, the failure to sustain above 55 week EMA (now at 0.9176) retains medium term bearishness in USD/CHF. Break of 0.8925 support should resume the whole decline form 1.0342 (2016 high) through 0.8756 low. However, break of 0.9273 resistance and sustained trading above 55 week EMA will be an early sign of bullish trend reversal. Focus will then turn to 0.9471 resistance for confirmation.

September 01, 2021 at 01:10AM
ActionForex.com
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GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3736; (P) 1.3755; (R1) 1.3777; More…

Intraday bias in GBP/USD remains mildly on the upside at this point. Rebound form 1.3601 short term bottom would target 1.3982 resistance first. Decisive break there will pave the way back to retest 1.4248 high. On the downside, break of 1.3678 will turn bias back to the downside for 1.3570 low, and possibly further to 1.3482 key resistance turned support.

In the bigger picture, current development argues that rise from 1.1409 (2020 low) has completed at 1.4248, after failing 1.4376 resistance. Fall from there could either be correcting the rise from 1.1409, or starting another falling leg inside long term sideway pattern. In either case, sustained break of 1.3482 resistance turned support will target 38.2% retracement of 1.1409 to 1.4248 at 1.3164 first. Break there will pave the way to 61.8% retracement at 1.2493.

September 01, 2021 at 01:07AM
ActionForex.com
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EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1783; (P) 1.1797; (R1) 1.1810; More…

Intraday bias in EUR/USD stays on the upside at this point. Rebound from 1.1663 short term bottom is on track to 1.1907 resistance. Decisive break there will indicate that fall from 1.2265, as well as the consolidation pattern from 1.2348, have completed. Near term outlook will be turned bullish for 1.2265/2348 resistance. On the downside, break of 1.1782 minor support will mix up the near term outlook and turn intraday bias neutral first.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

September 01, 2021 at 12:56AM
ActionForex.com
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US August consumer confidence 113.8 vs 124.0 expected

• Expectations 91.4vs 108.4 prior (revised to 103.8)
  
• Present situation 147.3 vs 160.3 prior (revised to 157.2)
  
• Jobs hard to get 11.8 vs 10.5 prior
• 1 year inflation expectations % vs 6.6% prior

"Consumer confidence retreated in August to its lowest level since February 2021(95.2)," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. "Concerns about the Delta variant-and, to a lesser degree, rising gas and food prices-resulted in a less favorable view of current economic conditions and short-term growth prospects. Spending intentions for homes, autos, and major appliances all cooled somewhat; however, the percentage of consumers intending to take a vacation in the next six months continued to climb. While the resurgence of COVID-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead."

I worry there's going to be a buyers strike in durable goods in the same way that discretionary lumber buying collapsed when prices spiked.

Ahead of this report, I made the case for why it could be very weak, and that's what happened.

September 01, 2021 at 02:00AM
Adam Button
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Why US consumer confidence today could be another big surprise

The shock drop in the UMich survey could be repeated

I think the market is sleeping on the risks around an ongoing pullback from the US consumer.

US total consumer spending on goods way overshot during the pandemic and just to normalize would be a contraction. Add in delta, evictions and the end of supplementary employment benefits next week and there are far larger risks than almost anyone is talking about.

So far, we've had two big disappointing readings in the latest retail sales numbers and the shocking fall in the UMich consumer sentiment report to below the worst of the pandemic.

Today, we get another view on the consumer, this time in the Conference Boards' consumer confidence data for August. The consensus is a fall to 123.0 or 124.0 (depending on the survey) from 129.1, but if it tracks the UMich survey it could be much worse.

Ashraf Laidi talks about the potential for a disappointing reading here and some trades around it.

I agree that risks are to the downside and this reading could finally get the market focused on the weakening US consumer. As a trade, I worry it might get lost in month-end flows but the US dollar could be vulnerable here -- particularly USD/JPY if it comes with risk aversion and falling Treasury yields.

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September 01, 2021 at 01:41AM
Adam Button
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Oil declines $1 as worth month since October winds down

WTI down $1 to $68.16

The combination of some dollar strength, a bit more caution on risk and tomorrow's OPEC+ meeting is weighing on oil today.

WTI is down $1 to $68.16 but I want to highlight the monthly chart. This looked like it would be the worst month since the start of the pandemic but is now only the worst month since October (and only the second negative month since then).

Importantly, oil looks to be holding above the old 2019 highs and hasn't confirmed a possible reversal signal over three months. The main hurdle remains the October 2018 high of $76.90, which was broken by a few cents last month but will need to be truly busted before the bulls can seriously start talking about $100.

Overall though, this is a constructive looking chart and a reminder of the insane price action in April 2020.

Meanwhile, OPEC's joint monitoring committee's documents are leaking at the moment and see an oil supply deficit of 1.0 mbpd in September, which will fall to 400k bpd by year end. For next year though, they see the oil market in a 2.5 mbpd surplus. Demand growth for this year is unchanged at 6 mbpd.

On OECD stockpiles, they see them rising above the 5-year average from Feb to Dec 2022. This document raises questions about the need to continue hiking production beyond December or January. A 2.5 mbpd could quickly cut down oil prices.

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September 01, 2021 at 01:24AM
Adam Button
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US June FHFA house price index 18.8% y/y vs 18.0% prior

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September 01, 2021 at 01:00AM
Adam Button
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US June Case-Shiller 20-city price index 19.1% y/y vs +18.5% expected

US June home price data from Case-Shiller

• Prior was +17.0%
• Consensus range 15.0-19.0%
• +1.8% m/m vs +1.8% expected

The year-over-year gain now exceeds the peak of the housing bubble.

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September 01, 2021 at 01:00AM
Adam Button
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US stocks open lower

Doubt down for the third time in four trading days

The US stocks have open lower.

• The Dow is down for the third time in four trading days
  
• The S&P and NASDAQ open lower after closing at a record levels yesterday
  
• The stock market gave up earlier premarket gains
  
• The S&P closed at a new record high for the 53rd time in 2021 yesterday
  
• The NASDAQ index closed at a new record high for the 32nd time in 2021 yesterday
  

A snapshot of the market seven minutes into the opening currently shows:

• Dow Jones -37 points or -0.10% at 35363
  
• S&P index -6.31 points or -0.14% at 4522.5
  
• NASDAQ index -29 points or -0.19% at 15236
  

a look at other markets shows:

• Spot gold up $3.82 or 0.2% at $1812.87.
  
• Spot silver is up $0.15 or 0.63% $24.12
  
• WTI crude oil futures are down $0.51 at $68.70
  
• the price of bitcoin is trading up about $800 at 47,800
  

In the US debt market, yields are modestly higher/little changed.

In the forex, the NZD remains the strongest of the majors (was the strongest at the start of the North American session), the CAD is the weakest now (which is a tad weaker than the USD).

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September 01, 2021 at 01:38AM

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GBPUSD moves back toward close from yesterday after run to the 200 day MA found sellers

Sellers leaned ahead of the 200 day moving average

The GBPUSD moved higher in the Asian session and reached up to test a key swing area between 1.3790 and 1.38022. 

Within that area sits the 50% midpoint of the range since the July 30 high at 1.37921, and the key 200 day moving average a little higher at 1.38023. 

The high price reached 1.38007 - just below the 200 day moving average level.  Sellers were waiting against the level as risk could be defined and limited. The price moved lower and the swing area solidified itself as resistance.

The price has since moved back down toward the close from yesterday. The close from yesterday was 1.3757. The low price just reached 1.3756 and bounced. The current price is trading at 1.3770. Buyers are trying to keep the price in the black.

Should the price move into negative territory, the rising 100 hour moving average comes in at 1.3743. Recall from yesterday, the low price in the early North American session did find buyers against that level. Getting below the 100 hour moving average would increase the bearish bias.

For now, the key resistance area above stalled the rally and increased the areas importance. The close from yesterday and the rising 100 hour moving average are the key support levels on the downside.  Traders seem comfortable to trade those ranges for now with an eye on a shove outside the levels.  

September 01, 2021 at 01:35AM

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USDJPY falls to test the 100 day MA. Dip buyers lean against the key MA level

It is month end..

The USDJPY saw a quick move lower over the last hour of trading. The move saw the price tumble to the downside - breaking the 200 hour MA in the process (again) and running to test the 100 day moving average at 109.651 (see post from late yesterday outlining the key level).  The low price reached 109.64. Buyers leaned against the key moving average level. The price has snapback higher.

The move back to the upside has reached the 200 hour moving average at 109.853 (green line in the chart above). The question now for traders is "Can the sellers keep the rebound in check against that 200 hour moving average level?".

Earlier in the Asian session, the buyers were able to push above its 100 hour moving average and 50% retracement near the 109.93 to 109.95 area. The price reached 109.977 before rotating back to the downside.

The London morning session high price moved back toward that 50% level and 100 hour moving average at 109.95, but could not extend above.  That led to the downside move.   Ultimately, if the price is to move higher not only getting above the 200 hour MA will be eyed, but also getting above the 50%/100 hour moving average would be required.

For now however, it seems the 200 hour moving average above, and the 100 day moving average below will be the resistance and support, with traders looking for the next shove one direction or the other.

****Remember today is the last trading day of the month of August. That could influence flows higher or lower depending upon supply and demand conditions within the market. As a result, we can see some quick moves down and quick moves up as well.  

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September 01, 2021 at 01:14AM
Greg Michalowski
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Disappotining PMI Suggests PBOC will Ease Further. Policy Divergence to Drive CNY Lower vs USD

The latest data revealed that China’s economy continued to lose momentum. The PMI report from the National Bureau of Statistics (NBS) showed disappointment in both manufacturing and services activities. Stability of the renminbi (a.k.a. Yuan, CNY) is mainly due to government’s control and is not reflective of the headwind the economy is facing. We expect the People’s Bank of China (PBOC) would lower the reserve requirement ratio later this year, possibly followed by rate cut. Policy divergence from the Fed suggests further downside for the country’s currency.

The NBS manufacturing PMI slipped -0.3 point to 50.1 in August, slightly worse than consensus of consensus of 50.2. Concerning the sub-indexes, “production” was down -0.1 point to 50.9, while “new orders” was down -1.3 point to 49.6. “New exports” dropped to 46.7, lowest since June 2020, from 47.7 a month ago, while “imports” was down -1.1 pt to 48.3. The broad-based decline in these readings signals that demand was weak both at home and abroad.

The non-manufacturing PMI slumped to 47.5 in August from 53.3 in the prior month. The market had anticipated a milder decline to 52. A reading below 50 signals contraction in activities. While non-manufacturing activities are further divided into services and construction, the sharp decline this month was mainly driven by the former. The services PMI sank to 45.2 from July’s 52.2. The lockdown measures affected various industries, especially those require frequent contact with customers such as highway/air transportation, accommodation and catering. By contrast, the construction PMI improved to 60.5 in August to 60.5 from 57.5 previously.

The report also gives us a glimpse of China’s job market and inflation. The employment sub-index for the manufacturing sector stayed flat at 49.6 in August while that for non-manufacturing activities was above 50. The latter mainly reflects improved conditions in the construction sector. Inflation pressure appears to have moderated. The manufacturing “input cost” slipped -1.6 point to 61.3, while “output price” was down -0.4 point to 53.4 in August. Note that the output price of petroleum, coal and other fuels, smelting and pressing of ferrous metal each slumped more than 12 points and were all below 50 in August, resulting from regulatory measures to crack down commodity prices.

Overall, the PMI report suggests that China’s growth momentum continued to decelerate in August. As we mentioned in a previous report, it should take several months for the economic impacts of July’s flood and the resurgence of the pandemic to be reflected in the economic data, followed by government actions.

Implications on PBOC’s Monetary Policy and USDCNY

The PBOC released a statement last week, pledging to use monetary policy tools to stimulate the economy, including the reserve ratio, and re-lending and re-discounting measures for rural developments. We expect that further reduction in RRR would come in a week or two. In April 2020, the central bank cut the RRR by -1 ppt for rural financial institutions and regional commercial banks, releasing RMB 400B of liquidity to the market. Meanwhile, Governor Yi Gang also pledged to boost credit support to the economy and improve efforts to bring down real lending rates for businesses.

The PBOC has been keeping its policy rate, the one-year loan prime rate (LPR), unchanged at 3.85% for 16 months in August. The five-year LPR also stays at 4.65%. Should RRR reduction and other liquidity injection tools prove insufficient to boost the economy, the central bank would be obliged to adopt an outright rate cut. This would exacerbate the monetary policy divergence with the Fed, sending renminbi further lower.

September 01, 2021 at 01:09AM
ActionForex.com
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Euro Rises on Inflation, ECB Talks, and German Yield

Euro jumps notably today, as supported by highest inflation reading in a decade, and hawkish comments from an ECB official, as well as rise in German yields. Though, it’s slightly outshone by Kiwi, Aussie and Swiss Franc for now. On the other hand, Dollar’s selloff continues to pick up momentum and even dips against Yen. Canadian Dollar also stays weak, getting little support from GDP data that matched expectations.

Technically, EUR/GBP’s break of 0.8592 minor resistance suggests resumption of the rebound from 0.8448. That’s affirming Euro’s underlying strength. But as EUR/CHF appears to be rejected by 1.0839 resistance, Euro’s rally is somewhat capped elsewhere. We’ll keep on monitoring European crosses to gauge the potential of more upside acceleration in EUR/USD and EUR/JPY.

In Europe, at the time of writing, FTSE is down -0.62%. DAX is down -0.37%. CAC is down -0.41%. Germany 10-year yield is up 0.0209 at -0.396, back above -0.4 handle. Earlier in Asia, Nikkei rose 1.08%. Hong Kong HSI rose 1.33%. China Shanghai SSE rose 0.45%. Singapore Strait Times dropped -1.52%. Japan 10-year JGB yield rose 0.0064 to 0.026.

Canada GDP grew 0.7% mom in Jun, to contract -0.4% mom in Jul

Canada GDP grew 0.7% mom in June, matched expectations. Total economic activity was -1.5% below February 2020’s pre-pandemic level. Overall, 15 of 20 industrial sectors were up. Services-producing industries rose 0.7% mom while goods-producing industries rose 0.9% mom.

Statistics Canada said preliminary information indicates an approximate -0.4% decline in real GDP for July. The main decreases were in manufacturing, construction and retail trade.

ECB Holzmann will advise to slow down asset purchases in Q4, more so in Q1

ECB Governing Council member Robert Holzmann said in an interview, “we are now in a situation where we can think about how to reduce the pandemic special programs — I think that’s an assessment we share.””We have the opportunity to discuss how do we close the pandemic part and focus on the inflation part,” he added.

“If enough people share my opinion, we will certainly advise the Executive Board to slow down purchases in the fourth quarter and more so in the first,” Holzmann said. “We will spend as much as needed.”

Eurozone CPI jumped to 3.0% yoy in Aug, core CPI rose to 1.6% yoy

Eurozone CPI accelerated to 3.0% in August, up sharply from 2.2% yoy, above expectation of 2.8% yoy. CPI core rose to 1.6% yoy, up from 0.7% yoy, above expectation of 0.5% yoy.

Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in August (15.4%, compared with 14.3% in July), followed by non-energy industrial goods (2.7%, compared with 0.7% in July), food, alcohol & tobacco (2.0%, compared with 1.6% in July) and services (1.1%, compared with 0.9% in July).

France consumer spending dropped -2.2% mom in Jul, GDP rose 1.1% qoq in Q2

France consumer spending dropped -2.2% mom in July, below expectation of 0.7% mom rise. This decrease came from the fallback in purchases of manufactured goods (–2.7%) and the sharp drop in food consumption (–2.9%). Energy expenditure, meanwhile, increased moderately (+1.0%).

France GDP grew 1.1% qoq in Q2 in volume term better than expectation of 0.9% qoq. GDP closed one quarter of the gap to is pre-crisis level at the end of 2020. It stood -3.2% below its level in Q4 2019.

Also released, Germany unemployment rate dropped from 5.6% to 5.5% in August, below expectation of 5.6%.

From UK, mortgage approvals dropped to 75k in July, below expectation of 79k. M4 money supply rose 0.1% mom, below expectation of 0.6% mom.

Japan industrial production dropped -1.5% mom in Jul, but expected to bounce back ahead

Japan industrial production dropped -1.5% mom in July, better than expectation of -2.5% mom. The overall output was back below pre-pandemic levels already. The Ministry of Economy, Trade and Industry expects, however, a bounce back of 3.4% in production in August, and 1.0% in September.

Unemployment rate ticked down to 2.8%, better than expectation of 2.9%. Housing starts rose 9.9% yoy in July versus expectation of 4.8% yoy. Consumer confidence dropped slightly to 36.7 in August, below expectation of 37.4.

China PMI manufacturing dropped to 50.1, services tumbled to 47.5

China’s official PMI Manufacturing dropped slightly from 50.4 to 50.1 in August, below missed expectation of 50.2. PMI Non-Manufacturing dropped sharply from 53.3 to 47.5, well below expectation of 52.8, back in contraction for the first time since Q1 last year.

“This epidemic in multiple provinces and locations was a fairly big shock to the services industry, which is still in recovery,” said Zhao Qinghe, of China’s National Bureau of Statistics.

New Zealand ANZ business confidence dropped to -14.2 on Delta lockdown

New Zealand ANZ Business Confidence dropped sharply from -3.8 to -14.2 in August. Own Activity Outlook dropped from 26.3 to 19.2. Looking at some more details, export intentions ticked down from 7.6 to 7.4. Investment intentions dropped from 17.4 to 14.4. Employment intentions dropped from 21.4 to 17.0. Profit expectations dropped from 0.0 to -5.5. Inflation expectations, however, rose further from 2.70 to 3.05, above RBNZ’s target band. ANZ said that the “initial responses after level 4 lockdown look encouragingly robust”.

Also released, New Zealand building permits rose 2.1% mom in July.

From Australia, current account surplus widened to AUD 20.5B in Q2, versus expectation of AUD 21.0B. Private sector credit rose 0.7% mom in July versus expectation of 0.5% mom. Building permits dropped -8.6% mom, versus expectation of -5.0% mom.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1783; (P) 1.1797; (R1) 1.1810; More…

Intraday bias in EUR/USD stays on the upside at this point. Rebound from 1.1663 short term bottom is on track to 1.1907 resistance. Decisive break there will indicate that fall from 1.2265, as well as the consolidation pattern from 1.2348, have completed. Near term outlook will be turned bullish for 1.2265/2348 resistance. On the downside, break of 1.1782 minor support will mix up the near term outlook and turn intraday bias neutral first.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Economic Indicators Update

GMT	Ccy	Events	Actual	Forecast	Previous	Revised
22:45	NZD	Building Permits M/M Jul	2.10%		3.80%	4.00%
23:30	JPY	Unemployment Rate Jul	2.80%	2.90%	2.90%
23:50	JPY	Industrial Production M/M Jul P	-1.50%	-2.50%	6.50%
01:00	CNY	NBS Manufacturing PMI Aug	50.1	50.2	50.4
01:00	CNY	Non-Manufacturing PMI Aug	47.5	52.8	53.3
01:00	NZD	ANZ Business Confidence Aug	-14.2		-3.8
01:30	AUD	Current Account Balance (AUD) Q2	20.5B	21.0B	18.3B	18.9B
01:30	AUD	Private Sector Credit M/M Jul	0.70%	0.50%	0.90%
01:30	AUD	Building Permits M/M Jul	-8.60%	-5.00%	-6.70%	-5.50%
05:00	JPY	Housing Starts Y/Y Jul	9.90%	4.80%	7.30%
05:00	JPY	Consumer Confidence Index Aug	36.7	37.4	37.5
06:45	EUR	France Consumer Spending M/M Jul	-2.20%	0.70%	0.30%
06:45	EUR	France GDP Q/Q Q2	1.10%	0.90%	0.90%
07:55	EUR	Germany Unemployment Rate Aug	5.50%	5.60%	5.70%	5.60%
07:55	EUR	Germany Unemployment Change Aug	-53K	-34K	-91K	-90K
08:30	GBP	Mortgage Approvals Jul	75K	79K	81K
08:30	GBP	M4 Money Supply M/M Jul	0.10%	0.60%	0.50%	0.60%
09:00	EUR	Eurozone CPI Y/Y Aug P	3.00%	2.80%	2.20%
09:00	EUR	Eurozone CPI Core Y/Y Aug P	1.60%	1.50%	0.70%
12:30	CAD	GDP M/M Jun	0.70%	0.70%	-0.30%
13:00	USD	S&P/Case-Shiller Composite-20 HPI Y/Y Jun		17.50%	17.00%
13:00	USD	Housing Price Index M/M Jun		2.10%	1.70%
13:45	USD	Chicago PMI Aug		69.8	73.4
14:00	USD	Consumer Confidence Aug		123.3	129.1

September 01, 2021 at 12:55AM
ActionForex.com
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Ida aftermath: Mississippi highway collapses, 2 killed, at least 10 injured

Two people were killed and at least 10 others were injured when their vehicles plunged into a deep hole where a highway collapsed after Hurricane Ida blew through Mississippi.

Torrential rain may have caused the collapse, and the drivers may not have seen that the roadway in front of them had disappeared Monday night, Mississippi Highway Patrol Cp. Cal Robertson said.

HURRICANE IDA FORCES DOGS AND CATS TO BE AIRLIFTED FROM LOUISIANA TO SHELTERS ACROSS US

"Some of these cars are stacked on top of each other," he said. Seven vehicles were involved, including a motorcycle. A crane was brought in to lift them out of the hole.

WDSU-TV reports that state troopers, emergency workers and rescue teams responded to Highway 26 west of Lucedale, about 60 miles (96 kilometers) northeast of Biloxi, to find both the east and westbound lanes collapsed. Robertson said the hole is around 50 to 60 feet (15 to 18 meters) long and 20 to 30 feet (6 to 9 meters) deep.

The identities and conditions of those involved in the accident have not yet been released.

HURRICANE IDA'S IMPACT ON LOUISIANA IS 'UNPRECEDENTED,' CAJUN NAVY RELIEF PRESIDENT SAYS

More than 8 inches (20 centimeters) of rain fell in the area during Ida, according to the National Weather Service.

Between 3,100 and 5,700 vehicles drive along the stretch of two-lane highway on an average day, according to Mississippi Department of Transportation data.

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Hurricane Ida blasted ashore Sunday as a Category 4 storm, one of the most powerful ever to hit the U.S. mainland. It knocked out power to much of southeastern Louisiana and southern Mississippi, blowing roofs off buildings and reversing the flow of the Mississippi River.

September 01, 2021 at 12:56AM
Fox News
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Worst Performing Major Currency Might Finally Get a Lifeline

Forex 52 minutes ago (Aug 31, 2021 08:54AM ET)

© Reuters. Worst Performing Major Currency Might Finally Get a Lifeline

(Bloomberg) -- Chile’s peso , the worst performing major currency this month, is about to get some uncharacteristic help from the central bank.

The currency has tumbled 3% in August ahead of presidential elections in November -- the biggest decline among 32 peers tracked by Bloomberg. That has brought its drop in the past four months to 9.5% -- more than double any other major Latin American currency except Peru’s sol .

In the next month however, economics may trump politics. Policy makers are expected to raise the key rate by a half-point late on Tuesday, the biggest increase in a decade. And with a retail sales boom at fever pitch, some are even contemplating a 75 basis-point increase, something that hasn’t been seen in Chile since 2001. Add in falling Covid cases, and the currency’s worst days may well be behind it.

“The central bank has fallen behind the curve and there are clear signs that the economy is overheating,” Goldman Sachs (NYSE: GS ) economist Alberto Ramos wrote in a report.

The bank assigns a 65% probability to a 50 basis-point increase to 1.25%, and a 10% possibility to a larger boost, according to to the report released Friday.

Catching Up

What’s more, the central bank is likely to continue hiking rates well into next year as it grapples with the fastest inflation since 2016, further underpinning the peso.

Swaps now price the policy rate at over 3% in 12 months, implying more than 225 basis points of hikes. Economists surveyed by the central bank are more cautious, forecasting the key rate at 2%.

Expectations of a faster pace of tightening, coupled with a recovery in copper prices, could help the peso strengthen toward its 50-day moving average near 763 per dollar. The currency has traded on the weaker side of that average since mid-May.

Copper, which accounts for over half of Chilean exports, climbed 1.2% in London on Monday, bringing its gain this year to 21%.

Opening Up

Another positive development comes from falling Covid infections, with the government lifting nearly all lockdown restrictions in the capital Santiago. Investors should take note of the rally in the Thai baht last week, the biggest in 14 years, after the government announced the removal of some quasi-lockdown curbs.

Citigroup (NYSE: C ) turned neutral on the Chilean peso in its EM bond portfolio on Monday versus an underweight position previously. The currency’s real effective exchange rate has looked undervalued relative to copper since late 2019, and the performance gap has widened in recent weeks, according to analysts led by Dirk Willer, head of EM Fixed Income Strategy.

The “idiosyncratic depreciations” tend to have a bigger impact on inflation and may push the central bank to go more hawkish, Citi analysts say.

Others are more cautious. RBC Capital Markets prefers to short the peso, citing the risk of polls showing growing support for the left ahead of November’s election. The central bank may also act “more prudently” at its meeting, disappointing market expectations, RBC says.

Worst Performing Major Currency Might Finally Get a Lifeline

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September 01, 2021 at 12:54AM
Bloomberg
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EURUSD runs higher after basing near 50% midpoint on the hourly chart yesterday

Moves away from the 1.1800 area as well

The EURUSD has made a run to the upside after basing near the 50% midpoint or the trading range since July 30 during yesterday's trade.

Recall that the up-and-down price action yesterday saw the pair move up to a high over the 1.1800 – 1.18044 swing area, but fell back down toward its midpoint level near the start of the New York session. Although the price decline moved to a low of 1.1782 below the 50% midpoint of 1.17857, that selling could not be maintained and the prices started to move back toward the 1.1800 - 1.18044 level by the close of trading (see post from yesterday).

In the Asian session today, the price was able to break above the 1.1800 – 1.18044 area and push toward the next key target at the 61.8% retracement.  Getting above that level had traders looking toward the 1.18243 to 1.1830 area (see green numbered circles).  Ultimately that swing area was also broken.

We now trade just above that swing area.   If the prices is to continue its trend- like move to the upside, staying above the 1.18243 to 1.18300 level will be eyed, with the next swing area at 1.18507 to 1.18568 area as the next target.  

The overall price action since the swing lows on August 19 and August 20 has seen the EURUSD move up 6 of the last 7 days (today would be day seven of eight).   The step from the 50% midpoint yesterday, and the move above the 61.8% retracement today is keeping the March to the upside in play. The high price for July ultimately reached above the 1.1900 level at 1.19081. The pair is still 70 or so pips away from that level, but the buyers continue to blaze an upside trail toward that area.  

Watch the 61.8% retracement today for support.  Stay above and the buyers remain in control. 

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September 01, 2021 at 12:51AM
Greg Michalowski
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