Euro Strikes Back on ECB Bets, Dollar Reversing Gains

Euro is staging a strong come back today, as supported by hawkish comments from ECB officials over the weekend. In short, a 50bps rate hike looks like that base case for ECB meeting next week, with some possibility of a 75bps hike. Dollar is reversing some gains in spite of risk-off sentiment. The clearer trend for now is the selloff in Yen on rising major Eurozone and US yields. This is followed by weakness in Sterling and Swiss Franc as triggered by selloff against Euro.

Technically, breakouts are seen in some Euro pairs. For example, EUR/JPY breaks through 138.38 resistance to resume the rebound from 133.38. EUR/GBP breaks through 0.8510 resistance to resume the rise from 0.8338. EUR/CHF is also on the verge of breaking through 0.9698 resistance to confirm short term bottoming at 0.9550. The question is whether EUR/USD will follow with a break of 1.0094 minor resistance too to set up stronger rebound.

In Europe, UK is on holiday. DAX is down -0.73%. CAC is down -1.15%. Germany 10-year yield is up 0.092 at 1.482. Earlier in Asia, Nikkei dropped -2.66%. Hong Kong HSI dropped -0.73%. China Shanghai SSE rose 0.14%. Singapore Strait Times dropped -0.84%. Japan 10-year JGB yield rose 0.0220 to 0.243.

USD/CNH heading towards 7 as up trend resumes

The Chinese Yuan extends recent decline and hits a new 2-year low today. This comes on the back on broad based strength in Dollar, on expectation that Fed’s interest rate will stay high for long even after the current tighten cycle finishes. On the other hand, Yuan’s weakness is also driven by weaker than expected economic data and rate cut by PBoC. China’s PMI data to be released later in the week, and US non-farm payroll, could trigger even steeper selloff in Yuan against the greenback.

USD/CNH’s up trend resumes today and hit as high as 6.9323 so far. Outlook will stay bullish as long as 6.8459 support holds. Next target is 61.8% projection of 6.3057 to 6.8372 from 6.7159 at 7.0444. A question is whether there would be intervention by the Chinese authority above the 7.0000 mark.

WTI oil to take on 95.91 resistance again soon

Oil prices edged slightly higher today but fails to gather enough upside momentum so far. It’s supported by hopes of a production cut from OPEC+, as response to restore balance after Iran’s nuclear deal. Also, unrest in Libya’s capital at the weekend prompted concerns of disruption of supply from the country.

WTI’s first attempt at 95.91 resistance failed last week, but retreat is so far shallow. Some support is seen from 4 hour 55 EMA, which is a positive sign, and could set the base for another taken on the resistance.

Also, in the background, 86.41 low was already close enough to an important cluster support at 85.92, with 100% projection of 131.82 to 93.47 from 124.12 at 85.77. That is, the conditions are there for WTI to complete the whole corrective pattern from 131.81 high.

Break of 96.59 and sustained trading above 95.91 should confirm near term bullish reversal, and set the stage for 103.84 resistance next.

Australia retail sales rose 1.3% mom in Jul

Australia retail sales turnover rose 1.3% mom to AUD 34.67B in July, well above expectation of 0.3% mom.

Ben Dorber, head of retail statistics at the ABS, said: “After slowing growth in recent months, the 1.3 per cent rise in July was the largest since the 1.6 per cent rise in March 2022.

“Turnover rose in five of the six retail industries in July 2022. This shows that, despite cost-of-living pressures, households are continuing to spend.”

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 0.9911; (P) 1.0000; (R1) 1.0053; More…

EUR/USD recovers notably today but stays in established range above 0.9899. Intraday bias remains neutral first. On the downside, break of 0.9899 will resume larger down trend to 61.8% projection of 1.0773 to 0.9951 from 1.0368 at 0.9860. Firm break there should prompt downside acceleration to 100% projection at 0.9546. However, firm break of 1.0094 minor resistance will dampen this bearish view, and turn bias back to the upside for 1.0368 resistance instead.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0368 resistance holds, in case of strong rebound.