Euro Extending Rally… Against Sterling and Swiss Franc First

Euro is trying to extend recent rally, but the gains also so far concentrated against Sterling and Swiss Franc. Persistent flow of hawkish comments from ECB official is support the common currency nevertheless. Australian Dollar and Yen are currently the stronger ones for the day. The Pound, Franc and Dollar are the weaker ones.

Technically, EUR/CHF’s break of 0.9698 resistance should confirm short term bottoming at 0.9550, on bullish convergence condition in 4 hour MACD. EUR/GBP’s rally is continuing and break of 0.8585 resistance would set the stage for retesting 0.8720 high. However, EUR/USD is still struggling in established range of 0.9899/1.0094. Downside breakout remains in favor in EUR/USD, but let’s see.

In Europe, at the time of writing, FTSE is up 0.08%. DAX is up 1.64%. CAC is up 0.88%. Germany 10-year yield is down -0.011 at 1.495. Earlier in Asia, Nikkei rose 1.14%. Hong Kong HSI dropped -0.37%. China Shanghai SSE dropped -0.42%. Singapore Strait Times rose 0.53%. Japan 10-year JGB yield dropped -0.0155 to 0.227.

ECB Knot: Swift normalization of interest rates is essential

ECB Governing Council member Klaas Knot said, “a swift normalization of interest rates is an essential first phase, and some front-loading should not be excluded. The broadening and deepening of our inflation problem generates the need to act forcefully.”

Knot saw upside risks to inflation, including from higher food and energy prices, a weaker euro, copious budget spending and rising expectations. He added that even if the slowdown in the economy were to materialize, “this in itself is unlikely to bring inflation back to our objective over the medium term.”

Knot said earlier last week that a rate hike of at least 50bps is needed next week.

Eurozone economic sentiment dropped to 97.6 in Aug

Eurozone Economic Sentiment Indicator dropped from 98.9 to 97.6 in August, well below expectation of 102.0. Employment Expectation Indicator rose from 107.2 to 108.0. Industry confidence dropped from 3.4 to 1.2. Services confidence dropped from 10.4 to 8.7. Consumer confidence improved from -27.0 to -24.9. Retail trade confidence rose from -7.1 to -6.3.

EU Economic Sentiment Indicator dropped from 97.5 to 96.5. Amongst the largest EU economies, the ESI plummeted in the Netherlands (-4.8) and posted significant declines in Germany (-2.5), France and Poland (both -1.8), as well as Italy (-1.2). Spain stood out with a mild increase (+0.8).

Swiss KOF dropped to 86.5 in Aug, economic outlook appears less than encouraging

Swiss KOF Economic Barometer dropped from 90.5 to 86.5 in August, below expectation of 88.6. KOF said the reading is “quite considerably below its long-term average”. Accordingly, “for the near future the outlook for the Swiss economy appears less than encouraging.”

KOF added: ” The decline is primarily due to indicators broadly associated with private consumption, but the manufacturing sector and the construction industry are emitting negative signals, too. The other indicators included in the barometer show hardly any changes.”

EUR/GBP Mid-Day Outlook

Daily Pivots: (S1) 0.8503; (P) 0.8526; (R1) 0.8566; More…

EUR/GBP’s rise from 0.8338 continues today and the break of near term channel resistance is a sign of upside acceleration. Intraday bias stays on the upside for 0.8585 resistance first. Decisive break there should confirm that whole pattern from 0.8720 has completed, and bring further rally to retest this high. On the downside, below 0.8520 minor support will mix up the outlook and turn intraday bias neutral first.

In the bigger picture, medium term bearishness is maintained with prior rejection by 38.2% retracement of 0.9499 to 0.8201 at 0.8697. Break of 0.8201 will resume larger down trend from 0.9499 (2020 high). Nevertheless, sustained break of 0.8697 will affirm the case that rise from 0.8201 is a medium term up trend itself.

Economic Indicators Update