Markets Digest Last Weeks Mayhem

Market Commentary

August finished on a relatively quiet note digesting last weeks volatility, as markets have for the most part been responding to the combination of on-going Chinese growth concerns, the hawkish bent out of Jackson Hole, and a surge in crude oil prices. That left US equities a little weaker and bond yields a little higher. Oil prices rallied for the third consecutive day after OPEC said it was ready to talk to producers about achieving “fair prices”. WTI is higher by another 7.3%, and is now up almost 30% relative to its low point last Monday.

EUR firmed as bourses eased and as consumer prices in the Eurozone held their pace of growth in August. A preliminary reading showed the inflation rate 0.2% higher than a year earlier, following the same as seen in July. Meanwhile, core inflation rose 1.0% in August, compared to the 1.0% hike seen a month before. Whilst low inflation or even negative inflation rates might be a blessing for consumers, they could become a new headache for the ECB. The central bank aims to keep inflation just under 2% over the medium term, and we recall that the risk of sustained deflation led the ECB to launch its EUR1.1tn QE program earlier this year. Today, Eurozone manufacturing PMIs are the focus. Italian, German and Eurozone unemployment rates are out, as is the final reading of Italian GDP

With London closed for the bank holiday, GBP dipped modestly in quiet trades on Monday. Today, we are likely to see the pair supported on risk aversion coming from falling Asian equities. The highlight from the UK docket will be credit data for July

USDJPY saw a dip to 120.88 but overall was very contained around 121.20. Markets are likely to be cautious about making major moves until Friday’s US employment report helps provide more clarity on Fed policy prospects. Japan’s 2Q capital spending came in lower than forecast at 5.6% y/y (from 7.3% in 1Q and below the projection of 8.8%). The surprising outcome was from Japan’s 2Q company profit & sales. Whilst 2Q sales rose 1.1%y/y after declining 0.5% in 1Q, the surprise came from 2Q company profits which surged 23.8%y/y (up from 0.4% in 1Q), but importantly, well above the consensus forecast for just 2.2%

Technical Commentary

EURUSD Short Term (1-3 Days): Bearsih – Medium Term (1-3 Weeks) Bearish

• While 1.1250 supports intraday expect a test of 1.1350, while this area caps the upside bears target at retest of Friday’s low. A breach of 1.1350 opens a run to 1.1440/60

• Daily Order Flow bullish; OBV sideways to up, Linear Regression and Psychology attempting midpoint test from below

• Monitoring intraday price and Order Flow indicators on a test of 1.12 or 1.450

GBPUSD: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

• The breach of 1.55 refocuses bears on the 1.5210 bearish symmetry objective, while 1.5550 caps upside reaction expect a test of stops below 1.53 next

• Daily Order Flow bearish; OBV sideways to up, Linear Regression bearish, Psychology testing midpoint from above

• Monitoring intraday price action and Order Flow indicators on a test of 1.52 or 1.5550

USDJPY: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bullish

• While 121.50 contains upside reaction a retest of 119 is the primary downside objective. Only a close back above 122 would ease the bearish pressure

• Daily Order Flow bearish; OBV sideways to down, Linear Regression and Psychology bullish but stalling

• Monitoring intraday price action and Order Flow indicators on a test of 119 or 122

EURJPY: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

• The breach of ascending trendline support at 136 opens a retest of pivotal 134/33 range support a failure here would open 2015 lows.

• Daily Order Flow bearish; OBV sideways to up, Linear Regression and Psychology pierce midpoints from below

• Monitoring intraday price action and Order Flow indicators at 141 and 133