China's stocks extend their selloff

• Following Monday's bloodbath in Global equity markets, the Chinese shares continued their plunge, with the benchmark Shanghai Composite about 6% lower in the Asian morning session. Elsewhere in Asia however, the markets overall were slightly higher as there appears to be a buyback after the panicky selling in the last few days. South Korea's KOSPI was in the positive territory, as Korea border tension diffused somewhat. Australia's S&P/ASX 200 was also in the green, as the plunge in the recent days provided new buying opportunities. Nevertheless, there is no sign whether the market will continue to recover over the coming days or if today's moderate rise is only temporary. The positive sentiment in Asian (ex-China) markets could roll into the EU markets and halt a bit the rise of EUR.

• Atlanta Fed President Lockhart still expects a rate hike sometime this year Atlanta Fed President Dennis Lockhart said that he still expects the normalization of monetary policy to begin sometime this year. However, current developments such as the appreciation of the dollar, the devaluation of the Chinese yuan, and the further decline in oil prices complicate the factors in predicting the growth outlook. Even though his comments regarding the interest rates were somehow different from earlier this month when he said that "September [rate hike] remains a live possibility", the fact that he still remains in favor of moving this year is at least not negative for the USD. Speeches from Fed members will continue to be closely monitored, in particular those at the Jackson Hole economic symposium Aug. 27-29. The theme this year is "Inflation Dynamics and Monetary Policy", where inflation is the main concern among Central Bankers.

• Today's highlights: During the European day, we get the German Ifo survey for August. The German ZEW survey for August showed a mixed picture for the bloc's strongest economy. The expectations index declined once again from the previous month, while the moderate increase in the current situation index was not enough to reverse investors' disappointment. The sell-off in the global stock markets, the fresh tensions in emerging markets and the renewed instability in Greece, could put further downside pressure in the expectations index. Therefore, a weak Ifo reading could add to evidence that the bloc's growth engine is losing steam.

• German final GDP for Q2 confirmed the preliminary growth figure and showed that the economy grew at a mere 0.4% qoq pace in Q2. This adds to the recent disappointing data from Germany and show that Eurozone's growth engine lose steam.

• In the US, the S&P/Case-Shiller house price index for June is expected to have accelerated from the previous month. The preliminary Markit service-sector and composite PMIs for August are also coming out. The service-sector index is forecast to come out fractionally lower, while no forecast is available for the composite one. The Conference Board consumer confidence index and the Richmond Fed manufacturing index, both for August, are also to be released. The FHFA housing price index for June is also due out. New home sales for July are also due to be released. In line with the recent strong housing data, new home sales are expected to show a firming housing market. 

• ECB Vice President Vitor Constancio speaks on monetary policy at the European Economic Association. Even though the market is mainly concerned if the Fed is still on track to raise rates at some point this year, another key fact will be if the ECB will need to expand its QE program.
  Therefore, any comments by the ECB members that due to the situation in China, they will have to keep the QE longer or increase the monthly size, could put again EUR under selling pressure.

THE MARKET

EUR/USD breaks above 1.1500 and hits resistance slightly below 1.1725

• EUR/USD continued its crazy rally yesterday, breaking above the psychological round barrier of 1.1500 (S1). Nevertheless, the surge was halted slightly below our resistance of 1.1725 (R2) and subsequently, the rate retreated. The price structure on the 4-hour chart still suggests a short-term uptrend. As a result, I would expect another break above 1.1650 (R1) to reach the 1.1725 (R2) hurdle this time. Taking a look at our oscillators though, I see signs that further pullback could be in the works before the bulls seize control again, perhaps even below 1.1500 (S1). The RSI has topped within its overbought zone and now looks ready to fall below 70, while the MACD has topped and could fall below its trigger line soon. As for the broader trend, EUR/USD had been trading between 1.0800 and 1.1500 (S1) from the 23rd of April until yesterday. Yesterday the rate managed to close above 1.1500 (S1), something that probably signals the exit of the aforementioned sideways range, and turns the overall outlook positive.

• Support: 1.1500 (S1), 1.1440 (S2), 1.1400 (S3)

• Resistance: 1.1650 (R1), 1.1725 (R2), 1.1790 (R3)

GBP/USD hits resistance at 1.5800

• GBP/USD traded higher on Monday, breaking above the resistance (now turned into support) barrier of 1.5725 (S1) and hitting resistance near the 1.5800 (R1) line. As long as the pair is trading above the uptrend line taken from the low of the 7th of August, I would consider the short-term picture to stay positive. A move above 1.5800 (R1) is likely to initially target the 1.5835 (R2) line, while a break above the latter level could see scope for extensions towards the 1.5910 (R3) territory. Taking a look at our oscillators though, I see signs that a minor pullback is possible before the next positive leg. The RSI edged somewhat down after finding resistance slightly below its 70 line, while the MACD, although positive, shows signs that it could start topping. As for the broader trend, the price structure on the daily chart still suggests an uptrend. What is more, Cable is still trading above the 80-day exponential moving average. Therefore I would expect the rate to continue trading higher in the foreseeable future.

• Support: 1.5725 (S1), 1.5660 (S2), 1.5615 (S3)

• Resistance: 1.5800 (R1), 1.5835 (R2), 1.5910 (R3)

USD/JPY rebounds from slightly above 116.00

• USD/JPY continued collapsing yesterday, but triggered some buy orders slightly above the 116.00 barrier and rebounded to reach the psychological zone of 120.00 (R1). The short-term trend remains negative in my view, but I see signs that the rebound may continue for a while. A break above 120.00 (R1) could initially aim for the next resistance at 120.50 (R2). Our short-term oscillators support the notion as well. The RSI just exited its below-30 territory, while the MACD has bottomed and could move above its trigger line in the near future. As for the broader trend, yesterday’s plunge signaled the completion of a possible double top formation, which probably shifted the medium-term picture negative as well. As a result, I would treat any possible near-term advances as a corrective phase for now.

• Support: 119.20 (S1), 118.90 (S2), 118.50 (S3)

• Resistance: 120.00 (R1), 120.50 (R2), 121.20 (R3)

Gold stays between 1150 and 1168

• Gold traded in a consolidative manner o Monday, staying between the support of 1150 (S1) and the resistance of 1168 (R1). The short-term picture is still positive in my opinion and as a result, I would expect a move above 1168 (R1) to initially target the 1175 (R2) hurdle. Nevertheless, our momentum indicators give evidence that a setback could be looming before the next positive leg. The RSI exited its above-70 territory and continued lower, while the MACD has topped and fallen below its trigger line. As for the bigger picture, having in mind that Thursday’s rally brought the metal above the downside resistance line taken from the peak of the 18th of May, I would switch my stance to neutral as far as the overall picture is concerned.

• Support: 1150 (S1), 1140 (S2), 1127 (S3)

• Resistance: 1168 (R1), 1175 (R2), 1185 (R3)

WTI hits support at 37.80 and rebounds

• WTI traded lower yesterday, but hit support at 37.80 (S1) and then it rebounded. The short-term trend remains negative in my view, and therefore I would expect the bears to take in charge at some point and push the rate down for another test at the 37.80 (S1) barrier. But for now, our oscillators give evidence that the current rebound may continue for a while. The 14-hour RSI edged higher and now looks ready to move above its 50 line, while the hourly MACD has bottomed and crossed above its trigger line. Moreover, there is positive divergence between the RSI and the price action. On the daily chart, the price structure has been lower peaks and lower troughs since the 24th of June. Therefore, I would see a negative longer-term picture as well.

• Support: 37.80 (S1), 37.00 (S2), 36.00 (S3)

• Resistance: 39.45 (R1) 40.00 (R2), 40.50 (R3)

BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS

MARKETS SUMMARY