Strong US GDP data boost investors' appetite for riskier assets

US stocks extended their gains on Thursday, after the strong 2nd estimate of US Q2 GDP data calmed investors’ nerves and boosted the appetite for riskier assets. The upbeat US data and the positive sentiment, helped to keep the Chinese stocks in a rising mode for the second day in a row. The 2nd estimate of US Q2 GDP showed that the economy grew at a 3.7% qoq SAAR, faster than the initially estimated 2.3% qoq SAAR, and above expectations of 3.2% qoq SAAR. The strong growth rate keeps the scenario of a Fed rate hike this year alive.
The dollar index, which touched a seven-month low on Monday at around 92.60, recovered towards the end of the week as the markets calmed, to trade around 95.60 during the Asian session. Given the strong US data and the improved mood in Asia, investors will probably continue their demand for risker assets. This is likely to push EUR and CHF lower, given that there were heavily bought due to the global turmoil. The commodity currencies AUD, NZD and CAD could gain a bit, at least temporarily.
Japan’s National CPI ex-fresh food was flat in July, heightening pressure on BoJ officials to take further action to underpin the fragile recovery. Even though it was better than expectations of a 0.2% yoy drop, it’s nowhere close to the Bank officials’ optimistic view that they could achieve their 2% target. The overall soft data, along with lower exports due to China's slowdown, add to the evidence that any rebound in growth from a contraction in Q2 is likely to be modest. JPY could come under renewed selling pressure, as expectations for further action from the BoJ slowly build up.
Today’s highlights: During the European day, the German preliminary CPI for August is coming out. As usual, we will look at the larger regions for a guidance on where the headline figure may come in and thereby as an indication for the near-term direction of EUR. A rise in the German CPI rate could indicate a rise in the Eurozone’s CPI to be released next week and could strengthen EUR a bit. Eurozone’s final consumer confidence for August is also coming out.
From Sweden, retail sales for July are forecast to accelerate a bit, which could prove SEK-positive, at least temporarily. Norway’s retail sales for July are also coming out, along with the official unemployment rate for August. The forecast is for the retail sales to decelerate, while the unemployment rate is estimated to remain unchanged. Coming on top of the low oil prices, any disappointment could push NOK lower.
In the UK, the 2nd estimate of Q2 GDP is expected to confirm the preliminary growth figure and show that the economy grew 0.7% qoq. Coming on top of the recent encouraging data, this could add steam to the UK’s recovery and strengthen GBP somewhat.
In the US, we have a very busy day. Personal income and personal spending for July are coming out. Personal income is expected to have risen at the same pace as in June, while personal spending is forecast to have accelerated. The focus is usually on personal spending and a significant positive surprise is needed for the USD to remain supported. Even though the 2nd estimate of US GDP expanded in Q2, solid spending is needed to suggest that the economy has the necessary momentum to bring the Fed closer to a rate hike this year. The yoy rates of the PCE deflator and core PCE for July are also coming out. Both are forecast to remain unchanged in pace from June. The final University of Michigan consumer sentiment for August is also due to be released along with the surveys of 1-year and 5-to-10 year inflation expectations.
As for the speakers, we have Fed Presidents: James Bullard, Narayana Kocherlakota, Loretta Mester, and Dennis Lockhart all speak from the sidelines of the Jackson Hole event. SNB President Jordan also speaks. Investors are likely to pay more attention than usual on Bank officials for hints if the Fed is still on track to raise rates, following the developments in China and the tumbling stock markets.

The Market

EUR/USD falls below 1.1310 and hits 1.1200

EUR/USD extended its declines on Thursday following the better-than-expected US GDP report. The rate fell below the support (now turned into resistance) barrier of 1.1310 (R1) and reached the 1.1200 (S1) line. Following the completion of a failure swing top formation on Wednesday, the short-term bias has turned negative. Therefore, I would expect a clear dip below 1.1200 (S1) to set the stage for extensions towards the 1.1110 (S2) hurdle. Taking a look at our oscillators though, I see signs that an upside corrective bounce could be in the works before the bears shoot again. The RSI, although below 50, has turned up again, while the MACD, although negative, shows signs of bottoming. As for the broader trend, given that EUR/USD is back below 1.1500 (R3), I would switch my stance back to neutral. The move below that psychological hurdle confirms that Monday’s surge was a false break out. Therefore, I would like to see another move above 1.1500 (R3) before assuming that the overall outlook is back positive.
Support: 1.1200 (S1), 1.1110 (S2), 1.1020 (S3)
Resistance: 1.1310 (R1), 1.1400 (R2), 1.1500 (R3)

EUR/GBP slides after hitting resistance at 0.7335

EUR/GBP slid on Thursday after finding resistance at the 0.7335 (R1) line. However, the decline was limited fractionally above the 0.7270 (S1) support hurdle, which happens to be the 38.2% retracement level of the 18th – 24th of August rally. I would take the sidelines for now since a dip below the latter barrier is needed to shift the bias to the downside. Such a move is likely to signal the completion of a failure swing top on the 4-hour chart and could open the way for our next support of 0.7225 (S2), the 50% retracement level of the aforementioned surge. The RSI hit twice support at its 50 line and is now pointing somewhat up, while the MACD still stands below its trigger line and is pointing south. These mixed momentum signs corroborate my view to stay flat for now. As for the broader trend, the move above 0.7170 signaled a forthcoming higher high on the daily chart and turned the medium-term outlook positive. Therefore, I would treat any future short-term declines as a corrective phase, at least for now.
Support: 0.7270 (S1), 0.7225 (S2), 0.7170 (S3)
Resistance: 0.7335 (R1), 0.7365 (R2), 0.7390 (R3)

GBP/JPY breaks above a short-term downtrend line

GBP/JPY traded higher on Thursday, breaking above a steep short-term downtrend line. Nevertheless, the move was stopped by the 187.00 (R1) resistance barrier. I prefer to see a break above that hurdle before I get more confident on the upside. Something like that could extend the bullish wave and perhaps target our next resistance of 188.00 (R2). Our short-term momentum studies amplify the case that GBP/JPY could trade higher for a while. The RSI moved higher after finding support slightly below its 30 line, while the MACD has bottomed and crossed above its trigger line. In the bigger picture, I see that on Monday, GBP/JPY found support at 183.20 (S2), which stands slightly above the 61.8% retracement level of the 14th of April – 18th of June advance. I prefer to see a clear close below that barrier before I assume further medium-term declines. For now, I would adopt a neutral stance as far as the overall outlook is concerned.
Support: 185.00 (S1), 184.15 (S2), 183.20 (S3)
Resistance: 187.00 (R1), 188.00 (R2), 190.00 (R3)

Gold rebounds from 1118

Gold hit support at 1118 (S2) on Thursday and then rebounded to break above the 1128 (S1) barrier. I believe that the rebound may continue for a while, perhaps to test the prior uptrend line, taken from the low of the 7th of August, as a resistance. However, as long as the metal is trading below that trend line, I would consider the short-term bias to be negative. I would treat any extensions of the current rebound as a corrective move before sellers seize control again. Our short-term oscillators support the case for further upside correction as well. The RSI hit support at its 30 line and is now headed towards its 50 line, while the MACD has bottomed and could cross above its trigger line soon. As for the bigger picture, with no clear trending structure on the daily chart, I would hold my neutral stance as far as the overall outlook is concerned.
Support: 1128 (S1), 1118 (S2), 1110 (S3)
Resistance: 1146 (R1), 1156 (R2), 1168 (R3)

DAX futures trade back above 10000

DAX futures continued trading higher on Thursday, breaking above the short-term downtrend line drawn from the peak of the 10th of August. The index now looks to be headed towards the 10435 (R1) resistance hurdle, where an upside break could challenge the 10670 (R2) key obstacle as a resistance this time. Our short-term oscillators detect positive momentum and corroborate my view. The RSI, although it now points somewhat down, edged higher and emerged above its 50 line, while the MACD stands above its trigger line and is headed towards its zero line. On the daily chart, I believe that the break below 10670 has shifted the medium-term outlook to the downside. Therefore, I would treat any future near-term advances that stay limited below the 10670 (R2) zone as a corrective phase.
Support: 10200 (S1), 10000 (S2), 9770 (S3)
Resistance: 10435 (R1) 10670 (R2), 10800 (R3)