Dollar Digesting Gains Awaiting Fed Speaks, Markets Turned Mixed

Overall markets are mixed today, as Dollar is digesting some of last week’s gains, awaiting more guidance from FOMC members regarding tapering. New Zealand and Canadian Dollar are the stronger ones for now. But Australian Dollar is among the weakest together with Euro and Swiss France. Yen and Sterling is slightly firmer. Gold and silver recovered after initial selloff, but stays below last week’s low.

Technically, recovery in EUR/CHF is helping EUR/USD stabilizing around 1.1751 low. But EUR/CHF would face near term resistance at 1.0802, which should hold to resume recent fall. The decline in EUR/USD could take up momentum again when EUR/CHF’s recovery finishes. However, break of 1.0802 in EUR/CHF could prompt stronger rebound in itself, as well as in EUR/USD too.

In Europe, at the time of writing, FTSE is down -0.12%. DAX is down -0.06%. CAC is up 0.01%. Germany 10-year yield is down -0.0147 at -0.467. Earlier in Asia, Hong Kong HSI rose 0.40%. China Shanghai rose 1.05%. Japan and Singapore were on holiday.

Eurozone Sentix dropped to 22.2, fall in expectations sends a warning sign

Eurozone Sentix Economic Sentiment dropped from 29.8 to 22.2 in August, below expectation of 29.0. Current Situation index rose from 29.8 to 30.8, highest since October 2018. However, Expectations index dropped sharply from 29.5 to 15.0, lowest since May 2020 and the third decline in a row.

Sentix said: “Economists traditionally recognise a trend reversal in a threefold decline. Accordingly, this decline should not be dis-missed as a mere loss of momentum, but should be understood as a warning sign. As the “first mover” among the leading indicators, these developments herald significant declines in other leading indicators. The development is therefore likely to contribute to increased market volatility in the coming weeks. In 2006 and 2010, when we went through similar phases, interim stock market corrections of around 10% followed.”

From Germany, trade surplus widened to EUR 13.6B in June, below expectation of EUR 13.9B. Swiss unemployment rate dropped to 3.0% in July, matched expectations.

China PPI rose to 9.0% yoy in Jul, CPI slowed to 1.0% yoy

China’s PPI accelerated to 9.0% yoy in July, up from 8.8% yoy, above expectation of 8.8% yoy. “The price increase of industrial products expanded slightly in July as prices of crude oil, coal and related products rose sharply,” said senior NBS economist Dong Lijuan.

CPI slowed to 1.0% yoy, down from 1.1% yoy, above expectation of 0.8% yoy. Core CPI, excluding food and energy prices, rose 1.3% yoy. Pork prices dropped -43.5% yoy, dragging down food prices down -3.7%. Non-food prices, on the other hand, rose 2.1% yoy.

Silver stabilized after initial dive, but more downside still expected

Silver tumbled along with Gold in ultra thin Asian open, and hit as low as 22.36. While it quickly rebounded, near term outlook will stay bearish as long as 25.99 resistance holds. Prior rejection by 55 day EMA also affirmed near term bearishness. Fall from 30.07 is seen as corrective whole up trend from 11.67 low.

There are various interpretations on the price actions. One way to see them is that a head and shoulder top was formed (ls: 29.84; head: 30.07; rs: 28.73). But in any case, firm break of 100% projection of 30.07 to 23.76 from 28.73 at 22.42 will pave the way to 161.8% projection at 18.52. That is close to 61.8% retracement of 11.67 to 30.07 at 18.69. That’s probably the level where Silver would complete the correction.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1732; (P) 1.1784; (R1) 1.1814; More

Intraday bias in EUR/USD remains on the downside at this point. Current fall from 1.2265 should target 1.1602/1703 support zone. We’d expect strong support from there to bring rebound. But break of 1.1907 resistance is needed to confirm short term bottoming. Meanwhile, sustained break of 1.1602 will argue that it’s already reversing the trend from 1.1603, and target 61.8% retracement of 1.1603 to 1.2348 at 1.1888.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
01:30 CNY CPI Y/Y Jul 1.00% 0.80% 1.10%
01:30 CNY PPI Y/Y Jul 9.00% 8.80% 8.80%
05:45 CHF Unemployment Rate Jul 3.00% 3.00% 3.10%
06:00 EUR Germany Trade Balance (EUR) Jun 13.6B 13.9B 12.6B
08:30 EUR Eurozone Sentix Investor Confidence Aug 22.2 29 29.8

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