Week Ahead August 21st-25th

• Mon: PBoC LPR, German PPI (Jul)
• Tue: US Richmond Fed Index (Aug), New Zealand Retail Sales (Q2)
• Wed: EZ/UK/US Flash PMIs (Aug), Canadian Retail Sales (Jun), US New Home Sales (Jul)
• Thu: Fed’s Jackson Hole Symposium (24-26th Aug), CBRT Announcement, BoI Announcement, BoK Announcement,US Durable Goods (Jul)
• Fri: Fed’s Jackson Hole Symposium (24-26th Aug), Japan’s Tokyo CPI (Aug), German Ifo Survey (Aug), GermanGDP Detailed (Q2), Uni of Michigan Final (Aug)

NOTE: Previews are listed in day order

PBoC LPR (Mon): The PBoC is likely to reduce its Loan Prime Rates next week with the 1-Year LPR and the 5-Year LPRs currently at 3.55% and 4.20%, respectively. This follows the recent surprise decision to lower the 1yr MLF rate by 15bps to 2.50%, which serves as a bellwether for the central bank’s intentions for the benchmark LPRs, while the PBoC also unexpectedly cut the rate on its 7-day Reverse Repo operations by 10bps to 1.80%, which was the same magnitude that it cut its Standing Lending Facility rates by shortly after. The surprise easing by the PBoC comes after numerous support pledges by Chinese authorities, including the central bank and the streak of disappointing economic data releases from China which recently slipped into deflation and showed a wider-than-expected contraction in exports and imports, while the latest industrial production and retail sales figures also missed forecasts and prompted several commercial banks to downgrade their GDP growth forecasts for the year.

New Zealand Retail Sales (Tue): There are currently no expectations for the date, but the desk at Westpac expects a -0.1% QQ metric after the -1.4% Q1 figure. The bank highlights that spending appetite remains subdued – “We’re forecasting another muted gain in nominal spending (+0.1%), with the volume of goods sold expected to have fallen 0.1%. Excluding the lumpy fuel and motor vehicle categories, we estimate that the volume of goods sold in ‘core’ retail categories fell by 1% over the June quarter.”, the desk says, as it suggests the softness in retail spending reflects households’ purchasing power has been squeezed by both high-interest rates and elevated inflation.

EZ Flash PMI (Wed): Expectations are for manufacturing PMI to slip to 42.4 from 42.7, services to decline to 50.4 from 50.9, leaving the composite at 48.4 vs. prev. 48.6. The prior report saw manufacturing decline to 42.7 from 43.4, services fall to 50.9 from 52.0, dragging the composite down to 48.6 from 49.9. The accompanying report noted “The Eurozone is off to a bad start in the second half of the year…economic output fell in July after stagnating the month before and showing generally solid growth during the first five months of the year. The slump in activity is driven by manufacturing, but services activity growth has cooled off too, scaling back the support to the economy as a whole”. For the upcoming release, analysts at Investec note that the trends observed in July are likely to continue into August given that the “forward-looking elements of the July release failed to provide any hint of improvement, with new business in services contracting for the first time in seven months”. From a policy perspective, a soft release will likely add to fears over the Eurozone’s growth prospects and potentially see a bit of an unwind in bets for a September hike by the ECB (currently priced at 63%). However, markets will likely turn towards the August 31st release of flash Eurozone CPI metrics before further cementing calls over what to expect next month.

UK Flash PMI (Wed): Expectations are for the services metric to decline to 50.7 from 51.5, manufacturing to decline to 45.0 from 45.3, leaving the composite at 50.3 vs. prev. 50.8. The prior report saw services slip to 51.5 from 53.7, manufacturing decline to 45.3 from 46.5, pushing the composite down to 50.8 from 52.8. The accompanying report noted “a modest upturn in service sector activity contrasted with another reduction in manufacturing output. Moreover, the latest downturn in factory production was the fastest since January”. For the upcoming release, Oxford Economics suggests the data “are likely to signal further weakness in private sector activity growth. Last month, manufacturers reported that the contractions in output and new orders accelerated. This suggests that activity in August is likely to remain subdued”. From a policy perspective, given last week’s release of hot wages metrics and sticky core inflation, a 25bps hike by the BoE is widely expected for September, therefore the release will likely not have too much impact on pricing for the upcoming meeting. That said, a soft outturn could see market participants scale back expectations of tightening beyond next month.

Jackson Hole Symposium (Thu): The schedule of events will not be published until the eve of the symposium, but it has been confirmed that Fed Chair Powell will give remarks at the event on Friday. The title of the symposium is „Structural Shifts in the Global Economy“. Analysts at Investec say „we are not convinced that Fed members will add that much to the current monetary policy conjuncture, given a fair amount of policy related comments recently, including those in the July meeting minutes,“ but say the event itself should help guide markets how central bankers globally are thinking about medium-term economic issues. The Fed has retained the optionality to lift rates again, if it needs to, and framed its policy reaction around incoming data. The recent FOMC meeting minutes noted that inflation remains „unacceptably high“ and officials continued to see significant upside risks to the inflation profile, keeping a hawkish slant on their policy stance. While some have been warning about the risks that the Committee could accidentally tighten too much, and a number saw economic risks as becoming more balanced. And most officials note the gradual slowdown in economic activity, but still see below-trend growth and a softer labour market as necessary to restoring economic balance. That said, Fed staff no longer see the economy entering a mild recession this year, highlighting its resilience in the face of aggressive monetary tightening. SGH Macro’s Fedwatcher Tim Duy said the Fed faces a clear messaging challenge at Jackson Hole. „Powell can follow the messaging of recent weeks, which includes the minutes and the June SEP; this messaging has been consistent with market pricing of roughly 10bps more of rate hikes before the Fed cuts rates 100bp in 2024, but that messaging relies on a forecast that is very clearly not working, and a data dependent Fed would respond accordingly.“ SGH says that if the Fed were to follow the data, he would be highlighting that growth is well above trend, and would be gearing us up for another rate hike at the Octover or November policy meeting. „If he was really bold, he would note that a growth rate like that estimated by the Atlanta Fed should put a rate hike into play for September, but that feels like too much of a shift when the consensus at the Fed wants to wrap up the rate hike part of the cycle.“ The upshot, SGH says, is that the data dependent approach would mean that pricing for the October and November meetings was too low. On the other hand, SGH says the Fed chair could lean into the recent messaging; „this path fights the growth numbers and emphasises the expected impacts of policy lags,“ it explains, „Powell could also cite recent declines in near-term inflation expectations as a reason that policy will tighten further in real terms even if the Fed holds rates steady.“ That approach, however, would suggest to SGH that inflation expectations are being priced too low. „Odds favour Powell highlighting growth, though by doing so he is raising the risk of recession.“

CBRT Announcement (Thu): There are currently no forecasts for the CBRT’s next move following the 250bps hike seen in July, which ultimately underwhelmed the market’s median view of a 500bps hike for that meeting. Nonetheless, analysts expect some sort of hike in August, although the magnitude as ever with the CBRT is uncertain. A policy U-turn at the last two meetings (after Erkan was appointed as Governor in early June) delivered rate increases that fell short of investor expectations. Erkan vowed in July to continue with „gradual and steady rate hikes“ following years of Turkish President Erdogan’s mission against high rates. In terms of the latest monthly CRBT survey, Turkish End-2023 CPI is now seen at 59.46% (prev. 43.82%), 12-Month CPI at 42.01% (prev. 33.21%), End-2023 USD/TRY is now forecast at 29.8220 (prev. 28.4560) and the 12-Month Repo rate 23.25% (prev. 21.48%). Some desks however caution that a large hike may not spur much action in the Turkish currency, although this was extrapolated from the Russian Rouble and Argentinian Peso reactions following their central banks’ respective rate hikes.

BoK Announcement (Thu): The Bank of Korea is likely to maintain its 7-Day Repo Rate at the current level of 3.50% for the 5th consecutive meeting next week as the continued softening of inflation further reduces the urgency for the central bank to resume its hiking cycle. As a reminder, the BoK unanimously decided to keep rates unchanged at the last meeting in July, although six out of the seven Board members wanted to keep the door open for one more rate hike, while the BoK stated that domestic economic growth is expected to recover gradually with GDP and consumer price inflation this year expected to be consistent with forecasts. The BoK also said it will maintain a restrictive policy stance for a considerable time and monitor financial stability risks, as well as acknowledging that risks to some non-bank financial sectors have increased. Furthermore, BoK Governor Rhee said several Board members expressed concern about the rise in household debt and noted that no Board member had discussed a rate cut so far, while the central bank clarified shortly after that Governor Rhee did not say there will be no rate cut until year-end, which along with the Board’s willingness to keep the door open for one more rate hike, suggests the central bank doesn’t want to take any options off the table despite the unlikelihood of any rate adjustments in the near term.

Japan Tokyo CPI (Fri): Markets expect the Tokyo August CPI to have cooled a touch to 2.9% (prev. 3.0%), while the Core metric is seen at 3.0% (prev. 3.2%). Desks posit that the BoJ could mull a minor policy change with inflation in the 3% range and Q2 GDP surprising to the upside by quite a margin. The Tokyo release is seen as a precursor to the nationwide CPI report due a couple of weeks later. Analysts at ING “think that BoJ Governor Kazuo Ueda’s approach to the FX market will be different from that of the former governor. The continued weakness of JPY is a clear reflection of the yield gap which fails to address the recent solid recovery and relatively high inflation. Rising cost-push inflation may also hurt households’ consumption and investment recovery. The current JPY move does not justify the BoJ’s claim that FX reflects the fundamentals of the economy.”

This article originally appeared on Newsquawk

This article was written by Newsquawk Analysis at www.forexlive.com.

• Don’t discount technicals when analyzing Bitcoin. A look at the technicals driving BTC/USD
• MUFG: Tokyo’s potential verbal intervention & the impending Jackson Hole symposium
• Crude oil makes a comeback today. Settles at $81.25, up 1.07%
• Canadian home prices post second-largest increase ever
• Baker Hughes US oil rig count -5
• European equity close: A week to forget as FTSE 100 flirts with some dangerous levels
• No Grayscale vs SEC decision today
• The situation in China is starting to remind me of the US in 2008
• Fed poll: Half of economists see the Fed waiting until at least April before cutting rates
• Kickstart your forex trading day for Aug 18:A technical look at the EURUSD, USDJPY, GBPUSD
• Canada July PPI -2.7% y/y vs -5.5% prior
• The JPY is the strongest and the GBP is the weakest as the North American trading begins
• ForexLive European FX news wrap: Yields heavy, risk tones slump

There was no major news coming out of the Fed chatter. Most of the focus was on interest rates, and stocks. Bitcoin fell toward technical support. Crude oil prices rebounded off of low levels and closed higher on the day, but down on the week.

On Friday, if you were to look at the price changes of the major currency pairs outside the JPY and CHF, they were all within 0.11% of the prior close.

Looking at the changes of the major currencies vs each other, the JPY was the strongest. The CHF was the weakest. The rest had small net gains or losses vs each other with up and down volatility.

For the trading week, the USD is closing mostly higher helped by rising yields and safe haven flows into the USD on the back of China concerns. The only currency, the greenback lost value against was versus the GBP. (a modest -0.34% decline). The weakest currency was the AUD and NZD as China weighed most on those currencies.

Below are the % change of the USD for the week vs the major currencies:

• EUR, +0.68%
• JPY, +0.26%
• GBP, -0.34%
• CHF, +0.66%
• CAD, +0.80%
• AUD+ 1.36%
• NZD, +0.95%

The USD also rose vs the offshore yuan with the USD rising:

• CNH, +0.65%

Looking at rates, yields were lower today after gains earlier this week:

• 2-year 4.942%, -1.8 basis points
• 5-year yield 4.385%, -5.4 basis points
• 10-year yield 4.252% -5.5 basis points
• 30-year yield 4.375% -3.7 basis points

For the trading week:

• The 2-year yield moved to a high of 5.024% at the weeks high, which was about 4 pips short of it 2023 high yield of 5.085%. The yield did come off high levels but is still closing higher by around 4.4 basis points
• The 10-year yield traded 2 new 2023 highs of 4.328%. That pretty much equaled the high price going back to October 2022 at 4.335%. The yield rose by 9.5 basis points this week
• The 30-year yield rose to a high of 4.426%. Like the 10 year that more or less equaled the October 2022 high at 4.423%. For the week, the 30-year yield rose 11.0 basis points

Looking around other markets today to wrap up the trading week:

• Crude rose $0.22 or 0.27% at $80.62. For the trading week crude oil fell -3.09% and broke a 7 week up streak
• Gold fell to the lowest level since March this week. For the day, it is down $0.61 or -0.03% at $1899. For the trading week, the price fell $-24.06 or -1.26%
• Silver is trading up 4.7 cents or 0.21% at $22.73. For the week, the price is up a modest 0.25% or 6.6 cents
• Bitcoin is trading at $26,168 after reaching a low of $25,601. For the trading week, the price is down 11% or $-3116

in the US stock market today, the Dow snapped a 3 day decline but the S&P and NASDAQ index fell for the 4th consecutive day. Both the S&P and the NASDAQ closed lower for the 3rd consecutive week:

• Dow Industrial Average rose 25.83 points or 0.07% at 34500.67. For the trading week, the index fell -2.21%
• S&P index fell -0.65 points or -0.01% at 4369.72. For the trading week, the price fell -2.11%.
• NASDAQ index fell -26.17 points or -0.20% at 13290.77. For the trading week, the price index fell -2.59%.

Next week the highlight will be the Jackson Hole Summit with Fed chair Powell speaking on Friday, August 25 at 10:05 AM ET. Last year’s 8-minute speech was short and quick and effective as he outlined the hawkish Fed policy that took rates from 2.5% to the current level of 5.5%. The dollar index moved higher and peaked on September 28, before starting its rotation back to the downside.

Other key data next week includes:

• Flash PMI data out of Europe and the UK on Wednesday
• Flash PMI data out of the US also on Wednesday
• Weekly unemployment claims on Thursday
• German LIFO business climate data on Friday
• Final University of Michigan consumer sentiment index on Friday

Also of note next week is Nvidia will announce their earnings on Wednesday after the close. Given its shocking announcement last quarter (rise of forward guidance revenues to $11 billion from $7 billion estimate), the market will be watching what they announce and project for this quarter and going forward.

Thank you for your support this week. Hope you have a good weekend.

This article was written by Greg Michalowski at www.forexlive.com.

Monthly options expiration was likely a factor in trading today but, in any case, the dip buyers returned and stocks mounted a solid comeback, led by value.

• S&P 500 flat
• Nasdaq Comp -0.2%
• Russell 2000 +0.8%
• DJIA +0.1%
• Toronto TSX Comp +0.1%

On the week:

• S&P 500 -2.1%
• Nasdaq -2.6%
• DJIA -2.2%

This was the third week in a row of declines for the Nasdaq:

This article was written by Adam Button at www.forexlive.com.

The price of Bitcoin this week, finally cracked below its 100-day moving average (blue line in the chart below) for the 1st time since June 21. The price lows over the last few weeks have found support buyers leaning early against that 100-day moving average level, pushing the price back higher.

However, in trading yesterday the 100-average day moving average was broken at $28,538 (blue line in the chart below). The momentum continued with the price moving to – and through – the 200-day moving average at $27,291. That was the 1st break and close below the 200-day moving average since January 12, 2023 (PS. on March 10, the price tested that moving average line and bounced higher).

In trading today, the momentum continued to a low price of $25,600. That got within $23 of the 38.2% retracement target at $25,577. The price has since bounced back to $26,050.

So support held at the 38.2% retracement near $25,577.

What next?

Going forward, the 200 day moving average at $27,291 is now the key resistance level on the daily chart that if the price were to stay below keeps the sellers in play. A move above would be more bearish.

On the downside, a break below a 38.2% retracement and swing area support down to $24,819 would be targeted (see yellow area in the chart below)

This article was written by Greg Michalowski at www.forexlive.com.

Amidst fluctuating global currencies, MUFG delves into the potential for verbal intervention from Japanese officials, especially as the Jackson Hole Symposium approaches, which may carry significant implications from Chairman Powell’s stance.

Key Observations:

1. USD/JPY Surge: There’s been a noteworthy increase in the USD/JPY rate since the Bank of Japan’s (BoJ) policy meeting in July. This uptick is reminiscent of the scenario leading to intervention in the September-October period last year.

2. Intervention Alert Scale: By analyzing previous Japanese language comments linked to past interventions, MUFG’s Tokyo team developed an „Alert Scale.“ Based on this 1-8 scale, the current situation is assessed at about level 6. This suggests that the urgency hasn’t reached the zenith that typically precedes actual interventions.

3. Upcoming Jackson Hole Symposium: Given the proximity of the Jackson Hole meeting, it’s anticipated that Tokyo may escalate its rhetoric. If Chairman Powell delivers a hawkish speech, it could pose challenges for Japan’s monetary stance.

Implications:

• Balancing Act for Japan: Japanese officials are in a tight spot, striving to regulate JGB yields while concurrently curbing JPY’s depreciation. If the USD continues its upward trajectory in the coming week, Tokyo might have to recalibrate its approach.

• Potential Responses: In the event of further escalation of the dollar next week, Japan could react by allowing an uptick in JGB yields, particularly if US yields also rise. This move might be paired with amplified rhetoric. The trajectory of USD/CNY, influenced by PBoC fixings, will also be crucial, as its recent downward correction has acted as a ceiling for USD/JPY.

Conclusion: MUFG underscores Tokyo’s potential for heightened verbal interventions, especially with the Jackson Hole Symposium on the horizon. Depending on Chairman Powell’s remarks, Japan may need to make pivotal decisions, particularly in balancing its yield and currency objectives.

For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.

This article was written by Adam Button at www.forexlive.com.