<ul><li>Probability of recession is increasing</li><li>Recession would mitigate inflation pressures</li><li>We may have to adjust monetary policy stance further</li></ul><p style=““ class=“text-align-justify“>It’s not much and it isn’t coming from too prominent a policymaker within the central bank but this is something fresh at least. The ECB has been adamant that it will keep up the good fight against inflation but as a recession looms just around the corner, the window to keep tightening is surely closing in on the central bank.</p>

This article was written by Justin Low at www.forexlive.com.

<p>Headlines:</p><ul><li><a target=“_blank“ href=“https://www.forexlive.com/news/europe-pmi-takeaway-it-could-have-been-worse-20220823/“>Europe PMI takeaway: It could have been worse</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/eurusd-continues-to-slug-along-below-parity-20220823/“>EUR/USD continues to slug along below parity</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/eurozone-august-flash-services-pmi-502-vs-505-expected-20220823/“>Eurozone August flash services PMI 50.2 vs 50.5 expected</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/germany-august-flash-manufacturing-pmi-498-vs-482-expected-20220823/“>Germany August flash manufacturing PMI 49.8 vs 48.2 expected</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/france-august-flash-services-pmi-510-vs-530-expected-20220823/“>France August flash services PMI 51.0 vs 53.0 expected</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/uk-august-flash-services-pmi-525-vs-520-expected-20220823/“>UK August flash services PMI 52.5 vs 52.0 expected</a></li></ul><p>Markets:</p><ul><li>CAD leads, CHF lags on the day</li><li>European equities slightly lower; S&P 500 futures up 0.1%</li><li>US 10-year yields down 0.3 bps to 3.015%</li><li>Gold up 0.1% to $1,738.08</li><li>WTI crude up 1.8% to $91.98</li><li>Bitcoin up 1.6% to $21,457</li></ul><p style=““ class=“text-align-justify“>The euro continues to keep softer in the new week, with the latest PMI readings for August helping to see the single currency sustain below parity against the dollar. The were some slightly better readings than estimated but overall, it still points to an added slowdown and contraction in Europe ahead of the winter months.</p><p style=““ class=“text-align-justify“>In the case of the euro area, a contraction in Q3 is a given now while the UK is set to see economic conditions stagnate.</p><p style=““ class=“text-align-justify“>EUR/USD was slightly softer initially as risk tones were also on the defensive. The pair was down to 0.9900 before bouncing back up to 0.9930 and then touching a high of 0.9950 before retreating back slightly lower now to 0.9920-30 levels.</p><p style=““ class=“text-align-justify“>GBP/USD also saw similar price action as the dollar swung around a bit amid the shift in the risk mood, with US futures turning a 0.5% drop to be up 0.1% currently. Cable was down to a low of 1.1718 before holding near flat levels now at 1.1765.</p><p style=““ class=“text-align-justify“>Elsewhere, commodity currencies are seen steadier though the aussie did slip to a one-month low of 0.6857 before keeping near flat now at 0.6875 on the day.</p><p style=““ class=“text-align-justify“>Risk tones and dollar sentiment will continue to dictate proceedings but all else being equal, the path of least resistance is still for the dollar to inch higher (or at least keep in a favourable position) given the technicals for the time being.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>There was a bit of a brief jump earlier from 0.9905 to 0.9930 after the PMI data before the dollar seeing gains pared saw the pair move up to near session highs around 0.9950. The momentum has quickly dissipated though as sellers remain in control below parity. The hold below the 14 July low at 0.9952 also keeps the bias tilted more to the downside on the day.</p><p style=““ class=“text-align-justify“>As much as there were some parts of the PMI data earlier that were not as bad as feared, it was still another set of economic releases that puts the euro area closer towards a recession. There might be some bright spots in the sense that inflation pressures were a little better and supply chain issues were seen less prominent, but we are seeing labour market conditions start to take a hit and economic activity slowing down further in August.</p><p style=““ class=“text-align-justify“>On the balance of things, there is still little to no reason to be optimistic about the euro in my view.</p><p style=““ class=“text-align-justify“>The hold below parity for EUR/USD will put the focus towards 0.9800 and 0.9500 as the next key technical targets. The slight improvement in the risk mood on the day has helped to slow things down as the bullish dollar sentiment hits pause but there hasn’t been a significant shift to suggest a push back above parity for the pair.</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>Prior 8</li></ul><p style=““ class=“text-align-justify“>UK factory output shows a first fall since February 2021 with output expectations also showing a decline of -2 after a +6 reading in July. The softness mirrors the sort of sentiment reflected by the PMI reading for the manufacturing sector earlier in the day <a target=“_blank“ href=“https://www.forexlive.com/news/uk-august-flash-services-pmi-525-vs-520-expected-20220823/“ target=“_blank“>here</a>.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>Similar to yesterday, there isn’t anything significant on the board and tomorrow might feature a similar picture with little else besides a modest-sized one for USD/JPY near 137.00. But we’ll take it day by day.</p><p style=““ class=“text-align-justify“>For now, the risk mood and dollar technicals will continue to do the work in dictating trading sentiment on the day.</p><p style=““ class=“text-align-justify“>For more information on how to use this data, you may refer to this post <a target=“_blank“ href=“https://www.forexlive.com/education/!/forexlive-education-option-contracts-their-impact-and-how-to-trade-off-them-20161116″ target=“_blank“>here</a>.</p>

This article was written by Justin Low at www.forexlive.com.

<p>Headlines:</p><ul><li><a target=“_blank“ href=“https://www.forexlive.com/news/and-there-it-is-eurusd-falls-back-to-parity-20220822/“>And there it is.. EUR/USD falls back to parity</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/icymi-nord-stream-pipeline-to-be-halted-for-three-days-for-maintenance-20220822/“>ICYMI: Nord Stream pipeline to be halted for three days for maintenance</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/the-staggering-surge-in-european-energy-prices-continues-20220822/“>The staggering surge in European energy prices continues</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/risk-off-flows-starting-to-permeate-in-european-morning-trade-20220822/“>Risk-off flows starting to permeate in European morning trade</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/chinese-yuan-stumbles-further-to-start-the-new-week-20220822/“>Chinese yuan stumbles further to start the new week</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/rbnz-governor-orr-confirmed-to-be-in-attendance-at-jackson-hole-20220822/“>RBNZ governor Orr confirmed to be in attendance at Jackson Hole</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/opec-reportedly-miss-output-target-by-29-mil-bpd-in-july-20220822/“>OPEC+ reportedly miss output target by 2.9 mil bpd in July</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/iran-says-nothing-is-agreed-until-everything-is-agreed-on-nuclear-deal-20220822/“>Iran says „nothing is agreed until everything is agreed“ on nuclear deal</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/bundesbank-says-german-recession-is-looking-increasingly-likely-20220822/“>Bundesbank says German recession is looking increasingly likely</a></li></ul><p style=““ class=“text-align-justify“>Markets:</p><ul><li>AUD leads, EUR lags on the day</li><li>European equities lower; S&P 500 futures down 1.1%</li><li>US 10-year yields down 1.5 bps to 2.974%</li><li>Gold down 0.9% to $1,731.23</li><li>WTI crude up 0.5% to $91.22</li><li>Bitcoin flat at $21,201</li></ul><p style=““ class=“text-align-justify“>The dollar continues to keep steady in the new week while the euro stumbled to parity against the greenback again as Europe continues to deal with a host of concerns, the latest being Russia to halt natural gas supplies via the Nord Stream pipeline for three days at the end of August.</p><p style=““ class=“text-align-justify“>Energy prices in the region were sent soaring and the euro slumped with EUR/USD falling from 1.0030 to 0.9990, before hovering around parity for the time being. GBP/USD also eased lower in a fall from 1.1820 to 1.1785 before sticking around 1.1800 as sellers flirt with a steeper drop to start the new week.</p><p style=““ class=“text-align-justify“>Stocks continue to be pressured lower with European indices mostly falling by over 1% alongside US futures, which saw early declines deepen with S&P 500 futures having initially been down by 0.3% before falling now by over 1.1% on the day.</p><p style=““ class=“text-align-justify“>The sense of risk aversion kept bonds slightly more bid but the likes of the aussie and kiwi are defying the risk flows so far today. AUD/USD is seen up 0.5% to 0.6910 as buyers keep a defense of the 5 August low at 0.6869 since the end of last week.</p><p style=““ class=“text-align-justify“>Elsewhere, oil continues to see volatile trading as an initial fall to $88.90 is more than recovered as price traded back up to $91.03 before sticking just below that currently. OPEC+ continues to significantly underdeliver in terms of output target in July, but that is already rather known over the past few months.</p><p style=““ class=“text-align-justify“>Jackson Hole is the key focus in trading this week but so far, the risk mood and dollar flows are still two key factors playing their part in influencing trading sentiment to kick start proceedings.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>It is being reported that sanctions on some members and low investment by others hindered the bloc from producing as it should. For some context, the compliance with production targets stood at 546% in July – that compares with 320% in June.</p><p style=““ class=“text-align-justify“>In other words, OPEC+ is producing nowhere near their output targets (which have been increased over the course of the year) and even with Saudi Arabia and UAE believed to be the only ones with spare capacity, they aren’t pressing the pumps either. As a reminder, the bloc <a target=“_blank“ href=“https://www.forexlive.com/news/opec-said-to-agree-on-a-100k-output-increase-for-september-20220803/“ target=“_blank“>agreed</a> to increase its output target by 100k bpd for September in what was a rather trivial gesture.</p>

This article was written by Justin Low at www.forexlive.com.

<ul><li>A recession is increasingly likely</li><li>Inflation will continue to accelerate and could peak above 10% this autumn</li><li>Upside risk for inflation is high</li><li style=““ class=“text-align-justify“>High degree of uncertainty over gas supplies and sharp price increases likely to weigh heavily on households, companies</li></ul><p style=““ class=“text-align-justify“>That’s a fair assessment and one that isn’t quite clouded by political bias for the most part. It almost seems inevitable now especially when you look at how energy prices have gone parabolic in Europe. The set of PMI data releases tomorrow could be what it takes to tip the euro over the edge as it holds on the brink of parity at the moment.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>Gone are the days that politicians testing positive for COVID-19 would have done something to move markets. Still, it’s best to stay abreast of the latest developments in case of anything. We do wish Kishida a speedy recovery and he says that he plans to be back in office by 31 August.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>It is just beyond petrifying to look at the charts and to see how historical prices over the past decade compare to the latest surge in European energy prices. Dutch TTF futures have jumped up by over 12% to €288/MWh today after Russia has said that they will close the Nord Stream pipeline for maintenance for three days at the end of August. Here’s a look at the chart:</p><p style=““ class=“text-align-justify“>And when you look over to French and German year-ahead baseload power prices, it is even more daunting as prices hit €775/MWh and €624/MWh (a new record) respectively to start the week (h/t @ YanQinyq):</p><p style=““ class=“text-align-justify“>This is Europe heading towards devastation and I can’t imagine how this is going to translate to consumers as we look towards the winter months.</p>

This article was written by Justin Low at www.forexlive.com.