Fundamental
Overview

Late Thursday, around 1:00
PM ET, WSJ’s Timiraos published an article which seemed suggesting that a 50
bps cut was still being discussed. The market responded by raising 50 bps cut
probabilities to around 40% from 13% before the news.

Nick Timiraos is considered
a Fed “insider”, so the market is attentive to all of his pieces concerning
potential Fed decisions. The probability for the Fed to cut by 50 bps at the
upcoming meeting stand now around 60% with a total of 118 bps of easing by
year-end.

These repricing weakened
the US Dollar across the board as Treasury yields fell further. Once we are
done with the Fed decision, the focus will switch back to the economic data. In
case we start to see better figures, the market might start to pare back the
aggressive easing expected in 2025 supporting the greenback in the short-term.

For the BoC, the market
sees a 25% probability of a 50 bps cut at the upcoming meeting and a total of
68 bps of easing by year-end. Governor Macklem last week raised the prospect of
larger cuts if growth and inflation were to fall more than expected.

USDCAD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDCAD is testing the key resistance around the 1.36 handle. This is where
the sellers are stepping in with a defined risk above the resistance to
position for a drop back into the 1.34 handle. The buyers, on the other hand,
will want to see the price breaking higher to increase the bullish bets into
the 1.38 handle next.

USDCAD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the pair is now trading in a tight range between the 1.3560 support
and the 1.36 resistance. The buyers will want to see the price breaking out to
the upside to increase the bullish bets into new highs, while the sellers will
look for a break lower to pile in for a drop back into the 1.34 handle.

USDCAD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see more clearly the tight range and the choppy price action. There’s not much
else to add here as the market participants will wait for a breakout on either
side. The red lines define the average daily range for today.

Upcoming Catalysts

Tomorrow we get the Canadian CPI, the US Retail Sales and the US Industrial
Production data. On Wednesday, we have the FOMC Rate Decision. On Thursday, we
get the latest US Jobless Claims figures. On Friday, we conclude with the
Canadian Retail Sales.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• It would take a significant shift in the outlook for the ECB to cut in October
• Very little new information in the pipeline before October meeting
• There is no rush to cut rates
• The safest approach is to wait for the outlook to become clearer

All this is very much a given now and they have guided markets relatively well in that regard. But at least economic developments are also playing out accordingly, so that helps with expectations. Traders are pricing in just ~39 bps of rate cuts for the last two meetings this year and not looking for a change in October as well; ~75% odds of no change to rates.

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

The greenback is the laggard in trading today and is being pushed lower in European morning trade. USD/JPY is the standout as it nudges under the 140.00 mark but it’s not the only pair on the move. GBP/USD is up 0.5% to near 1.3200 and AUD/USD also up 0.5% to 0.6740 currently. Meanwhile, EUR/USD is also seen up 0.5% to 1.1128 as it threatens to break a couple of key Fib levels:

The 50.0 and 61.8 Fib retracement levels at 1.1101 and 1.1125 respectively are looking to give way today. And that could set the pair up for stronger gains if the Fed plays ball later this week.

But that’s the caveat though, is that whatever moves we’re seeing with the dollar here is going to need vindication from the Fed.

Traders are pricing in a more dovish Fed as they look for ~59% odds of a 50 bps rate cut. That just means they are either hoping for that to happen or the Fed to turn to rather dovish even if delivering a 25 bps rate cut. It might be an understatement to say that the scope for the Fed disappointing market players this week may be quite large. But it is what it is at the moment.

In the bond market, 2-year Treasury yields are continuing to flirt with the 2023 low near 3.55%. And that’s another key threshold to watch out for before we get to the FOMC meeting on Wednesday. A break lower there will likely help to pin the dollar down further in the meantime.

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

• Prior €22.3 billion

Comparing to last year, the euro area trade balance is showing a surplus of roughly €128 billion from January to July. And that compares to the roughly €4 billion surplus only in the same period last year. Energy price developments are of course a big factor, leading to a drop in imports. And that in turn helping with the overall picture above.

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

UPCOMING
EVENTS:

• Monday: New Zealand Services PMI.
• Tuesday: Eurozone ZEW, Canada CPI, US Retail Sales, US
  Industrial Production and Capacity Utilization, US NAHB Housing Market
  Index.
• Wednesday: UK CPI, US Housing Starts and Building Permits,
  BoC Summary of Deliberations, FOMC Policy Decision.
• Thursday: New Zealand Q2 GDP, Australia Labour Market
  report, BoE Policy Decision, US Jobless Claims.
• Friday: Japan CPI, PBoC LPR, BoJ Policy Decision, UK
  Retail Sales, Canada Retail Sales.

Tuesday

The Canadian CPI
Y/Y is expected at 2.1% vs. 2.5% prior, while the M/M measure is seen at 0.0%
vs. 0.4% prior. As always, focus will be on the underlying inflation measures.
The Trimmed Mean CPI Y/Y is expected at 2.5% vs. 2.7% prior and the Median CPI
Y/Y is seen at 2.3% vs. 2.4% prior.

The BoC is
expected to cut rates by 25 bps at both the last two meetings left for this
year, but there’s also a chance that the central bank delivers bigger rate cuts
if growth and inflation were weaker than projected as Governor Macklem mentioned last week.

The US Retail
Sales M/M is expected at 0.2% vs. 1.0% prior, while the Ex-Autos M/M measure is
seen at 0.3% vs. 0.4% prior. The focus will be on the Control Group figure
which is expected at 0.2% vs. 0.3% prior.

Consumer spending
has been stable which is something you would expect given the positive real
wage growth and resilient labour market. We’ve also been seeing a steady pickup
in the UMich Consumer
Sentiment which suggests
that consumers’ financial situation is stable/improving.

Wednesday

The UK CPI Y/Y is
expected at 2.2% vs. 2.2% prior, while the M/M measure is seen at 0.3% vs.
-0.2% prior. The Core CPI Y/Y is expected at 3.5% vs. 3.3% prior, while the M/M
figure is seen at 0.4% vs. 0.1% prior.

The market expects
the BoE to keep rates unchanged at the upcoming meeting and then cut rates by
25 bps in November and December.

The consensus
among economists sees the Fed cutting rates by 25 bps. The market pricing
though is evenly split between a 25 and 50 bps cut. Some people say that
starting with a standard 25 bps would be better because the economy is still
fine, and 50 bps might be seen as panicky.

Central banking is
also about risk management though. The market pricing is giving the Fed a nice
opportunity to deliver a 50 bps “insurance cut” without surprising. Things
would have been much different if we had something like 30% probabilities for a
50 bps cut and 70% for a 25 bps one.

The Fed didn’t
have the chance to see the labour market report last July as the data was
released two days later. Maybe, if they had the data a week earlier, we might
have seen them cutting by 25 bps back then already and then continuing with 25
bps cuts for the subsequent meetings.

Fed Chair Powell
made it clear at the Jackson Hole Symposium that they will not tolerate more
labour market weakening and they will do everything they can to keep it strong.
Considering everything, starting with a 50 bps cut makes much more sense.

The Fed can then
show that it was just an insurance cut via its Summary of Economic Projections
and Powell can double down on that at the Press Conference. Speaking of the
SEP, the market is expecting the Fed to deliver at least 100 bps of easing by
year-end. The Fed can cut by 50 bps and then project two more 25 bps cuts by
year-end.

Further out, the
market expects the Fed to deliver 150 bps of easing in 2025 which seems too
aggressive at the moment. To sum up, I personally expect the Fed to cut rates
by 50 bps, but in the end what’s important is that the Fed is finally starting
to ease its policy and the magnitude will be shaped by the data in the next
months.

Thursday

The Australian
Labour Market report is expected to show 30.0K jobs added in August vs. 58.2K
in July and the Unemployment Rate to remain unchanged at 4.2%. The market
expects the RBA to deliver the first rate cut in February 2025, but the
probabilities can be brought forward to December 2024 if the data
were to disappoint in the next months.

The BoE is
expected to keep rates unchanged at 5.00%. The expectations for such a move
have been shaped by relatively strong data with PMIs firmly in expansion,
inflation moderating at a slow pace and the unemployment rate ticking lower.
The market then expects the central bank to cut by 25 bps in November and
December.

The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
have been on a sustained rise (although they’ve improved recently) showing that
layoffs are not accelerating and remain at low levels while hiring is more
subdued.

This week Initial
Claims are expected at 230K vs. 230K prior, while there’s no consensus for Continuing
Claims at the time of writing although the prior release showed an increase to
1850K.

Friday

The Japanese Core
CPI Y/Y is expected at 2.8% vs. 2.7% prior. Inflation has been picking up
alongside wage growth which are two of the most important factors for the BoJ. Nonetheless,
the BoJ is expected to keep rates unchanged this time around and potentially
deliver another rate hike by the end of the year.

The BoJ is
expected to keep interest rates unchanged at 0.25%. The focus will be on the
Press Conference as the markets will be attentive to signals or hints on the
timing of the next rate hike.

Several BoJ
officials kept the rate hikes on the table as they want to normalise policy to
a more neutral stance. Markets instability has been a major concern for the central
bank, so they will likely wait for the Fed to be a bit more down the road in
its easing cycle before tightening policy further.

The PBoC is
expected to keep the 1 year and 5 year LPR rates unchanged at 3.35% and 3.85%
respectively. The Chinese economic data hasn’t been exactly good and
deflationary risks remain high. Chinese officials should really go harder on
monetary policy easing and bring real rates down from the current high levels.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

China retail sales, industrial output, investment data for August 2024 – another round of disappointing results.

Retail Sales +2.1% (YoY) (Aug)

• expected 2.5%, prior 2.7%

Industrial Production +4.5% (YoY) (Aug)

• expected 4.8%, prior 5.1%

Fixed Asset Investment +3.4$(YTD) (YoY) (Aug)

• expected 3.5%, prior 3.6%

Unemployment 5.3%

• expected 5.2%, prior 5.2%

Also published were home prices data, which fell at their sharpest rate in 9 years, at -5.3% y/y in August, compared with the previous month’s -4.9%.

• For the m/m, down 0.7% (July was also -0.7% m/m)

China’s property sector continues to be a black hole for the economy.

Piecemeal stimulus looks set to continue:

• Reports that China set to cut interest rates on more than $5 trln of outstanding mortgages

China has a growth target of ‚around 5%‘ this year. China invariably hits its growth target, officially anyway.

—

China’s National Bureau of Statistics (NBS) painted an upbeat picture.

• In August, under the strong leadership of the Central Committee of the Communist Party of China (CPC) with Comrade Xi Jinping at its core, all regions and departments strictly implemented the decisions and arrangements made by the CPC Central Committee and the State Council. All regions and departments adhered to the general principle of pursuing progress while ensuring stability, fully and faithfully applied the new development philosophy on all fronts, strengthened macro-regulation and strove to promote high-quality development. As a result, the production and demands sustained a recovery, employment and prices were basically stable, and high-quality development continued to move ahead. The national economy maintained stability in general while making steady progress.

These are the main headings from the statement:

1. Industrial Production Increased Steadily with Fast Growth in Equipment Manufacturing and High-Tech Manufacturing.

2. Service Sector Continued to Recover and Modern Services Developed Well.

3. Market Sales Kept Increasing and Online Retail Sales Grew Rapidly.

4. Investment in Fixed Assets Scaled up and Investment in High-Tech Industries Grew Fast.

5. Imports and Exports of Goods Grew Fast and Trade Structure Continued to Optimize.

6. Employment Was Generally Stable and Urban Surveyed Unemployment Rate Increased Slightly.

7. Increase of Consumer Price Expanded and Producer Prices for Industrial Products Declined.

This article was written by Eamonn Sheridan at www.forexlive.com.

NASDAQ and S&P indices end the week with five straight days of gains

• Goldman Sachs sees a 25 basis point cut from the Fed next week
• Next week will be dominated by the FOMC rate decision.
• Crude oil futures settled at $68.65
• ECB’s Makhlouf: ECB is not pre-committing to a particular rate path.
• Go big or go small? JP Morgan reiterates its call for 50 basis point cut next week.
• CNBC’s retail monitor sees consumer spending cooling
• Baker Hughes rig count for the current week
• Fitch: If this is an extended strike you could see Boeing downgraded
• That’s a wrap for the European stock markets.
• Paulson on CNBC: He favors a 50 basis point cut by the Fed
• University of Michigan preliminary sentiment for September 69.0 versus 68.5 estimate
• A 50 basis point cut is now 50-50 for the Fed decision next week
• Kickstart the FX trading day for Sept 13 w/a technical look at the EURUSD, USDJPY & GBPUSD
• Canada capacity utilization Q2 79.1% vs 78.6% last quarter
• Canada July wholesale sales +0.4% versus -1.1% expected
• US August import prices -0.3% versus -0.2% estimate. Export prices -0.7% vs -0.1% estimate
• University of Michigan consumer sentiment Preliminary. Import-export prices in the US
• The JPY is the strongest and the AUD is the weakest as the NA session begins
• ForexLive European FX news wrap: Yen firms as yields stay heavy
• ECB’s Holzmann: There could be room for another rate cut in December

As the day and week comes to a close, the JPY is ending the day as the strongest of the major currencies and the NZD is the weakest. The US is ending the day mixed with most of the declines coming vs the JPY and the CHF and gains vs the AUD and NZD. The greenback was near unchanged vs the EUR, GBP, and CAD today.

The NZDUSD moved lower today after reaching new highs near the 100 bar MA on the 4-hour chart near 0.6195. The subsequent fall took the price back down to the 100-hour MA at 0.6151. The 100 hour MA will be a key barometer for the pair going into next weeks trading.

For the USDJPY, it traded to a low of 140.275 and in the process tested the December 2023 low at 140.248. The pair rebounded into the close to 140.90. WIth the low today within a few pips of the December 2023 low, traders may look at the area as a double bottom to lean against into the new trading week.

For the EURUSD , the high prices today, stalled at the swing area that was defined back in August between 1.1097 and 1.11042 (see red numbered circles). The move back down has the pair trading at 1.1072 near the close for the week. The 100 hour MA at 1.1059 will be a key support target early next week. The swing area up to 1.11042 will be the key resistance that needs to be broken to increase the bullish bias.

The GBPUSD buyers took the price above a swing area and the 100 bar MA on the 4-hour chart at 1.31399, but falled. The price is trading between that MA and the 200 hour MA below at 1.31104. Those MAs will be the close support and resistance into the new week. A move below the 200 hour MA will also have the 100 hour MA at 1.30844 to contend with as support. It would take a move below it to give the sellers more control.

Looking at the US yield curve, yields today moved lower with the yield curve steepening. The 2-10 spread is now 7.2 basis points which is the most positive since June 2022. The 2-30 year spread isi near +40 basis points,also the highest since June 2022.

A snapshot of the yields near the end of day shows:

• 2-year yield 3.5886%, -5.9 basis points
• 5 year yield 3.436%, -3.0 basis points
• 10-year yield 3.658%, -2.1 basis points
• 30-year yield 3.984%, -1.1 basis points

For the week:

• 2 year yield fell -5.4 basis points
• 5 year yield fell -3.2 basis points
• 10 year yield fell -2.0 basisi points
• 30 year yield fell -0.6 basis points.

US stocks staged a solid rebound after the tumble last week. The Nasdaq and the S&P were both up every day of the week with the S&P rising 4.02% for the week and the Nasdaq rising 5.95%. The S&P fell -4.25% last week and the Nasdaq was down -5.77%. So back to the very begining of the calendar month. Remember September is traditionally, a negative month.

Next week, the FOMC meets (25 or 50 bp cut). The BOE and the BOJ will also meet with both expected to keep rates unchanage.

US retail sales will also be released along with Australia jobs and Canada CPI data (see the calendar here)

Thank you for your support this week. Wishing all a happy and healthy weekend. I hope your team wins.

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

The major US stock indices closed the day with gains. The NASDAQ and the S&P had a perfect week with five straight winning days. The NASDAQ index erased it -5.77% decline from last week with a gain of 5.95%.

A snapshot of the closing levels today shows:

• Dow industrial average rose 297.01 points or 0.72% at 41393.78
• S&P index rose 30.26 points or 0.54% at 5626.02
• NASDAQ index rose 114.30 points or 0.65% at 17683.98

The Russell 2000 rose 53.06 points or 2.49% at 2182.49.

For the trading week:

• Dow rose 2.60% after falling 2.93% last week.
• S&P index rose 4.02% after falling -4.25% last week.
• NASDAQ index rose 5.95% after falling -5.77% last week
• Russell 2000 rose 4.355% after falling 5.69% last week.

Some big winners this week included:

• ARM holdings +25.88%
• Broadcom, +22.41%
• Chewy, +22.03%
• Super Micro Comuputer, is 18.29%
• Palantir, +17.21%
• Nvidia, +15.82%
• AMD, +13.37%
• First Solar, +9.64%
• Tesla, +9.28%
• United Airlines, +9.17%
• Amazon, +8.81%

Losers this week included:

• Raytheon, -17.7%
• GameStop, -13.67%
• Moderna, -6.52%
• Adobe, -4.71%
• J.P. Morgan -3.82%
• Southwest Airlines -3.40%
• Biogen -2.58%
• Citigroup -2.37%
• Wells Fargo -2.22%
• Occidental -1.88%
• General Mills -1.84%
• General Motors -1.76%

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

Goldman Sachs is keeping it 25 basis point cut forecast for the Fed next week. They also see cuts of 25 basis points in both November and December.

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

As the week, moves to the close, what are the technicals telling traders going into the new trading week.

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