Euro and Swiss Franc Soften in Mixed Markets, Canadian Also Weak

Market overviews

Euro and Swiss Franc weaken mildly in mixed markets today. New Zealand Dollar firms up together with Yen and Dollar. Meanwhile, Canadian Dollar is also soft, awaiting BoC policy decision. Major European indices are trading in red, but losses are limited. US futures also point to slightly lower open. Gold is trying to reclaim 1800 handle after breaching it. WTI crude oil is slightly up, and could head to retest 70 handle.

Technically, we’d continue to keep an eye on 1.2706 resistance in USD/CAD. Firm break above would revive near term bullishness, for resuming the larger rise form 1.2005 through 1.2947 high. Meanwhile, break of 86.53 support in CAD/JPY would indicate rejection by 55 day EMA again. In this case, correction from 91.16 would likely resume through 84.65 support.

In Europe, at the time of writing, FTSE is down -0.40%. DAX is down -0.82%. CAC is down -0.32%. Germany 10-year yield is down -0.010 at -0.331. Earlier in Asia, Nikkei rose 0.89%. Hong Kong HSI dropped -0.12%. China Shanghai SSE dropped -0.04%. Singapore Strait Times dropped -1.27%. Japan 10-year JGB yield rose 0.0055 to 0.046.

ECB Holzmann: We may be able to normalize monetary policy sooner than most expect

ECB Governing Council member Robert Holzmann, Bank of Austria head, said in an Eurofi Magazine article, “there is the possibility that we may be able to normalize monetary policy sooner than most financial market experts expect.” He pointed to upward price pressures which could turn into inflation expectations.

Holzmann added, “this does not mean that we will withdraw accommodation prematurely, but rather that accommodation will be needed for a shorter period than what markets expect.”

Released from Eurozone, France trade deficit widened to EUR -7.0B in July. Italy retail sales dropped -0.4% mom in July.

BoJ Kuroda: We will continue with our current monetary easing

In an interview by Nikkei, BoJ Governor Haruhiko Kuroda said, “we will continue with our current monetary easing to support corporate funding, and stand ready to take additional easing measures without hesitation as needed.” He added that there is no plan to end the asset purchases or begin selling its holdings.

Most candidates in the race to replace Yoshihide Suga as LDP leader and Prime Minister are pushing for another big pandemic relief package. Kuroda said, “even if fiscal policy becomes more aggressive, interest rates will remain low and help enhance the effect of fiscal policy.”

“Even if fiscal policy becomes more aggressive, interest rates will remain low and help enhance the effect of fiscal policy,” he added.

Japan Q2 GDP growth upgrade to 0.5% qoq, 1.9% annualized

Japan GDP growth was finalized at 0.5% qoq, 1.9% annualized in Q2. It’s upgraded from initial estimate of 0.3% qoq, 1.3% annualized. Capital expenditure grew 2.3% qoq, upgraded from preliminary reading of 1.7% qoq. Private consumption grew 0.3% qoq, upgraded from 0.8% qoq.

Also released, bank lending rose 0.6% yoy in August, below expectation of 1.0% yoy. Eco watcher sentiment dropped from 48.4 to 34.7 in August. Current account surplus narrowed to JPY 1.41T in July.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1825; (P) 1.1855; (R1) 1.1872; More…

EUR/USD’s retreat from 1.1908 continues today but stays above 1.1792 minor support. Intraday bias remains neutral first. On the upside, sustained break of 1.1907 resistance will indicate that fall from 1.2265, as well as the consolidation pattern from 1.2348, have completed. Near term outlook will be turned bullish for 1.2265/2348 resistance zone. However, on the downside, rejection by 1.1907 followed by break of 1.1792 support will dampen the bullish case, and turn bias back to the downside for 1.1663 support instead.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY GDP Q/Q Q2 F 0.50% 0.30% 0.30%
23:50 JPY GDP Deflator Y/Y Q2 F -1.10% -0.70% -0.70%
23:50 JPY Bank Lending Y/Y Aug 0.60% 1.00% 1.00% 0.90%
23:50 JPY Current Account (JPY) Jul 1.41T 1.85T 1.78T
05:00 JPY Eco Watchers Survey: Current Aug 34.7 45.9 48.4
06:45 EUR France Trade Balance (EUR) Jul -7.0B -6.2B -5.8B -6.1B
08:00 EUR Italy Retail Sales M/M Jul -0.40% 0.30% 0.70%
14:00 CAD BoC Interest Rate Decision 0.25% 0.25%
14:00 CAD Ivey PMI Aug 59.2 56.4
18:00 USD Fed’s Beige Book