New highs for the EURUSD. Looks toward the old 2021 lows now

Old lows between 1.17035 to 1.07053

The EURUSD is trading to a new session high and in the process has moved above the low from Wednesday’s trade at 1.16929.
Old lows between 1.17035 to 1.07053
The next key target comes in at the old 2021 lows between 1.17035 and 1.17053. The price started to dipped below those levels on Wednesday. Yesterday the intraday corrective high stalled right near those levels. Bearish. A move back above that area would then have to contend with the falling 100 hour moving average at 1.17142.
PS. The low today stalled near the low from yesterday creating a double bottom near 1.1664

European shares erase earlier declines. Close higher on the day/down for the week.

Major indices close higher.

The major European indices have erased earlier declines and are closing higher today. The provisional closes are showing:
  • German DAX, +0.2%. The index was down -0.71% at the lows
  • France’s CAC, +0.3%. The index was down -0.57% the lows
  • UK’s FTSE 100, +0.4%. The index was down -0.39% at the lows
  • Spain’s Ibex, +0.2%. The index was down -0.58% at the lows
  • Italy’s FTSE MIB, unchanged. The index was down -0.86% at the lows
for the week:
  • German DAX, -1.2%
  • France’s CAC, -4.0%
  • UK’s FTSE 100 -1.85%
  • Spain’s Ibex -0.7%
  • Italy’s FTSE MIB -2.8%

In other markets as London/European traders look to exit for the week:

  • Spot gold is up $4.30 or 0.24% at $1783.76.
  • Spot silver is down eight cents or -0.32% $23.11
  • WTI crude oil futures are down $0.64 or -1% at $62.98
  • The price of bitcoin is up near $1700 at $48,455
In the US stock market, the major indices have also reversed earlier declines.
  • Dow industrial average is trading up 194 points or 0.56% at 35088.46. It traded as low as -27.05 points
  • S&P index is up 12.4 points or 0.28% at 4431.04
  • NASDAQ index is up 113 points or 0.78% 14654.33
In the US debt market, the yields are mostly higher with the 30 year still modestly lower.
Major indices close higher._
In the European debt market, the benchmark 10 year yields are unchanged to modestly higher:
The European 10 year yield

This isn’t the taper tantrum the market was planning for

As much as the Fed is planning to taper, watered down expectations going into Jackson Hole says more about the economic outlook

If the Fed isn’t going to announce a taper soon, the fear is that they might not get the chance to do so if the US virus situation worsens further in the weeks/months ahead.
Delta variant concerns have been the key theme in the market this week and we’ve already started to see its impact on US consumption, adding to the softer consumer sentiment report from Friday last week.
As much as the market fears a taper tantrum from when the Fed will announce the start of tapering, either formally or informally, this kind of tantrum based off the fact that the Fed needs to get the timing right (or else miss the boat) is also capable of hurt.
While US equities aren’t overbearingly burdened by it (easy money still rolling in), the FX market has certainly realised some major fears this week as commodity currencies fall apart and we are seeing some key moves from a technical perspective.


Cable falls to fresh one-month lows, nears 1.3600

GBP/USD sellers set their sights on the July lows

GBP/USD D1 20-08

It hasn’t been a good week for commodity currencies amid the hit to risk but the pound itself is also not faring too well, with cable experiencing a sharp drop yesterday by over 100 pips. And that downside momentum is continuing to today.

The drop in cable price action below the 200-day moving average (blue line) signified a break favouring sellers and now they are riding that wave towards the 1.3600 mark.
Buyers managed to hold daily closes above that level in July and it will be a key area to watch as the downside momentum extends. The July lows @ 1.3572-91 adds to the line of defense but a break below that could open up a slippery slope in cable.
The case for the pound is that all the good news is essentially already priced in for the currency. The BOE will look towards ending asset purchases by year-end and while a taper may follow next month, it is hardly significant considering the timeline.
As such, any such announcement by the central bank will be one more for the optics.
Adding to that is the UK economy looking like it has peaked on reopening demand going into the summer as economic conditions starts to wind down.
Inflation is still on the high side but it seems like the BOE is more than content to stick with the ‘transitory’ narrative, at least for as long as they can get away with it.
Meanwhile, the case for the dollar is rather interesting as the latest wave of strength owes much to a technical push in my view. The more sour risk tones in the market is also helping amid a flight to safety this week.
That said, the dollar may face some risk going into Jackson Hole where I would expect Powell & co. to stick with a similar narrative on tapering as we heard in July i.e. nothing hawkish and nothing to suggest an imminent announce in September or November.
Also, just be mindful in case the Fed does highlight growing risks on the delta variant as part of their outlook. That could keep the market more on edge going into September.

Japan’s Nikkei 225 index falls to fresh lows for the year

There are quite a number of worrying charts for risk at the moment

And the Nikkei’s latest drop adds to that, with the index slipping to its weakest levels since late December. While equities in Europe and US have been holding up for most of the year, Japanese stocks have struggled since the BOJ revamped its ETF guidance.
The central bank’s move while does not explicitly removes support for equities, they surely have not shown the same kind of conviction to support the stock market as they did amid the pandemic last year – so that does say something.
Elsewhere in Asia, it’s another meltdown for Chinese equities with the Hang Seng down by 2.5% and Shanghai Composite also down by 2.0% on the day.

Taking stock from the FOMC minutes

Taper for this year still on

The FOMC minutes have been released and there was some confusion on the release as to whether they were dovish or hawkish. The reason for the confusion was due to traders trying to interpret the minutes in light of the weaker economic data that we have seen recently. So, think of the CPI miss and the weak University of Michigan sentiment from last Friday.This resulted in some pretty choppy action with the USDJPY moving lower and then higher over the next 12 hours after the release. So, at times like these what can we learn? Let’s break it down to get some clarity.

  • ‘Substantial further progress has not yet been met’ regarding the labour market conditions according to most participants. But the last jobs report came after the meeting, so that would have ticked all the right boxes. So, this means that another good jobs report in September will almost certainly mean a Q4 tapering
  • However, most folks judge tapering could be appropriate this year as they saw the Fed as close to the goal of ‘substantial further progress’.
  • The committee want to stop the market thinking that a move towards tapering has a mechanical link towards rising interest rates. Ok, that’s dovish, but hard to see how the market will not see tapering as a broadly bullish sign and that rate rises are the next obvious step. The FOMC minutes just want traders to not think the link is automatic.
  • There were hints that the taper could be announced in Q4, but with more gradual reductions.

The bottom line

Tapering is coming and likely to be in Q4 as long as the US economy keeps moving in the right direction, There is no obvious trade to take from this expect to say that a USDJPY buy from major support levels makes sense as long as the Fed are moving towards tapering. Also, get a stellar jobs report in Feb and short gold, long USDJPY makes sense for some quick moves.

Taper for this year still on 

Shipping certainly remains tight

Baltic Dry Index rises for eight straight days

Baltic Dry Index rises for eight straight days
There was a time 10-15 years ago when the Baltic Dry Index was one everyone’s radar. It turns out it wasn’t much of an indicator of anything regarding global demand.
But it still has some believers and that’s why I want to highlight 8 straight days of gains as the chart begins to go parabolic. It’s at the highest levels since 2010 and measures the cost of moving goods by ship.
It still has a long ways to go to get back to its former glory but it doesn’t argue for weak global demand.

Don’t rule out a Chinese rate cut today

China to the rescue?

China to the rescue?
If there were a moment for a surprise rate cut from the PBOC, this might be it.
Chinese tech stocks have been crushed this month and there are new economic worries after weak industrial production and retail sales data. In addition, delta outbreaks have caused disruptions on the ground and that will undoubtedly continue.
Today is PBOC decision day, with an announcement due at 0130 GMT.
The spots to watch are the one-year and five-year loan prime rate (LPR), which is a main lever the PBOC pulls. Less likely is a shift in the LPR.
Reuters has picked up a shift in expectations in a snap poll of economists and traders. Of 32 surveyed, 25 see no change but 7 now see a move. It will be a small one with 6 of those seeing just a 5 bps cut while the remainder sees 10 bps. The current 1-year rate is 3.85%.
Even a minuscule shift would be a powerful signal that China isn’t prepared to tolerate a slowdown. Moreover, central banks don’t get the opportunity to surprise often and the timing is plum.
Even if there’s no hike today, a dovish shift from the PBOC could have a similar impact.

Dow closes lower for the third consecutive day

S&P and NASDAQ squeak out small gains

The major indices are closing mixed.

  • The Dow is closing negative for the third day in a row.
  • Both the S&P and NASDAQ broke losing streaks.
  • The S&P snapped a today decline,
  • The NASDAQ snapped a three day decline.
  • The Russell 2000 index fell as well and has its long as losing streak since February 2000.
  • The major indices on pace for weekly losses
  • Dow S&P on track for worst week since mid June
  • NASDAQ on track for the worst week since May
the final numbers are showing:
  • Dow industrial average -66.57 points or -0.19% at 34894.12
  • S&P +5.49 points or +0.12% at 4405.76
  • Nasdaq +15.87 points or +0.11% at 14541.79
  • Russell 2000-26.36 points or -1.22% at 2132.42
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