Editor
Today’s Analysis
It is hardly surprising that yesterday the euro opened the trade with a slight rise. Earlier, the European currency depreciated considerably, so a correctional movement was predictable. However, the release of the US macroeconomic data moved the euro back to its previous levels.
Although the initial jobless claims came in a bit worse than expected, the overall figures were positive. What is more, the data on initial claims for unemployment benefits turned out to be above the forecast: their number declined by 29,000 instead of the estimated 17,000. At the same time, the continuing jobless claims are of much greater importance. Instead of the predicted 149,000, their number decreased by only 79,000. So, the overall decline in the number of claims was less than previously expected. Yet, the US labor market is still on track to recovery.
So, amid this data, an upside correction on the euro came to a standstill, yet the local correction is likely to continue. Today, as the economic calendar is almost empty, the euro may attempt to retry this correctional scenario.
US continuing jobless claims
After having tested a yearly low, the euro/dollar pair slowed down the pace of decline. Now it is important for the price to hold below the key level of 1.1700. In this case, the euro is more likely to extend its downward movement.
The RSI is located above the level of 30, indicating that the market is not oversold and the euro may drop further.
Outlook
Consolidation below the key level of 1.1700 resulted in the reduced volume of short positions on the pair. This is due to the fact that traders expect a technical correction. The pair will resume its downtrend when the price settles below the mark of 1.1600.
Comprehensive indicator analysis confirms a sell signal on the intraday and medium-term periods. As for the minor time frame, it shows a mixed buy/sell signal due to the flat movement.
USD/JPY
. The main trend is up according to the daily swing chart. A trade through 110.800 will signal a resumption of the uptrend. A move through 109.114 will change the main trend to down.
The short-term range is 111.659 to 108.722. The USD/JPY is currently testing its retracement zone at 110.191 to 110.537. This zone is controlling the near-term direction of the Forex pair.
The minor range is 110.800 to 109.114. The USD/JPY is currently trading on the strong side of its 50% level at 109.957, making it support.
The main range is 107.479 to 111.689. Its retracement zone at 109.569 to 109.076 is support. This zone stopped the selling at 109.114 on August 16.
USD/CAD
From a technical perspective, the overnight sustained move beyond the previous swing highs, around the 1.2810 region, supports prospects for additional gains. That said, RSI (14) on short-term charts is already flashing overbought conditions and held bulls from placing fresh bets. Hence, it will be prudent to wait for some near-term consolidation, or a modest pullback before positioning for any further appreciating move. Dips towards the 1.2800 level might still be seen as a buying opportunity, which should help limit the downside near the 1.2750-45 region.
On the flip side, some follow-through buying beyond the 1.2900 mark, coinciding with the 61.8% Fibonacci level of the 1.3418-1.2007 downfall, will reaffirm the positive outlook. The pair might then surpass an intermediate hurdle near the 1.2955 region and aim to reclaim the key 1.3000 psychological mark for the first time since December 2020.
General Market
Global shares fell for the fifth straight day and the dollar remained firm in a flight to safety on Friday as rising coronavirus cases compounded concerns over Chinese growth and the outlook for U.S. stimulus.
The swirling economic currents have weighed on sentiment all week, setting a cautious tone ahead of a meeting of U.S. central bankers at Jackson Hole next week, with markets watching for any sign of monetary tightening in the world’s biggest economy.
U.S. stock futures pointed to Wall Street opening 0.2%-0.3% lower.
“The Delta variant remains the biggest worry for investors right now, and along with the question of waning vaccine efficacy has made the risks to the outlook much more pronounced relative to just a few months ago,” Deutsche Bank (DE:DBKGn) analyst Henry Allen said in a note to clients.
“However, nervousness about possible tapering by the Fed ahead of next week’s Jackson Hole speech by Chair (Jerome) Powell, along with a potential Chinese growth slowdown have further played on investors’ minds, and brought the narrative a long way from the reflation hopes many had back in Q1.”
The MSCI World Index, a broad gauge of global shares, was last down 0.3%, on course for its biggest weekly fall since February as small gains in Europe’s top markets failed to make up for Asian losses overnight.
Asian shares limped into the weekend with their lowest close since November, with MSCI’s broadest index of Asia-Pacific shares outside Japan down 1.1% and 4.9% lower on the week, its weakest since February.
The Hong Kong benchmark touched its lowest this year, before closing down 1.8% while Chinese blue chips fell 1.9% with markets spooked by slowing Chinese growth and regulatory intervention across a range of sectors.
Hong Kong’s embattled tech sub index ended down 2.5% as state media said China’s National People’s Congress on Friday officially passed a law designed to protect online user data privacy, which is expected to add more compliance requirements for companies in the country.
Despite the market weakness, Mark Dowding, chief investment officer at BlueBay Asset Management, said abundant liquidity meant there was “plenty of cash that can buy the dip, so we doubt any correction in risk assets will run too far”.
“Once we can look beyond the crest of the Delta wave, there may be calmer waters ahead and so this seems like a good time to be building and holding positions, with an eye towards the medium-term rather than playing for the vagaries of shorter-term price action.”
STRONG DOLLAR
With cases of the Delta variant of coronavirus rising across the globe from the United States to Australia, New Zealand and Japan, safety was key and the dollar a chief beneficiary.
The dollar index, which measures its performance against six rivals, rose as high as 93.684 for the first time since early November, while gold also rose, up 0.3% and heading for its second straight week of gains.
U.S. Treasury yields inched lower, with the benchmark 10-year yield at 1.230% compared with its U.S. close of 1.242%.
Euro zone bond yields also dipped, with benchmark German yields down slightly at -0.50%.
© Reuters. FILE PHOTO: Pedestrians leave and enter the London Stock Exchange in London, Britain August 15, 2017. REUTERS/Neil Hall
Elsewhere in currencies, the Australian and New Zealand dollars both fell to nine-month lows as coronavirus cases there rise. The euro was flat.
Oil prices continued to edge lower, building on sharp falls earlier in the week, with U.S. crude (CLc1) down 0.8% at $63.17 a barrel and Brent crude down 0.6% at $66.04 per barrel. [O/R]
