The euro has started the week on a positive note, extending the gains seen on Friday. EUR/USD has pushed into 1.17-territory and is trading at 1.1715, up 14% on the day.
PMIs point to solid growth
The German economy is the bellwether for the entire eurozone, so investors were keen to see the flash PMI reports for Germany’s manufacturing and services sectors for August. The readings continued to point to strong expansion, although the July figures showed an easing in the rate of expansion. Manufacturing PMI dipped to 62.7 (Jul. 65.9), while Services PMI ticked lower to 61.5 (Jul. 61.8).
The PMI Manufacturing release was the lowest in six months, as manufacturers reported material shortages, which has weighed on factory production output. Meanwhile, services was just shy of the July record, as employment levels rose and demand for goods increased.
The solid PMIs have helped the euro extend its gains, after a rough week against the dollar in which the euro slipped 0.8%. Can the euro continue to recover? We are seeing a risk-on mood in the Asian markets on Monday after last week’s fall in risk appetite saw the US dollar make strong gains against the majors. If investor risk appetite continues to improve, the euro could make a move towards the 1.18 line.
Inflation has jumped in the eurozone, with CPI rising 2.2% in July, its highest level in three years. Taking a page out of the Fed playbook, the ECB has reiterated the higher inflation is transitory, and as a result of this stance, the markets don’t expect any rate hikes for the next three years. In July, President Christine Lagarde said that the ECB would not hike rates until inflation remained ‘sustainable’ at 2%, and nobody is holding their breath for this target to be reached or breached anytime soon.
There are resistance lines at 1.1779 and 1.1859
On the downside, we find support lines at 1.1642 and 1.1585
The Dollar/Yen is edging higher early Monday as risk appetite improved with the major U.S. stock indexes gaining and benchmark Treasury yields moving higher.
The move by the stock indexes is bringing the carry trade into play. This is a strategy where U.S. investors borrow in Yen from banks in Japan then sell the Yen to buy the dollars they need to invest in U.S. stocks.
Meanwhile, higher U.S. Treasury yields are helping to widen the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a more attractive investment.
At 03:50 GMT, the USD/JPY is trading 109.858, up 0.066 or +0.06%.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart, however, the upside momentum has been struggling for two weeks.
A trade through 110.800 will signal a resumption of the uptrend. A move through 109.114 will change the main trend to down.
On the downside, the support is a retracement zone at 109.569 to 109.076.
On the upside, the first resistance is a minor pivot at 109.957, followed by a short-term retracement zone at 110.191 to 110.537.
Daily Swing Chart Technical Forecast
The direction of the USD/JPY on Monday is likely to be determined by trader reaction to the pivot at 109.957.
A sustained move over 109.957 will indicate the presence of buyers. This could lead to a labored rally with potential targets lined up at 110.191, 110.222 and 110.537.
A sustained move under 109.957 will signal the presence of sellers. This could trigger a retest of support at 109.569. This is also a potential trigger point for an acceleration to the downside with the next likely target 109.114 to 109.076.
USD/CAD trades cautiously in the Asian trading hours on Monday.
More downside for the pair, if price decisively breaks 1.2760.
Momentum oscillator holds onto overbought zone with a neutral stance.
USD/CAD accumulates losses in the initial European trading session. The pair opened higher albeit fizzled out quickly to trade lower.
At the time of writing, USD/CAD is trading at 1.2763, down 0.45% for the day.
On the daily chart, after making a shooting star on August 20, USD/CAD came under selling pressure.
That said, a break of 1.2760 will see more downside level at 1.2720 horizontal support level.
The ascending trendline from the low of 1.2422 acts as the last hope for the bulls. A daily close below the bullish slopping line would bring a low of August 19 at 1.2641 back into action.
A break and daily close below the mentioned level would further encouraged the bears to testify the 1.2600 horizontal support level.
Alternatively, the Moving Average Convergence Divergence (MACD) indicator holds onto the positive territory but with upside momentum. Any uptick in would amplify the buying pressure toward the 1.2844 horizontal resistance level.
U.S. stocks are seen opening higher Monday, rebounding after a difficult week and ahead of the key Federal Reserve event, where the central bank could hint at the prospects for withdrawing its extraordinary monetary stimulus.
The Dow Futures contract was up 145 points, or 0.4%, S&P 500 Futures traded 14 points, or 0.3%, higher, while Nasdaq 100 Futures climbed 40 points, or 0.3%.
The major indices suffered last week, with the blue-chip Dow Jones Industrial Average falling 1.1%, the broad-based S&P 500 declined 0.6%, breaking a two-week winning streak, while the tech-heavy NASDAQ Composite fell 0.7%.
Weighing on sentiment have been concerns the Fed could begin reducing its bond buying as soon as this year, even as the economic recovery is hindered by the surge in new Covid-19 cases linked to the highly contagious delta variant.
With this in mind, the Federal Reserve’s Jackson Hole symposium, starting on Thursday and held online this year, will hang over the market for much of the week. The main event will be the keynote speech by Fed Chair Jerome Powell, scheduled for 10 AM ET (1400 GMT) on Friday, which is likely to provide the market with hints as to what September’s policy meeting will bring.
The main averages remain not far off record levels, supported by a stellar earnings season – of the 476 S&P 500 companies which have posted results, 87.4% have beaten consensus, according to Refinitiv data.
Additionally, global dividends are forecast to rise to $1.39 trillion this year, according to a report from Janus Henderson published Monday, up 2.2 percentage points from its previous report, and just 3% below the pre-pandemic peak.
There are still a few companies left to report, including JD (NASDAQ:JD).com, Palo Alto Networks (NYSE:PANW) and Madison Square Garden (NYSE:MSGS) Monday, while the likes of Uber (NYSE:UBER), Lyft (NASDAQ:LYFT) and DoorDash (NYSE:DASH) will be in the spotlight after a judge in California declared unconstitutional a ballot outcome that meant drivers for the companies could be regarded as independent contractors.
The economic data slate includes figures on existing home sales for July as well as August manufacturing and services PMI data.
Elsewhere, oil prices traded higher Monday, rebounding from three-month lows amid some bargain hunting, helped by the news that China, the world’s largest importer, had no new Covid-19 cases for the first time in August.
U.S. crude futures traded 3.1% higher at $64.06 a barrel, while the Brent contract rose 3.3% to $66.91. Both contracts had been on a seven-day losing streak and had hit their lowest levels since May 21 earlier in the session.
Additionally, gold futures rose 0.5% to $1,792.65/oz, while EUR/USD traded 0.1% higher at 1.1710.