Preliminary August PMI figures in focus

The USD continued to weaken for a fourth day in a row against its counterparts yesterday. The release of the Fed’s July meeting minutes tended to reaffirm the markets’ expectations for the bank to start cutting rates in its next meeting in September as a large number of Fed policymakers tended to acknowledge the need for the bank to start easing its monetary policy. It should be noted that given that the release met the market’s expectations it had little effect on US stockmarkets and gold’s price. Markets are now increasingly expecting the bank to deliver a total of 1% in rate cuts by Christmas. Overall, the release may continue weighing on the USD on a monetary level until the Jackson Hole meeting on Friday when Fed Chairman Powell is expected to deliver a speech on the US economic outlook and monetary policy.

Today we note the release of the preliminary August PMI figures for Germany, France, the Eurozone, UK and the US and intend to concentrate mostly on France’s services sector, Germany’s manufacturing sector and for a rounder view Eurozone’s composite PMI figure. Both France’s Services PMI figure and Germany’s manufacturing indicator are set to rise slightly implying an improvement of economic activity for their respective sectors and thus provide some support for common currency, yet Eurozone’s composite PMI figure is expected to fall slightly which could disappoint EUR traders. Also the fact that despite improving, Germany’s manufacturing PMI indicator remains below the reading of 50 implying another contraction of economic activity may clip the gains for the EUR.

EUR/USD continued to rise yesterday, slightly breaking above the 1.1140 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the pair as long as the upward trendline guiding it since the 2^nd of August remains intact. Also the RSI indicator remains above the reading of 70 implying a strong bullish sentiment for the pair among market participants. Should the bulls remain in charge as expected, we may see EUR/USD aiming for the 1.1275 (R1) resistance line. Yet please note that the pair has reached a 13 month high, while the fact that the RSI indicator is above the reading of 70 may also imply that the pair is at overbought levels and ripe for a correction lower. Similar signals are also sent by the fact that the price action has been constantly flirting with the upper Bollinger band for the past week. Yet for a bearish outlook we would require the pair to break the 1.1140 (S1) support line, break the prementioned upward trendline and continue to also break the 1.1010 (S2) support base.

Also, a reminder for Japan’s CPI rates for July, which are due out during tomorrow’s Asian session, at which a possible acceleration could provide some support for JPY. As mentioned in yesterday’s report, on the monetary front we highlight BoJ Governor Ueda’s testimony before the Japanese Parliament, and a hawkish tone is possible. Both scenarios as described above could enhance market expectations for more rate hikes to come from BoJ by the end of the year, thus providing support for the Yen.

USD/JPY stabilised somewhat yesterday and during today’s Asian session, just below the 146.00 (R1) resistance line. We tend to maintain a bearish outlook for the pair as long as the downward trendline remains intact and given that the RSI indicator remains near the reading of 30, implying a strong bearish sentiment for the pair. Should the bears maintain control over the pair, we may see USD/JPY breaking the 143.40 (S1) support line and aiming for the 140.30 (S2) level. Should the bulls take over we may see the pair breaking the prementioned downward trendline, the 146.00 (R1) resistance line and aim for the 148.90 (R2) level.

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Today we get from the UK August’s CBI trends for industrial orders, the weekly US initial jobless claims figure and July’s existing home sales, while from the Eurozone the preliminary consumer confidence for August. On Friday’s Asian session, we get UK’s GfK Consumer confidence for August.