The global stock market selloff continued in overnight trade in Asia, with the Nikkei dropping off another 3.84%. The USD traded mostly weaker; oil prices have fallen back off the recent high price near $54.3, and now trades just below $53 after rallying strongly over the three previous sessions. The USD weakness may be linked to the new declines in Chinese and global stock markets, this global selloff has investors and traders rethinking the timing of when the U.S. Fed will tighten rates. This uncertainty regarding the timing of a U.S. rate hike is fueling the current downward pressure on the USD. Markets will remain volatile until the markets see clearer signs from the U.S. Fed.
The technical outlook for the EURUSD over the immediate short term remains to be contained within the Aug 7th – Aug 12th upward slopping price channel. Now that the price has clearly bounced off the 1.12’s key, support current price potential is set to test the upside between the 1.1460 – 1.1530’s. However, any break below 1.12 could open up a 1.11 target. A hypothetical trade set up could be to resell near the 1.1460’s – 1.1530’s for a 1.11 target.
German jobless numbers fell 7K in August, slightly more than expected and leaving the seasonally adjusted jobless rate steady at a low 6.4%. Official numbers still look good, but the improvement on the labour market is levelling off as the market is increasingly tight.
The Reserve Bank of Australia left its cash rate at 2.0%, as widely expected and ignoring recent market turmoil in Chinese stock markets. The AUD is seen as adjusting to the significant declines in key commodity prices and further depreciation seems likely; however, the RBA is now cautious about adjusting rates lower because of the strong Australian property market.
Currency Pairs, Grouped Performance (% change)
Current intraday percentage change of currencies against other major currencies since the daily close 23:59:59 server time.
The USD is softer across the board as declines in Chinese and global stock markets and the associated risk-off sentiment has served to erode Fed tightening expectations, which weighed on the USD.
The AUD is weaker post-RBA statement gains amid a backdrop of declining Asian and global stock markets.
The EUR and the GBP are mostly trading mixed as the EU commission maintains a 1.5% growth forecast, , and UK manufacturing PMI survey disappointed.
Significant daily support and resistance levels for these pairs are:
Main Macro Events Today
• EUR Manufacturing PMI: August manufacturing PMI revised down to 52.3 from 52.4 reported initially, which means the overall reading fell slightly from the 52.4 reported for July, despite the sharp jump in the German reading. Confidence indicators overall still held up in August, but the downward revision ties in with contraction in China and is likely to herald further weakness in coming months as demand falls off with slowing growth in emerging markets and uncertainty about the outlook for the global economy.
• GBP Manufacturing PMI: The UK manufacturing PMI survey disappointed at 51.5 in August, down from July’s 51.9 reading and below the median forecast for 52.0. The August dip brings the PMI indicator to within a whisker of June’s two-year low of 51.4. The strong trade-weighted value of sterling has been curtailing the export-sensitive sector.
• CAD Gross Domestic Product: GDP is seen falling 1.0% in Q2 (q/q,) after the 0.6% drop in Q1. But the expected 0.2% gain in June GDP would end a five month run of monthly GDP declines and support Bank expectations that the economy will recover in 2H.
• USD ISM Manufacturing PMI: August ISM will be released later today and should reveal a headline decline to 52.5 (median 52.7) from 52.7 in July. Other measures of producer sentiment have been volatile for the month with big drops in the Empire State, and Richmond and Dallas Fed’s. The Philly Fed did manage to climb higher to 8.3 from 5.7 last month. Despite this the balance of risk for tomorrow’s release is to the downside and we expect the broader ISM-adjusted average for the month to fall to 52 after holding at 53 in both July and June.