Dollar Firmer on Risk-off Sentiment, Cryptos Tumble

The markets are relatively quiet today with Japan and the UK on holiday. Sentiment is on risk-off side, ahead of central bank rate hikes later in the week. The more notable moves are found in selloff in cryptocurrencies. Dollar is standing firm, together with Swiss Franc and Euro. Aussie and Kiwi are softer together with Sterling. Yen is mixed awaiting the next move. Yet, most major pairs are crosses are still staying inside Friday’s range.

Technically, a focus is on whether US 10-year yield would gather momentum for another challenge on 3.483 resistance. Decisive break there will confirm larger up trend resumption. If that happens, USD/JPY could also be shot up through 144.98 resistance, toward 147.68, which was 1998 high.

In Europe, at the time of writing, DAX is down -0.29%. CAC is down -0.94%. Germany 10-year yield is up 0.0218 at 1.780. UK is on holiday. Earlier in Asia, Hong Kong HSI dropped -1.04%. China Shanghai SSE dropped -0.35%. Singapore Strait Times dropped -0.37%. Japan was on holiday.

Bundesbank: Inflation should move into double digits in the next few months

Bundesbank said in the monthly report that there are “increasing signs that the German economy is slipping into a recession”. It added, “the high inflation and the uncertainty regarding the energy supply and its costs affect not only the gas and electricity-intensive industry and its export business and investments, but also private consumption and the service providers dependent on it.”

Gas supply situation is expected to “remain extremely tense in the coming month”. For Q4 and Q1, economists expect a “noticeable decline in economic output”, and outlook is “extremely uncertain”.

Regarding inflation, Bundesbank said the fiscal relief package will only be reflected in consumer prices at the beginning of next year. “The bottom line is that the inflation rate should move into the double digits in the next few months,” it added.

NZ BusinessNZ services rose to 58.6, bouncing for how long?

New Zealand BusinessNZ Performance of Services Index rose from 54.4 to 58.6 in August. Looking at some details, activity/sales rose from 54.4 to 67.1. Employment rose from 49.3 to 50.8. New orders/business rose from 53.4 to 66.5. Stocks/inventories rose from 53.8 to 59.6. Supplier deliveries rose from 47.6 to 49.6.

BNZ Senior Economist Doug Steel said that “overall, combining August’s strong PSI with last week’s firmer PMI yields a composite index (PCI) that suggests annual GDP growth up toward 5% in Q3 2022. We currently forecast 5%+ for that period but that strength is mostly a function of the very weak base period. If the PCI is truly bouncing, the key question is for how long?”

Ethereum tumbling, bitcoin follows

Ethereum plummets further today and the post “merge surge” decline extends. Deeper fall is expected as long as 1474.00 minor resistance holds. Next near term target is 100% projection of 2028.90 to 1418.47 from 1787.45 at 1177.02. Firm break there could bring downside acceleration through 878.5 to 161.8% projection at 799.77.

Bitcoin’s development is even worse. Deeper decline is expected as long as 20167 resistance holds, for 17575 low. Break there will target 100% projection of 25198 to 18518 from 22764 at 16084.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.1355; (P) 1.1418; (R1) 1.1485; More…

Intraday bias in GBP/USD stays on the downside this week. Current down trend should target 61.8% projection of 1.3748 to 1.1759 from 1.2292 at 1.1063. On the upside, above 1.1479 minor resistance will turn intraday bias neutral first. But break of 1.1737 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, based on current momentum, fall from 1.4248 (2018 high) is probably resuming long term down trend from 2.1161 (2007 high). Sustained break of 1.1409 will target 61.8% projection of 1.7190 (2014 high) to 1.1409 (2020 low) from 1.4248 (2021 high) at 1.0675. This will remain the favored case for now as long as 1.2292 resistance holds.

Economic Indicators Update