• A bearish outside day after closing down 0.25%, capped by weak data

• IDR- UK pay settlements lowest in nearly two years - good news for the BOE

• UK house prices turned positive for the first time in nearly two years

• Housing data suggests confidence in the outlook for the economy is growing

• Charts - daily momentum studies edge lower, 21-day Bolli bands contract

• 5, 10 & 21 daily moving averages conflict - mixed signals - momentum lower

• Wednesday's 1.3111 high, then Monday's 1.3142 top are the first resistance

• The topside failure targets a test of 1.2967, 0.5% of the August rise

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• Steady after closing off 0.1% with the U.S. dollar up 0.1%

• Largest German industrial union ready to strike as pay talks start

• As the German economy slows, industrial unrest would be bad news

• ECB leads event risk, 25pt cut to 3.5% priced - outlook pivotal for EUR

• Charts; daily momentum studies slip, 21-day Bollinger bands flat-line

• 5, 10 & 21-day moving averages conflict - mixed signals show little bias

• Bearish outside day, close below 1.0996, 0.382% of Jun/Aug rise ends uptrend

• Wednesday's 1.1054 top, then Monday's 1.1090 high are initial resistance

• 1.1000 4.441BLN, 1.1025 1.341BLN, 1.1030 1.606BLN, 1.1050 3.281BLN strikes

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• AUD/USD trades with a firm tone in Asia after closing 0.35% higher on Wed

• Boosted by a recovery in risk appetite; Wall Street and commodities rally

• Dip buyers likely to return as AUD found support near 0.6619, 200-day MA

• Consolidation likely ahead of China activity data Sat, Fed rate decision Wed

• Fed expected to deliver 25 bps rate cut next week as inflation stays sticky

• AUD upside limited as concerns over China's economy persist

• Resistance 0.6690-0.6700, 0.6720-25, 0.6745-50; support 0.6645-50, 0.6620-25

• Wednesday global range 0.6622-0.6676

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Synopsis:

HSBC expects the ECB to deliver its second rate cut of the cycle, despite ongoing economic underperformance in the Eurozone. The new forecasts are unlikely to significantly alter the projected inflation path, reflecting a divided debate within the ECB.

Key Points:

• Rate Cut:

  • A 25bp cut is anticipated as the ECB continues its easing cycle before the Fed begins its own rate adjustments.

• Economic Activity:

  • Eurozone economic performance has been weak recently, but this is unlikely to cause significant changes to the ECB’s inflation forecasts.

• Internal ECB Debate:

  • Doves: Focus on slowing growth, disinflation trends, and recent evidence of slower wage growth.
  • Hawks: Point to persistent inflation in certain components, high services inflation, and still elevated wages.

• Guidance and Future Easing:

  • President Lagarde is expected to be non-committal about future rate cuts, reflecting the ECB's divided stance.
  • The market assigns a 40% probability to a further rate cut in October, which seems reasonable given the likely lack of concrete guidance on Thursday.

Conclusion:

HSBC predicts a 25bp rate cut from the ECB, with the future pace of easing remaining uncertain. The ECB's debate over inflation and growth dynamics means President Lagarde is likely to provide limited guidance on subsequent rate cuts. The market anticipates a 40% chance of another cut in October.

The dollar posted a modest gain Wednesday as odds of a jumbo 50bp Fed rate cut next week fell after U.S. consumer inflation for August largely met expectations.

U.S.
CPI rose 0.2% on the month with the annual rate of inflation advancing 2.5%, its slowest pace since February 2021.
The core measure that excludes food and energy was up 0.3% on the month, slightly above estimates.

Odds of a 50bp Fed cut slid below 20% following the report and Treasury yields advanced across tenors.

The euro largely orbited 1.10 where a series of large options get set to roll off Thursday following an ECB rate decision.

The pound was on its heels Wednesday after UK GDP and output data came in below forecast.

Treasury yields were higher across nearly all tenors with the 2-year advancing 5 basis points.
The 2s-10s curve flattened to a more inverted -3.99bp.

The S&P 500 rose 0.27%, reversing an earlier loss after the US data.

WTI jumped 2.68%, driven by fears of lengthy production shutdowns in the offshore oil patch, which Hurricane Francine was barreling through on Wednesday.

Copper advanced 1.46%.

Gold eased 0.03%, hurt by rising Treasury yields.

Heading toward the close: EUR/USD -0.01%, USD/JPY -0.16%, GBP/USD -0.26%, AUD/USD +0.20%, DXY +0.02%, EUR/JPY -0.11%, GBP/JPY -0.89%, AUD/JPY -0.08%.

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• EUR/GBP (+0.3%) extends recovery from 0.84

• While GBP positioning skews risks to the topside for EUR/GBP

• Hurdles between 0.85-0.8532 should put a limit on upside

• The cross remains largely a range trade between 0.84-0.86

• An ECB cut for the Sept meeting is f/c, but guidance is key

• That said, options price little gap risk, suggests tame response

• EUR/USD option implied vols signal +/- 0.3% (36pip) move

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Synopsis:

Nomura anticipates a 25bp cut by the ECB, which is already priced into the market. The key focus will be on the ECB's statement, press conference, and updated forecasts to assess the potential for a more dovish stance and faster rate cuts.

Key Points:

• Market Expectations:

  • A 25bp rate cut is fully expected by both the market and economists.
  • The ECB’s statement and press conference will be crucial in gauging the likelihood of a faster pace of rate cuts.

• Impact on EUR:

  • Broad EUR underperformance is anticipated due to softening growth and risks of a faster pace of rate cuts.
  • September’s meeting might not significantly deviate from recent messaging, with any downward revisions in forecasts likely insufficient to alter rate cut expectations substantially.

• President Lagarde’s Comments:

  • Lagarde is expected to maintain a balance in her comments, focusing on data dependence without committing to a specific future path.
  • An October rate cut is priced at around 40%, but significant movement in this pricing would require explicit commentary on negative growth momentum and weaker wage growth.

• Trading Strategy:

  • Short EUR/JPY: Given the potential for broad EUR underperformance and the current environment, Nomura suggests considering a short position in EUR/JPY.

Conclusion:

Nomura forecasts a 25bp cut by the ECB, with the market focusing on potential dovish signals from the statement, press conference, and forecasts. A significant downward shift in EUR is not expected unless more explicit dovish commentary is provided. Trading strategies may favor shorting EUR/JPY given the anticipated broad EUR underperformance and potential global recession fears.

• AUD/USD rallied to 0.6674 in early NY then fell sharply, 0.6622 traded

• US yields US2YT=RR,US$ rallied & risk soured after Aug. CPI report

• AUD/JPY fall near 93.60, stock ESv1 & gold XAU= drops weighed on AUD/USD

• USD/CNH rally toward 7.1350 & VIX gains helped fuel risk-off sentiment

• Risk-off sentiment eroded however; US yields, US$ slid; stock, gold bounced

• AUD/USD turned positive, sat above 0.6660 late, traded up +0.12%

• Daily techs warn shorts; RSI diverged, bull hammer candle formed

• US weekly & continuing claims, Aug. PPI are key data risks for Thursday

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Synopsis:

Goldman Sachs expects the ECB to implement a 25bp rate cut at this week’s meeting, in line with market expectations. The focus will be on the ECB’s data assessment, updated projections, and future guidance.

Key Points:

• Rate Cut Anticipated:

  • A 25bp policy rate cut is expected, as widely anticipated by the market.

• Investor Focus:

  • Assessment of Data: How the ECB evaluates recent economic data.
  • Updated Projections: New staff projections for inflation and growth.
  • Future Guidance: Insights into the ECB’s path forward.

• Communication:

  • The ECB is likely to justify the cut with increased confidence in the disinflation process.
  • Expect limited changes in communication; the Governing Council will likely maintain a “data-dependent and meeting-by-meeting approach” without a formal easing bias.

• President Lagarde’s Statement:

  • Lagarde is expected to emphasize data dependence and suggest that further cuts could be considered if disinflation trends continue.
  • No specific comments on the likelihood of an October cut are anticipated, but she will indicate that all incoming data will be reviewed for future decisions.

Conclusion:

Goldman Sachs anticipates a 25bp rate cut from the ECB, with limited changes to the overall communication strategy. The focus will be on how the ECB addresses data, projections, and future guidance, with an emphasis on data dependence and potential further cuts if disinflation remains on track.

Sterling fell on Wednesday after UK GDP and output data came in below forecast and then extended losses following U.S. CPI data that further diminished chances the Fed would deliver a super-sized 50bp cut next week, with UK-U.S.
rate convergence now threatening to keep GBP on the back foot.

Recent market expectations for a jumbo Fed rate cut had prodded sterling specs to reload long positions, which are likely unwinding as bulls have been unable to pull GBP/USD to new highs.

The UK GDP and output data, while not moving the dial on a September BoE cut, may increase dovishness among BoE members and bring BoE-Fed rate-cut expectations more in line.

Meanwhile, the U.S. CPI data has reduced December Fed rate cut expectations as well.

With GBP/USD struggling to find fuel for a run to new 2024 highs above 1.3269, risks are skewed to the downside as sterling bulls reverse the August rise from the 1.2666 low.
A close below 1.2967 -- which is the 50% Fib of 1.2666-1.3269 -- would likely to shift momentum to GBP bears.

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Synopsis:

BofA anticipates the ECB will implement another fully priced 25bp rate cut on Thursday, with minimal lasting impact on the EUR. The focus will remain on data-dependence and meeting-by-meeting guidance, with an emphasis on domestic price pressures.

Key Points:

• Rate Cut Expected:

  • The ECB is likely to cut the deposit rate by 25bp, aligning with market expectations.
  • No major changes in forward guidance are anticipated; the corridor will narrow.

• Forward Guidance:

  • The ECB is expected to emphasize its data-dependence and meeting-by-meeting approach.
  • Domestic price pressures and high services inflation will justify the rate cut.

• Risk and Outlook:

  • Risks are skewed towards a more dovish stance due to weakening growth outlook and internal ECB discussions on potentially faster cuts.
  • Anticipated updates include slightly weaker near-term growth, higher inflation in 2024, and an unchanged medium-term outlook.
  • Unexpected downward revisions could hint at an October rate cut.

• EUR Impact:

  • Limited sustained impact on the EUR is expected.
  • Preference for ECB trades further down the curve, with positions received on both an outright and cross-market basis.

Conclusion:

BofA expects the ECB to proceed with the anticipated rate cut, maintaining a data-dependent stance with minimal impact on the EUR. The outlook includes modest adjustments in growth and inflation forecasts, with no major EUR movement expected unless there are significant unexpected changes.

Synopsis:

CIBC notes that the August inflation report surprised on the upside, primarily due to accelerating service prices. Core CPI exceeded expectations, while headline inflation remained stable. The report reflects ongoing challenges in shelter inflation but overall progress towards the inflation target.

Key Points:

• Inflation Metrics:

  • Core CPI: Rose by 0.3% m/m, slightly above expectations. The three-month annualized core CPI stands at 2.1%.
  • Headline CPI: Increased by 0.2% m/m in July, aligning with forecasts. Year-over-year, headline inflation decreased to 2.5% due to favorable base-year effects.
  • Core Inflation: Remained steady at 3.2%. Core goods prices fell, driven by a rebalance in the used car market.

• Service Prices:

  • Strengthening: Notable increases in shelter and transportation service categories.
  • Shelter Inflation: Continued to rise, with Owner’s Equivalent Rent (OER) increasing for the second consecutive month.

• Fed's Focus:

  • Inflation Momentum: While the report was not ideal for the Fed, inflation trends are improving, with confidence in reaching the target despite some persistent issues in shelter inflation.
  • Labor Market: The Fed is now prioritizing the labor market over inflation data, assessing whether the job market is "normalizing" or "deteriorating."

Conclusion:

The August CPI report indicates stronger-than-expected inflation driven by service prices, particularly in shelter. Despite this, the overall progress towards the inflation target remains positive. The Fed is shifting focus towards labor market dynamics, which are now a more critical factor than inflation reports.

• FX volatility is an unknown, yet key parameter of an FX option premium

• Implied volatility is an estimate for FX actual/realised volatility

• If realised matches implied volatility over life of option - premium covered

• Any more/less realised volatility decides profit/loss

• This makes FX volatility a tradable asset with options providing the vehicle

• Historic volatility is past realised volatility and a fair value measure

• Benchmark 1-month GBP/USD implied drifts lower to mid 6's of late

• 1-month daily historic volatility has recently edged up to the mid 6's

• A repeat performance of past months GBP realised volatility covers premium

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• EUR/USD approaching base 20-day Bollingers - 1.0975 and rising

• The overbought situation which curbed Aug rally alleviated

• The 100-DMA just crossed above 200-DMA - Golden Cross

• Target for resumption of the EUR/USD rally is 1.1549

• Interim targets: 1.1219, 1.1282, 1.1345 and 1.1435

• EUR/USD may resume its rise after next Fed meeting nL8N3KS086

• Oil's plunge will support EUR/USD nL1N3KT093

• The surge for gold has drawn many buyers

• While gold investments don't look overcrowded they are large

• Assets many hold are not so safe and gold isn't overly liquid

• Compared to major currencies gold lacks depth and some majors move a lot

• USD/JPY slumped 161.96-141.68 between Jul-Aug when many were short yen

• Pause in gold's rally allows for further gains - next big target is $2554

• Peaks 20-day/month Bollingers around $2536, 20-week peak $2550

• Investors may return to a safer dollar nL1N3KT0AW

• EUR/USD's long shadow on Friday's candle, led to subsequent bearish moves

• Also note fourteen-day momentum turned negative on Monday

• Despite Wednesday's recovery attempts, spot is at risk of an extension lower

• Expect a drop to 1.0972 Fibo, 38.2% retrace of 1.0602-1.1201 2024 (EBS) rise

• There is likely solid supply circa the tenkan line, currently at 1.1085

• EUR/USD Trader TGM2334. Previous update nL1N3KS08Y

• Cable dips to 1.3082 after UK July GDP miss; 0.0% vs 0.2% forecast

• 1.3112 was Asia high (pre-UK data), after Harris-Trump election debate

• Betting markets suggest Harris is now more likely to win Nov 5 election

• 1.3071 was Asia low (before debate). 1.3049 was Tuesday's three-week low

• Asia high approximates to last Friday's low (1.3108 was Tuesday's high)

• BoE is still expected to keep rates unchanged next week, despite GDP miss

• A move against the recent bear run but not a strong rebound so far

• Tight ranges forming doji style candles, hint at market indecision

• Price holding below the 10-day moving average, 1.3126

• Fourteen day momentum marginally negative for a second day

• Slow stochs are bearish but daily RSI flat at neutral levels

• Bearish cloud twists on the horizon could start to drag on sterling

• We lean bearish and look for better opportunities to fade GBP/USD

• GBP/USD trader TGM2338

  For more click on FXBUZ

Corrects EUR/JPY expiry size to 236 million

• FX option strikes expire at 10-am New York/3-pm London - Wed September 11

• EUR/USD: 1.1000 (1.3BLN), 1.1020-25 (1.2BLN), 1.1050 (833M)

• 1.1075 (725M), 1.1100 (400M) nL1N3KS0AE

• USD/CHF: 0.8600 (750M). GBP/USD: 1.3050-60 (247M), 1.3100 (200M)

• NZD/USD: 0.6065 (2.2BLN), 0.6100 (300M), 0.6120-25 (707M)

• AUD/USD: 0.6610 (1.1BLN), 0.6625 (750M), 0.6700 (365M)

• USD/CAD: 1.3495-1.3510 (1.3BLN), 1.3625-30 (917M)

• USD/JPY: 140.00 (272M), 142.00 (354M), 142.50 (912M), 142.75 (544M)

• EUR/JPY: 157.00 (236)

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• +0.1% near the top of a busy 1.3071/1.3097 range on LSEG FX Matching

• Major monthly UK data dump today, led by GDP and manufacturing - see polls

• Today's data will be key for Bank of England rate expectations for Sept 19th

• Muted response to the US presidential debate as Kamala Harris stood firm

• Charts - 5, 10 & 21 daily moving averages coil, 21-day Bolli bands contract

• Daily momentum studies edge lower - a neutral setup as the uptrend struggles

• Tuesday's 1.3108 high and then Monday's 1.3142 top are the first resistance

• A close below 1.3038, 0.382% April/August rise would be a bearish signal

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Synopsis:

RBC highlights short CHF/JPY as a preferred trade due to the current market dynamics, including a potential disconnect in USD/JPY positioning and anticipated central bank actions. The firm expects continued favorable conditions for this trade, driven by differing central bank policies and valuation considerations.

Key Points:

• Market Dynamics and Positioning:

  • USD/JPY Unwind: The unwind in USD/JPY positioning has been notable but remains uncertain. Data on lifers’ semi-annual hedge ratios, expected later this month, will likely show these ratios at historically low levels.
  • Speculative Flow: Speculative flow has rebounded, leading to a disconnect in USD positioning versus JPY compared to other G10 currencies, including CHF.

• Central Bank Policies:

  • Swiss National Bank (SNB): The SNB is anticipated to cut rates again this month to 1%, with further cuts expected in December and next year. Both headline and core inflation in Switzerland are low, reinforcing the SNB's need to manage currency strength to avoid further deflation.
  • Relative Central Bank Stances: The divergence in central bank policies between Switzerland and Japan contributes to the attractiveness of short CHF/JPY.

• Valuation and Technicals:

  • Valuations: RBC sees short CHF/JPY as advantageous given the current valuation metrics and the anticipated central bank actions.
  • Technical Outlook: The bearish technical outlook for USD/CHF has been accurate, supporting the view that CHF/JPY remains a strong trade choice.

Conclusion:

RBC's preference for short CHF/JPY is underpinned by the current positioning, central bank policy expectations, and valuation factors. This trade is seen as favorable due to the ongoing divergence in central bank actions and market dynamics.

• AUD/USD unchanged, recovers after testing support at 0.6642-47; low 0.6645

• Supported by broadly weaker USD as traders react to U.S. presidential debate

• Harris, Trump go on the attack in the first debate's opening moments

• Lack of debate on substantive and major policy issues disappoints traders

• Wall Street futures and most Asian stock markets ease on risk aversion

• AUD recovery muted though as AUD/JPY sales weigh on hawkish BOJ

• U.S. CPI data Wed key, likely to determine size of Sept Fed rate cut

• Resistance 0.6680-85, 0.6700-05' below 0.6640 opens 0.6620

• For more click on FXBUZ

• USD/CNY drops to 7.1161 from open 7.1233; SSEC -0.5%

• Retreats from 23.6% Fibo at 7.1273; may consolidate lower

• 21 DMA resistance just above at 7.1323 reinforces topside

• USD/JPY pulled down to lowest since Jan, USD broadly soft

• European firms doubt China economic recovery nL4N3KS03F

• Policymakers discuss raising China retirement age nL4N3K80IP

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• AUD/USD on the defensive in Asia after closing 0.1% lower on Tuesday

• Weighed down by concerns over China's economy and weak commodity prices

• Inability to rally despite hawkish RBA, falling U.S. yields is bearish

• Strong support at 0.6642-47 , break opens 0.6620 and 0.6586

• U.S. Presidential debate & RBA Asst. Governor Sarah Hunter speech eyed Wed

• U.S. inflation data later Wed key, could determine size of Fed Sep rate cut

• Resistance 0.6680-85, 0.6700-05; Tuesday range 0.66765-0.66415

• For more click on FXBUZ