EURUSD and German 30 Index

The markets are beginning to take a serious focus on the Jackson Hole event this week. It is that annual meeting of central bankers hosted by the Federal Reserve in the US. However this year the FED is keeping it in house with only US central bankers taking part. There was also an announcement on Friday that the event would take place virtually due to the Covid Delta variant. Many in the market are taking this as the FED softening its stance on tapering in the near term. However the two are not mutually exclusive. The rise in inflation and the pickup in the labour market have already been signposted as key drivers of the taper. Fear of covid in the US has also driven vaccine uptake to the 200 Million mark. The good news is that new daily cases seem to be reducing since peaking a week ago. Signalling some of the trepidation concerning the delta variant in the US, FED Member Kaplan said on Friday that the spread of the variant is limiting production output and slowing the return to the office, with the path of the variant still unknown. He noted however that so far the variant has not had a material effect on mobility. He said that “if Delta is having a more negative effect on GDP growth could cause me to adjust my views” adding that “a big economic variable is how quickly to get people vaccinated”. He later said that he forecasts GDP to grow to 6.5% and PCE to grow to 3.8% to 3.9% at the end of 2021. He said that most businesses are saying demand is strong and what they are dealing with is supply issues, while supply will persist but get resolved. He also said that masks and vaccines were the only tools in the war against Covid and that it effectively is a war. He said that price pressures are broadening, business confidence in raising prices is increasing while low and moderate income communities are increasingly expressing concerns about price pressures. He stated that the FED will take a decision on tapering separately from rate increases. He noted that if the delta variant would be more persistent or start to affect demand, would have to adjust policy views accordingly. He said that it would be good to wane off asset buys as soon as possible. Asset buys are not helping the labour market. However, markets are focusing on his comment about the delta variant potentially delaying a taper and the Jackson Hole event going virtual, as signs that a taper will be postponed. This has led to a broad reversal in the selling from last week. The Japanese 225 Index is up 1.78% today. The Shanghai Composite is trading higher by 1.47% while the Hang Seng is trading higher by 1.11% also. USDJPY is trading at 109.935 while Gold trading at 1785.00 currently. 

Today in Europe, the German Flash Manufacturing PMI is expected to fall to 65.1 from 65.9. German Flash Services PMI is expected to fall to 61.0 from 61.8 which was revised lower from 62.2. Eurozone Flash Manufacturing PMI is expected to fall to 62.0 from 62.8. Eurozone Flash Services PMI is expected to fall to 59.6 from 59.8 which was revised lower from 60.4. UK Flash Manufacturing PMI is expected to fall to 59.5 from 60.4. UK Flash Services PMI is expected to fall to 59.0 from 59.6 which was revised higher from 57.8. US Flash Manufacturing PMI is expected to fall to 62.4 from 63.4. US Flash Services PMI is expected to fall to 59.1 from 59.9.

EURUSD

The EURUSD pair is now trading around 1.1710 after finding resistance at 1.1900 on the trend line to start the month. Support may be seen around the 1.1700 level which has been tested twice and may form a double bottom area. Below 1.1700, the 1.1650/1.1640 area may be used to support the pair. Support may be seen at 1.1600 and 1.1550 ahead of the 1.1500/1.1495 area. The 1.1422 lower high may offer support above 1.1367. Further support may be seen at 1.1300 and 1.1240 followed by 1.1200. Any break down below these levels may lead to a move towards 1.1150 and the 1.1145 level. 

Price has declined dramatically since the FOMC Meeting in June. The 1.1800 level may be resistive in the short term followed by 1.1865/1.1900 as the trend line and the round number respectively. The 1.1950 area may act as resistance followed by 1.1975 and 1.2000. Resistance may appear around 1.2052 or 1.2140. The 1.2200 area is now being tested as resistance, followed by 1.2243 as the lower high and the 1.2250 level. A move higher from there may see some resistance at 1.2270. Beyond this the 1.2280 area may be resistive.

German 30 Index

The German 30 Index is challenging the 16000.00 resistance level, and is now trading at the 15880.00 level as it attempts to build on its series of higher highs and higher lows. The trend is higher for the moment but sellers may come to dominate price action going forward if resistance cannot be broken and held. Immediate resistance comes into play at 15880.00. The 15920.00 area may also provide resistance followed by 16000.00. Beyond this level the 16230.00 area may be resistive followed by 1644.00 and 16550.00. 

The 15800.00 area may be supportive in the near term and this is a critical level that the market must remain above in order to remain its bullish stance. The 15700.00 are may also be supportive followed by 15630.00 and 15500.00. The 15420.00 area may act as support followed by 15400.00. The support at 15270.00 may continue to be used along with the 15200.00/15165.00 area which is followed by 15000.00 and the 14830.00 area. A loss of 14730.00 puts sellers firmly in control. The market has used 14670.00 as support and the 14500.00/14400.00 area may also be supportive in the short term. The trend line comes into play around 14600.00. 

Philip Konchar

Core Spreads

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