The US Dollar Index (DXY) has rebounded since Friday’s jobs data release, driven by altered rate cut expectations. EUR/USD is particularly affected by the DXY recovery, with the Euro’s recent strength potentially waning due to poor German data and shifting rate cut expectations. The DXY’s technical analysis suggests further upside potential, with immediate resistance at 102.16 and 102.60. Most Read: S&P 500, Nasdaq 100 – ‘Soft Landing’ Optimism Leads to Early Week Gains The US Dollar Index (DXY) has seen a stark turnaround since the jobs data release on Friday. The immediate aftermath left the US Dollar reeling as the DXY looked set to print fresh lows. However, as the data was digested and market participants altered their rate cut expectations, the DXY roared to life and has continued that recovery to start the week.  US Federal Reserve Interest Rate Policy Probability Source: LSEG (click to enlarge) Looking at FX pairs and the one that grabs my attention the most is EUR/USD which to me appears to be the biggest loser from the DXY recovery, let me explain. The Euro enjoyed a stellar run against the greenback since the last ECB meeting as markets grew more aggressive with regards to the Fed rate cut cycle. However, over the last 10 days or so this narrative has changed somewhat. A batch of poor data from Germany (Europe’s most industrialized economy) shows the challenges facing the European Central Bank. The ECB are all set to cut rates by another 25 bps on Thursday just the DXY looks set for a recovery. Markets are now pricing in a 25 bps cut from the Fed and as I see it a lot of that may already be priced in. If indeed that is the case, then the rate cut on September 18 may have a muted impact on the US Dollar and thus leave EUR/USD in a tight spot. Market analysts have been touting a level around 1.12 for EUR/USD by year end, which remains a possibility. Given that September and October are usually strong months fro the USD and the fact that a lot of the 25 bps cut expected by the Fed may be priced in, this could leave the Euro vulnerable to further losses. Now of course this could change very quickly as we have seen this year, with each data release shifting expectations a considerable amount. However, this week’s US data which comes in the form of CPI and PPI are no longer driving market participants’ decisions making. Labor data is now driving sentiment and decision making and could mean that this week’s US data may do little to shift the needle in regards to rate cut expectations. Now looking at a comparison of rate cut expectations for the remainder of the year and there is a hope for the Euro as the year end approaches. Markets are pricing in two more 25 bps cuts from the ECB, but the December meeting is currently 50%. In contrast, the Fed is seen delivering three 25 bps cuts at each remaining meeting this year which could work in the Euros favor.  In the short-term however, I see challenges for the Euro especially if the US Dollar recovery continues to gather pace.  ECB Interest Rate Policy Probability Source: LSEG (click to enlarge) Technical Analysis The US Dollar Index (DXY) is on course for a morningstar candlestick pattern off a key support level. This coupled with a higher low suggest that further upside may be in the offing in the days ahead. Immediate resistance ahead is provided by the 102.16 handle before the 102.60 mark becomes a serious consideration. Conversely, a break back to the downside has to navigate its way past support at 101.18 before the recent lows of 100.50 become a possibility. Beyond that the key psychological 100.00 lies in wait. US Dollar Index Daily Chat, September 9, 2024 Source:TradingView.com (click to enlarge) EUR/USD Technical Analysis From a technical standpoint, EUR/USD has printed a fresh lower high at the back end of last last week. Having topped out just shy of the 1.1200 handle on August 26, the pair has been on a steady trajectory to the downside. During the middle of last week, bulls made an attempt to take charge once more but Fridays significant selloff and resurgent US Dollar brought pair back below the 1.1100 handle. As things stand, immediate support rests at the psychological 1.1000 level with 1.0948 the next area of interest. A bullish continuation from here will require bulls to navigate the 1.1100 and 1.1200 resistance areas before any further upside is possible. EUR/USD Daily Chat, September 9, 2024 Source: TradingView.com (click to enlarge) Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

Major Wall Street indices started the week with gains, fueled by optimism for a “soft landing”. Concerns remain about the divergence between full and part-time workers, a potential recession indicator. Technical analysis suggests potential for further upside in the S&P 500 and Nasdaq 100, but historical trends and upcoming events warrant caution. Most Read: Markets Weekly Outlook – ECB Rates, China and US Presidential Debate in Focus The major Wall Street Indexes have all started the week on the front foot, looking to recover some of Friday’s losses. There seems to be a fair bit of optimism today that a soft landing may be on the cards as US unemployment improved.  US equities experienced outflows last week which made it 3 out of the last 4 weeks. Money markets were the largest beneficiaries as fund flows and repositioning continue ahead of a busy couple of months. Source: LSEG Workspace Despite the optimism around jobs data there are some underlying concerns which may be overlooked. A key one being the divergence between full and part-time workers which is widening. This phenomenon usually precedes a recession as indicated in a research note by ING think. However, for now market participants are pricing in a 25 bps cut by the Fed at the September meeting. Concerning inflation data from China this morning was shrugged off with tomorrow’s import and export numbers likely to play a bigger role in the overall market sentiment. For more on this read the weekly outlook.  Some individual movers in early trade today include Boeing BA.N which is up 4.7% after reaching a tentative agreement with a US Pacific NorthWest union. As the threat of a critical strike looms, this may go some way in mitigating such a disaster and could explain the jump in the share price. The union does represent 32k workers. Dell and Palantir also enjoyed positive starts with the latter up around 8%. Dell was up around 5.9% on the day.    Nasdaq 100 Early Session Heatmap Source: TradingView US PPI and CPI are ahead this week, however neither are likely to shake the needle where the Fed are concerned. Markets have for the time being at least pivoted toward labor data as the rate cut gauge rather than inflation. Given the knowledge that September and part of October are historically bad for US stocks, was last week’s selloff as bad as it’s going to get? Or is there another selloff in store for market participants once the FOMC meeting concludes on September 18? For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (click to enlarge) Technical Analysis  S&P 500 From a technical perspective, the S&P is coming off its worst week since March 2023 but has made an excellent start to the week. Finding support off a key level around 5390 (July 25 low), the index is on course for a bullish inside bar or engulfing candle close. Either of the two would hint at further upside ahead. The headwinds presents are substantial however, and sentiment can always shift on a dime. Hence, marrying any bullish continuation bias at this stage may be premature. On the upside resistance is around the psychological 5500 before the 5538 handle comes into focus. Immediate support rests at the 5390 mark before 5330 comes into focus. There is the 100-day MA that rests around the 5421 which could also provide some short-term support. S&P 500 Daily Chart, September 9, 2024 Source: TradingView (click to enlarge)  Support 5421 5390 5330 Resistance 5500 5538 5635 Nasdaq 100 From a technical perspective, the Nasdaq 100 on a daily timeframe is similar to the S&P as it has rallied over 330 points since the market open. We are seeing a slight pullback at the time of writing and given that historically September is a poor month for equities, we could be in for a bumpy ride.  There is a chance that rallies to the upside may face selling pressure and that the recovery may not be as smooth as market participants may hope for. Barring a dramatic collapse however, the Nasdaq 100 is on course to record a inside bar bullish close which hints at further upside ahead. Having found support last week in between a key level and the 200-day MA which rests at 18241, there is significant hurdles up ahead which the index failed to clear on Friday. The first point of interest will arrive at 18800 before the confluence area around 19000 (which houses the 100-day MA) comes into focus. Conversely, a break back to the downside would need to navigate below the 200-day MA before eyeing the 18000 level. This opens the door for a retest of the August lows around 17800 and 17330. Nasdaq 100 Daily Chart, September 9, 2024 Source: TradingView (click to enlarge) Support 18241 18000 17800 Resistance 18800 19000 19610 Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

EUR/CHF has continued to exhibit a high direct correlation with France CAC and Germany DAX. China’s core inflation and producer prices for August have indicated a persistent trend of lackluster internal demand. Sluggish China’s consumer demand may hurt the profits of key European makers of luxury goods, cars, and machinery. Watch the key intermediate support of 0.9255 on the EUR/CHF. This is a follow-up analysis of our prior report, “EUR/CHF: Medium-term global risk-off kickstarts (Part 2)” published on 2 August 2024. Click here for a recap. Since the start of September, global benchmark stock indices wobbled where the MSCI All-Country World Index exchange-traded fund (ACWI) ended last Friday, 6 September with a weekly loss of 4%, its worst performance since the week of 6 March 2023 during the onset of the US regional banking crisis. EUR/CHF continued to move in synch with European stock indices Fig 1: 3-month rolling performance CAC 40, DAX, EUR/CHF & other major stock indices (US, UK, Japan) as of 9 Sep 2024 (Source: TradingView, click to enlarge chart) Last week’s risk-off episode, the EUR/CHF has moved in tandem with two key European benchmark stock indices; the France CAC and Germany DAX as their respective 60-period rolling correlation coefficients have remained at a high positive reading of 0.82 and 0.84 at this time of the writing (see Fig 1). Weak China inflation may stoke further downside pressure in European equities Fig 2: China’s consumer inflation & producer prices trends as of Aug 2024 (Source: TradingView, click to enlarge chart) Today’s release of China inflation data for August suggests that the state of internal demand in China continued to languish and the deflationary risk spiral narrative is back at the forefront without any clear signals and or initiatives by China’s top policymakers to implement more forceful expansionary policies to drive up consumer and business confidence. China’s core consumer inflation rate (excluding food and energy) continued to decline for four consecutive months as it fell to 0.3% y/y in August from 0.4% in July.  Factory gate prices in China represented by produce prices shrank by 1.8% y/y in August, steeper than its 0.8% drop in the previous month and below expectations of a 1.4% fall (see Fig 2). Hence, China’s persistent weak consumer demand, a key market for European makers of luxury goods, cars, and machinery is likely to trigger a further toll on these European firms’ profits, in turn, further potential downside on the France CAC and Germany DAX cannot be ruled out. EUR/CHF is eying the intermediate key support at 0.9255 Fig 3: EUR/CHF medium-term & major trends as of 9 Sep 2024 (Source: TradingView, click to enlarge chart) During the last synchronized global risk-off episode on 5 August, the EUR/CHF staged a decline but managed to “survive” at the 0.9255 level (29 December 2023 swing low). However, its rebound from 5 August to 12 August has been capped by its 200-day moving average which has acted as a resistance at around 0.9580 (see Fig 3). In addition, the weekly MACD trend indicator has now breached below its centreline which suggests that the major downtrend phase of the EUR/CHF is likely in the motion to stage lower lows. If the 0.9780 key medium-term pivotal resistance is not surpassed to the upside and a break below 0.9255, the EUR/CHF may see further weakness for the next medium-term supports to come in at 0.9085 and 0.8890. However, a clearance above 0.9780 negates the bearish tone for a potential rebound to expose the long-term pivotal resistance zone of 1.0040/1.1000 (also the upper boundary of the long-term secular descending channel from April 2018 high).

US jobs data missed estimates, keeping recessionary fears very much in play. US Equities continue their September struggles as Oil falters as well. ECB expected to cut rates amidst slowing European economy, while UK jobs data and US CPI figures remain in focus. Read More: Bitcoin (BTC/USD) Eyeing a Deeper Reversal as ETF Outflows Continue Week in Review: Jobs Data Fails to Provide Clarity as Underlying Data Flashes Warning Signs As the week draws to a close, US jobs data failed to provide clarity on whether the US Federal Reserve will deliver a 25 or 50 bps cut at the September 18 meeting. Although the number of jobs created missed estimates, there was enough in the report to keep markets on edge for a little while longer. In August, the non-farm payrolls increased by 142,000, which was below the expected 165,000. Moreover, the previous two months saw a reduction of 86,000 in their initial estimates. This pattern of revising numbers downward is ongoing and doesn’t account for recent benchmark revisions that indicated the Bureau of Labor Statistics overestimated payroll growth by an average of 78,000 per month for the year leading up to March 2024. For instance, June’s job growth was first reported as 206,000, then adjusted to 179,000, and is now just 118,000. Similarly, July’s figures dropped from 114,000 to 89,000. It looks as if the apparent weakness in the labor market may finally be showing itself. Given that, is it possible to rule out a 50 bps cut. My take is not especially with the improvement we witnessed in the unemployment rate which improved to 4.2% from last month’s surprise print of 4.3%. Another point that may concern the Federal Reserve and cited by ING Think Research, is the growing divide between fulltime and part-time employment. According to ING this tallies with the idea that the US is adding largely lower-paid, part-time jobs and is losing full-time, well-paid jobs, primarily through attrition – not replacing retiring or quitting workers.  Source: ING Think (click to enlarge) Every recession starts this way, unfortunately. The easiest way to cut costs is not to replace workers, but if everyone is doing that, then the economy slows, and companies start making actual cuts down the line. As for performance this week, US Equities have continued their September blues as historic seasonality suggested. Leading Wall Street indexes were all red for the week with the Nasdaq down around 5.6%, the S&P down 4% and the DJIA down around 2.84%.  The downturn is reflected in US equity funds flows which experienced their largest weekly outflow in 12 weeks by September 4. This is in line with growing concern around the health of the global economy. According to LSEG data, investors disposed of a net $11.37 billion worth of US equity funds during the week. This was also the fourth weekly outflow in five weeks.  Source: LSEG Workspace (click to enlarge) Oil prices suffered from concern around the economy as well. Word that OPEC + will defer production increases which were scheduled to start in October was not enough to rescue the selloff. This leaves oil in a precarious position heading into the new week as it looks set to end the week around 8% down.  Gold did not manage to break its all-time high despite recessionary concerns and part of this may be down to the amount of rate cuts already priced in by market participants. The US Dollar Index (DXY) saw a similar reaction and strengthened following the release of the jobs data to finish the week on a high. The market’s reaction was similar to the swings in rate cut expectations. Initially, 65% of participants anticipated a 50 basis point cut right after the data was released. However, as the trading session progressed, expectations were adjusted significantly. The latest pricing now suggests a 75% likelihood of a 25 basis point cut. Source: CME FedWatch Tool (click to enlarge) The Week Ahead: ECB to Cut Rates, Trump-Harris Debate The week ahead is not expected to be as chaotic as last week particularly from a data point of view. The US gets a reprieve on the data front as the US election comes into focus with the Presidential debate between Kamala Harris and Donald Trump. The debate itself should not have a huge impact on markets barring any significant surprises.  Asia Pacific Markets In Asia, the upcoming week puts focus on Chinese data which has been a point of contention of late. Deteriorating data has been one of the signs that the global economy is slowing, particularly from a demand perspective.  China is about to release its trade, inflation, and credit data next week. We expect that trade growth in August continued to slow, with exports increasing by about 5% compared to last year and imports by about 3%. It’s important to keep an eye on car exports, which have been under pressure and are likely to slow down more. If car exports go from helping to hurting, it could weaken China’s overall export performance. Inflation is expected to rise slightly in August. Europe + UK + US In Europe and the US, it’s still a heavy data week but more so from the UK and Euro Area.  The European Central Bank (ECB) meeting being the biggest event with the ECB expected to deliver another 25 bps cut. Current inflation is nearing 2%, and longer-term forecasts are stable at about 2%, giving the ECB good reasons to ease up on strict monetary policies. Couple this with the struggles faced by the German economy and it would seem to be a no brainer. The UK focus will be jobs data in the week ahead. Last month, there was a sudden and unusual drop in UK unemployment from 1.5 million to 1.2 million in just one month. Since the unemployment rate is calculated as a moving average, we might see it decrease further, possibly reaching 4.0% from a recent high of 4.4%. This could happen even if the number of unemployed people rises again in the most recent monthly figures. The data is however unlikely to have any long lasting impact on rate expectations as it relates to the Bank of England. The highlights from the US with the exception of the Presidential debate will come in the form of US CPI and PPI data. The data which markets had been glued to over the last 24 months suddenly does not hold the same sway. Barring any crazy figure this should not sway rate cut expectations all that much with labor data now holding the key. Short-term volatility and fluctuations should still be expected however.  For all market-moving economic releases and events, see the MarketPulse Economic Calendar. Chart of the Week This week’s focus is on the US Dollar Index (DXY), which continues to be intriguing and surprising. The main question on my mind is how much of the expected rate cuts are already reflected in the Dollar’s value. After Friday’s data release, the Dollar initially dropped but then rose sharply, suggesting that a lot of the rate cut expectations might already be factored in. The DXY continues to find support around the 100.50 handle and keeping a retest of the 100.00 psychological mark at bay, for now. The weekly and daily candle are however sending mixed signals. The weekly candle is set to close as a hanging man while the daily candle is on course for a hammer candlestick close hinting at a move higher on Monday. The only positive around the weekly candle is that a hanging man candle at support is not a high conviction print as it is best when it appears following a significant upside rally at a area of resistance.  There remains many hurdles on the upside with initial resistance at 101.80 and 102.16 before the 103.00 handle comes into focus. A move back to the downside now needs to navigate support at 101.17 before the 100.50 level. The psychological 100.00 remains untested yet and remains a massive barrier if bulls are to seize control. US Dollar Index (DXY) Daily Chart – August 30, 2024 Source:TradingView.Com (click to enlarge) Key Levels to Consider: Support: 101.17 100.50 100.00 Resistance: 101.80 102.16 103.00 104.00 (200-day MA) Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

The Japanese yen has posted strong gains on Friday. In the European session, USD/JPY is trading at 142.76 at the time of writing, down 0.47% on the day. The yen is on a tear and is up 2.3% against the greenback this week. Japan’s household spending misses expectations Japan’s economy is showing signs of recovery but consumers are not convinced and continue to keep a tight grip on their purse strings. Household spending eked out a gain of 0.1% y/y in July, rebounding from a 1.4% decline in June but short of the market estimate of 1.2%. Monthly, household spending fell 1.7% in July, the steepest decline in six months. This followed a 0.1% gain in June and was much lower than the market estimate of -0.2%. US nonfarm payrolls could shake up markets, determine size of Fed cut Today’s nonfarm payroll report has been hotly anticipated. Will we see an improvement from the July debacle of 114 thousand new jobs, which routed the global financial markets? The markets have largely recovered from the melt down but investors remain nervous and another poor nonfarm payroll release could send the markets sharply lower. The market estimate for August stands at 160 thousand. This week’s US job numbers were mixed and investors are hoping to get some clarity about the labor market from today’s employment report. Unemployment claims dropped but JOLT job openings declined and missed expectations. The August ADP employment report dropped to just 99 thousand, down from a revised 111 thousand in July and way off the market estimate of 145 thousand. The ADP report has generally not been a reliable indicator for nonfarm payrolls, although the correlation has been stronger this year. If the nonfarm payrolls release comes in as expected or higher, it could cement a 25-basis point from the Federal Reserve at the Sept. 18 meeting. Conversely, a weaker-than-expected reading would raise expectations for an oversize cut of 50 bps. The markets have currently priced in a 50-bps reduction at 43% and a 25-bps cut at 67% according the CME’s FedWatch, but I expect those odds to change before the day is over. USD/JPY Technical USD/JPY is testing support at 142.79. Below, there is support at 142.13 There is resistance at 143.51 and 144.17

Recent lacklustre key US economic growth-related data; ISM Manufacturing PMI & ADP Employment Change reinforced the recent bout of JPY strength. Bearish elements in the JPY crosses Index suggest further potential JPY strength in the medium-term horizon. Watch the 140.25 support on the USD/JPY. A déjà vu experience is now ripping across the foreign exchange market where it saw a swift bout strengthening in the Japanese yen during a recent period from 31 July to 5 August, primarily triggered by the Bank of Japan’s interest rate hike. Since Tuesday, 3 September, the Japanese yen bulls have reared their horns again as the JPY rallied by 3.5% against the US dollar at this time of the writing. JPY has strengthened across the board Fig 1: 1-month rolling performances of G-10 JPY crosses as of 6 Sep 2024 (Source: TradingView, click to enlarge chart) Based on a one-month rolling performance basis, the G-10 JPY cross pairs (JPY is being quoted as the variable currency) have started to inch downward since Monday, 2 September where the worst performers are; USD/JPY (-1.13%), CHF/JPY (+0.12%), and EUR/JPY (+0.39%). The recent strength seen in the Japanese yen in the past week is not attributed to the Bank of Japan but triggered by an increasing risk that the US economy may have already slipped into a recession and the US Federal Reserve being late on enacting an interest cut cycle may be forced to introduce bigger cuts on its Fed funds rate down the road. The 2-year US Treasury yield has a higher sensitivity toward the US Fed’s monetary policy stance, slipped by 39 basis points from 4.10% printed on 16 August to 3.71% at this time of the writing while the 2-year JGB yield inched higher from 0.32% to 0.37% over the same period (see Fig 1). Overall, the US Treasury yield premium against JGB has narrowed, reinforced by weak private sector hiring data in the US; the ADP employment change for August added the lowest number of jobs in August at 99K, over a downwardly revised 111K in July, and well below forecasts of 145K. Today’s release of the government-compiled non-farm payroll data for August will shed more light on the state of the US labour market (Fed Chair Powell has highlighted labour market condition is now a primary focus of the Fed in his Jackson Hole Symposium speech); especially the unemployment rate that rose to 4.3% in July, the highest level since October 2021. JPY crosses index has flashed out major bearish conditions Fig 2: JPY crosses Index long-term secular trend as of 6 Sep 2024 (Source: TradingView, click to enlarge chart) The JPY crosses Index, created by using an equal-weighted basket of G-10 JPY crosses is showing signs of technical weakness (see Fig 2). Its monthly chart has depicted a recent major failure bullish breakout scenario from Feb to July as the JPY crosses Index reintegrated below 111.80, a major swing high formed in July 2007, a few months before the global financial crisis was unleashed. Its monthly RSI momentum indicator triggered a bearish condition in July where it broke below a key ascending trendline support. Interestingly, a similar RSI bearish condition occurred in the past on August 2007 before the JPY crosses Index staged a significant decline of 36% in the next seven months. If the 111.80 key long-term pivotal resistance of the JPY crosses Index is not surpassed to the upside, it faces the risk of a further decline toward the 103.90 major support in the first step; another bout of potential JPY strength looming on the horizon. USD/JPY is eyeing the 140.25 support next Fig 3: USD/JPY medium-term & major trends as of 6 Sep 2024 (Source: TradingView, click to enlarge chart) The recent major uptrend phase of the USD/JPY from 16 January 2023 has been damaged and technical analysis is suggesting that it is now evolving into a potential medium-term corrective decline sequence (see Fig 3). The daily RSI momentum indicator is still exhibiting bearish elements which suggests that the ongoing multi-month corrective decline phase in place since 3 July 2024 may have not reached an exhaustion stage yet. A break below 140.25 support exposes the next medium-term supports at 137.35 and 133.75. Only a clearance above the 149.30/150.80 key medium-term pivotal resistance invalidates the bearish scenario for the next medium-term resistance to come in at 158.35 in the first step.

The Canadian dollar is drifting on Friday. In the European session, USD/CAD is trading at 1.3496 at the time of writing, down 0.05%. We could see some volatility from the Canadian dollar later today, with the release of the US and Canadian job reports. All eyes on nonfarm payrolls The US will release the August employment report, highlighted by nonfarm payrolls. The July reading of 114 thousand was unexpectedly low and sent shock waves throughout the global financial markets. Investors panicked that the US economy was hurtling into a depression but cooler heads soon prevailed. Still, investors remain jittery and another disappointing release could sent the markets sharply lower. Nonfarm payrolls are expected to have improved in August, with a market estimate of 160 thousand. Investors will be hoping that today’s nonfarm payrolls provide a clearer picture of the strength of the labor market. This week’s US job numbers were mixed, as unemployment claims dropped but JOLT job openings declined and were well below the market estimate. The August ADP employment report dropped to just 99 thousand, down from a revised 111 thousand in July and way off the market estimate of 145 thousand. The ADP report has generally not been a reliable indicator for nonfarm payrolls, although the correlation has been stronger this year. The nonfarm payroll report could determine the Federal Reserve’s rate move at the Sept. 18 meeting. A strong release would likely cement a 25-basis point cut, while a weak figure would raise the likelihood of an oversize 50-bps cut, which is currently at 43% according to the CME’s FedWatch. Canada expected to show mixed employment numbers Overshadowed by the anticipation over the US jobs report, Canada will also release employment data today. Job growth is expected to rebound in August to 25 thousand, after a rare decline a month earlier (-2.8 thousand). Unemployment has steadily crept higher this year and is expected to nudge higher to 6.5%, up from 6.4% in July. Like the Fed, the Bank of Canada has shifted its focus to the labor market, now that the battle with inflation has been largely won. USD/CAD Technical USD/CAD tested support at 1.3487 earlier. Below, there is support at 1.3448 1.3532 and 1.3571 are the next resistance lines

OANDA Market Analyst Kenny Fisher joins Jonny Hart to discuss this week’s key economic data and events as well as the impact on global markets. Pivotal week peppered with major events; Bank of Canada cuts rates for third straight time; US nonfarm payrolls could determine extent of Federal Reserve rate cut later this month; and Nvidia plunges by almost 10%

The Canadian dollar is showing limited movement on Wednesday. In the European session, USD/CAD is trading at 1.3555 at the time of writing, down 0.08%. BoC expected to cut for third consecutive time All eyes are on the Bank of Canada, which will announce its rate decision later today. The BoC is expected to lower rates by 25 basis points for the third successive time, the most cuts by any major central bank. The BoC is expected to continue cutting rates for the remainder of the year and into 2025 in order to boost Canada’s listless economy. The fact that the Federal Reserve is widely expected to lower rates at this month’s meeting and possibly later in the year makes it easier for the BoC to continue trimming rates without diverging too widely from the Fed. As well, the Canadian dollar gained 2.2% against the greenback in August, which means that the BoC doesn’t have to worry as much about downward pressure on the Canadian dollar due to rate cuts. Investors are prepared for a rate cut today but will be looking for insights about the new cutting cycle. Inflation has abated and has hovered within the BoC’s target range of between 1% and 3% for seven straight months. As with the Federal Reserve, policy makers are shifting focus from inflation to the labor market, which has been weakening. The BoC is aiming for a soft landing in which inflation falls without the labor market crashing and the economy tipping into a recession. US employment data key to Fed decision The US releases a host of employment data for the remainder of the week, which will determine the size of the Fed’s expected rate cut. The probability of a quarter-point cut has fallen from 70% last week to 59%, with the likelihood of a half-point cut rising from 30% to 41%, according to CME’s FedWatch. Later today, the US releases JOLT job openings, which is expected to ease to 8.10 million, compared to 8.18 million in July. USD/CAD Technical There is resistance at 1.3579 and 1.3607 1.3535 and 1.3507 are the next support levels

Gold prices are trending down due to a lack of safe-haven bids and a strong US Dollar. Upcoming US jobs data and interest rate decisions will significantly impact gold’s future performance. September is historically a challenging month for gold, which could further influence its trajectory. Most Read: Brent Crude – Oil Slides on Renewed Demand Fears, Brent Back at $75 a Barrel In the early European session, gold prices continued their downward trend as the precious metal struggled to attract haven bids. Known for its challenges during September, gold faces a potentially rocky path, especially with high prices inviting profit taking. Additionally, looming rate cuts, which might already be factored into market expectations, could further influence gold’s trajectory. As we navigate this month, investors should remain vigilant of these trends in the precious metals market. Recent Chinese data has reignited concerns about demand, putting pressure on the metals market. Despite expectations that recession fears would boost safe haven demand for precious metals, akin to the Japanese Yen, gold has struggled. This difficulty is compounded by the strength of the US Dollar, which continues to exert downward pressure on gold prices. As markets brace for a potentially strong jobs report, ongoing recession concerns linger. Economists surveyed by Reuters predict that the US economy added 160,000 jobs in August, rebounding from July’s figure of 114,000. A solid report could ease recession fears and support a 25 basis point rate cut by the Federal Reserve on September 18. Conversely, a weaker jobs report and rising unemployment could amplify recession worries, potentially boosting gold prices. However, any upside for gold might be limited, as much of the anticipated 25 basis point rate cut seems already priced in. This raises the question of whether the prospect of a 50 basis point cut could drive gold to new highs. As the jobs report date approaches, market expectations for a larger rate cut are gradually increasing, reflecting the shifting sentiment. Source: CME FedWatch Tool  September has historically been a challenging month for gold, often coinciding with strength in the US Dollar, which could pressure gold prices in the medium term. Should the Federal Reserve implement a 25 basis point rate cut, we might see market participants engaging in the classic strategy of ‘buy the rumor, sell the fact’ during the Fed’s September meeting. In the lead-up to Friday’s Non-Farm Payrolls (NFP) and jobs report, several other US economic indicators are poised to influence the dollar and recessionary concerns. Today, JOLTS job openings and US factory orders will be released, potentially offering further insights into the manufacturing sector after a disappointing PMI figure. Thursday promises an even more impactful release with the ISM Services PMI, crucial for the US, which has largely transitioned to a service-oriented economy. This data is expected to set the stage for Friday’s much-anticipated jobs report, which will be closely watched by market participants. For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (click to enlarge) Technical Analysis Gold (XAU/USD) From a technical analysis standpoint, the four-hour gold chart presents some intriguing developments. It appears a double bottom pattern may have formed, suggesting potential upside movement. However, there’s an immediate challenge in the form of the 100-day moving average at 2495.85, which needs to be surpassed to confirm further gains. Breaking above 2500.00 will be crucial, yet it must sustain these gains, especially with the upcoming jobs report, as any upward movement could trigger profit-taking and repositioning by traders. Last week’s triangle pattern breakout, detailed in my previous gold analysis, has reached 2472, a previously identified target. This supports the possibility of an upward retracement, although the extent of this retracement remains uncertain. On the downside, a decline would first need to breach the 2472 mark before the 200-day moving average and the psychological level of 2450 become pivotal points of focus. GOLD (XAU/USD) Four-Hour (H4) Chart, August 23, 2024 Source: TradingView (click to enlarge) Support 2472 2450 2432 Resistance 2495 2513 2531 Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

Major US bench stock indices (S&P 500, Nasdaq 100, Dow Jones Industrial Average & Russell 2000) started the month of September on a weak footing. The Nasdaq 100 was the worst performer (-3.15%) on Tuesday, 3 September dragged down by the higher-beta technology sector (Nvidia & other semiconductor stocks) Recent weak performance of Nvidia (ex-post Q2 earnings) may trigger a negative liquidity cascading effect, in turn, a potential jump in the VIX. Watch the 19,670 key medium-term pivotal resistance on the Nasdaq 100. This is a follow-up analysis of our prior report, “Nasdaq 100: Bears may still be lurking around the corner” published on 15 August 2024. Click here for a recap. Since our last publication, the price actions of the Nasdaq 100 have staged a bounce of 4.9% to hit the 19,900 handle on 22 August. However, it could not maintain its short-term bullish momentum, stage a reversal, and give up all its prior gains ex-post Q2 Nvidia’s earnings results on 29 August. Thereafter, the Nasdaq 100 rebounded by 2.8% from its Thursday, 29 August low but failed to have a clearance above its 50-day moving average that acted as an intermediate resistance at around 19,670. Labour Day “massacre” reinforced by weak ISM Manufacturing PMI All the major US stock indices started the month of September on a weak footing after the Labour Day holiday. The Nasdaq 10 was the worst performer among the benchmark stock indices, shedding -3.15% on Tuesday, 3 September, dragged down by a horrendous loss of 9.5% inflicted on Nvidia, the third largest market cap component stock in Nasdaq 100 Yesterday’s cascading negative feedback loop in the US stock indices has been reinforced by a weak print of 47.2 in the ISM Manufacturing PMI data that slightly missed expectations of 47.5 where manufacturing activities in the US contracted for the fifth consecutive month. Hence, the hard-landing playbook narrative is back at the forefront as the market participants are “fearful” that the US Federal Reserve has been late in enacting the interest rate cut cycle in the US, in turn, the higher beta (mega-cap technology and semiconductor stocks) were the worst performers as these groups of stocks have been leading in the US stock market since the start of 2024. Nvidia is like an “elevator” Fig 1: 2024 YTD performance of Nivida & major US stock indices with VIX  as of 3 Sep 2024 (Source: TradingView, click to enlarge chart) The share price of Nvidia has staged a magnificent rally from late April to June this year and it hit a current year-to-date peak market capitalization of US$3.33 trillion on 18 June, overtook Microsoft and Apple, and became the world’s most valuable company at that juncture. This remarkable feat by Nvidia has created a positive liquidity-cascading impact on the S&P 500 and Nasdaq 100 as active equities-based fund managers (inclusive of smart beta factors and tactical exchange-traded funds) are likely to allocate a significant portion of their funds to Nvidia. This type of positive liquidity-cascading effect also dampened the implied volatility of the US stock market as measured by the VIX which hovered at low levels of around 12 to 14 from late April to early July. Therefore, these low levels of VIX induced more risk-taking behaviour (skewed towards equities in this context) (see Fig 1). Interestingly, the prior decline in the share price of Nvidia (before its Q2 earnings results release) from 10 July to 24 July led to a minor jump in the VIX from 12.84 to 18.02 that preceded Volmageddon 2.0 on 5 November, triggered a synchronised risk-off behaviour in the major US stock indices which in turn induces a negative liquidity-cascading effect, amplified by systematic funds that use implied volatility as a control risk measure that required to trim risk assets significantly such as equities in their portfolios. A cautionary note is that the recent decline of Nvidia (ex-post earnings) from 29 August to 3 September has similar negative liquidity-cascading effect traits. Nasdaq 100 at risk of revisiting 17,160/16,930 Fig 2: Nasdaq 100 CFD major & medium-term trends as of 4 Sep 2024 (Source: TradingView, click to enlarge chart) In the lens of technical analysis, the current price actions seen in the Nasdaq 100 CFD (a proxy of Nasdaq 100 E-mini futures) have shaped a series of weekly bearish reversal candlesticks in the past two weeks after a test on the 19,670 key medium-term pivotal resistance (also close to the 50-day moving average). For the week of 19 August and 26 August, it has formed a “Shooting Star” and Hanging Man” bearish reversal candlestick respectively, and the current date-to-week price action at this time of the writing has triggered a negative follow-through bearish Marubozu candlestick as it pierced below its 20-day moving average (see Fig 2). These observations suggest a rapid change in sentiment from bullish to bearish that may unleash further weakness on the Nasdaq 100 CFD towards the 17,160/16,930 long-term pivotal support (close to the 5 August swing low). Only a clearance above 19,670 invalidates the bearish bias for a continuation of its impulsive upmove sequence for the next major resistances to come in at 20,900 and 21,680 in the first step.

The Australian dollar is drifting on Wednesday. AUD/USD is trading at 0.6704 in the European session, down 0.10% today at the time of writing. The Australian dollar took a bath a day earlier, sliding 1.1%, one of the sharpest daily declines this year. Australia’s GDP dips to 0.2% Australia’s economy gained a paltry 0.2% q/q in the second quarter, shy of the market estimate of 0.3% and unchanged for a third consecutive quarter. This was the softest pace of growth in five quarters and the small gain was driven by higher government spending as household spending declined. Yearly, GDP climbed 1%, in line with the market estimate and down from 1.3% in the first quarter. This was the lowest annual GDP release since the fourth quarter of 2020. Australia’s economic picture is being described by some local commentators as a “horror show”. This is not a wild exaggeration as GDP is in the doldrums, inflation remains sticky and consumer spending was flat in July. The Reserve Bank has maintained rates at 4.35% since November but inflation hasn’t fallen as quickly as anticipated. The GDP release is unlikely to be a factor at the Reserve Bank of Australia’s next meeting on Sept. 24. The central bank is primarily concerned with inflation and the labor market. Governor Bullock has essentially ruled out a rate cut in the next six months but the markets have priced in a rate cut before year’s end and more cuts in early 2025. Bullock will speak at an event in Sydney early on Thursday and the markets will be looking for some insights from the hawkish Governor regarding future rate policy. AUD/USD Technical There is support at 0.6681 and 0.6650 0.6738 and 0.6769 are the next resistance lines

The Swiss franc is showing limited movement on Tuesday. USD/CHF is trading at 0.8507, down 0.11% on the day. Swiss CPI drops to 1.1% Swiss inflation declined to 1.1% y/y in August, down from 1.3% in the previous two months and below the market estimate of 1.2%. This was the lowest level since March, as prices for food, clothing and transport all decelerated. Monthly, CPI was flat, up from -0.2% in July and shy of the market estimate of 0.1%. Core CPI was unchanged at 1.1% y/y. Inflation remains within the Swiss National Bank’s target of between 0 and 2%, as the sharp appreciation in the Swiss franc and dampened inflation and allowed the central bank to cut rates twice this year, bringing the cash rate to 1.25%. The strong upside pressure on the franc could prompt the SNB to cut rates by a quarter-point at its meeting on Sept. 26. Swiss GDP surprised on the upside with a strong gain of 1.8% y/y in the second quarter. This was much stronger than the 0.6% gain in Q1 and beat the forecast of 0.9%. Monthly, the economy expanded by 0.7%, up from 0.5% and above the forecast of 0.5%. Manufacturing and services both improved in the second quarter, helping to drive GDP higher. US manufacturing woes continue In the US, two manufacturing PMIs pointed to contraction, with readings below 50. The ISM Manufacturing PMI rose slightly to 47.2, up from 46.8 but shy of the market estimate of 47.5. Demand remains weak and the manufacturing sector has been in contraction mode for most of the past 18 months. The S&P Manufacturing PMI dropped to 47.9 in August, down from 49.6 in July and its first decrease in seven months. USD/CHF Technical USD/CHF is testing support at 0.8513. There is weak support at 0.8489 0.8542 and 0.8566 are the next resistance lines

Brent crude oil prices fell by 4% due to concerns about weakening demand from China. The disruption in Libyan oil production has had a limited impact on prices so far, but the situation remains uncertain and could cap further downside. OPEC+ plans to increase oil supply in October, which could further pressure prices. Most Read: Markets Weekly Outlook – NFP Jobs Data to Rule Out 50 bps Fed Rate Cut? Oil prices have struggled this morning as US markets return from the Labor day holiday. Brent is trading 3% down at the time of writing, flirting with the psychological $75 a barrel mark.  The slide may be attributed to Chinese PMI data released over the weekend which has renewed demand concerns moving forward. The halt in production from Libya has taken a backseat it appears, however Libya and the tensions in the Middle East are likely to prevent an extended selloff in oil prices.  Export orders from China fell for the first time in 8 months in July while new home prices rose at their weakest pace in 2024. A sign that housing demand is waning which does not bode well for demands of raw materials as well as Oil. The knock on effect has been broad with declines across a host of commodities as well.  The situation in Libya is notably complex, with recent reports indicating that around 70% of oil production has halted and exports from ports have stopped. Despite this, the impact on oil prices has been minimal due to uncertainty over how long these issues will persist. If more information becomes available regarding the duration of the disruptions, we could see a more significant effect on oil prices. Another factor which could be exerting downward pressure on Oil prices is OPEC + and the increase in supply planned for October. There were concerns for a while that given waning demand and lower oil prices that OPEC + may plan to delay the supply increases. However, rumors surfaced at the back end of last week with industry sources confirming the plan is likely to go ahead.  The planned increases from OPEC + could be seen as a counter to the Libya uncertainty, however this is still a month away at best. I remain skeptical regarding the OPEC + increases especially if Oil prices remain below the $75 a barrel as many OPEC + members require prices above a certain level to keep the books in balance and realize a profit. All in all, an interesting time ahead for oil prices. For all market-moving economic releases and events, see the MarketPulse Economic Calendar.  (click to enlarge) Technical Analysis From a technical perspective, oil recently formed a lower high, suggesting a potential retest of the descending trendline. However, today’s price movement has disrupted this pattern, with the daily candlestick appearing particularly concerning at the moment. If the daily candle closes below the long-term ascending trendline, it could signal trouble for oil prices, as this trendline has been a support level since March 2023. Nonetheless, the fundamentals, including geopolitical tensions in the Middle East and production challenges in Libya, might limit further declines in the near future. Currently, the price is trading within a crucial support zone on the H4 timeframe, around the 74.00 mark. A break below this level could shift focus to the 73.00 support, with a confluence area just beneath it, making it a critical level to watch. Brent Crude Oil Daily Chart, September 3, 2024 Source: TradingView (click to enlarge) Support 74.00 73.00 72.50 (key area of confluence) Resistance 75.00 76.40 79.00 Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

The British pound continues to drift this week. In the North American session, GBP/USD is trading at 1.3103, down 0.33% on the day. UK BRC retail sales jump The British Retail Consortium reported a strong gain in retail sales for August. Retail sales rose 0.8% y/y, up from 0.3% in July to the highest level in five months. Food and clothing sales picked up as people took advantage of the warm summer weather. Still, consumer confidence remains fragile and consumers remain cautious about discretionary spending. The jump in retail sales could be a precursor of what to expect from the official retail sales report on Sept. 20. Retail sales rebounded in July with a gain of 1.4% y/y, up sharply from a revised 0.3% decline a month earlier. In the US, it was back to work today after the Labor Day holiday. The ISM Manufacturing PMI rose slightly to 47.2, up from 46.8 but shy of the market estimate of 47.5. Manufacturing has been in deep freeze for most of the past 18 months, as the services sector has carried the US economy. Investors are keeping a close eye on this week’s employment report, specifically the August nonfarm payrolls. The July reading of 114,000 was much lower than expected and the lowest reading in over three years. Investors panicked about the health of the US economy and the financial markets plunged but managed to recover quickly. The markets are understandably nervous ahead of the jobs report, although the market estimate for nonfarm payrolls stands at 160,000, which would mark an improvement from July. If the release is within expectations, it should cement a 25-basis point cut from the Federal Reserve later this month. Another soft reading, however, could cause panic in the markets and put pressure on the Fed to deliver a 50-bps cut at the meeting. GBP/USD Technical  There is resistance at 1.3167 and 1.3225 1.3069 and 1.3011 are providing support

USD/JPY rises for the fourth consecutive day, supported by US economic optimism. US employment data this week is crucial for Fed’s September rate decision and USD/JPY direction. Japanese economic indicators and seasonality may also influence USD/JPY’s trajectory. Most Read: Markets Weekly Outlook – NFP Jobs Data to Rule Out 50 bps Fed Rate Cut? USD/JPY continued its advance on a thin liquidity Monday. The greenback is up around 0.57% against the JPY and on course for a fourth successive day of gains. The US Dollar has been on a steady rise over the past few days as investors remain optimistic about the US economy following last week’s GDP data. This was followed by a decent PCE print which went some way in allaying recessionary fears and offering the greenback some support. There is a large swatch of data out of both the US and Japan this week which could shape the trajectory of the pair. The Japanese economy has been on an upward trajectory of late as speculation grows about further rate hikes from the Bank of Japan (BoJ). This is crucial as it comes at a time when Global central banks are looking to cut rates and not raise them.  US Employment Data is Key I think the biggest impact this week on USD/JPY will come from the US jobs report. The importance of this release has grown in stature since the massive downgrade in job numbers by the BLS. It led markets to start speculating on a potential 50 bps rate cut in September.  A soft jobs print could bring this conversation back to the fore and could play a major role in determining the Fed decision on September 18. A strong jobs number could finally put an end to that debate as it appears that many Fed members are uncomfortable with beginning the rate cut cycle with a 50 bps move. There are some mid-tier Japanese data releases which should show continued improvement in the Japanese economy. For more information on this please read the weekly market outlook. Source: For all market-moving economic releases and events, see the MarketPulse Economic Calendar.  (click to enlarge) Technical Analysis From a technical standpoint, USD/JPY appears to have bottomed out just below the 144.00 handle before the recovery began. The pair has since posted 3 consecutive days of gains and is on course for a fourth.  Interestingly enough this comes despite the expectations of rate cuts from the Fed and rate hikes from the BoJ putting the two central banks on differing paths. In theory the Yen should be gaining ground against the greenback, however there could be an explanation as to why the greenback is on the up. The answer may be two-fold as market participants appear to be betting on the US economy following a stellar GDP revision. Also, the initial USD selloff around the rate cut issue may mean that a lot of the expected 25bps cut in September has already been priced in. Another consideration could be seasonality. Historically the US dollar enjoys a good month of September while US stocks seem to struggle. Will history repeat itself? Today’s daily candle is on course to close above the 146.37 swing high which would signal a shift in structure where price action is concerned. This would increase the probability of further upside even if we do have a slight pullback first potentially to resistance turned support at 146.37. USD/JPY Chart, September 2, 2024 Source: TradingView (click to enlarge) Support 146.37 145.00 143.85 Resistance 148.00 150.00 (psychological level) 151.216 (200-day MA) Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

The British pound is showing limited movement on Monday. With US markets closed for labor day, we’re unlikely to see much movement from the US dollar. In the North American session, GBP/USD is trading at 131.47, up 0.16% on the day. UK manufacturing shows slight expansion The UK Manufacturing PMI remained unchanged in August at 52.5, in line with expectations. This was the highest level in 26 months, as the manufacturing sector continues to recover with the PMI indicating expansion in four of past five months. The UK will release the Services PMI on Wednesday, with the August reading expected to accelerate to 53.3, up from 52.5 in July. The Bank of England delivered an initial rate cut in August and is looking to continue cutting, which will boost economic activity. We’ll get  a look at US manufacturing on Tuesday. The US has been not immune to the woes of the global manufacturing sector and Tuesday’s ISM Manufacturing PMI is expected to point to contraction. The PMI has posted only one month of expansion since October 2022, although the markets are expecting the PMI to improve to 47.5 for August, up from 46.8 in the previous release. GBP/USD Technical  GBP/USD tested resistance at 1.3145 earlier. Above, there is resistance at 1.3181 1.3091 and 1.3055 are providing support      

The euro has edged up on Mon day and has stopped a nasty three-day slide in which the euro slipped 1.2%. In the North American session, EUR/USD is trading at 1.1066, up 0.18% on the day. With US markets off for Labor Day, the dollar is unlikely to show much movement today. Eurozone, German manufacturing slump continues The eurozone manufacturing PMI was unchanged in August for a third straight month at 45.8, just above the market estimate of 45.6. The 50 level separates contraction from expansion. The PMI has been mired in contraction since July 2022, a result of the ECB’s tighter monetary conditions and the surge in energy prices due to the Russia-Ukraine war. The eurozone economy is showing signs of improvement but that hasn’t boosted manufacturing. Germany, the largest economy in the bloc, is in even worse shape, as the manufacturing PMI eased to 42.4 in August, down from 43.2 in July. The weak manufacturing sector has pushed the German economy into contraction and an improvement in global demand hasn’t stopped the bleeding, with no end in sight. Germany faces another test on Tuesday, with the release of retail sales. The German consumer has responded to the weak economic climate by cutting back sharply on spending. Retail sales have declined in nine of the past eleven months, dampening economic activity. The US has not escaped the woes of the manufacturing sector and Tuesday’s ISM Manufacturing PMI is expected to point to contraction. The PMI has posted only one month of expansion since October 2022, although the markets are expecting the PMI to improve to 47.5 for August, up from 46.8 in the previous release. EUR/USD Technical 1.1029 is providing support, followed by support at 1.1011 There is resistance at 1.1062 and 1.1080

The Swiss franc has edged higher on Monday. USD/CHF is currently trading at 0.8514, up 0.16% on the day. With US markets closed for Labor Day, we’re unlikely to see much movement from the US dollar today. Swiss retail sales rebounds Switzerland’s retail sales for July surprised on the upside, with an impressive gain of 2.7% y/y. This crushed the market estimate of -0.2% and followed a revised 2.6% decline in June. It was the first increase since April and the fastest pace since February 2022. Monthly, retail sales rebounded with a 1.4% gain, up from a revised -0.3% and the market estimate of -0.2%. The strong retail sales report failed to move the Swiss franc and investors have shifted focus to Tuesday’s inflation report. Inflation is expected to tick lower to 1.2% y/y in August, compared to 1.3% in July. Monthly, inflation is projected to rise to 0.1%, up from -0.2% in July. The Swiss National Bank has kept inflation within its target of between zero and 2%, although it is keeping a concerned eye on the Swiss franc, which has surged 7.5% against the sagging US dollar since May 1. The Swissy sharp appreciation has kept inflation in check and the central bank has responded by trimming rates twice this year, bringing the cash rate to 1.25%. The downside of a strong Swiss franc is that it makes Swiss exports more expensive. On Thursday, the Swiss franc dropped to 0.8400, its lowest level since Jan.2. If the Swiss franc’s continues to rise, the SNB could respond by intervening in the currency markets and blunt the upward swing. Switzerland’s economy is expected to rise 0.5% in the second quarter, unchanged from the first quarter. The Q1 gain was the fastest expansion since the second quarter of 2022 and the service sector continues to drive the economy. Annually, the economy is expected to climb 0.9% in the second quarter, up from 0.6% in Q1. USD/CHF Technical 0.8520 is a weak resistance line. Above, there is resistance at 0.8541 0.8491 and 0.8470 are providing support

The recent 7.4% rally in the AUD/USD from its 5 August 2024 low has been driven by a resurgence of risk-on behaviour and the US Fed’s dovish pivot. Weak China’s manufacturing PMI data and housing market are likely to be in the driving seat now to potentially dictate the sentiment of the AUD/USD. Further weakness in Iron Ore futures prices may trigger a negative feedback loop into AUD/USD. Watch the key medium-term resistance of 0.6900 on the AUD/USD with intermediate supports at 0.6700 and 0.6600. After the global risk-off episode that occurred from mid-July to 5 August, the Aussie dollar has managed to recover all its losses against the US dollar in the same period. The AUD/USD, being a higher-beta play among the FX majors rose by 7.4% from its 5 August low of 0.6348 to print a recent high of 0.6824 on 29 August reinforced by a clear switch of monetary policy stance by the US Federal Reserve from “hawkish-higher for longer” to “dovish-time has come for policy to adjust” ex-post Fed Chair Powell’s 23 August Jackson Hole Symposium speech that cemented a potential upcoming 25 basis points cut to the Fed funds rate on the 18 September FOMC meeting. Weak macro data from China is in the limelight again The latest China NBS Manufacturing PMI data for August has pointed to a fourth consecutive month of contraction in manufacturing activities, it slipped further to 49.1 from 49.4 in July, below the consensus of 49.5. Its new orders subcomponent declined at a slightly higher magnitude from 49.30 in July to 48.90 in August which is an alarming cause of concern as a significant portion of China’s economic growth so far in 2024 has been driven by external demand and top policymakers’ heavily allocation of state resources towards China’s high tech industrialization programme. If China’s manufacturing activities languish at this rate in Q4, it is unlikely that China can meet its 5% annualized economic growth target for 2024. In addition, a weak state of manufacturing production coupled with the housing market in China that is still not showing any clear signs of stabilization from a persistent trend of negative growth rates (value of new-home sales from the 100 biggest real estate firms plunged to 26.8% y/y in August from -19.7% in July), there is likely less demand for industrial metals such as iron ore. Iron ore prices have moved in direct lockstep with AUD/USD Fig 1: AUD/USD & Iron Ore futures correlation movement as of  2 Sep 2024 (Source: TradingView, click to enlarge chart) Given that iron ore is one of Australia’s key resource exports and a significant portion of it goes to China; if China’s economic growth languishes, there will be likely less demand for iron ore, in turn, put downside pressure on Australia’s trade balance that may trigger a negative feedback loop into the AUD/USD. Since March 2020, the movement of the Iron Ore CFR China futures contract listed on the Singapore Exchange has a positive correlation with the AUD/USD. However, this positive correlation flipped to negative for a short period recently from 5 August to 29 August due to the resurgence of global risk-on behaviour (see Fig 1). Given that China’s lacklustre economic growth narrative is back on the radar screen again, the Iron Ore CFR China futures contract (SGX) has declined by -4.2 % today at this time of the writing, its longer-term positive correlation movement with AUD/USD may come back to influence the movement of the Aussie dollar. AUD/USD rally has almost reached its 0.6900 major resistance Fig 2: AUD/USD major & medium term trends as of 2 Sep 2024 (Source: TradingView, click to enlarge chart) The recent rally of 7.4% from its 5 August low seen in AUD/USD has now almost reached a major resistance of 0.6900 (the medium-term swing highs of 16 June/13 July 2023 and long-term secular descending trendline from 25 February 2021 high). In addition, the daily RSI momentum indicator has almost hit an overbought level of 72 which has capped prior advances of the AUD/USD since 15 June 2023. If the 0.6900 key medium-term pivotal resistance is not surpassed to the upside, the AUD/USD may see a mean reversion decline scenario unfolding to expose the next intermediate supports at 0.6700 and 0.6600 (also the 200-day moving average) (see Fig 2). However, a clearance above 0.6900 invalidates the bearish scenario on the AUD/USD for the next intermediate resistance to come in at 0.7135.