USDJPY: Bears seem to be looking for Revenge

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Summary:

The bulls started the year with a bang and we knew whatever it was one would soon wear off. Now the bears have taken over and looks like they might be on the same thing as the vertical moves down suggest heavy strength for the Sellers.

Monthly timeframe chart shows the fake out of the 135 psychological round number coupled with the Supply from early year 2002. 8 days into the month of August and the Sellers have been dominating the scene with no signs of the bulls presence. Can 123 former Resistance level, now Support be tested before the end of the year?

USDJPY: Bears seem to be looking for Revenge_1

Analyzing from the weekly perspective, we can see price at the 131 untested Support after 3 consecutive bearish candles. Before considering jumping in for longs from this timeframe, it'll be ideal for proper price action candlestick or chart patterns to occur as touch trading the level might easily get blown away.

USDJPY: Bears seem to be looking for Revenge_2

Daily shows how well the bearish rising wedge worked out, slicing through demand zones with no signs of buyers.

USDJPY: Bears seem to be looking for Revenge_3

The advantage of multi-timeframe analysis is that a trader can understand the flow of the market, thereby understanding the thought process of both the buyers and sellers in order to make a well informed decision.

130 support on the h4 is where price is sitting but this week is clearly down and the hourly suggest a pullback to the 132 mini cluster would be a good place to join the train.

USDJPY: Bears seem to be looking for Revenge_4

USDJPY: Bears seem to be looking for Revenge_5

Remember, the trend is your friend and it’s advisable to follow it

Trade safely！

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Damon

Consumer prices in Korea surged 6.3 percent in July from a year earlier, rising to almost a 24-year high by outpacing the previous record of 6 percent set in June, according to Statistics Korea. Korea's Inflation at Near 24-year High, But Appears to Slow Down_1

Korea's Inflation at Near 24-year High, But Appears to Slow Down_1

The July gain also marks the first time in nearly 24 years for the inflation rate to stay in the 6 percent range or higher for the second consecutive month.

The pace of inflation, however, is slowing down as the months pass, prompting speculation that it may not reach 7 percent and will peak within the second half of this year.

"The costs of dining out, daily food and utilities grew sharply," a senior Statistics Korea official said during a press briefing, noting such price increases, attributed mainly to global inflationary pressure, were high enough to offset a slight slowdown in oil price growth.

By items, the prices of the 144 most frequently purchased daily goods rose 7.9 percent year-on-year, while prices of fruit, fisheries and other daily foods that are sensitive to weather increased 13 percent year-on-year.

Inflation in July accordingly rose at the fastest pace since November 1998 during the Asian financial crisis when it stood at 6.8 percent.

Consumer prices rose by 7.2 percent in October 1998, which together with the November gain of the same year brought the inflation rate higher than 6 percent for two consecutive months.

Meanwhile, Tuesday's data showed the pace of inflation is slowing down on a monthly basis, as seen from 0.3 percent between June and July, 0.6 percent between May and June, another 0.6 percent between April and May and 0.7 percent between March and April.

Under the circumstances, Statistics Korea projected consumer prices may not reach 7 percent as feared by some.

In separate data, the Bank of Korea (BOK) said Tuesday inflation will remain in the 6 percent range "for the time being."

The BOK did not mention whether inflation will climb higher, in contrast to last month's briefing when it hinted at the possibility of consumer price growth reaching the 7 percent range.

Joo Won, deputy director of the Hyundai Research Institute, viewed a slowdown in oil prices may be a sign that inflation already peaked in July or will do so in August.

He pointed out that the price of Dubai crude oil, Korea's benchmark, is slightly above $100 a barrel after hovering at around $120 a barrel in June.

In turn, the average gas price in Korea has been lowered to 1,800 won ($1.30) per liter after surging to the 2,000 won level for the past several months.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said recently that inflation could peak in October, under the condition that external inflationary risks do not worsen.

The risks include a possible rebound or spike in oil prices over the prolonged war in Ukraine and supply chain bottlenecks.

Source: TheKoreaTimes

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Owen Li

Australia's central bank on Tuesday raised interest rates for a fourth month running, but tempered guidance on further hikes as it forecast faster inflation but also a slowdown in the economy.

Wrapping up its August policy meeting, the Reserve Bank of Australia (RBA) lifted its cash rate by 50 basis points to 1.85%, marking an eye-watering 175 basis points of hikes since May in the most drastic tightening since the early 1990s.

Yet, RBA Governor Philip Lowe also made the outlook for policy more conditional.

"The Board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path," said Lowe.

That was taken as a dovish move by markets given Lowe had repeatedly stated the RBA Board wanted to get rates to a neutral level of at least 2.5%, where it theoretically would neither stimulate nor retard economic growth.

Investors reacted by knocking the local dollar down 0.9% to $0.6963, while three-year bond futures climbed 11 ticks to 97.280 as the market trimmed bets on how far and fast rates would ultimately rise.

Swap markets lengthened the odds on another half point hike in September and shifted to imply a peak of around 3.31%, down from 3.41% before the RBA statement.

"The statement was on the dovish side of expectations, suggesting that the discussion at the September meeting may well move back to the 25bp or 50bp debate," said Adam Cole, a strategist at RBC Capital Markets.

Lowe also updated the RBA's economic forecasts, saying consumer price inflation was expected to peak around 7.75% compared to 7% previously and 6.1% in the June quarter.

Inflation was not seen returning to the top of the RBA's 2-3% target band until 2024.

Forecasts for economic growth were downgraded to 3.25% over 2022 and 1.75% in each of the following years. Previously the bank had forecast growth of 4.2% in 2022 and 2.0% in 2023.

Keeping An Even Keel

Lowe had argued the economy could withstand the pain with unemployment at 48-year lows of 3.5% and job vacancies at all-time highs. Household demand has fared relatively well, thanks in part to A$260 billion ($178.59 billion) in extra savings amassed during pandemic lockdowns.

Yet, higher borrowing costs are proving a heavy drag on spending power given households owe A$2 trillion in mortgage debt and home values are now in sharp retreat after a bumper 2021.

The hikes delivered so far will add around A$560 a month in repayments to the average A$620,000 mortgage, and that is on top of surging bills for energy and food.

Lowe has come in for some criticism over the rapid series of hikes with one local tabloid calling for him to quit his job.

Treasurer Jim Chalmers has defended the central bank's independence, though he recently launched a review of policy making and the Board to see if it needed modernising.

Lowe himself on Tuesday conceded the bank was walking a "narrow path" between taming inflation and keeping the economy on an "even keel".

Source: Reuters

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Damon

Although Bitcoin prices made a strong 15% recovery over the past week, metrics suggest more network demand would be needed to sustain further price increases.

With several on-chain metrics for Bitcoin (BTC) still in a bearish range, a continuation of the recent price recovery will require increased demand and fees spent over the network.

The assessment of mediocre market growth over the past week came from blockchain analysis firm Glassnode in its latest The Week On Chain report on August 1.

In it, analysts pointed to sideways growth in transactional demand, active Bitcoin addresses remaining in "a well defined downward channel," and lower network fees as reasons to temper investors' excitement about the 15% spike in BTC price over the past week. However, BTC is currently down 2% over the past 24 hours trading below $23,000 to $22,899 according to CoinGecko.

The report begins by highlighting the characteristics of a bear market which includes a decline in on-chain activity and a rotation from speculative investors to long-term holders. It suggests that the Bitcoin network is still demonstrating each of those traits. Bitcoin Network Activity Decline Suggests Longer Bear Market_1

Bitcoin Network Activity Decline Suggests Longer Bear Market_1

Glassnode wrote that a decline in network activity can be interpreted as a lack of new demand for the network from speculative traders over long-term holders (LTHs) and investors who have a high level of conviction in the network's technology. The report states:

"With exception of a few activity spikes higher during major capitulation events, the current network activity suggests that there remains little influx of new demand as yet."

In contrast to last week when a significant level of demand appeared to be established at the $20,000 level for BTC and creating a floor, the additional demand needed to sustain any further price increases is not observable. Glassnode refers to the steady decline in active addresses as a "low bear market demand profile" which has been in effect essentially since last December. Bitcoin Network Activity Decline Suggests Longer Bear Market_2

Bitcoin Network Activity Decline Suggests Longer Bear Market_2

The analysis observed similarities between the current network demand pattern and the one established in the 2018-2019 period. Similar to the previous cycle, network demand dried up after the April 2021 all-time high in BTC price. There was a notable recovery in demand leading up to the following November as prices recovered to a new ATH.

However, since last November, demand has been on a downward trend, with a major spike down during the mass sell-offs in May.

"The Bitcoin network remains HODLer dominated, and as yet, there has not been any noteworthy return of new demand."

Glassnode added that the poor demand from anyone other than dedicated Bitcoin enthusiasts is forcing network fees into "bear market territory." Over the past week, daily fees amounted to just 13.4 BTC. By contrast, when prices reached ATH last April, daily network fees topped 200 BTC.

Related: Bitcoin bulls defend $23K amid warning bear market rally 'alive and well'

Assuming fee rates increase to any noteworthy degree, Glassnode suggests that it could mean demand is on the rise, helping to sustain further "constructive structural shift" in Bitcoin network activity.

"Whilst we have not seen a notable uptick in fees yet, keeping an eye on this metric is likely to be a signal of recovery."

Source: cointelegraph

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Devin

Sovereign spreads no longer fear the ECB

As the plunge in government bond yields continues in the face of numerous headwinds, including hawkish central banks (we list them here), risk appetite is improving fast in other corners of financial markets. Within the realm of interest rates, this is most visible in the fall in implied interest volatility and commensurate tightening of euro sovereign spreads. Precarious Spread Tightening_1

Whilst Italian politics rightly get a lot of airplay, the genesis of the recent jump upwards in sovereign spreads starts with central banks scrambling to tighten policy in the face of higher inflation. As an era characterised by not only ever lower interest rates, but also abundant liquidity injections in order to depress the cost of credit in financial markets, comes to an end, it is understandable that sovereign spreads would widen.

The European Central Bank's fragmentation-fighting apparatus unveiled at its July meeting was meant to counter just that and, to a large extent, is a credible response to this specific problem. Italian politics has thrown a spanner in the works in that it poses the sort of widening risk that the ECB is not able, or willing, to address. The good news is, however, that the original reason for spread widening – monetary tightening triggered by higher inflation – is quickly vanishing.

Two assumptions and a lot of time to disprove them

It is only natural for sovereign spreads to tighten on the back of the spectacular repricing of ECB, and to a lesser extent Fed, hike expectations. We've highlighted in the past the near-mechanical relationship between Italian spreads and core yields, such as Germany's 10Y Bund. Arguably, given current sub-1% Bund yield levels, Italian spreads should be tighter than they are currently, but politics are keeping investors up at night. Precarious Spread Tightening_2

Thus, the recent spread tightening is precarious for two reasons. Firstly, hopes of the Italian front-runners skirting the sensitive issues of NGeu-mandated reforms and fiscal consolidation may well prove too optimistic, although we are sympathetic with the view that it may not be in their interest to alarm markets, and voters, in the run-up to the elections. Secondly, markets (and our) assumption of a fall in inflation, and so of a shallower policy rates path, may be challenged.

The line in the sand for 10Y Italian-German spreads is 250bp. They have managed to stay beneath that level, but the next two months should prove tricky to navigate.

Today's events and market view

The main economic release on today's calendar is U.S. job openings. The number of vacancies is running at around twice the number of job seekers, highlighting the tightness of the labour market. However, a further decline would probably be seen as a sign that the job market is cooling and that the Fed tightening is bearing fruits. So will a slowdown in the quit rate from 2.8% the month prior.

Three Fed speakers are scheduled today: Charles Evans, Loretta Mester, and James Bullard. On balance, it is probable that even if they acknowledge worsening economic prospects, they will be unhappy with the dovish reaction to last week's FOMC. All they may be able to achieve in this environment, however, is a further flattening of the curve.

Bond direction is given a helping hand by rising geopolitical tensions in Asia. The visit of U.S. House speaker Nancy Pelosi had market sentiment deteriorate in Asia hours. The Reserve Bank of Australia delivering on expectations of a 50bp hike resulted in a bull-flattening of the curve. All point to another strong session for bonds with 10Y Treasuries now knocking on the door of 2.5%, and 10Y Bund on 0.75%.

Source: ING

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Damon

Norway has the potential to play a bigger role in Europe's gas market if the government can balance economic interests with its climate agenda.

Despite the prevailing sentiment of energy scarcity in Europe, there is no actual shortage of gas resources, including at the European Union's doorstep. However, developing those resources and expanding the capital-intensive infrastructure to bring them to market will take time – and, more importantly, require producers to be confident that demand will be there for years to come.

This is the argument Norway – the EU's second-largest oil and gas supplier after Russia – has made for years and recently reiterated. "If Europe commits to buying, Norway can replace more Russian gas," its Minister of Petroleum and Energy Terje Aasland said in May.

One month later, on June 23, the EU and Norway announced they would be "strengthening energy cooperation." The statement's emphasis on the long term was striking, as was its support for future resource exploration. "Recognizing that Norway has significant remaining oil and gas resources and can, through continued exploration, new discoveries and field developments, continue to be a large supplier to Europe also in the longer term beyond 2030," the joint statement read. "The EU supports Norway's continued exploration and investments to bring oil and gas to the European market."

Like any producer, Norway seeks to secure demand for its exports, which has made it one of the richest countries in the world and helped Europe reduce its dependence on Russian energy. The EU-Norway cooperation statement will buttress Norway's continued access to its most important market.

On the supply side, local opposition to further exploitation of the country's hydrocarbon resources has also posed a challenge. But, to the dismay of climate activists, the EU cooperation agreement gives the Norwegian oil and gas industries backing to pursue investment and expand both production and exports.

Model supplier

Norway is a remarkable oil and gas producer, outperforming its peers on nearly all governance indicators, particularly energy-related. When compared to Russia, the two countries find themselves on opposite ends of the governance spectrum. Will Norway Turn The Energy Crisis Into Opportunity_1

Will Norway Turn The Energy Crisis Into Opportunity_1

Will Norway Turn The Energy Crisis Into Opportunity_2

Since oil and gas production began in the North Sea in 1971, Norway has been the most reliable external supplier for the world and Europe.

Although its proven oil and gas reserves globally rank only 17 and 20, respectively, Norway is the world's 11th and ninth producer of oil and gas – slightly ahead of Mexico for oil and almost on par with Saudi Arabia for gas. Thanks to its small local market and a heavy reliance on hydropower, which meets more than 92 percent of domestic electricity needs, Norway can export nearly all the oil and gas it produces.

As a result, the Nordic country is the world's seventh-largest oil exporter – after Saudi Arabia, Russia, Iraq, the United Arab Emirates, and the United States – and is the fourth largest gas exporter, after Russia, the U.S. and Qatar. Norwegian energy exports are not exposed to the same risk facing exporters such as Algeria and Egypt, namely the rapid growth in domestic consumption that has limited their export potential.

Norway has been exemplary in managing its oil and gas revenues. Its Government Pension Fund Global (GPFG) is the world's largest sovereign wealth fund – even though it is several decades younger than funds such as those of the UAE or Kuwait, and despite the fact that Norway is a smaller oil producer than those countries. The Norwegian economy is also less exposed to the vagaries of oil and gas price volatility than many other producers.

Norway is also a climate-conscious producer of hydrocarbons. In 1991, it became one of the first countries to introduce a carbon tax, at a rate now among the world's highest. Investment in renewable energy infrastructure is also one of the four key investment areas (alongside equities, bonds and real estate) for the GPFG.

Exports to Europe

Although not a member state, Norway has a close relationship with the EU through the European Economic Area (EEA) Agreement and several other bilateral deals. The EU and Norway also enjoy active cooperation on foreign and security policy issues – part of a partnership based on "shared fundamental values and underpinned by our common heritage and history, as well as strong cultural and geographical ties," as the EU puts it.

These factors help give Norway a clear advantage over other producers that the EU is turning to in order to reduce its dependence on Russian oil and gas. Given the geographic proximity, Europe is a strategic market for Norwegian oil and gas, accounting for around 71 percent of Norway's oil exports and nearly 100 percent of its gas exports in 2021.

The reach of Norwegian gas has been typically concentrated in Western Europe, transiting primarily via pipelines. Five gas pipelines connect the Nordic country to continental Europe, and two stretch to the United Kingdom, with a combined export capacity of more than 131 billion cubic meters (bcm) per year. Will Norway Turn The Energy Crisis Into Opportunity_3

Will Norway Turn The Energy Crisis Into Opportunity_3

Will Norway Turn The Energy Crisis Into Opportunity_4

However, with the Baltic Pipe now under construction, which will send gas to Poland via Denmark, Norway has stepped onto the traditional "territory" of Russia, whose gas exports to Europe are concentrated in Central and Southeast Europe. The project is expected to deliver 10 bcm of gas annually to Poland, meeting nearly half of the country's total consumption. The pipeline is set to be fully operational from October 2022, helping alleviate the blow caused by Russia cutting its gas supplies to Poland in April this year.

Norway also exports liquefied natural gas (LNG) but is a minor player in this market segment, accounting for less than 1 percent of global LNG trade, with 95 percent of its LNG sales heading to Europe due to the short distance.

In total, Norway accounts for 25 percent of the EU's gas imports. Although it trails Russia, which dominates the market with a share of 39 percent, Norway dwarfs other suppliers. Algeria, the third-largest gas supplier to Europe, accounts for only 8 percent. In this respect, Norway has been Russia's main competitor in Europe and will not hesitate to grow its presence in the market. The question is whether it has the capacity to expand its footprint much more.

Source: gisreportsonline

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Devin

USD: Time for a rebound?

The dollar's softish momentum extended into this week, as the narrative of a Fed pivot appears to be cementing among market participants, ultimately triggering another round of dollar long-squeeze. We still warn against the sustainability of such a dollar downtrend, as further scope for a dovish re-pricing by the Fed appears limited in our view and global economic/geopolitical uncertainty should still fuel some safe-haven bets on the dollar.

Yesterday's news that U.S. House Speaker Nancy Pelosi is planning to visit Taiwan this week – she's reportedly due to land tonight – has prompted a reaction by Chinese authorities who threatened unspecified military action. Should this mark a material deterioration in US-China relationships, expect some shockwaves to be felt across the FX market. The dollar, the yen (which may break below 130.00 already today) and CHF should be the main beneficiaries, while CNY and China-sensitive currencies (along with high-beta currencies in general) could come under pressure. Here, AUD and NZD appear mostly vulnerable in G10.

It is hard to predict how this new geopolitical thread will develop, and for now we simply highlight that this may be the trigger for an upside correction in the dollar today or in the coming days.

Back to the US, the first piece of labour data this week ahead of Friday's Nonfarm Payrolls will be today's JOLTS job openings for June, although the market impact should be contained. More focus should instead be on Fed speakers, as Charles Evans (dove), Loretta Mester (hawk) and James Bullard (arch-hawk) are all due to speak. The switch to a meeting-by-meeting approach by the FOMC should increase the relevance of policy comments by members, and given we'll hear from two hawks and one dove, the overall message today may support rate expectations and the dollar. Our base case for today is that DXY will be able to stage a rebound to the 105.50-106.00 area.

EUR: Not many domestic drivers

The eurozone's calendar lacks any market-moving events today, and geopolitics (Taiwan/China and Ukraine/Russia) should be the main driver for EUR/USD. Generally, any unwelcome development in China-U.S. relationships would put pressure on EUR/USD, both because the safe-haven demand for the dollar would rise, and because the eurozone's export machine is highly reliant on China's demand.

Even if this specific geopolitical risk related to Taiwan were to deflate, we still doubt that the EUR/USD rally will find much more steam from current levels, both because the room for further USD weakness appears to be shrinking and because EU-Russia relations and the region's economic outlook remain too uncertain to fuel a substantial return of bullish EUR bets. Incidentally, a further stabilisation in risk sentiment may encourage a search for carry, which could see the euro emerge even more as a preferred funding currency.

We suspect EUR/USD may fall short of breaking 1.0300 and looks more likely to re-converge to the 1.0200 gravity line in the coming days.

AUD: RBA joins the Fed's data dependency

This morning, the Reserve Bank of Australia (RBA) hiked by 50bp as widely expected by the market, but the combination of a switch to a Fed-style fully data-dependent approach, and the view that inflation is expected to peak and moderate later this year, were read as dovish signals by markets. All this explains the Aussie dollar's negative reaction this morning, with the pair falling around 1.0% after the announcement.

We also suspect that the AUD drop was exacerbated by the risk of resurging Sino-American tensions. This should indeed be the major driver for AUD/USD for the coming days, and given that AUD and NZD are normally the most exposed G10 currencies to China-related sentiment, the downside risks are quite material. We could see AUD/USD test 0.6900 should tensions escalate.

Like in the U.S. and the eurozone, expect RBA rate expectations and AUD to become significantly more sensitive to data releases from now on. Friday's Statement on monetary policy from the RBA may have some tangible market impact.

CEE: Floating currencies close the gap

The Polish zloty and Hungarian forint reached our yesterday targets quickly and, in our view, closed the gap triggered by last week's FOMC meeting. Conditions remain supportive for the CEE region. EUR/USD is relatively far from retesting parity, global sentiment remains rather neutral or slightly positive and we see rising market rates in the case of the forint. Thus, we could see additional gains in the region in the coming days as well, but the further potential is limited. The zloty could touch 4.70 EUR/PLN and the forint 397 EUR/HUF.

However, for the current levels, we see more sensitivity against possible geopolitical shocks that lurk around every corner these days. Moreover, the forint will see a couple of key data releases this week, retail sales on Wednesday and industrial production on Friday, which could lead to a quick correction in case of a negative surprise. Compared to previous days, we are thus rather neutral on regional currencies.