Headlines

* EUR/USD climbs to new 2024 peak above 1.10, GBP/USD above 1.30

* Eurozone inflation data unchanged for third straight month

* Canadian investors add to rate cut bets after softer CPI

* Gold retreats after making fresh record highs, stays above $2500

FX: USD fell to its lowest level since January as investors await a slew of Fed communications this week. Treasury yields look to be rolling over as they near the December cycle low on the 10-year at 3.78%. The early flash crash August bottom is 3.66%. Prices are oversold on the dollar index chart with the major December low at 100.61.

EUR pushed up into overbought conditions, settling on its high for the day at 1.1130. The December spike high was 1.1139. Final inflation data for July was in line with estimates. It’s all about the stronger dollar at the moment as opposed to euro strength. That said, Germany reported collective wage agreements rose 4.2%, which will keep inflation elevated.

GBP made fresh year-to-date highs at 1.3052. There was little UK news out with the soft USD undertone being the main driver of cable.

USD/JPY fell back to close to Monday’s low around 145.20. Haven currencies benefitted from the weaker greenback and narrowing yields differentials.

AUD saw session highs of 0.6749. The July top is at 0.6798. USD/CAD fell short of its 200-day SMA at 1.3597, with the loonie seeing weakness after Canadian CPI was in line with analysts’ expectations. BoC pricing moved modestly more dovish.

US Stocks: US markets saw red for the first time in eight days. The benchmark S&P 500 closed down 0.20% at 5,597. The tech-laden Nasdaq 100 finished lower by 0.24% at 19,719. The Dow Jones settled 0.15% off at 40,834. Energy was the major underperformer as crude sold off closer to major cycle lows. Soft China demand worries are currently trumping geopolitical concerns. Four sectors were in the green with consumer staples leading the gains. The Fed’s Bowman said she remains cautious about changing policy stance as she still sees upside risks to inflation.

Asian stock futures are mixed. Asian stocks traded mixed Tuesday with a lack of major macro drivers. The ASX 200 eked out small gains. The RBA minutes noted a rate cut in the near term was unlikely. The Nikkei 225 outperformed and moved back above 38,000. The Hang Seng and Shanghai Composite both dropped amid lingering economic worries.

Gold moved north to a new top at $2531, though it gave back some gains. Crucially, it settled above the key psychological level of $2500 and a long-term upward trendline.

Day ahead highlight – Revisions to US Payrolls Data, FOMC Minutes

Markets await the estimate of an upcoming annual benchmark revision to nonfarm payrolls by the BLS. This impacts the gains seen from April 2023 through March 2024. Goldman Sachs reckons 600,000 to 1 million fewer jobs were created.  Fed Governor Cook cited figures that point to a downward revision of at least 600,000. This prospect of a weaker labour market is why there is still a chance (32.5%) of a 50bps September Fed rate cut. Will it be a case of sell the rumour, buy the fact after aggressive USD move lower this week?

The FOMC minutes may provide some insight into how the Committee is thinking about how to calibrate policy rates appropriately. The July meeting marked a full year since the Fed has voted for any change to rates. But there was a strong signal of a rate cut at its meeting next month, subject to incoming data. Of course, since the late July meeting, data has recently been more positive after the disappointing NFP.

Chart of the Day – Nasdaq pauses after win streak

It’s relatively unsurprising the Nasdaq 100 has paused for breath after a dramatic few weeks of price action. AI profit taking, extreme positioning due to a record high concentration in a small number of stocks and momentum crowding saw the tech-dominated index sink down below its 200-day SMA at 17,898 at the start of the month.

But since then, buyers have stepped in with eight consecutive days in the green, which was last seen in early November 2023. The bullish move has taken out various Feb retracement levels with initial support now at the 61.8% mark of the July/August sell-off at 19,444. The 50-day SMA sits near here at 19.476. The next upside level is the minor Fib level (78.6%) at 19,989, before the record high at 20,682.