Market Trading News and Research from 27 July 2024

• Silver posts 0.31% gain, finishing the week with over 4% losses.
• Technical outlook indicates potential deeper correction if prices drop below $27.00.
• Resistance seen at $28.91 if silver rallies past $28.00, with next stop above $29.00.

Silver ended its two-day losing streak yet finished the week with losses of more than 4%, as investors booked profits in the precious metal space. The XAG/USD finished Friday’s session below the $28.00 figure, with gains of 0.31%.

XAG/USD Price Analysis: Technical outlook

The drop below $28.00 has exacerbated further losses on the XAG/USD. Although it remains neutral biased, a deeper correction looms as momentum remains bearish on the sellers' side, as depicted by the Relative Strength Index (RSI).

If XAG-USD slips below $27.00, the next support would be the May 2 low of $26.02, ahead of the 200-day moving average (DMA) at $25.88.

Conversely, the grey metal rallies past the $28.00 mark, which can pave the way for a leg-up.  The first resistance would be the July 25 high of $28.91. Once surpasses, the next stop is seen above the $29.00 figure.

XAG/USD Price Action – Daily Chart

• EUR/USD gained a little ground on Friday, but still down for the week.
• Market sentiment continues to get lead by Fed rate cut hopes.
• Key EU inflation data due next week ahead of next Fed rate call.

EUR/USD found a slim foothold on Friday, rising one-fifth of one percent at the bell but still ending the overall week in the red, adding into a two-week decline of around 1.12% top-to-bottom. The Fiber continues to churn as investors get ready for another rate call from the Federal Reserve (Fed) and a key update on European inflation figures as Euro traders try to weigh the odds of another European Central Bank (ECB) rate trim.

Forecasting the Coming Week: All eyes are on the Fed’s decision and the NFP

Coming up next week, key pan-EU Harmonized Index of Consumer Prices (HICP) inflation figures will drop on Wednesday, giving investors a key look into when they could expect a follow-up rate cut from the ECB after policymakers gave a 25 basis point trim in June. EU-wide headline HICP inflation for the year ended in July is expected to ease to 2.3% from the previous 2.5% YoY.

On the US side, the Fed will also give its latest rate call slated for Wednesday. The US central bank is broadly expected to keep rates on hold in July, but investors will be watching for any large shifts in rhetoric from policymakers. Next Friday will also see US Nonfarm Payrolls, a key data point for pricing out odds of a September rate call.

The underlying US PCE inflation remained unchanged at 2.6% on an annualized basis in June, defying the median market expectations of a slight decrease to 2.5%. Short-term PCE inflation also picked up in June, increasing to 0.2% from the anticipated 0.1%.

The University of Michigan's (UoM) Consumer Sentiment Index dropped to 66.4 in July, marking an eight-month low, which was less of a decline than the expected 66.0, but still lower than the previous 68.4. Additionally, UoM 5-year Consumer Inflation Expectations rose to 3.0% in July, up from the previous 2.9%.

Despite the various indications pointing towards a potential increase in inflationary pressures, the market concluded on Friday that the data did not warrant significant concern. As a result, market sentiment shifted back towards riskier assets, and hopes for a rate cut in September persisted. According to the CME's FedWatch Tool, the rate markets are still pricing in an unchanged stance from the Federal Open Market Committee (FOMC) on July 31, with a 100% likelihood of at least a 25-basis-point cut on September 18. There is also a segment of market participants showing optimism for a double cut in September, with a 12% probability of a 50 basis points reduction.

EUR/USD technical outlook

Despite finding a slim foothold and etching in a thin gain on Friday, the Fiber remains on the low side of a descending channel on daily candlesticks as bulls struggle to find momentum. Overall trend odds lean in favor of buyers as price action continues to hold above the 200-day Exponential Moving Average (EMA) at 1.0795, but upside chances are evaporating as EUR/USD slides back from recent peaks that failed to capture the 1.0950 level.

With the pair’s last major swing low priced in around the 1.0700, it’s bidders’ game to lose as short pressure continues to build up and try to drag EUR/USD back into the low side.

EUR/USD hourly chart

EUR/USD daily chart

• GBP/USD failed to make meaningful headway on Friday.
• The Pound Sterling has been floundering ahead of next BoE rate call.
• BoE set to deliver a quarter-point rate cut next Thursday.

GBP/USD floundered on Friday, climbing a scant 0.13% on the day as the Pound Sterling gets weighed down by broad-market expectations of a rate cut from the Bank of England (BoE) next week. The pair wraps up the trading week down one-half of one percent, adding a second straight week of downside momentum as the pair pulls back from last week’s 12-month high above 1.3000.

Forecasting the Coming Week: All eyes are on the Fed’s decision and the NFP

The BoE is set to deliver its first rate cut since March 2020 on Thursday. The UK’s main benchmark rate is expected to shift down 25 basis points to 5.0% from the current 5.25%. Before that, the Federal Reserve (Fed) is due to deliver its own July rate call, and investors are broadly expecting the US central bank to keep rates pinned for one more meeting before kicking off a rate-cutting cycle in September.

The core US PCE inflation remained steady at 2.6% year-over-year in June, going against the median market forecast of a decrease to 2.5%. Additionally, near-term PCE inflation accelerated month-over-month in June, increasing to 0.2% from the forecasted 0.1%.

The University of Michigan's Consumer Sentiment Index dropped to an eight-month low of 66.4 in July, less than the anticipated 66.0 but still lower than the previous reading of 68.4. The UoM 5-year Consumer Inflation Expectations also rose to 3.0% in July from the previous 2.9%.

Despite indications of potential inflationary pressures, the markets chose not to worry about the figures and instead shifted towards a risk-on sentiment, holding out hope for a rate cut in September. According to the CME's FedWatch Tool, rate markets are still pricing in at least a 25-basis-point rate cut by the Federal Open Market Committee (FOMC) on September 18, with 100% odds of a hold on July 31. Additionally, there is a 12% chance of a 50-bps double cut in September by a contingent that is particularly hopeful for a rate cut.

GBP/USD technical outlook

Cable has fallen back below the 1.2900 handle after backsliding from a 12-month peak near 1.3045 set last week. The pair is down around 1.5% peak-to-trough, but near-term momentum still leans in favor of buyers as price action holds on the high side of the 200-day Exponential Moving Average (EMA) at 1.2636.

Short pressure will be looking to force bids down below the last swing low near 1.2600, while renewed bidding could step in if GBP/USD declines far enough to tap a rising trendling drawn from last October’s bottom bids near 1.2037.

GBP/USD hourly chart

GBP/USD daily chart

• AUD/JPY shows a minor correction to the upside, landing at 100.70, yet records a losing week.
• The short-term bearish trend continues, despite the minor gains, as the pair has lost more than 7% since June.
• The 200-day SMA near 100.00 continues to be a key support level to prevent further losses.

In Friday's session, the AUD/JPY pair showed a minor recovery, rising by 0.15% to end at 100.79. Despite this, the overall control of sellers remains, as the pair closes on a 4.30% losing week, solidifying the bearish outlook. The bounce may be an indication of a possible breather for the bears and could suggest further corrective movements in the upcoming sessions.

The daily Relative Strength Index (RSI) saw an increase from its previous levels, reaching 23, hinting at a possible easing in the bearish momentum. However, it still firmly stays in the oversold territory providing a potential signal for the continuation of the correction. In sync, the Moving Average Convergence Divergence (MACD) continues to display flat red bars, indicating persistent selling activity.

AUD/JPY daily chart

Keeping a wider perspective, the short-term bearish trend of AUD/JPY remains intact. Having lost the 100-day SMA, the pair now encounters a major hurdle at the 200-day SMA. Despite the support here reinvigorating the bulls momentarily, it's crucial to note the pair remains in the oversold territory, based on its RSI.

Moving forward, the pair needs to maintain a footing at the 200-day SMA at 100.00, a vital support level. On the downside, levels to watch remain around the 99.50 and 99.30 marks. For a potential recovery, buyers should aim at surpassing the immediate resistance at 101.00 and target 102.70 points where the 100-day SMA converges to offset potential losses.

• USD/JPY bounces from 14-week low of 151.93, now at 153.73.
• Technical outlook shows potential for rally towards 156.00 if resistance is cleared.
• Momentum favors sellers, with RSI near oversold; key support at 153.00 for bearish continuation.

The USD/JPY dropped 0.14% on Friday as the pair recovered some ground after hitting a 14-week low of 151.93. However, it bounced off that level and cleared key resistance levels. At the time of writing, the major trades at 153.73.

USD/JPY Price Analysis: Technical outlook

The pair printed a ‘dragonfly doji’ on Thursday, though Friday’s price action failed to make a bullish candle, which could open the door for a rally at least toward the bottom of the Ichimoku Cloud (Kumo) at 156.00.

Momentum suggests that sellers are in charge, as the Relative Strength Index (RSI) is bearish and almost flatlined around oversold conditions.

 For a bearish resumption, bears need to push prices below 153.00. Once done, the next support would be the July 25 low of 151.94, followed by the 151.00 mark. Conversely, if USD/JPY buyers want to regain control, they must reclaim the 156.00 figure to lift prices above the Kumo.

USD/JPY Price Action – Daily Chart

• USD/CHF inches higher to 0.8830 after two sessions of losses.
• US PCE figures take a mixed turn, PCE dips to 2.5% YoY.
• Dovish bets on the Federal Reserve remain steady and present a challenge to the USD.

In Friday's trading session, the USD/CHF managed to improve, closing up by 0.15% at around 0.8830 against the backdrop of fluctuating Personal Consumption Expenditures (PCE) numbers released by the United States. After consistent declines, this upward move gives the bears some breathing room.

Inflation in the US showcased through the change in the Personal Consumption Expenditures (PCE) Price Index, marginally declined to 2.5% on a year-on-year perspective in June from 2.6% in May, as reported by the US Bureau of Economic Analysis. These figures met market expectations. On a monthly analysis, the PCE Price Index witnessed a 0.1% rise, following no change in May. The core measure came in higher than expected and rose by 2.6% YoY vs the 2.5% expected.

Analyzed from a broader perspective, the robust growth combined with mild disinflation in the US economy suggests the Fed may not be aggressive in cutting the funds rate, contrary to the current market sentiment. As of now, the Fed Funds futures price in nearly three cuts of more than 60bps by December 2024, with a total easing of 136bps projected over the next year. Therefore, there appears to be space for an upward revision of Fed funds rate anticipations, which might boost the USD and Treasury yields and hence prompt upward movements to the pair.

USD/CHF technical analysis

The technical outlook for USD/CHF remains bearish and the pair will close a 0.70% losing week, it's fourth in a row and tallying a 1.50% loss since late June. In addition, the pair continues trading below the 20, 100, and 200-day Simple Moving Average (SMA), and indicators persist in the negative trajectory.

The support levels remain untouched at 0.8750 and 0.8730. The suggested resistance levels remain at 0.8800, 0.8830, and 0.8850, hinting at a possible upswing.

USD/CHF daily chart

• Gold price bounces from daily lows of $2,356, now at $2,385.
• Fed's preferred inflation gauge shows mixed results, edging closer to the 2% target.
• US Treasury yields slump as bonds rally, signaling potential for multiple Fed rate cuts this year.

Gold price makes a U-turn after diving to two-week lows of $2,353 edges higher some 0.80% as market participants seem secure the Federal Reserve will lower interest rates at the September meeting, following a soft inflation report. The XAU/USD trades at $2,385 after bouncing off daily lows of $2,356.

The US Bureau of Economic Analysis (BEA) revealed that the Fed’s favorite inflation gauge, the Personal Consumption Expenditure Price Index (PCE), ticked a tenth higher monthly than May’s data. It dipped as foreseen in the twelve months to June, though it’s at the brisk of hitting the Fed’s 2% goal.

June’s Core PCE edged up a tenth every month, while year-over-year (YoY) was unchanged, above projections.

Following the data, US bonds rallied, and consequently, US Treasury yields slumped, with the 10-year note sliding four and a half basis points to 4.202%.

Sources cited by Reuters noted, “Today's mixed-to-weaker U.S. data suggests inflationary pressures and economic activity are waning, paving the way for the Fed to cut rates twice this year.”

Daily digest market movers: Gold price bounces off weekly lows

• The US PCE in June rose by 0.1% month-over-month (MoM) and 2.5% year-over-year (YoY); both figures were as expected, with the annual rate falling from 2.6%.
• Core PCE expanded by 0.2% MoM, exceeding estimates and May’s figure. On an annual basis, Core PCE rose by 2.6%, higher than forecasts and unchanged from the prior month’s reading.
• The University of Michigan Consumer Sentiment survey, in its final reading, jumped to 66.4, missing projections of 66.
• Inflation expectations for one year decreased from 3% to 2.9%, while for a five-year period, they remained unchanged at 3%.
• Data from the Chicago Board of Trade (CBOT) shows that traders are pricing in 55 basis points (bps) of easing towards the end of the year, as indicated by the December 2024 fed funds rate futures contract.

Technical analysis: Gold price climbs but remains below $2,400

Gold prices remain upward biased, snapping two days of losses and forming a ‘bullish harami’ two-candle chart. Momentum hints that buyers are still in charge, as depicted by the Relative Strength Index (RSI), which pierced above the 50-neutral line, opening the door for further upside.

XAU/USD buyers must reclaim $2,400 before pushing prices above the psychological $2,450 area. A breach of the latter will expose the all-time high (ATH) at around $2,483, followed by the $2,500 mark.

On the flip side, if XAU/USD continues to edge lower and drop below the 50-day moving average (DMA) at $2,359, further losses are on the cards. The next support would be the July 25 daily low of $2,353. Once those levels are removed, the 100-DMA would be up next at $2,324, ahead of diving to the $2,300 mark.

• Dow Jones climbs nearly 700 points on Friday in a recovery bid.
• September rate cut is still being priced in as a sure thing after US inflation print.
• With US PCE inflation in the books, markets will pivot to next Friday’s NFP.

The Dow Jones Industrial Average (DJIA) scorched 700 points higher on Friday after a close-enough-to-expectations print in US Personal Consumption Expenditures Price Index (PCE) inflation came in cool enough to allow investors to keep hopes for a September rate cut pinned to the ceiling. Markets are expecting the Federal Reserve (Fed) to hold rates steady for one more meeting in July before delivering the first quarter-point trim in a new rate-cutting cycle beginning in September.

Core US PCE inflation held steady at 2.6% YoY in June, flouting median market forecasts of a tick down to 2.5%. Near-term PCE inflation also accelerated MoM in June, rising to 0.2% from the forecast hold at 0.1%. 

The University of Michigan’s (UoM) Consumer Sentiment Index fell less than expected in July, falling to an eight-month low of 66.4 instead of the forecast 66.0, but still lower than the previous 68.4. UoM 5-year Consumer Inflation Expectations also ticked higher to 3.0% in July, rising from the previous 2.9%.

Despite all the warning signs of a possible upturn in inflation pressures, markets decided on Friday that the figures weren’t enough to be worried about, and resumed pivoting firmly into risk-on sentiment and keep holding out hope for a September rate cut. According to the CME’s FedWatch Tool, rate markets are still pricing in one more hold from the Federal Open Market Committee (FOMC) on July 31, with 100% odds of at least a 25-basis-point cut on September 18. A particularly rate-cut-hopeful contingent sees 12% odds of a double cut in September for 50 bps.

Dow Jones news

The Dow Jones firmly recovered from a mid-week plunge, climbing over 700 points and outperforming the rest of the US equity indexes. The index climbed 1.8% on Friday, with nearly all of the DJIA’s constituent securities finding the green as the trading week winds down.

3M Co. (MMM) is single-handedly dragging the Dow Jones deep into the high end on Friday after reporting a $400 million revenue beat over estimates and raising the low end of the company’s forward guidance band. MMM rose 21% in Friday trading to cross over $125.00 per share and trading into a 23-month high.

Dow Jones technical outlook

The Dow Jones soared back over the 40,000.00 mega price handle on Tuesday, shrugging off mid-week declines and clawing back significant ground from a near-term decline from record peaks at 41,371.38. Friday’s rally etched in a fresh peak for the week, reversing several days of cautious declines and setting the DJIA up for a technical recovery heading into next week.

The Dow Jones continues to test chart paper on the high end, deep in bull country and trading 7% above the 200-day Exponential Moving Average (EMA) at 37,837.12. If short pressures resumes and drags the major equity index back into the low side, buyers will be looking to step in from the 50-day EMA at 39,527.96.

Dow Jones five minute chart

Dow Jones daily chart

• AUD saw a marginal recovery on Friday but was one of the worst-performing G10 currencies.
• Falling commodity prices and Chinese economic woes weighed on the Aussie.
• The USD remains steady after mixed PCE figures.

In Friday's session, the Australian Dollar (AUD) slightly recovered against the USD, as AUD/USD rebounded to 0.65515 due to corrective activities after intensive sell-offs in the previous sessions. The continual weakness in China's economy paired with depreciating iron ore prices remain the significant contributor to the AUD's dynamic performance.

Despite the visible vulnerability in the Australian economy, the Reserve Bank of Australia (RBA) delays its rate cuts due to persistently high inflation. This stance could potentially limit further depreciation of the AUD. As per current forecasts, the RBA might be one of the last among the G10 central banks to implement rate cuts, a condition that could extend the AUD's gains.

Daily digest market movers: Aussie sees marginal recovery amidst continuing economic stress in China and Australia

• AUD/USD has remained firmly rooted in the 'risk-off' sentiment, dominated by concerns over the Chinese economy and the AUD's 'high risk' G10 status.
• At the start of this week, the People’s Bank of China (PBoC) decided to cut rates, sparking fears about the health of the second-largest economy in the world, Australia’s primary trading partner.
• Additionally, Industrial metals prices remained under pressure due to lingering fears of weak Chinese demand.
• The Reserve Bank of Australia (RBA) remains hawkish, and markets bet on a potential rate hike in Q4, which mirrors the nearly 50% odds on either a September or November rate hike.

AUD/USD Technical analysis: Bearish outlook endures with the pair resting below main SMAs

The AUD/USD movement below the 20,100 and 200-day Simple Moving Averages (SMAs) still signals a significant area of concern, suggesting that the downward trends might continue and the downward shifts seen in July weren’t just corrective.

Key support levels line up at 0.6540, 0.6530, and 0.6500, while resistance levels lie at 0.6600 (ie., the 200-day SMA), 0.6610, and 0.6630.

• Mexican Peso trims losses but still set for over 2% weekly decline.
• US PCE Price Index signals steady inflation, boosting Fed rate cut expectations.
• Judiciary reform talks in Mexico start August 1, stirring economic and political concerns.

The Mexican Peso trimmed some losses against the US Dollar on Friday, yet it’s set to end the week with over 2% losses. The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index, came as expected annually and rose a tenth in core monthly figures. The USD/MXN trades at 18.39, down 0.28%.

Wall Street posted solid gains, reflected in the exotic pair as the peso advanced modestly, taking advantage of the greenback weakness, which tumbled more than 0.12% according to the US dollar index (DXY). Inflation data in the US shows some signs of stickiness. Yet, most analysts commented that the reading “shows enough progress,” according to a source cited by Bloomberg, hinting that the Fed could begin easing policy in September.

The CME FedWatch Tool depicts the chances of a 25-basis point cut in the September meeting at 100%.

Aside from this, the University of Michigan's Consumer Sentiment was higher than expected but trailed June’s reading. Regarding inflation, expectations were unchanged for a five-year period and ticked lower in the twelve months from July.

The Mexican currency shrugged off traders' concerns about talks of the judiciary reform, which are set to begin on August 1, aimed to lay the draft that could be approved once the new Mexican Congress begins its three-year period a month later.

Daily digest market movers: Mexican Peso recovers ground amid weak US Dollar

• Mexico’s July mid-month inflation data could deter the Bank of Mexico (Banxico) from easing policy amid the risks of second-round effects, which, according to Goldman Sachs economists, could broaden to components of core inflation.
• According to Citi Research, analysts now estimate that annual inflation will end at 4.30%, up from the previous forecast of 4.20%, with core inflation expected to finish 2024 at 4.0%. Mexico's economic growth is projected to slow, with an expected growth rate of 1.9%, down from 2.0% in the last poll.
• The US PCE in June rose by 0.1% MoM and 2.5% YoY; both figures came as expected, with the latter falling from 2.6%.
• Core PCE expanded 0.2% MoM above estimates, and May’s figure, while on an annual basis, rose by 2.6% higher than forecasts, unchanged compared to the prior month’s reading.
• The University of Michigan Consumer Sentiment survey, on its final reading, jumped to 66.4, missed projections of 66.
• Inflation expectations for one year lowered from 3% to 2.9%, while for a five-year period they were unchanged at 3%.
• Data by the Chicago Board of Trade (CBOT) shows that traders are pricing in 55 basis points (bps) of easing towards the end of the year, as shown by the December 2024 fed funds rate futures contract.

Technical analysis: Mexican Peso counterattacks, but USD/MXN uptrend remains

The USD/MXN is upward biased, even though the Peso strengthened and pushed prices below the 18.50 mark. Momentum shows bulls are in charge, with the Relative Strength Index (RSI) standing above the 50 neutral line.

For a trend acceleration, buyers need to clear the 18.50 figure. Once done, the next resistance would be the year-to-date (YTD) high at 18.99. A breach of the latter will expose the March 20, 2023, peak at 19.23 before challenging 19.50.

Conversely, if USD/MXN retreated beneath 18.00, that would pave the way to challenge the 50-day Simple Moving Average (SMA) at 17.74, the first support level. The next support would be the latest cycle low of 17.58; the July 12 high turned support. A breach of the latter will expose the January 23 peak at 17.38.

• The Canadian Dollar eased across the board on Friday.
• Canada sees only mid-tier data looking forward.
• CAD set to end a second week down against the Greenback.

The Canadian Dollar (CAD) found little support on Friday, easing back against most of its major currency peers as global markets focus on US inflation figures. Investors continue to hinge overall sentiment on whether or not the Federal Reserve will (Fed) deliver a September rate trim, which at current cut is fully priced into markets.

The Bank of Canada (BoC) has delivered two quarter-point rate cuts in 2024, and CAD traders will essentially be on pause until more meaningful Canadian economic data crosses the calendar. It’s a long wait until Canadian inflation data in the back half of August, with the scope showing only mid-tier data until then.

Daily digest market movers: CAD eases as investors grapple with key US inflation data

• Canadian Dollar continues to swim in circles as CAD traders lose interest.
• US Personal Consumption Expenditures Price Index (PCE) inflation failed to meet expectations.
• Investors remain undeterred, still see 100% odds of a September rate cut from the Fed.
• Core US PCE inflation for the year ended June held at 2.6% YoY, flouting the median market forecasts of a tick down to 2.5%.
• The University of Michigan (UoM) Consumer Sentiment Index fell less than expected to 66.4 versus the forecast 66.0, but still down from the previous 68.2.
• Investors are shrugging off another uptick in UoM 5-year Consumer Inflation Expectations for July, which ticked up to 3.0% from the previous 2.9%.
• Coming up next week: Mid-tier Canadian Gross Domestic Product (GDP) on Tuesday and another go around the US Nonfarm Payrolls (NFP) wheel. Both figures are currently expected to ease lower.

Technical analysis: CAD struggles to find momentum on Friday

The Canadian Dollar (CAD) is overall softer heading through the final trading session of the week. Markets are relatively lopsided, with the CAD struggling to hold flat against the Greenback while declining against the Euro and the Pound Sterling. The CAD is down one-third of one percent against the Aussie but gained one-quarter of one percent against the Swiss Franc.

USD/CAD is set to close a second straight week in the green as the Canadian Dollar struggles to find a foothold against the US Dollar. The pair has closed green for seven consecutive trading days, and a breather in one-way price action on Friday still leaves intraday price action stuck at the top end of a supply zone prices in above 1.3750. 

The pair has extended a mid-month bullish bounce from the 200-day Exponential Moving Average (EMA) at 1.2613. Near-term technical levels are a risk of pivoting from resistance into support around 1.3750, and a bearish pullback will have to contend with the 50-day EMA rising into 1.3700.

USD/CAD daily chart

Executive Board member of the European Central Bank (ECB) Isabel Schnabel hit the wires late on Friday noting that a single cut from the ECB doesn't necessarily guarantee follow-up cuts, and that inflation in the EU, particularly services inflation, is proving a tricky beast to slay.

Key highlights

The first cut doesn't automatically lead to a series.

The pace and extent of ECB rate cuts will depend on the data.

Freight costs and protectionism could drive inflation.

Some data wasn't quite in line with the projections.

Services inflation is proving to be particularly sticky.

Services inflation is showing that the last mile in the inflation fight is especially difficult

• US Dollar DXY struggling to rebound amid mixed PCE figures and anticipations of Fed cuts.
• Possibility of a rate cut by the Fed in September remains, though somewhat toned down.
• All eyes are now on next week’s FOMC decision.

On Friday, the US Dollar, as depicted by the DXY, displayed some resilience despite encountering daily losses post the release of mixed Personal Consumption Expenditures (PCE) data. The market continues to wrestle with the prospect of a rate cut in September by the Federal Reserve (Fed), even though expectations have somewhat softened.

Signs of disinflation in the US economy have begun to surface, thereby boosting confidence in a potential rate cut come September. Yet, Federal Reserve officials remain cautious and data-dependant so next week’s meeting will be crucial for the short-term market’s dynamics.

Daily digest market movers: US Dollar on shaky ground with mixed PCE data

• The annual core PCE, excluding volatile food and energy items, revealed a steady growth of 2.6%, contradicting economists' prediction of deceleration at 2.5%.
• The monthly core PCE inflation, the Fed's favored inflation tool, rose beyond the former and expected data of 0.1% to reach 0.2%.
• Though this higher growth pace is considered consistent, it falls short of dampening expectations that the Federal Reserve will roll out reduced interest rates by the September meeting, projecting two cuts this year.
• Next week’s Federal Open Market Committee (FOMC) will provide markets with additional guidance on the bank’s stance.

DXY Technical outlook: Bearish tendencies persist despite, index side-ways trade

Even though the DXY Index is battling to hold onto the 200-day Simple Moving Average (SMA), bearish signs continue to persist. The direction of the index thus now largely depends on whether the DXY can maintain the mentioned SMA but what likely is that the index might side-ways trade in the next sessions as indicators including the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain in negative zone but flattened.

Supports are noted at 104.15 and 104.00 levels, while resistances are observed at 104.30 and 104.50 levels.

Gold has fallen in recent days, but after a price increase of almost $200 between the end of June and mid-July, Commerzbank’s Commodity Analyst Barbara Lambrecht notes.

Gold price may lose an important support

“The price of Gold has also fallen in recent days despite rising risk aversion, which normally boosts Gold due to its role as a ‘safe haven’. However, this correction follows a price increase of almost $200 between the end of June and mid-July, during which the Gold price climbed to a new record high of $2,484 per troy ounce.”

“The most recent price decline is therefore more likely to be the correction of an exaggeration. In principle, the price is likely to defend its current level if Federal Reserve Chairman Powell hints at interest rate cuts in the near future following next week's Fed meeting. However, the new report from the World Gold Council (WGC) is also likely to show that central bank purchases have decreased, meaning that the Gold price has lost an important support.”

“At least the buying interest of China's central bank seems to have suffered recently from the high prices. In contrast, the interest of ETF investors has probably increased again. Although the WGC is still showing slight outflows for the second quarter, sentiment turned around in the course of the quarter: European ETFs recorded inflows again in June.”

Oil prices remained at just over $80, a barrel of Brent crude was temporarily as cheap as it was last at the beginning of June, Commerzbank’s Commodity Analyst Barbara Lambrecht notes.

Crude oil trades above $80

“Oil prices remained under pressure this week: at just over $80, a barrel of Brent crude was temporarily as cheap as it was last at the beginning of June. We pointed out on Tuesday that demand concerns in particular were weighing on prices. China's demand has been especially disappointing of late. At least US consumers still seem to be a reliable support.”

“The US inventory report has thus prevented prices from falling below the $80 mark on a sustained basis. On the one hand, crude oil inventories have fallen more sharply than usual compared to the previous week and are now 5% lower than usual at this time of year. On the other hand, US gasoline inventories have also fallen significantly week-on-week by 5.5 million barrels.”

“This was mainly due to a significant recovery in US gasoline demand. It recovered from the previous week's disappointing level and reached a new high for the year of just under 9.5 million barrels per day. Last but not least, it was thanks to the surprisingly good US growth figures reported yesterday that the price of crude oil is trading above $82 again at the end of the week.”

• GBP/USD stabilizes at 1.2858 after sellers failed to clear the 1.2900 level.
• Momentum favors buyers, but long positions in Sterling risk vulnerability if BoE cuts rates.
• Key support at 1.2800, with further downside under 50-DMA at 1.2775 and potential gains above 1.2900.

The Pound Sterling clings to minuscule gains on Friday after the latest inflation report in the United States (US) reinforced investors' bets that the US Federal Reserve could begin slashing rates at the September monetary policy meeting. At the time of writing, the GBP/USD trades at 1.2858, virtually unchanged.

GBP/USD Price Analysis: Technical outlook

The GBP/USD consolidated at around 1.2850 after sellers strengthened and pushed the exchange rate past the 1.2900 figure, which was unsuccessfully cleared during the first three days of the week. Despite this, momentum is still in buyers' favor, as depicted by the Relative Strength Index (RSI), though extremely long positions on Sterling could leave traders vulnerable if the Bank of England (BoE) cuts rates next week.

On the downside, the GBP/USD will face stir support at 1.2800. Once cleared, further downside lies under the 50-day moving average (DMA) at 1.2775, followed by the 1.2700 mark. Below this, the 100-DMA hovers at 1.2681, and the 200-DMA at 1.2626.

Conversely, if buyers lift the pair above 1.2900, further gains lie overhead. The July 24 peak at 1.2937 could be tested, followed by the psychological 1.2950 and 1.3000 levels.

GBP/USD Price Action – Daily Chart

The price of a barrel of Brent crude temporarily traded at just over $80, close to the perceived ‘pain threshold’ of the OPEC+ production cartel: At this price level, the cartel had decided in the past to cut production in order to stabilise the market, Commerzbank’s commodity analyst Barbara Lambrecht notes.

Oil supply remains tight

“On the first of August, the Joint Ministerial Monitoring Committee of OPEC+ will meet which is to review every two months whether the cartel's current production strategy is still appropriate. This would provide an opportunity to prepare for adjustments. However, Reuters reported last week that informed sources believe this is unlikely.”

“The fact that the market is currently undersupplied also speaks against a change in production policy. US crude oil inventories have fallen for the fourth week in a row. In addition, the survey-based OPEC production estimates due in the coming week should confirm that supply remains tight, at least from this side.”

“However, if prices continue to fall because demand concerns become a sustained negative factor, the major producers Saudi Arabia and Russia could well agree in the short term and cancel the gradual withdrawal of voluntary cuts planned from October onwards.”

The Pound Sterling (GBP) has nudged a little higher in quiet Asian and European trade after closing on the lows yesterday, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Next resistance is at 1.2925

“With little data to cue off of and calmer market conditions prevailing in stocks, GBP has benefited from some light short covering demand into the weekend.”

“Sterling is consolidating in a tight trading range. Moderate gains on the session so far are corrective but may only mark a pause in the GBP’s slide before losses resume.”

“Cable’s closing break of retracement support at 1.2879 yesterday suggests more weakness—potentially to the 1.2775/1.2825 range—is the most likely course for the pound at the moment. Resistance is 1.2925.”

The Euro (EUR) is flat on the day and down only modestly on the week as it holds a neutral range trade around 1.0850, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Short term range trading between 1.07/1.09

“There are no major data reports to note from the Eurozone and no comments from central bankers. Markets have largely shrugged at news of a significant and highly coordinated attack on the French rail network as the Paris Olympics get underway. More, broad range trading looks likely in the short run between 1.07/1.09.”

“Range trading around 1.0850 has evolved largely as expected over the past 24 hours. The EUR looks well-supported on dips and has a quietly bid look to short-term price action, with the chart suggesting steady accumulation of EUR on minor dips in the past few days. Above 1.0875 should be positive. Support is 1.0825.”

The Canadian Dollar (CAD) is slightly firmer on the session and while it remains down (0.6%) on the week versus the US Dollar (USD), it remains a clearly better performer overall than its close commodity peers (AUD and NZD are both down nearly 2%), Scotiabank’s Chief FX Strategist Shaun Osborne notes.

USD moves towards the 1.3845 hurdle

“The recent range trade in the CAD is just about holding, with this week’s gains barely exceeding the April peak of 1.3846. Although the top of the range held, a swift return towards the lower end of recent ranges is unlikely unless factors (spreads, stocks) move more favourably for the CAD. The CAD looks set to retain a soft tone and remain close to its recent lows against the USD for a little longer.”

“USD drift from the intraday high yesterday and a modest gain for the CAD so far today suggests the immediate risk of an extension higher in the USD has eased. The CAD has its work cut out to show any real signs of an improvement in its technical tone but there may be the makings of a modest recovery in the CAD at least in the short run.”

“Yesterday’s peak was marked by a bearish outside range signal on the 6-hour chart and remember that the USD rally has been looking deeply overextended on the intraday and daily RSI oscillators. USDCAD short-term support sits at 1.3795; below here should see some further improvement in the CAD. Resistance is 1.3845/50.”

• The US Dollar drops as steady US core PCE inflation growth appears insufficient to impact firm Fed rate-cut bets.
• The Fed is widely anticipated to leave interest rates unchanged next week.
• Fed officials’ confidence over inflation returning to 2% path has improved.

The US Dollar Index (DXY) falls slightly to near 104.20 in Friday’s New York session after the United States (US) Bureau of Economic Analysis (BEA) published the Personal Consumption Expenditure Price Index (PCE) report for June. 10-year US Treasury yields tumble to 4.20%.

The report showed that annual core PCE, which excludes volatile food and energy items, grew steadily by 2.6%, while economists anticipated a deceleration to 2.5%. The month-on-month core PCE inflation rose at a higher pace of 0.2% from expectations and the former release of 0.1%. Though the core PCE data, which is a Federal Reserve’s (Fed) preferred inflation gauge, turned out sticky, it is insufficient to dampen market expectations that the central bank will start reducing interest rates from the September meeting and will cut them twice this year.

Meanwhile, annual PCE inflation decelerated expectedly to 2.5% from the former release of 2.6%.

Going forward, the next trigger for the US Dollar will be the Fed’s monetary policy meeting, which is scheduled for Wednesday. The Fed is widely anticipated to keep interest rates at their current levels. Investors will look cues for whether the Fed has confidence in current rate-cut speculation.

Fed policymakers have acknowledged that price pressures have returned to their path towards bank’s target of 2%. Their confidence in resumption in the disinflation process scaled after back-to-back decline in the Consumer Price Index (CPI) reports for last two months. However, officials hesitate to endorse rate cuts as the battle against stubborn inflation is far from over.

Yesterday morning, the CNY was able to take advantage of the JPY's strength against the US Dollar and also appreciated significantly against the greenback. At one point, the intraday appreciation reached 0.75%, which would have been the largest daily movement this year. The tide turned after the already much-discussed US GDP figures, but unlike the JPY, the CNY did not have to give up all of its gains, Commerzbank FX strategist Volkmar Baur notes.

CNY is likely to come under pressure again

“Of course, there is always the question of how much of these moves are market-driven or intervention-driven. After all, there were rumors yesterday that Chinese (state) banks were selling US dollars and tightening liquidity in the CNY market to support the currency.”

“One reason for this could be that yesterday the Chinese central bank (PBoC) surprisingly lowered its interest rate on 1-year tenders from 2.5% to 2.3%. Although this can only be seen as a logical move after the 1-week reverse repo rate was cut by 10 basis points at the beginning of the week, it is striking that yesterday's move was larger.”

“PBoC is concerned about the exchange rate. That is why I did not really expect a rate cut in China before the Fed acted. So, it makes sense that the central bank would accompany the rate cut with an intervention in the FX market to avoid associating monetary easing with CNY weakness. In the long run, however, this means that the CNY is likely to come under pressure again.”

Those who still believed that the JPY's rally was due to idiosyncratic factors that only affect the Japanese currency were disabused of that notion by 2:30 p.m. (MEST). Better-than-expected US GDP figures put an end to the flight to safety that had been taking place and reversed the trend. The Japanese Yen (JPY) gave up its day's gains against the US Dollar (USD), while emerging market currencies such as the South African Rand were able to recoup their losses, Commerzbank FX strategist Volkmar Baur notes.

The market now expects the BoJ to raise rates

“The JPY has gained about 5% against the US dollar since July 11, more than the Swiss franc and all other G10 currencies. Much of this is likely due to the Bank of Japan (BoJ), or rather the expectations surrounding the BoJ. It will hold a monetary policy meeting next Wednesday. And in recent weeks, expectations for another rate hike have continued to rise. The market now expects the BoJ to raise rates by another 10 basis points to 0.1-0.2%.”

“That hope may be dashed next week, as this morning's data shows. Inflation in the Tokyo area came in below economists' expectations again in July, with the core rate, as defined by the West, coming in at just 1.1%, the lowest level in about two years. Domestic inflationary pressures have yet to really take hold. The Bank of Japan should take this into account when it meets next week.”

“That is why I continue to think that they will not raise rates next week. At its last meeting, it announced that it would present a plan in July on how it will gradually reduce its gross bond purchases over the coming months. In order to better assess the impact of this move, it makes sense not to raise interest rates at the same time. In that case, the USD/JPY will be more dependent on what the Fed does on Wednesday night.”

• AUD/USD continues to consolidate above 0.6520 after mixed cues from the US PCE inflation report for June.
• Annual headline PCE decelerated expectedly, the core measure grew steadily.
• The next move in the Australian Dollar will be influenced by the Aussie Q2 CPI data.

The AUD/USD pair remains steady above the immediate support of 0.6520 in Friday’s New York session after the release of the mixed United States (US) Personal Consumption Expenditure Inflation (PCE) report for June.

The Bureau of Economic Analysis (BEA) reported that annual headline PCE inflation decelerated expectedly to 2.5% from May’s reading of 2.6%. In the same period, the core PCE inflation, which is the Federal Reserve’s (Fed) preferred inflation gauge, grew steadily by 2.6% against expectations of 2.5%.

The month-on-month headline figure rose expectedly by 0.1% while the core inflation grew at a faster pace of 0.2%. Stickier core inflation figures could weigh on market expectations that the Fed will start reducing interest rates from the September meeting.

For more cues, investors will look for Fed’s monetary policy announcement on Wednesday in which the central bank is widely anticipated to leave interest rates unchanged in the range of 5.25%-5.50%.

Meanwhile, the Australian Dollar (AUD) has been facing an intense sell-off for more than a week as deepening worries over the global growth outlook have dampened iron ore prices. Australia caters to more than half of global iron-ore demand, and a sharp decline in its prices has raised concerns over foreign flows to the nation.

Global growth woes came after China posted weaker-than-expected Gross Domestic Product (GDP) in the second quarter of this year. Also, China’s Third Plenum lacked blockbuster liquidity measures to spurt consumption.

Going forward, the next trigger for the Australian Dollar will be the Q2 Consumer Price Index (CPI) data, which will provide cues as to whether the Reserve Bank of Australia (RBA) will hike interest rates further this year. In the first quarter, price pressures rose at a faster pace of 1.0% from 0.6% growth recorded in the last quarter of 2023.

• EUR/JPY finds a floor after its steep sell-off. 
• The pair forms a Dragonfly Doji and recovers – a bullish close on Friday would add confidence to bulls. 
• Once the pull back is complete, however, the medium-term downtrend is likely to resume. 

EUR/JPY is at risk of recovering after the steep sell-off of the last two weeks has stalled. The EUR/JPY pair reached a low of 164.83 on Thursday – well below its July 11 peak of 175.43. Since then it has been edging higher as the pair recovers from oversold extremes. 

EUR/JPY Daily Chart 

The pair formed a bullish Dragonfly Doji reversal candlestick on Thursday (blue shaded rectangle on chart above) and if it is followed up by a bullish close on Friday it will suggest a correction higher is underway. 

Additionally, the Relative Strength Index (RSI) entered oversold territory (below 30) on Thursday and if it manages to move back above the oversold zone on Friday it will be a signal that price will probably go higher. 

If the pair does recover, however, it is likely to be corrective and eventually run out of steam. This is because both the short and medium-term trends are now probably bearish, which given the old saying “the trend is your friend” suggests the bias is to the downside.  

Once the recovery runs out of energy, price will probably resume its downtrend. The next support level to look out for is the 200-day Simple Moving Average (SMA) at 163.97. A close below that might see EUR/JPY fall to major trendline support at around 157.50. 

The longer-term trend remains intact, however, and there is a chance the pair could make a full recovery back up to the July 11 highs, and possibly go even higher. Whether this happens or not depends on how price action unfolds and how vigorous the recovery is. 

• USD/CAD has reached the top of a range it has been trading in for over three months. 
• It could either breakout higher or pull back down and start descending back down to the bottom of the range.

USD/CAD has risen to the top of the range it has been trading in since the middle of April. It is at a critical point – a decisive breakout higher would signal a new uptrend; a reversal, however, might signal the continuation of the sideways trend it has been in for the last over three months. Given the “trend is your friend” the odds marginally favor a continuation of the sideways mode. 

USD/CAD Daily Chart 

USD/CAD formed a bearish Shooting Star reversal candlestick on Thursday. If the following day – Friday – ends as a bearish red candlestick it will add confirmation to the pattern and suggest a deeper pull back will probably unfold. 

The Relative Strength Index (RSI) entered overbought territory on Thursday during the formation of the Shooting Star. If the RSI ends Friday back below the overbought zone (under 70) it will add evidence of a short-term reversal of the trend. 

A deeper pull back would probably fall to the top of the range-within-the-range at 1.3790 initially. A deeper correction might start falling back down towards the range floor at 1.3592 as the sideways trend extends. 

Alternatively, a break and close on a daily basis above the high of the Shooting Star candlestick at 1.3849 would suggest a breakout of the entire range and extension higher. 

Such a move would be expected to reach an initial target at 1.3910, the 61.8% Fibonacci extension of the range-within-the-range higher. The next target would be at 1.4000, the extension from the broader range using the April 16 high as the top. 

Thursday was a bit puzzling. Due to concerns about the current state of the US consumer and general uncertainty about the state of the global manufacturing sector, uncertainty had spread to the currency markets in recent days, Commerzbank FX strategist Volkmar Baur notes.

US GDP figure turns the market upside-down

“The JPY and CHF were in demand, while the EM currencies were less so. And then everything took a turn at 2:30 p.m. (MEST) when the US GDP figures were released. It is generally assumed that markets look ahead and price in expectations, and then a backward looking number causes a reversal. Admittedly, consumer spending came in slightly above expectations at 2.3%.”

“However, it should also be noted that the positive surprise in overall GDP growth (2.8% vs. 2.0% expected) was nearly entirely due to inventory accumulation, which added 0.8 percentage points to growth. Anyway, yesterday was enough to change the mood of the market. However, in my opinion, caution is certainly required.”

“Yesterday's figures did not really put an end to concerns about the US consumer and the manufacturing sector. And next week, we have a number of data points on the calendar (US payrolls, global manufacturing PMIs, just to name the most important) that could rekindle these concerns.”

For some time, we have held a 200bp rate hike to then 18% as base-case for today’s Russian central bank (CBR) meeting. The consensus forecast has periodically swung towards more extreme outcomes in past weeks, but the median has converged back towards 200bp more recently, Commerzbank FX strategist notes Tatha Ghose.

CBR hikes interest rate up to 18%

“We can trace interest rate expectations moving higher until a month ago: the Bloomberg consensus forecast for CBR’s average key rate during 2024 stands at 16.15% (was 14.10% a month ago and 12.70% until mid-May) and that for 2025 stands at 11.85% (up from 9.80% a month ago and from 8.55% in mid-May).”

“Annual inflation decelerated to 9.2%y/y by mid-June, and PPI inflation also fell to 12%y/y. Weekly prices show stability. Meanwhile, the real economy has begun to cool down, with industrial output growth decelerating to slower than 2%, retail sales and employment growth moderating.”

“This would have made today’s meeting especially exciting under regular circumstances – where the bank rate would meaningfully affect the USD/RUB or EUR/RUB exchange rates – but in present day Russia, it cannot. Those ‘technical fixes’ are determined more by day-to-day trade flows in categories which can still be transacted in USD or EUR. Capital cannot flow in or flow out in response to interest rate differentials. In this sense, the outcome is FX-neutral and probably uninteresting.”

USD/CNY experienced a sharp down after falling from 7.2760. It briefly dipped below the 200-DMA (7.2200). It’s trading upwards now, but it would be interesting to see if the pair can re-establish above the trend line at 7.2610, Societe Generale FX strategists note.

An upward break above 7.2610 is possible

“USD/CNY has experienced a sharp down move after facing stiff resistance near 7.2760 earlier this month. It breached an ascending trend line drawn since January and briefly dipped below the 200-DMA (7.2200).”

“An initial bounce is taking shape, but it would be interesting to see if the pair can re-establish above the trend line at 7.2610. This crossover can lead to resumption in up move. The MA near 7.2200 is short-term support.”

EUR/GBP can persist towards the 50-DMA at 0.8465 and the graphical levels of 0.8480/0.8500, Societe Generale FX strategists note.

Defence of recent pivot low at 0.8400 is crucial

EUR/GBP has rebounded after approaching the lower limit of a multi-month channel near 0.8380/0.8370. It has formed a bullish engulfing candlestick yesterday encompassing price action of previous seven sessions denoting exhaustion in down move.

The bounce could persist towards the 50-DMA at 0.8465 and the graphical levels of 0.8480/0.8500 representing lows of February; this could be an important hurdle. Defence of recent pivot low at 0.8400 is crucial for continuation in up move.

• NZD/USD finds a cushion near 0.5880, while the overall outlook remains bearish.
• Investors await the US core PCE inflation for June for fresh guidance on Fed interest rates.
• The New Zealand Dollar weakens due to multiple headwinds.

The NZD/USD pair finds temporary support near an almost three-month low of 0.5880 in Friday’s European session after a six-day losing spell. The Kiwi asset gains an ad-hoc ground as the US Dollar (USD) edges lower ahead of the United States (US) core Personal Consumption Expenditure price index (PCE) data for June, which will be published at 12:30 GMT.

The underlying inflation will influence market expectations for Federal Reserve (Fed) rate cuts this year. According to the CME FedWatch tool, traders remain confident that the central bank will start reducing interest rates from the September meeting.

Economists expect that the annual core PCE Price Index grew at a slower pace of 2.5% from May’s reading of 2.6%, with monthly inflation rising steadily by 0.1%.

Meanwhile, the New Zealand Dollar (NZD) has faced significant selling pressure this week due to China’s dismal economic prospects and rising expectations of rate cuts by the Reserve Bank of New Zealand (RBNZ) this year.

NZD/USD weakened after a breakdown of the Wyckoff Distribution formation on a daily timeframe. The Wyckoff Distribution exhibits the transfer of inventory from institutional investors to retail participants. The asset may find support near the trendline around 0.5900, plotted from 26 October 2023 low at 0.5770.

A bear cross, represented by 20- and 50-day Exponential Moving Averages (EMAs) near 0.6090 suggests that the overall trend is bearish.

The 14-day Relative Strength Index (RSI) shifts into the bearish range of 20.00-40.00, suggesting that a bearish momentum is intact.

More downside would appear if the asset breaks below April 19 low around 0.5850. This would drag the asset towards the round-level support of 0.5800, followed by 26 October 2023 low at 0.5770.

In an alternate scenario, a recovery move above the psychological resistance of 0.6000 would shift the trend towards the upside. This would push the asset higher to May 3 high at 0.6046 and July 17 high near 0.6100.

NZD/USD daily chart

• The Mexican Peso is strengthening as the effects of the unwinding carry trade diminish. 
• Gains may be capped by continued bets that Banxico will cut interest rates in August. 
• The Peso gains a backlift as Trump loses his lead in opinion polls. 

The Mexican Peso (MXN) recovers in its most traded pairs on Friday after an over-week-long sell-off. The Peso’s decline came on the back of a combination of an unwinding of the Peso-supportive “carry trade”, weaker Mexican macroeconomic data, and fears of the impact on trade with the US in the event of a former President Donald Trump’s victory at the US presidential elections in November.

At the time of writing, one US Dollar (USD) buys 18.35 Mexican Pesos, EUR/MXN trades at 19.92, and GBP/MXN at 23.61.

Mexican Peso recovers as carry trade effect dissipates

The Mexican Peso recovers on Friday as the factor that was pushing it lower – the unwinding of the carry trade – loses momentum. Carry trade involves investors borrowing in a currency with a low interest rate, such as the Japanese Yen (JPY), and investing in a currency with a higher interest rate, such as the Peso. However, with interest rates in Japan expected to rise after the release of higher Tokyo inflation data – and the Yen appreciating – the carry trade lost its luster. This led to the sudden unwinding of large positions built up in the Peso.  

Thursday saw the Japanese Yen reverse its course, however, and begin weakening again, making the carry trade attractive once more. This capped the decline witnessed in the Mexican Peso which has steadied and recouped losses as a result. 

Peso’s gains to be limited as Banxico expected to cut interest rates

However, the Mexican Peso’s gains are likely to be capped as investors continue expecting the Banco de México (Banxico) to lower interest rates, most probably in August. This will likely pressure the MXN since lower interest rates reduce foreign capital inflows. 

Mexican 1st Half Month inflation data for July was mixed, but investors focused on the core figure which came out more or less in line with expectations and showed inflation moderating. The higher-than-expected headline inflation result was put down to temporary factors. 

The divergence between core and headline inflation is something Banxico policymakers have been reiterating in their meetings, so it would have come as no surprise to investors. Despite the unexpected rise in headline inflation, it is unlikely to dissuade Banxico from cutting interest rates to stimulate moribund growth. 

Peso supported by Kamala Harris’ performance in polls 

Another factor weakening the Mexican Peso was the fear that former US President Donald Trump would win the US presidential election. Trump’s “America First” agenda and choice of known anti-China advocate J.D. Vance as his running mate were viewed as likely to impose restrictions on trade with Mexico that could hurt the Peso. 

The recent success of Democrat nominee and Vice-President Kamala Harris in opinion polls, however, suggests it will be a close race, and Trump is by no means assured a victory. The latest poll by the Saint Anselm College Survey Center, on Wednesday, for example, places Harris ahead with 50% of the vote and Trump trailing with 44%. This has taken some pressure off the Peso.

Technical Analysis: USD/MXN retests resistance at June 28 high

USD/MXN has retested the June 28 high at 18.60 and pulled back. It has formed a bearish Shooting Star Japanese candlestick pattern. If Friday ends as a bearish red candlestick it will add confirmatory evidence to the Shooting Star and suggest more downside in the very near-term.

USD/MXN Daily Chart 

Despite the bearish candlestick pattern, the trend appears to be bullish in the short term for USD/MXN, and given the “trend is your friend,” this still technically still favors bullish bets overall. 

Thus, there is a risk the pair could simply recover and continue higher. A decisive break above the June 28 swing high at 18.60 will reconfirm the uptrending bias and suggest a continuation up to the next target at 19.00 (June 12 high). 

A decisive break would be one accompanied by a long green candlestick that breaks cleanly above the resistance level and closes near its high or three green candlesticks that break above the level in a row. 

Meanwhile, the direction of the medium and long-term trends remain in doubt. 

BoE will judge the stickiness in services inflation as down primarily to one-off factors and may look at more ‘core’ measures that instead point to a less worrying picture. There is room for a GBP correction, ING’s FX strategist Francesco Pesole notes.

There is room for a GBP correction

“Earlier this week, we stressed how GBP/USD looked expensive at 1.29 and EUR/GBP looked cheap at 0.84. We are, therefore, welcoming the downside and upside moves (respectively) of the past two days as a re-alignment with short-term rate differentials.”

“We think both those moves can have long legs as we expect a broad-based GBP weakening next week when the Bank of England will – in our view – cut rates.”

“We think the BoE will judge the stickiness in services inflation as down primarily to one-off factors and may look at more ‘core’ measures that instead point to a less worrying picture. Market pricing (-13bp) suggests there is room for a GBP correction.”

In just three months, activity surveys in Germany went from showing slower momentum to effectively arguing against any optimism on the economic outlook. This was the case for the July IFO, published yesterday, which fell markedly. The theme of Germany being the sick man of Europe is understandably re-gaining traction, but what does it mean for the Euro, ING’s FX strategist Francesco Pesole notes.

1.0850 works as a near-term anchor for EUR/USD

“In the medium run, it probably suggests the steadily declining fair value of EUR/USD will remain depressed, hindering the kind of multi-quarter appreciation that would be consistent with other valuation metrics, like PPP. Markets made their call on two ECB cuts some time ago, and a worsening growth picture is not enough to drive bets on three cuts as long as wages and inflation prove sticky.

“Today, we’ll be looking at the ECB inflation expectations surveys. With even hawks like Joachim Nagel implicitly endorsing market pricing by saying the ECB should be able to cut if data stays on course, major swings in ECB pricing appear unlikely.”

“EUR/USD remains stable amid wide moves in G10 FX. We suspect this is down to the euro’s liquidity attractiveness, and we doubt we’ll see a break from the ranges today, with 1.0850 still working as a near-term anchor.”

USD/JPY caught a breather on Thursday, now stabilising slightly above 154.0, ING’s FX strategist Francesco Pesole notes.

BoJ is set to hike rates by 15bp next week

“The size of JPY short positions and the risk-off mood in the market mean there is probably more room for a rebound in the Japanese Yen (JPY) before this adjustment can be complete. In our view, markets are also underestimating the chances of a 15bp Bank of Japan (BoJ) hike next week.” 

“Tokyo consumer price data showed that headline inflation edged down to 2.2% YoY in July (vs 2.3% in June, market consensus), but the BoJ’s preferred measure, core inflation excluding fresh food, rose to 2.2% in July (vs 2.1% in June, 2.2% market consensus).”

“We believe that inflationary pressure in services continues to build. It is a close call, but we maintain our view that the BoJ will hike rates by 15bp and reduce its bond-buying programme at the same time.” 

The US GDP report for the second quarter came in stronger than expected yesterday, ING’s FX strategist Francesco Pesole notes.

DXY to trade on the soft side and re-test 104.0

“Growth was a solid 2.8% and core PCE slowed from 3.7% to 2.9%, above the 2.7% consensus. That implies that the June PCE deflator will be 0.28% MoM today, which seems unlikely based off the inputs from CPI and PPI. So we suspect it will also involve upward revisions to the previous couple of months. The consensus is for 0.2% MoM.”

“A stronger GDP/PCE would have sent shockwaves across the FX markets and boosted the dollar in other market conditions. But yesterday's reaction consisted only of a short-lived and modest dollar rally. We think there are two reasons for that. First, US macro is not currently the main FX driver, or at least there is an unusual abundance of drivers.”

“Second, markets have made a conviction call on Fed easing, and yesterday’s figures did not cast serious doubts on the disinflationary path. The Dollar Index (DXY) is benefitting from the low volatility of the Euro and remains an inaccurate benchmark of current dollar conditions. Today, a core PCE at 0.2% MoM could anyway help it trade again on the soft side and re-test 104.0.”

• Silver price exhibits weakness with investors focusing on the US core PCE inflation for June.
• The Fed is expected to start reducing interest rates from the September meeting.
• China’s dismal economic outlook has dampened Silver’s demand as an industrial metal.

Silver price (XAG/USD) falls back after a short-lived pullback move to near $28.00 in Friday’s European session. The white metal remains in the bearish trajectory amid uncertainty over its demand as an industry metal globally.

The lackluster outcome of China’s Third Plenum, its weaker-than-expected Q2 Gross Domestic Product (GDP) growth, and an unexpected rate-cut decision by the People’s Bank of China (PBoC) have pointed to a slowdown in the world’s second-largest nation. This has raised concerns over the scale of business investment and consumer spending. Silver as a metal has applications in various industries such as renewable energy, electric vehicles (EVs), and electrical appliances etc.

Meanwhile, the uncertainty among investors ahead of the United States (US) core Personal Consumption Expenditure price index (PCE) data for May, which will be published at 12:30 GMT, has kept the Silver price on the backfoot.

The core PCE inflation data, a Federal Reserve’s (Fed) preferred inflation measure, is estimated to have decelerated to 2.5% from May’s reading of 2.8% year-on-year, with monthly price pressures growing steadily by 0.1%. The underlying inflation data will influence market expectations for rate cuts, which investors expect that the Federal Reserve (Fed) will start reducing in September.

Silver technical analysis

Silver price weakens after a breakdown below the horizontal support plotted from June 26 low at $28.57 on a daily timeframe. The near-term outlook of the Silver price appears to be uncertain as the 20- and 50-day Exponential Moving Averages (EMAs) are on the verge of delivering a bearish crossover near $29.50. On the downside, the asset will find support near May 2 low at $26.00.

The 14-day Relative Strength Index (RSI) shifts into the bearish range of 20.00-40.00, suggesting that a bearish momentum has been active.

Silver daily chart

The US Dollar (USD) is expected to trade in a 7.2300/7.2650 range. USD must break and remain below the 7.2037 low before further weakness can be expected, UOB Group FX analysts Quek Ser Leang and Peter Chia note.

USD must break below 7.2037 to continue downwards

24-HOUR VIEW: “While we expected USD to break below 7.2600 yesterday, we were of the view that 7.2500 could be out of reach. The subsequent spike in volatility was surprising, as USD nose-dived to 7.2037 and then rebounded to close at 7.2405 (-0.30%). The rebound in oversold conditions suggest USD is unlikely to weaken further. Today, we expect USD to trade in a 7.2300/7.2650 range.”

1-3 WEEKS VIEW: “We turned negative in USD yesterday (25 Jul, spot at 7.2655), indicating that it ‘is likely to trade with a downward bias towards 7.2500, with a lower probability of it reaching 7.2400.’ We did not anticipate the subsequent wild price action, as USD plunged to 7.2037 and then snapped back up. While further USD weakness is not ruled out, it must break and remain below the 7.2037 low before further decline can be expected. The likelihood of USD breaking clearly below the low will be intact provided that 7.2800 (‘strong resistance’ was at 7.2900 yesterday) is not breached.”

The US Dollar (USD) is expected to trade in a range between 152.80 and 154.80. Weakness in USD appears to be stabilizing; a breach of 155.00 would indicate that USD is not declining further, UOB Group FX analysts Quek Ser Leang and Peter Chia note.

A breach of 155.00 to indicate USD has stabilized

24-HOUR VIEW: “We pointed out yesterday that ‘the impulsive momentum suggests further USD weakens, and support levels are at 152.50 and 152.00.’ USD subsequently fell to a low of 151.93 and then snapped back up to end the day largely unchanged (153.93, +0.04%). Oversold conditions, combined with tentative signs of slowing momentum suggest that USD is unlikely to weaken further. Today, we expect USD to trade in a range between 152.80 and 154.80.”

1-3 WEEKS VIEW: “Yesterday (25 Jul, spot at 153.30), we indicated that USD ‘remains weak, and the next level to monitor is at 152.00, followed by 151.30.’ USD then dropped below 152.00 before rebounding strongly from a low of 151.93. While further weakness is not ruled, the decline that started two weeks ago (as annotated in the chart below) appears to be stabilizing. However, only a breach of 155.00 (no change in ‘strong resistance’) would indicate USD is not declining further.”

The New Zealand (NZD) is likely to trade in a range between 0.5870 and 0.5920. Further NZD weakness is not ruled out; severely oversold conditions suggest limited downside potential. The level to monitor is 0.5850, UOB Group FX analysts Quek Ser Leang and Peter Chia note.

The level to monitor is 0.5850

24-HOUR VIEW: “When NZD was trading at 0.5920 yesterday, we stated that ‘as long as 0.5950 is not breached, it could test the 0.5900 level the risk of a rebound increases.’ NZD did not breach 0.5950 (high has been 0.5930), but it broke clearly below 0.5900, reaching a low of 0.5878. While there is no sign of recovery, severely oversold conditions and tentative signs of slowing momentum indicate that NZD is unlikely to weaken much further. Today, NZD is more likely to trade in a range, probably between 0.5870 and 0.5920.”

1-3 WEEKS VIEW: “We have held a negative NZD view since the middle of last week (see annotations in the chart below). In our most recent narrative from two days ago (24 Jul, spot at 0.5950), we highlighted that ‘downward momentum remains strong, and the next level to watch is 0.5900.’ Yesterday, NZD broke below 0.5900 and dropped to a low of 0.5873. While further NZD weakness is not ruled out, severely oversold conditions suggest limited downside potential. The next level to monitor is 0.5850. On the upside, a breach of 0.5955 (‘strong resistance’ level previously at 0.5980) would suggest that NZD is not weakening further.”

Room for the Australian Dollar (AUD) to rebound, but any advance is expected to face solid resistance at 0.6580. AUD weakness seems to be overextended, both time- and price-wise, but stabilisation is only upon a breach of 0.6615, UOB Group FX analysts Quek Ser Leang and Peter Chia note.

To stabilize only after a break above 0.6615

24-HOUR VIEW: “AUD fell sharply two days ago. Yesterday, we indicated that ‘the impulsive decline is likely to continue, and the next level to watch is 0.6530.’ Our view of AUD weakening was not wrong, even though it fell more than expected to 0.6511 before rebounding. Severely oversold conditions suggest there is room for AUD to rebound further. However, any advance is expected to face strong resistance at 0.6580 (minor resistance is at 0.6560). Support levels are at 0.6525 and 0.6510.”

1-3 WEEKS VIEW: “Yesterday (25 Jul, spot at 0.6575), we indicated that ‘the outlook for AUD remains negative, and the next level to monitor is 0.6530.’ AUD then fell to a low of 0.6511. The AUD weakness that started in the middle of last week seems to be overextended, both time- and price-wise. However, only a breach of 0.6615 (‘strong resistance’ level was at 0.6630 yesterday) would indicate that the weakness has stabilised. As long as the ‘strong resistance’ is not breached, there is still a chance, albeit not a high one, for AUD to decline further to 0.6480.”

• EUR/USD shifts to the sidelines with the US core PCE Price Index for June in focus.
• Annual US core PCE inflation is estimated to have decelerated to 2.5%.
• The Euro remains on the backfoot due to multiple headwinds.

EUR/USD consolidates above a two-week low of 1.0825 in Friday’s European session. The major currency pair trades in a tight range, with investors focussing on the United States (US) core Personal Consumption Expenditures price index (PCE) data for June, which will be published at 12:30 GMT.

Economists expect that the underlying inflation decelerated to 2.5% year-over-year in June from the prior release of 2.6%, with the monthly figure growing steadily by 0.1%. The inflation report will significantly influence market expectations for Federal Reserve (Fed) rate cuts this year. Financial market participants currently see the speculation for interest rate cuts in September as certain. Softer-than-expected inflation figures would strengthen expectations for September rate cuts, while stubborn figures would diminish them.

Meanwhile, the US Dollar exhibits a subdued performance as investors have been sidelined, knowing that the underlying inflation would significantly impact the outlook on interest rates by the Fed in its monetary policy announcement on Wednesday. The Fed is expected to leave its key borrowing rates unchanged in the range of 5.25%-5.50% in the July 31 meeting.

Daily digest market movers: EUR/USD consolidates while Euro’s outlook remains uncertain

• EUR/USD holds key support of 1.0825 even though investors worry about the Euro’s outlook due to multiple headwinds. The Eurozone’s economic prospects have been battered significantly, as its largest nation is going through a rough phase. Flash German Hamburg Commercial Bank (HCOB) Composite Purchasing Managers Index (PMI) contracted in July due to a decline in private sector business activity. The PMI data came in lower at 48.7 from the prior release of 50.4.
• Commenting on the flash PMI data, Dr. Cyrus de la Rubia, Chief Economist at HCOB, said, "This looks like a serious problem. Germany’s economy fell back into contraction territory, dragged down by a steep and dramatic fall in manufacturing output. The hope that this sector could benefit from a better global economic climate is vanishing into thin air. With the composite PMI now below 50, our GDP Nowcast predicts that economic output will shrink by 0.4% in the third quarter compared to the second quarter. While it is still early days and many data points are yet to come, the second half of the year is starting on a very weak note.”
• Meanwhile, rising expectations of two more rate cuts by the European Central Bank (ECB) have also weighed down the Euro. A few ECB policymakers see firm speculation for two more rate cuts as appropriate. The confidence of ECB policymakers has increased amid expectations that inflation will sustainably return to the desired rate of 2% in 2025. Also, rate cuts are needed for the economy’s revival. The announcement of tax relief of 30 billion euros by German Finance Minister Christian Lindner for corporations and households on Wednesday has indicated the government’s concerns over a poor demand environment.
• Going forward, the major trigger for the Euro will be preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for July, which is scheduled for next week. The inflation data will provide fresh cues about when the ECB will cut interest rates again. Currently, traders expect the ECB to resume its policy-easing cycle in September.

Technical Analysis: EUR/USD hovers above 1.0800

EUR/USD trades inside Thursday’s trading range ahead of US core PCE inflation data for June. The shared currency pair remains inside the Symmetrical Triangle pattern on a daily timeframe after failing to hold the breakout. The major currency pair extends its downside below the 20-day Exponential Moving Average (EMA), which trades around 1.0840, and could slide further towards round-level supports near 1.0800 and 1.0700. 

The 14-day Relative Strength Index (RSI) returns within the 40.00-60.00 range, suggesting the bullish momentum has faded.

On the upside, the round-level resistance of 1.0900 will be a key barrier for the Euro bulls.

Silver prices (XAG/USD) fell on Friday, according to FXStreet data. Silver trades at $27.73 per troy ounce, down 0.45% from the $27.86 it cost on Thursday.

Silver prices have increased by 16.54% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 85.54 on Friday, up from 84.88 on Thursday.

(An automation tool was used in creating this post.)

Increase in momentum suggests further Pound Sterling (GBP) weakness; the major support at 1.2780 is unlikely to come into view for now, UOB Group FX analysts Quek Ser Leang and Peter Chia note.

The major support at 1.2780

24-HOUR VIEW: “We noted yesterday that GBP ‘is under mild downward pressure.’ We expected it to drift lower, but we held the view that ‘any decline is unlikely to reach 1.2850.’ GBP subsequently declined more than expected, reaching a low of 1.2850 in late NY trade. While the increase in momentum suggests further GBP weakness, the major support at 1.2780 is unlikely to come into view today (there is another support level at 1.2820). To keep the momentum going, GBP must stay below 1.2895 with minor resistance at 1.2875.”

1-3 WEEKS VIEW: “Our most recent narrative was from last Friday (19 Jul, spot at 1.2950), wherein GBP ‘appears to have entered a consolidation phase, and it is likely to trade between 1.2850 and 1.3020 for the time being.’ Yesterday, GBP fell and tested the bottom of our expected range at 1.2850. Downward momentum is beginning to build, but at this time, it is premature to expect a significant decline. Overall, provided that the ‘strong resistance’ (level currently at 1.2920) is not breached, GBP is expected to trade with a downward bias towards 1.2780.”

The Euro (EUR) is likely to trade sideways between 1.0830 and 1.0870. EUR might also trade with a downward bias; in this case, the 1.0815 level is expected to provide solid support, UOB Group FX analysts Quek Ser Leang and Peter Chia note.

The next level to watch is 1.0815

24-HOUR VIEW: “Two days ago, we held the view that EUR ‘could edge lower, but any decline is unlikely to break clearly below 1.0815.’ After EUR dipped to 1.0824 and rebounded, we indicated yesterday that ‘there is still a chance for EUR to edge lower.’ However, we noted that ‘any decline is still unlikely to break clearly below 1.015.’ EUR subsequently dipped to 1.0826 and then rebounded, closing largely unchanged at 1.0844 (+0.05%). The price movements are likely part of a sideways trading phase. Today, we expect EUR to trade between 1.0830 and 1.0870.”

1-3 WEEKS VIEW: “Our update from Wednesday (24 Jul, spot at 1.0850) still stands. As highlighted, downward momentum is building, but not sufficiently enough to suggest a significant decline. EUR is likely to trade with a downward bias, but the 1.0815 level is expected to provide solid support. The downward bias is intact as long as 1.0890 (no change in ‘strong resistance’ level from yesterday) is not breached. Looking ahead, if EUR breaks clearly below 1.0815, the next level to watch is 1.0760.”

• Gold is bouncing off support from a major Moving Average after an over 1.0% fall. 
• Traders now await the Federal Reserve’s preferred inflation gauge for more guidance on Friday. 
• A lower-than-expected result could see Gold rebound; the opposite for a higher-than-forecast reading. 

Gold trades in the $2,360s per ounce on Friday after recovering from the 50-day Simple Moving Average (SMA), as technical traders scalp the bounce after the steep drop of the previous day. Gold sold off by over 1.0% on Thursday as it ran with the commodity pack lower, which declined as a group on global growth fears. 

Gold accelerates sell-off after US GDP surprise

Gold bears were further emboldened on Thursday after the release of preliminary US Gross Domestic Product (GDP) growth data showed the American economy grew at an annualized rate of 2.8% in the second quarter, exceeding market expectations of 2.0% and doubling the 1.4% pace of growth in the prior period. 

The data indicated the US economy is doing better than expected and that the Federal Reserve (Fed) may need to keep interest rates higher for longer to keep inflation under control. This, in turn, makes Gold, which is a non-interest-bearing asset, less attractive to investors.  

Despite the GDP surprise, expectations for rate cuts remain intact. Markets continue to fully price in an interest reduction in the Federal Reserve’s September meeting and anticipate two more cuts by the end of the year. 

Gold may be moved by Fed’s favorite inflation gauge

Gold could see more volatility on Friday after the release of June’s core Personal Consumption Expenditures (PCE) Price Index in the US, the Federal Reserve's preferred gauge of inflation. The data could further tone the outlook for interest rates in the US, which could impact the yellow metal. 

The Fed is currently expected to cut interest rates by 0.25% in September, reducing them from an upper band of 5.50% to 5.25%. Two more 0.25% cuts are also seen as more than 50% likely before the end of the year, according to the CME FedWatch tool. The core PCE's last reading was 2.6% year-over-year in May, now economists expect it to fall to 2.5% in June as it edges ever closer to the Fed’s 2.0% target level. A deeper-than-expected decline would increase the probability of the Fed making further cuts to interest rates after September; the opposite is true of a higher-than-forecast result. 

Technical Analysis: Gold finds support at 50-day SMA

Gold continues unfolding a new down leg within the widening range it has formed since May. It is in a sideways rather than directional market trend, which, given “the trend is your friend,” is likely to continue. 

The down leg has met support at the 50-day SMA at $2,360 and bounced slightly. If it closes below the SMA, it will probably extend its decline to the next support level at the base of the widening range and the 100-day SMA at circa $2,320. 

XAU/USD Daily Chart

The fact that the Moving Average Convergence Divergence (MACD) indicator has crossed below its signal line adds further bearish confirmation to the downward move currently unfolding. MACD tends to work particularly well at signaling price turns in sideways markets. 

A break above the $2,483 all-time high would indicate the establishment of a higher high and suggest the possibility of a breakout to the upside and an extension of the longer-term uptrend. 

Such a move might unlock Gold’s next upside target at roughly $2,555-$2,560, calculated by extrapolating the 0.618 Fibonacci ratio of the height of the range higher. 

• The Pound Sterling prints a fresh two-week low at 1.2845 against the US Dollar on Friday as investors turn cautious ahead of the US core PCE Price index.
• The BoE is expected to cut interest rates next week.
• Robust US Q2 GDP growth has improved the economic outlook.

The Pound Sterling (GBP) posts a fresh two-week low at 1.2845 against the US Dollar (USD) in Friday’s London session. The GBP/USD pair faces sharp selling pressure amid uncertainty ahead of the United States (US) core Personal Consumption Expenditures price index (PCE) data for June, which will be published at 12:30 GMT. 

The core PCE inflation data, the Federal Reserve’s (Fed) preferred inflation measure, is estimated to have decelerated to 2.5% year-over-year from May’s reading of 2.6%, with monthly price pressures growing steadily by 0.1%. 

The scenario in which the underlying inflation declines expectedly or at a faster pace would be unfavorable for the US Dollar as it will cement expectations of early interest rate cuts by the Federal Reserve. On the contrary, hot inflation numbers would force traders to pare early rate-cut bets. According to the CME FedWatch tool, 30-day Federal Fund futures pricing data shows that the central bank will start reducing interest rates in September.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, exhibits a subdued performance near 104.30. The US Dollar failed to capitalize on robust US Q2 Gross Domestic Product (GDP) growth as the impact was offset by subsiding price pressures. The US economy expanded at a robust pace of 2.8% in the second quarter, double the 1.4% growth recorded in the first quarter. Still, speculation for Fed rate cuts in September remained intact as GDP Price Index decelerated at a slower-than-expected pace to 2.3%.

Daily digest market movers: Pound Sterling steadies as investors shift focus to BoE monetary policy

• The Pound Sterling exhibits a steady performance against its major peers on Friday. The British currency is expected to remain on the sidelines as investors shift focus to the Bank of England’s (BoE) monetary policy meeting, which is scheduled for Thursday.
• A Reuters poll on July 18-24 showed that more than 80% of economists said the BoE would announce a rate-cut decision in its August meeting for the first time in more than four years. The BoE will ditch its restrictive monetary policy framework, which it has been maintaining since the pandemic hit global markets. 
• The BoE is expected to reduce its key borrowing rates by 25 basis points (bps) to 5% in the August meeting. However, traders see a 46% chance of the BoE pivoting to policy-normalization. It appears that the absence of BoE officials’ endorsement for rate cuts has limited BoE rate-cut expectations.
• Despite the return of the annual headline Consumer Price Index (CPI) in the United Kingdom (UK) to the central bank’s target of 2%, BoE policymakers hesitate to support interest rate cuts amid worries about strong wage growth momentum that has been resulting in sticky price pressures in the service sector.
• Also, signs of wage growth easing ahead remain absent due to the shortage of labor in the United Kingdom. The UK labor market has faced a shortage of workers for a long period due to voluntary retirements by individuals and the Brexit event.
• Meanwhile, the UK’s economic prospects remain firm due to expanding activities in manufacturing as well as the service sector and political stability after Prime Minister Keir Starmer’s outright victory in parliamentary elections.

Technical Analysis: Pound Sterling stabilizes below 1.2900

The Pound Sterling remains on the back foot against the US Dollar after sliding below the crucial support of 1.2900. The GBP/USD pair trades in a Rising Channel pattern on a daily timeframe, in which each pullback move is considered as a buying opportunity by market participants. The Cable holds the key 20-day Exponential Moving Average (EMA), which trades around 1.2866.

The 14-day Relative Strength Index (RSI) returns within the 40.00-60.00 range, suggesting the bullish momentum has faded. However, the bullish bias remains intact.

On the upside, a two-year high near 1.3140 will be a key resistance zone for the Cable.

• WTI price remains on track for a third straight week of decline on Friday.
• Chinese growth concerns put pressure on crude Oil prices.
• Oil demand could be affected due to diminished odds for the Fed rate cuts in September.

West Texas Intermediate (WTI) Oil price holds mild losses, possibly driven by better-than-expected US economic data. The WTI price hovers around $78.00 per barrel during early European hours on Friday. Crude Oil prices are set for a third consecutive week of decline, primarily due to sluggish demand in China, the world's largest crude importer.

Concerns about the weak Chinese economy were heightened by an unexpected rate cut from the People's Bank of China (PBoC) on Monday. China's Q2 growth was 4.7%, the weakest increase since early 2023. The People’s Bank of China (PBOC), cut the one-year Medium-term Lending Facility (MLF) rate from 2.50% to 2.30% on Thursday.

The prices of crude Oil are facing challenges due to growing expectations of a ceasefire agreement for the Gaza conflict and related violence in the Middle East. US Vice President Kamala Harris, the likely Democratic presidential nominee for the November election, pressured Israeli Prime Minister Benjamin Netanyahu on Thursday to facilitate a Gaza ceasefire deal to alleviate the suffering of Palestinian civilians. Harris stated "It is time for this war to end,” per Reuters.

Stronger US economic data have diminished expectations for the Federal Reserve’s (Fed) rate cuts in September, potentially putting pressure on the demand for crude Oil. Higher interest rates negatively affect economic activities in the United States (US), the largest crude consumer, thereby dampening Oil demand. According to CME Group’s FedWatch Tool, markets now indicate an 88.6% probability of a 25-basis point rate cut at the September Fed meeting, down from 94.0% a week earlier.

Traders are likely anticipating the release of the US Personal Consumption Expenditures (PCE) Price Index for June, scheduled for Friday. This data will show changes in the prices of goods and services purchased by consumers in the United States.

Here is what you need to know on Friday, July 26:

Following the mixed action seen in financial markets on Thursday, investors cling to a cautious stance on Friday. The US economic docket will feature Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's preferred gauge of inflation, for June later in the day, alongside Personal Income and Personal Spending figures. Finally, the University of Michigan will release revisions to July Consumer Sentiment Index data.

According to the US Bureau of Economic Analysis' first estimate, the United States' Gross Domestic Product (GDP) expanded at an annual rate of 2.8% in the second quarter. This reading followed the 1.4% growth recorded in the first quarter and came in above the market expectation of 2%. Other details of the GDP report showed that the Gross Domestic Product Price Index rose 2.3% in the second quarter, coming in below the market expectation of 2.6%, while the core Personal Consumption Expenditures Price Index rose 2.9% on a quarterly basis, below the 3.7% increase registered in the first quarter but above analysts' estimate of 2.7%.

After edging lower during the European trading hours, the US Dollar (USD) Index gained traction and erased its losses to close the day flat on upbeat GDP data on Thursday. Early Friday, the USD Index stays in a consolidation phase below 104.50, US stock index futures trade marginally higher and the 10-year US Treasury bond yield extends its sideways grind above 4.2%.

During the Asian trading hours, the data from Japan showed that the Tokyo Consumer Price Index rose 2.2% on a yearly basis in July, down slightly from the 2.3% increase recorded in June. Tokyo CPI ex Food, Energy rose 1.5% in the same period. After touching its weakest level since early May below 152.00, USD/JPY staged a rebound in the American session on Thursday. Early Friday, the pair stays in a consolidation phase, slightly below 154.00.

Following a two-day decline, EUR/USD found a foothold and closed the day virtually unchanged on Thursday. The pair stays relatively quiet and moves up and down in a tight channel at around 1.0850 in the European morning.

GBP/USD failed to shake off the bearish pressure on Thursday and slumped to its lowest level in two weeks at 1.2850. The pair holds above this level early Friday but struggles to gather recovery momentum.

Gold lost more than 1% on Thursday on growing concerns over a worsening Chinese economic outlook. XAU/USD stages a technical correction in the European morning on Friday and trades modestly higher on the day at around $2,370.

• GBP/JPY trades in negative territory for the sixth consecutive day near 197.75 in Friday’s early European session. 
• The increase in Japan’s Tokyo core CPI inflation maintains the possibility of a BoJ rate hike next week.
• The BoE is expected to cut its interest rate by 25 bps next week. 

The GBP/JPY cross loses ground around 197.75 during the early European session on Friday. The Japanese Yen (JPY) edges higher as traders potentially unwind their carry trades ahead of the Bank of Japan's (BoJ) monetary policy meeting next week. 

Data released by the Statistics Bureau of Japan on Friday revealed that the headline Japan’s Tokyo Consumer Price Index (CPI) increased 2.2% YoY in July, compared to a 2.3% rise in June. Meanwhile, Tokyo CPI ex Fresh Food rose 2.2% in July versus 2.1% prior and was in line with the market consensus. This figure registered the third straight month of re-acceleration after a decline of 1.6% year on year in April. 

Japan’s Tokyo CPI inflation reports support the case of a BoJ rate hike next week, which has lifted the JPY against the GBP. Financial markets are now pricing in a 38% probability of a 15 basis points (bps) hike.

Furthermore, the fear of further foreign exchange (FX) intervention from the Japanese authorities might continue to underpin the Japanese Yen and create a headwind for EUR/JPY. Early Friday, Japan's top currency diplomat, Masato Kanda said that excessive FX volatility has a negative impact on the Japanese economy, adding that he will closely monitor the economy and implement necessary measures if necessary.  

On the GBP’s front, the rising expectation that the Bank of England (BoE) would cut interest rates at its upcoming policy meeting on August 1 weighs on the Cable. As per UBS analysts, the BoE is expected to lower its interest rates by 25 basis points (bps) in early August, followed by another 25 bps in November, reducing the rate to 4.75% by the end of 2024.

• The US Dollar edges lower due to improved risk sentiment ahead of the US PCE inflation release.
• Improved US Treasury yields could provide support for the Greenback.
• Stronger US economic data have reduced the Fed’s rate cut expectations for September.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major currencies, retraces its recent gains ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index for June. The DXY trades around 104.30 during the Asian session on Friday.

The downside of the US Dollar could be limited due to improved US Treasury yields. 2-year and 10-year yields on US Treasury bonds stand at 4.35% and 4.24%, respectively, at the time of writing. Stronger US economic data have reduced some rate cut expectations for September, which might provide support for the Greenback.

According to CME Group’s FedWatch Tool, markets now indicate an 88.6% probability of a 25-basis point rate cut at the September Fed meeting, down from 94.0% a week earlier.

On Thursday, the US Gross Domestic Product (GDP) for the second quarter (Q2) was stronger than expected. This follows Wednesday’s US PMI data, which indicated a faster expansion in private-sector activity for July, highlighting the resilience of US growth despite elevated interest rates.

The US GDP increased at an annualized rate of 2.8%, seasonally and inflation-adjusted, which is an improvement from the prior 1.4% reading and exceeds the 2% forecast. Furthermore, the Composite PMI climbed to 55.0 from 54.8, reaching its highest level since April 2022 and reflecting consistent growth over the past 18 months.

Bank of America suggests that the robust economic growth in the United States enables the Federal Open Market Committee (FOMC) to "afford to wait" before implementing any changes. The bank asserts that the economy "remains on solid ground" and continues to anticipate that the Fed will begin to lower rates in December.

• EUR/GBP trades with mild gains around 0.8440 in Friday’s early European session. 
• The BoE is anticipated to reduce its borrowing costs from a 16-year high on August 1. 
• French and German declines in business confidence increase the probability of an ECB rate reduction.

The EUR/GBP cross recovers to 0.8440 during the early European session on Friday. The Pound Sterling (GBP) edges lower amid rising bets that the Bank of England (BoE) would cut its interest rate next week. 

Investors are betting on a 45% chance of a quarter-point rate cut by the BoE at its upcoming policy meeting on August 1. UBS analysts noted that the BoE is expected to deliver the first 25 basis points (bps) cut in early August and another 25 bps in November, bringing the interest rate to 4.75% by the end of 2024. “The key reason why we expect the MPC to cut rates is the recent data,” said UBS analysts.

On the other hand, the decline in French and German business confidence has raised the potential of the European Central Bank (ECB) cutting interest rates in September, amid warnings that the Eurozone's two biggest economies are about to enter an economic downturn. On Thursday, the German IFO Institute business confidence dropped from 88.6 in June to 87 in July, its lowest level since February, worse than the economists’ forecasts of 88.9. 

Market players will take more cues from the preliminary Eurozone Gross Domestic Product (GDP) for the second quarter (Q2). The quarterly Eurozone GDP number is expected to expand by 0.2% QoQ in Q2, compared to the previous reading of 0.3% QoQ. 
 

• The core Personal Consumption Expenditures Price Index is foreseen up 0.1% in June.
• The Federal Reserve is widely anticipated to trim interest rates in September.
• The EUR/USD pair is on the brink of turning bearish in the mid-term. 

The United States will release June Personal Consumption Expenditures (PCE) Price Index figures on Friday. The Federal Reserve’s (Fed) favourite inflation gauge will be released by the US Bureau of Economic Analysis (BEA) at 12:30 GMT.

Ahead of the announcement, the country published the preliminary estimate of the Q2 Gross Domestic Product (GDP), which largely surpassed the market’s expectations. The economy grew at an annualized pace of 2.8%, according to the flash Q2 GDP, while inflation in the same period was lower than previously estimated. The core Personal Consumption Expenditures Price Index rose 2.9% QoQ, easing from the 3.7% posted in the first quarter, yet above expectations of 2.7%. Finally, the GDP Price Index rose 2.3% in the same period, below the market expectation of 2.6%. 

Overall, the figures anticipate that price pressures continued to ease at the end of the second quarter, although inflation remains above the Federal Reserve’s goal of 2%.

PCE Price Index: What to expect from the Federal Reserve’s preferred inflation measure

The core PCE Price Index, which excludes volatile food and energy prices, is forecast to rise 0.1% MoM in June, matching the May figure. The PCE Price Index is also projected to grow at an annual pace of 2.5%, slightly below the previous 2.6%, although still above the Fed’s 2% goal. 

The expected figures will align with the recent Fed Chairman Jerome Powell's mildly dovish stance, exacerbating bets for two interest rate cuts before year-end. Chair Powell surprised market players recently by downgrading his hawkish tone. Speculative interest rushed to price in a 25 basis points (bps) rate cut in September while slowly lifting bets of a similar move in December. 

Ahead of the release, it is worth reminding that the US reported that the Consumer Price Index (CPI) declined 0.1% MoM in June, while the annual index increased 3%, down from the previous 3.3%, according to the US Bureau of Labor Statistics (BLS). The continued improvement in inflation provided additional support to rate-cut bets. 

When will the PCE inflation report be released, and how could it affect EUR/USD?

PCE inflation figures will be released on Friday at 12:30 GMT, and as previously noted, expectations point to another step down towards the Fed’s 2% target. Given the quarterly PCE figures released on Thursday, the report may have a limited impact on the US Dollar, moreover, if the outcome aligns with expectations.

The USD should come under selling pressure on lower-than-anticipated readings, as such figures will further support the case of a dovish central bank. The opposite scenario is also valid, with higher-than-expected figures leaning the scale towards a more hawkish Fed and delayed rate cuts. As a result, the Greenback may extend gains ahead of the weekly close. 

Ahead of the announcement, the EUR/USD pair maintains its weak tone. After posting a multi-month high of 1.0947 in mid-July, the pair entered a selling spiral that pushed it towards this week’s low at 1.0824.

From a technical perspective, Valeria Bednarik, Chief Analyst at FXStreet, notes: “The EUR/USD pair is at the brink of turning bearish. The daily chart shows EUR/USD battling a bullish 20 Simple Moving Average (SMA), with a clear extension below it, probably encouraging sellers. At the same time, the 100 and 200 SMAs remain directionless in the 1.0790 price zone, with a break below it further exacerbating selling interest. Finally, technical indicators have completely retreated from overbought readings and are currently losing their bearish strength at around their midlines, although they are far from confirming the slide is over. Extensions below their midlines will likely anticipate another leg lower, particularly if the pair loses the aforementioned 1.0790 support area.”

Bednarik adds: “At this point, EUR/USD would need to reconquer the 1.0870 region to give bulls a chance. A much more relevant resistance area comes at around 1.0945, a potential bullish target should PCE data put the Greenback in sell-off mode. Still, such a scenario seems quite unlikely, given the recently released quarterly PCE inflation figures.”

• USD/CAD edges lower after pulling back from an eight-month high of 1.3849 level.
• The pair’s downside could be restrained as stronger US economic data have reduced the Fed’s rate cut odds for September.
• The Canadian Dollar may struggle as the BoC is expected to continue easing policy in 2024.

USD/CAD breaks its winning streak that began on July 17, trading around 1.3810 during the Asian session on Friday. The pair retreated from an eight-month high of 1.3849, a level recorded on Thursday. This downside of the USD/CAD pair is attributed to the weakening of the US Dollar (USD) ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index for June.

However, the US Dollar may limit its downside as stronger US economic data have reduced some rate cut expectations for September. On Thursday, the US Gross Domestic Product (GDP) for the second quarter (Q2) was stronger than expected. This follows Wednesday’s US PMI data, which indicated a faster expansion in private-sector activity for July, highlighting the resilience of US growth despite elevated interest rates.

The US GDP grew at an annualized rate of 2.8%, adjusted for seasonality and inflation, up from the previous reading of 1.4% and surpassing forecasts of 2%. Additionally, the Composite PMI rose to 55.0 from the previous 54.8 reading, marking the highest reading since April 2022 and indicating sustained growth over the past 18 months.

On the CAD front, the Bank of Canada (BoC) to continue to ease policy after its latest interest rate cut on Wednesday. The BoC lowered interest rates by 25 basis points to 4.5% for the second consecutive meeting on Wednesday, citing progress in reducing inflation.

BoC members emphasized that excess supply and a cooling labor market justified their decision to cut rates, aiming to stabilize consumer prices at 2% by 2025. Financial markets expect one more 25 bps rate cut this year, with nearly 60% odds that the BoC will cut rates again in its September meeting. This may limit the upside of the Canadian Dollar (CAD), underpinning the USD/CAD pair.

Gold prices rose in India on Friday, according to data compiled by FXStreet.

The price for Gold stood at 6,384.51 Indian Rupees (INR) per gram, up compared with the INR 6,364.80 it cost on Thursday.

The price for Gold increased to INR 74,467.65 per tola from INR 74,237.83 per tola a day earlier.

FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.

(An automation tool was used in creating this post.)

FX option expiries for July 26 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

EUR/USD: EUR amounts

• 1.0650 935m
• 1.0695 784m
• 1.0800 464m
• 1.0925 1b

GBP/USD: GBP amounts     

• 1.2970 814m

USD/JPY: USD amounts                     

• 152.90 500m
• 154.00 967m
• 155.30 585m
• 155.35 570m
• 155.50 767m

AUD/USD: AUD amounts

• 0.6800 457m

EUR/GBP: EUR amounts        

• 0.8420 600m

• USD/CHF trades in negative territory for the third consecutive day in Friday’s early European session. 
• The US GDP growth number came in stronger than expected, growing 2.8% in Q2 vs. 1.4% in Q1. 
• The tech-led global stock market sell-off and Chinese economic slowdown concerns boost the Swiss Franc. 
• Investors await the US June PCE data, which is due on Friday.

The USD/CHF pair remains under selling pressure around 0.8810 during the early European session on Friday. The Greenback edges lower despite stronger-than-expected US economy data on Thursday. The tech-led global stock market sell-off has fueled a flight to safety, benefiting the safe-haven currencies like the Swiss Franc (CHF). 

 The US economy grew faster than expected in the second quarter (Q2), with the real GDP expanding at an annualized quarterly pace of 2.8% versus 1.4% in Q1. Nonetheless, the expectations of a September interest rate cut from the Federal Reserve (Fed) remain intact. Financial markets are pricing in a nearly 93% chance that the US Fed will leave its benchmark interest rate unchanged at its upcoming July meeting next week and is likely to cut the rate in September, according to the CME FedWatch Tool. This, in turn, might cap the upside for the US Dollar (USD) in the near term. 

The negative sentiment in global stock markets, led by US technology stocks and the fears of a Chinese economic slowdown contribute to the downside of the USD for the time being. On Thursday, the People’s Bank of China (PBOC) cut the one-year Medium-term Lending Facility (MLF) rate from 2.50% to 2.30%, raising concerns about the sluggish Chinese economy. 

The release of the US Personal Consumption Expenditures (PCE) - Price Index for June will be the highlight on Friday. The headline PCE is estimated to show an increase of 0.1% MoM in June, while the Fed’s preferred measure of inflation, the Core PCE, is projected to drop to 2.5% YoY in June from 2.6% in May. The softer US PCE inflation reports might pave the way for the Fed rate cut in September and exert some selling pressure on the Greenback. On the other hand, the hotter-than-expected inflation readings might trim some rate cut expectations in September, which provides some support to the USD. 

• NZD/USD bounces off a nearly three-month low, albeit lacks any follow-through buying.
• A combination of factors undermines the safe-haven USD and lends support to the major.
• China’s economic woes cap any further gains ahead of the key US PCE Price Index data.

The NZD/USD pair edges higher during the Asian session on Friday and for now, seems to have snapped a six-day losing streak to its lowest level since early May, around the 0.5880 region touched the previous day. Spot prices, however, struggle to build on the modest intraday strength beyond the 0.5900 round-figure mark as traders keenly await the crucial US inflation data before placing directional bets. 

The US Personal Consumption Expenditures (PCE) Price Index is due for release later today and should provide fresh cues about the Federal Reserve's (Fed) policy path. This, in turn, will play a key role in driving the US Dollar (USD) demand in the near term and provide some meaningful impetus to the NZD/USD pair. Heading into the key data risk, bets for an imminent start of the Fed's rate-cutting cycle keep the USD bulls depressed below a two-week high touched on Wednesday and act as a tailwind for the currency pair. 

Investors seem convinced that the US central bank will lower borrowing costs in September and are pricing in the possibility of two more rate cuts by the end of this year. This, to a larger extent, overshadows the upbeat US macro data released on Thursday, which showed that the world's largest economy grew at a faster-than-expected pace during the second quarter of 2024. Adding to this, the US Initial Jobless Claims dropped to 235K in the week ending July 20 vs. 238K expected, though does little to impress the USD bulls.

Apart from this, a generally positive tone around the equity markets undermines the safe-haven buck and benefits the risk-sensitive New Zealand Dollar (NZD). That said, persistent worries about a slowdown in China – the world's second-largest economy – might continue to act as a headwind for antipodean currencies, including the Kiwi. Adding to this, rising bets for an early interest rate cut by the Reserve Bank of New Zealand (RBNZ), bolstered by the weaker CPI report released last week, contribute to capping the NZD/USD pair. 

• EUR/JPY remains steady after the release of the softer inflation data on Friday.
• The Tokyo CPI increased by 2.2% YoY in July, slightly down from the previous 2.3% rise.
• The Euro may face challenges as the ECB remains uncertain about its policy outlook.

EUR/JPY hovers around 167.00 with a positive bias during the Asian session on Friday. The EUR/JPY cross holds mild gains after the Statistics Bureau of Japan released the Tokyo Consumer Price Index (CPI) data on Friday.

The headline Tokyo CPI for July increased by 2.2% year-over-year, slightly down from the previous 2.3% rise. The Tokyo CPI excluding Fresh Food and Energy went up by 1.5% YoY, compared to the earlier increase of 1.8%. Moreover, the CPI excluding Fresh Food also rose by 2.2% in July, matching market expectations.

However, the EUR/JPY cross may limit its upside as the Japanese Yen may receive support as traders potentially unwind their carry trades ahead of the Bank of Japan's two-day policy meeting, concluding on Wednesday. The BoJ is expected to raise interest rates, which causes short-sellers to close their positions and bolster the JPY. Additionally, the BoJ is widely anticipated to outline plans to taper its bond purchases to reduce massive monetary stimulus.

On the Euro front, the European Central Bank (ECB) is anticipated to lower interest rates two more times this year, as price pressures are expected to persist at current levels in 2024 and only return to the bank’s target in 2025. This sentiment puts pressure on the Euro, which could limit the upside of the EUR/JPY cross.

Meanwhile, a significant decline in Eurozone business activity, particularly in Germany, has heightened expectations for further interest rate cuts to stimulate economic growth. The German flash Composite Purchasing Managers Index (PMI) unexpectedly contracted in July. Euro traders will need to await next week’s pan-EU Gross Domestic Product (GDP) update for further insights.

• AUD/JPY trades with a mild positive bias on Friday, albeit it lacks follow-through buying.
• A positive risk tone undermines the safe-haven JPY and benefits the risk-sensitive Aussie.
• China’s economic woes and BoJ rate hike bets should keep a lid on any meaningful upside.

The AUD/JPY pair attracts some buyers during the Asian session on Friday and looks to build on the previous day's goodish rebound from the 99.20 area, or its lowest level since April 22. Spot prices currently trade around the 100.75 area, up just over 0.10% for the day, and for now, seem to have snapped a five-day losing streak, though any meaningful appreciating move still seems elusive. 

The better-than-expected US macro data released on Thursday pointed to a still resilient economy and infused some stability in the financial markets. This is evident from a generally positive tone around the equity markets, which undermines demand for the traditional safe-haven Japanese Yen (JPY) and benefits the perceived riskier Australian Dollar (AUD). That said, hawkish Bank of Japan (BoJ) expectations hold back traders from placing aggressive bearish bets around the JPY and act as a headwind for the AUD/JPY pair. 

Investors now seem convinced that the Japanese central bank could hike interest rates again at its upcoming policy meeting next week. The bets were reaffirmed by data indicating that core inflation in Tokyo – Japan's national capital – continued its upward trend for the third consecutive month in July following a fall to the 1.6% YoY rate in April. In fact, government data showed this Friday that Tokyo Core CPI, which excludes volatile fresh food prices, edged up to 2.2% YoY during the reported month from 2.1% previous. 

This, to a larger extent, overshadows the fact that the headline Tokyo CPI ticked lower down to the 2.2% YoY rate from 2.3% and the core-core CPI (excluding food and energy) fell from 1.8% to the 1.5% YoY rate in July. Meanwhile, persistent worries about a slowdown in China – the world's second-largest economy – might continue to undermine the China-proxy Aussie. This, in turn, further warrants some caution before confirming that the AUD/JPY cross has formed a near-term bottom and positioning for any meaningful appreciation.

• EUR/USD extends gains as the Greenback weakens ahead of the US PCE Price Index.
• The US Dollar may limit its downside as stronger US economic data have reduced rate cut expectations for September.
• The Euro may face challenges as the near-term ECB’s policy outlook remains uncertain.

EUR/USD trades around 1.0860 during the Asian session on Friday, extending its gains after rebounding from a two-week low of 1.0825 recorded on Wednesday. This upside of the EUR/USD pair is attributed to the weakening of the US Dollar (USD) ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index for June.

However, the US Dollar may limit its downside as stronger US economic data have reduced some rate cut expectations for September. On Thursday, the US Gross Domestic Product (GDP) for the second quarter (Q2) was stronger than expected. This follows Wednesday’s US PMI data, which indicated a faster expansion in private-sector activity for July, highlighting the resilience of US growth despite elevated interest rates.

The US GDP grew at an annualized rate of 2.8%, adjusted for seasonality and inflation, up from the previous reading of 1.4% and surpassing forecasts of 2%. Additionally, the Composite PMI rose to 55.0 from the previous 54.8 reading, marking the highest reading since April 2022 and indicating sustained growth over the past 18 months.

According to CME Group’s FedWatch Tool, markets now indicate an 88.6% probability of a 25-basis point rate cut at the September Fed meeting, down from 94.0% a week earlier.

The Euro has encountered difficulties as the near-term European Central Bank’s (ECB) outlook remains uncertain due to strong expectations of additional rate cuts. The ECB is anticipated to lower interest rates two more times this year, as price pressures are expected to persist at current levels throughout the year and only return to the bank’s target in 2025.

Meanwhile, a significant decline in Eurozone business activity, particularly in Germany, has heightened expectations for further interest rate cuts to stimulate economic growth. The German flash Composite Purchasing Managers Index (PMI) unexpectedly contracted in July. Euro traders will need to await next week’s pan-EU Gross Domestic Product (GDP) update for further insights.

• Silver attracts some buyers and moves away from over a two-month low set on Thursday.
• The technical setup supports prospects for the emergence of fresh selling at higher levels. 
• Strength beyond the 100-day SMA support breakpoint is needed to negate the negative bias.

Silver (XAG/USD) edges higher during the Asian session on Friday and for now, seems to have snapped a two-day losing streak to its lowest level since May 9, around the $27.45 region touched the previous day. The white metal, however, struggles to build on the strength beyond the $28.00 mark and remains on track to register losses for the third successive week. 

From a technical perspective, the overnight breakdown through the June swing low, around the $28.60-$28.55 region, which coincided with the 100-day Simple Moving Average (SMA), was seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have been gaining negative traction and are still away from being in the oversold territory, suggesting that the path of least resistance for the XAG/USD is to the downside.

Hence, any subsequent move up is more likely to attract fresh sellers and remain capped near the $28.55-$28.60 zone, or the 100-day SMA support breakpoint. The said area should now act as a key pivotal point, which if cleared decisively might trigger a short-covering rally. The XAG/USD might then surpass the $29.00 round-figure mark and accelerate the momentum towards the next relevant hurdle near the $29.40-$29.45 region, or the weekly peak.

Some follow-through buying should allow bulls to aim back to reclaim the $30.00 psychological mark. The upward trajectory could extend further towards the $30.35-$30.40 intermediate hurdle before the XAG/USD climbs to the $31.00 round-figure mark en route to the $31.40-$31.45 supply zone and the monthly peak, around the $31.75 region.

On the flip side, the Asian session low, around the $27.65-$27.60 area, could protect the immediate downside ahead of the $27.45 region, or the multi-month low touched on Thursday. A convincing break below the latter could make the XAG/USD vulnerable to accelerate the fall to the $27.00 mark, en route to the $26.60-$26.55 intermediate support, before eventually dropping to the 200-day SMA support, currently pegged near the $26.00 round figure.

Silver daily chart

• GBP/USD holds positive ground around 1.2860 in Friday’s Asian session. 
• The US economy grew at an annual rate of 2.8% in Q2, stronger than expected. 
• The BoE is expected to cut rates for the first time in more than four years at its policy meeting next week.

The GBP/USD pair gains traction near 1.2860 amid the weaker Greenback, snapping the three-day losing streak during the Asian trading hours on Friday. However, the potential upside of the major pair seems limited as market players expect the Bank of England (BoE) to cut interest rates in August. 

The US economy grew faster than expected in the second quarter (Q2), according to the US Department of Commerce in an advance estimate released on Thursday. The US Gross Domestic Product (GDP) grows at an annual rate of 2.8% in Q2, marking an acceleration from 1.4% growth in Q1. This figure came in stronger than the estimation of 2%. 

However, the expectations of a September interest rate cut from the Federal Reserve (Fed) remain intact. Traders will closely watch the release of the US Personal Consumption Expenditures (PCE) Price Index data for June, which is due on Friday.

Furthermore, the US weekly Initial Jobless Claims for the week ending July 20 rose by 235,000, compared to the previous week of 243,000. This figure was below the consensus of 238,000. Meanwhile, US Durable Goods Orders declined by 6.6% MoM in June from a 0.1% increase in May, weaker than the 0.3% expected. 

On the GBP’s front, the Bank of England (BoE) is anticipated to cut the bank rate to 5% at its August meeting next week as inflation is expected to hover around the central bank target, according to a majority of economists in a Reuters poll. Additionally, UBS analysts noted that the BoE is expected to deliver the first 25 basis points (bps) cut in early August and another 25 bps in November, bringing the interest rate to 4.75% by the end of 2024. “The key reason why we expect the MPC to cut rates is the recent data,” said UBS analysts. 

• The Australian Dollar improves on price recovery of commodities like coal and copper.
• PBOC’s unexpected lending rate cuts lead to higher commodities prices.
• The US Dollar may appreciate as recent US economic data have reduced the Fed’s rate cut expectations for September.

The Australian Dollar (AUD) halts its nine-day losing streak against the US Dollar (USD) on Friday, following unexpected cuts to key lending rates by the People's Bank of China (PBoC). This move enhances the outlook for the major metals consumer, leading to higher prices for commodities such as coal and copper. Given Australia’s role as a net exporter of energy and metals, its currency is notably responsive to changes in commodity prices.

The Aussie Dollar also receives support from the hawkish sentiment surrounding the Reserve Bank of Australia’s (RBA) policy stance. The RBA is anticipated to postpone easing its policy tightening, unlike other major central banks, due to ongoing inflationary pressures and a tight labor market.

The AUD/USD pair gains ground on the weaker US Dollar. However, the Greenback may limit its downside as stronger US economic data have reduced some rate cut expectations for September. On Friday, attention will be on the release of the Personal Consumption Expenditures (PCE) Price Index for June.

According to CME Group’s FedWatch Tool, markets now indicate an 88.6% probability of a 25-basis point rate cut at the September Fed meeting, down from 94.0% a week earlier.

Daily Digest Market Movers: Australian Dollar improves due to improved commodities prices

• Bank of America suggests that robust economic growth in the United States enables the Federal Open Market Committee (FOMC) to "afford to wait" before implementing any adjustments. The BofA notes that the economy "remains strong" and maintains its expectation for the Fed to begin rate cuts in December.
• On Thursday, the US GDP grew at an annualized rate of 2.8%, adjusted for seasonality and inflation, up from the previous reading of 1.4% and surpassing forecasts of 2%. Additionally, Initial Jobless Claims fell to 235K in the week ending July 19, compared to the previous reading of 243K and the expected 238K.
• The S&P Global US Services PMI increased to a reading of 56.0 in July, the highest in 28 months, up from a 55.3 reading in June and exceeding market expectations of 55.3. Meanwhile, the Composite PMI rose to 55.0 from the previous 54.8 reading, marking the highest reading since April 2022 and indicating sustained growth over the past 18 months.
• Concerns about the weak Chinese economy were heightened by an unexpected rate cut from the People's Bank of China (PBoC) on Monday. The People’s Bank of China (PBOC), cut the one-year Medium-term Lending Facility (MLF) rate from 2.50% to 2.30% on Thursday. Additionally, the Bank of China, one of the world's largest banks, announced a 10-20 basis points cut in time deposit rates. Any change in the Chinese economy could impact the Australian markets as both countries are close trade partners.
• Australia's Judo Bank Manufacturing PMI improved to 47.4 in July from 47.2 in June. Meanwhile, the Services PMI dropped to 50.8 in July from 51.2 in June. The Composite PMI also declined, falling to 50.2 in July from 50.7 in June.
• Last week, Reuters cited Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, saying, "The current pace of employment growth suggests demand is resilient and cost pressures will remain. We think the RBA will stay the course and keep rates on hold, but August is certainly a live meeting."

Technical Analysis: Australian Dollar edges higher to near 0.6550

The Australian Dollar trades around 0.6550 on Friday. The daily chart analysis shows that the AUD/USD pair has fallen below the descending channel, indicating a strengthening bearish bias. The 14-day Relative Strength Index (RSI) is slightly above the 30 level, suggesting the currency pair is oversold and may be due for a potential correction soon.

Support for the AUD/USD pair could be found around the psychological level of 0.6500, with further support at 0.6470.

On the upside, key resistance lies at the lower boundary of the descending channel at 0.6570, followed by the psychological level of 0.6600. If the AUD/USD pair returns to the descending channel, it may weaken the bearish bias and support testing the nine-day Exponential Moving Average (EMA) at 0.6623. A break above this level could lead the pair to test the upper boundary of the descending channel around 0.6715, with a potential aim for a six-month high of 0.6798.

AUD/USD: Daily Chart

• A combination of factors continues to act as a tailwind for Crude Oil prices on Friday.
• Worries about sluggish demand in China keep a lid on any meaningful appreciation.
• Traders also seem reluctant and look to the US PCE Price Index for a fresh impetus.

West Texas Intermediate (WTI) US crude Oil prices edge higher during the Asian session on Friday and look to build on the overnight bounce from the $75.75 area, or the lowest level since June 10. The commodity currently trades just above the $78.00 mark, up over 0.10% for the day, though remains on track to register the third straight week of losses.

The stronger-than-expected US Gross Domestic Product (GDP) print released on Thursday raised hopes for increasing demand in the world's largest fuel consumer and turned out to be a key factor acting as a tailwind for Crude Oil prices. Furthermore, bets that the Federal Reserve (Fed) will begin its policy-easing cycle in September keep the US Dollar (USD) depressed below a two-week high touched on Wednesday and lend additional support to the commodity.

That said, concerns over sluggish growth in China – the world's top Oil importer – hold back traders from placing aggressive bullish bets around the black liquid and should cap any meaningful appreciating move. The worries were fueled by the GDP data released last week, which showed the Chinese economy grew less than expected in the second quarter. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further gains.

Market participants might also prefer to wait on the sidelines ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index, due later during the early North American session. The crucial inflation data should influence the Fed's rate-cut path, which will drive the USD demand and determine the next leg of a directional move for Crude Oil prices, which, so far, has been showing some resilience below the key 200-day Simple Moving Average (SMA).

• Gold price plunged to over a two-week low in reaction to the upbeat US macro data on Thursday.
• September Fed rate cut bets keep the USD bulls on the defensive and help limit any further losses.
• Traders also prefer to wait for the release of the US PCE Price Index before placing directional bets.

Gold price (XAU/USD) witnessed heavy selling following the release of the upbeat US macro data and dived to its lowest level in over two weeks on Thursday. The Advance Gross Domestic Product (GDP) estimate showed that the US economy expanded at a faster-than-expected pace and that inflation slowed during the second quarter of 2024. This, in turn, suggested that the US economy is still holding up well and infused some stability in the financial markets, which, in turn, weighed on the traditional safe-haven precious metal.

The optimism keeps the Gold price on the defensive during the Asian session on Friday, though expectations for an imminent start of the Federal Reserve's (Fed) rate-cutting cycle help limit the downside. Traders also seem reluctant and prefer to wait for the release of the US Personal Consumption Expenditures (PCE) Price Index later this Friday before placing directional bets. The crucial inflation data will play a key role in determining the Fed's policy path, which, in turn, will drive the US Dollar (USD) and the non-yielding yellow metal.

Daily Digest Market Movers: Gold price attracts some buyers amid dovish Fed-inspired modest USD weakness

• The US Bureau of Economic Analysis reported on Thursday that the economy grew at a 2.8% annualized pace during the April-June period as compared to the 1.4% rise in the previous quarter and 2% anticipated. 
• Further details revealed that the core Personal Consumption Expenditures Price Index – the Federal Reserve's preferred inflation gauge – decelerated to 2.9% from the 3.7% increase registered in the first quarter.
• Separately, data published by the US Department of Labor (DoL) showed that the number of individuals who filed for unemployment insurance benefits fell more-than-expected, to 235K in the week ending July 20. 
• Investors cheered the US economic resilience and dented demand for traditional safe-haven assets, which, in turn, exerted heavy downward pressure on the Gold price and dragged it to the lowest level since June 9.
• The markets, meanwhile, have fully priced in a September Fed rate cut move and anticipate two more rate cuts by year-end, keeping the US Dollar on the defensive and lending support to the non-yielding yellow metal.
• Traders now look forward to the release of the June US PCE Price Index for more cues about the Fed's policy/rate-cut path before determining and positioning for the next leg of a directional move for the XAU/USD. 

Technical Analysis: Gold price needs to find acceptance below 50-day SMA for bears to seize near-term control

From a technical perspective, the Gold price showed some resilience below the 50-day Simple Moving Average (SMA) for the second straight day on Friday and for now, seems to have snapped a two-day losing streak. Hence, some follow-through selling below the overnight swing low, around the $2,353 area, is needed to support prospects for an extension of the recent corrective decline from the all-time peak touched last week. 

Meanwhile, oscillators on the daily chart have just started gaining negative traction, suggesting that the path of least resistance for the XAU/USD is to the downside and that any further recovery is likely to attract fresh sellers near the $2,380 region. The next relevant hurdle is pegged near the $2,391-2,392 zone ahead of the $2,400 mark, above which a fresh bout of a short-covering should lift the metal towards the weekly top, around the $2,432 region.

On the flip side, acceptance below the 50-day SMA and a subsequent break through the $2,350 support, will be seen as a fresh trigger for bearish traders. The Gold price might then aim to challenge the 100-day SMA, currently pegged near the $2,325-2,324 region. The latter should act as a key pivotal point, which if broken should pave the way for a slide towards testing sub-$2,300 levels, or June monthly swing lows.

• The Indian Rupee recovers some lost ground in Friday’s Asian session. 
• The renewed US Dollar demand and India’s foreign outflows might undermine the INR. 
• US PCE data for June will be in the spotlight on Friday.

The Indian Rupee (INR) posts modest gains on Friday on the weaker Greenback. The month-end US Dollar (USD) demand and India’s foreign outflows drag the INR lower to an all-time low on Thursday. Forex traders said foreign fund outflows from Indian equities following the government’s decision to raise capital gains tax from equity investments and equity derivative trades might weigh on the local currency in the near term. 

However, the potential intervention from the Reserve Bank of India (RBI) might cap the INR’s downside, with support from record-high foreign exchange reserves. Investors will closely monitor the US Personal Consumption Expenditures (PCE) Price Index data for June on Friday. The headline PCE is expected to show an increase of 0.1% MoM in June, while the Fed’s preferred measure of inflation, the Core PCE, is expected to ease to 2.5% YoY in June from 2.6%. The softer PCE inflation data could pave the way for the Fed to lower its key interest rate as soon as September and might weaken the USD. 

Daily Digest Market Movers: Indian Rupee recovers, but the potential upside seems limited

• Importers have been aggressively purchasing the US Dollar to benefit from a relatively lower rate of crude oil prices in recent weeks, according to forex traders.
• US Gross Domestic Product (GDP) grew at a 2.8% annualized pace adjusted for seasonality and inflation from 1.4% in the previous reading, exceeding forecasts of 2%. 
• US Initial Jobless Claims for the week ending July 20 increased by 235K, compared to the previous week of 245K, less than the expected 238K. 
• US Durable Goods Orders dropped by 6.6% MoM in June from a 0.1% increase in May, below the consensus of 0.3%. Meanwhile, Core Durable Goods ex Transportation rose by 0.5% MoM in June, up from a 0.1% decline and better than a projection of 0.2%.
• Traders have priced in 92.8% odds that the Fed will maintain its benchmark interest rate between 5.25% and 5.50% at its upcoming July meeting next week, according to the CME FedWatch Tool.

Technical analysis: Indian Rupee remains weak in the longer term

The Indian Rupee trades with mild gains on the day. The USD/INR pair maintains the uptrend, characterized by higher highs and higher lows while holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Furthermore, the 14-day Relative Strength Index (RSI) holds above the midline near 62.45, indicating bullish momentum. 

The immediate resistance level for the pair will emerge at the all-time high of 83.85. Extended gains above this level could take USD/INR to the 84.00 psychological mark. 

On the other hand, any follow-through selling below 83.65, a low of July 23, might drag the pair lower to 83.51, a low of July 12. The potential support level is seen at 83.42, the 100-day EMA. 

• The Japanese Yen struggles after the release of the Tokyo CPI data on Friday.
• The JPY’s downside may be limited as traders may continue unwinding their carry trades ahead of the BoJ meeting.
• The US Dollar appreciates as recent US economic data have reduced rate cut expectations for September.

The Japanese Yen (JPY) extends its losses against the US Dollar (USD) on Friday after the Statistics Bureau of Japan released the Tokyo Consumer Price Index (CPI) data. However, the Yen’s decline might be restrained as traders potentially unwind their carry trades ahead of the Bank of Japan's two-day policy meeting, concluding on Wednesday. During the meeting, the board will discuss the possibility of raising interest rates and outline details on tapering its extensive bond purchases.

Japan's top currency diplomat, Masato Kanda, informed the G20 on Friday that foreign exchange (FX) volatility negatively impacts the Japanese economy. He noted an increasing likelihood of a soft landing and emphasized the need to closely monitor the economy and implement necessary measures, according to Reuters.

The US Dollar received support as stronger US economic data have reduced some rate cut expectations for September. On Friday, attention will be on the release of the Personal Consumption Expenditures (PCE) Price Index for June.

On Thursday, the US Gross Domestic Product (GDP) for the second quarter (Q2) was stronger than expected. This follows Wednesday’s US PMI data, which indicated a faster expansion in private-sector activity for July, highlighting the resilience of US growth despite elevated interest rates.

Daily Digest Market Movers: Japanese Yen declines after the inflation data

• The headline Tokyo CPI for July increased by 2.2% year-over-year, slightly down from the previous 2.3% rise. The Tokyo CPI excluding Fresh Food and Energy went up by 1.5% YoY, compared to the earlier increase of 1.8%. Moreover, the CPI excluding Fresh Food also rose by 2.2% in July, matching market expectations.
• Bank of America indicates that strong economic growth in the United States allows the Federal Open Market Committee (FOMC) to "afford to wait" before making any changes. The bank states that the economy "remains on robust footing" and continues to expect the Fed to start cutting rates in December.
• According to CME Group’s FedWatch Tool, markets now indicate an 88.6% probability of a 25-basis point rate cut at the September Fed meeting, up from 94.0% a week earlier.
• On Thursday, the US GDP grew at an annualized rate of 2.8%, adjusted for seasonality and inflation, up from the previous reading of 1.4% and surpassing forecasts of 2%. Additionally, Initial Jobless Claims fell to 235K in the week ending July 19, compared to the previous reading of 243K and the expected 238K.
• On Wednesday, Japanese Finance Minister Shunichi Suzuki, Chief Cabinet Secretary Yoshimasa Hayashi, and top currency diplomat Masato Kanda avoided commenting on foreign exchange matters, according to Reuters.
• The Japanese Cabinet Office kept its economic assessment unchanged for July but cautioned about a bleak outlook, noted in its monthly report on Thursday. The government also downgraded its evaluation of exports, indicating that they are stagnating.
• The BlackRock Investment Institute noted in its mid-year outlook that Japan’s economic recovery and rising inflation make its equity market one of its strongest convictions. The firm anticipates that the Bank of Japan will not raise interest rates at next week's meeting.
• Reuters reported on Monday that a senior official in the ruling party, Toshimitsu Motegi urged the Bank of Japan (BoJ) to more clearly communicate its plan to normalize monetary policy through gradual interest rate hikes, according to Reuters. Prime Minister Fumio Kishida added that normalizing the central bank’s monetary policy would support Japan's transition to a growth-driven economy.
• JP Morgan has anticipated no rate hike from the Bank of Japan (BoJ) in July or at any point in 2024. A July rate increase is not their base case, and they do not expect any hikes for the remainder of 2024. They believe it is too early to adopt a bullish stance on the Yen.

Technical Analysis: USD/JPY hovers around 154.00

USD/JPY trades around 154.00 on Friday. The daily chart analysis shows that the USD/JPY pair has returned to the descending channel, indicating the weakening of a dovish bias. However, the 14-day Relative Strength Index (RSI) is positioned at the level of 30, indicating an oversold situation and a potential short-term rebound.

The USD/JPY pair may test the lower boundary of the descending channel around the level of 153.50, followed by May's low of 151.86 level. Further support could be found at the psychological level of 151.00.

On the upside, the USD/JPY pair may test the “throwback support level turned resistance” around the 154.50 level. Further resistance appears at the nine-day Exponential Moving Average (EMA) of 155.80, followed by the upper boundary of the descending channel around 156.60.

USD/JPY: Daily Chart

On Friday, the People’s Bank of China (PBOC) set the USD/CNY central rate for the trading session ahead at 7.1270, as against the previous day's fix of 7.1321 and 7.2229 Reuters estimates.

• AUD/USD attract some buyers and snaps a nine-day losing streak to its lowest level since early May.
• A modest recovery in the equity markets undermines the USD and lends some support to spot prices.
• China’s economic woes might cap gains as traders now await the release of the US PCE Price Index.

The AUD/USD pair ticks higher during the Asian session on Friday and moves further away from its lowest level since early May, around the 0.6515 region touched the previous day. Spot prices currently trade just below mid-0.6500s and for now, seem to have snapped a nine-day losing streak amid subdued US Dollar (USD) price action.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, remains confined in a familiar range held over the past week or so as traders seek more clarity about the Federal Reserve's (Fed) rate-cut path before placing directional bets. Hence, the focus will remain glued to the release of the US Personal Consumption Expenditures (PCE) Price Index, due later today, which could influence the Fed's future policy decisions and drive the USD demand. 

Meanwhile, the markets reacted little to Thursday's upbeat US macro data, showing that the world's largest economy expanded by a 2.8% annualized rate during the April-June period as compared to the 2% rise anticipated. Additional details of the report revealed that the core PCE Price Index – the Fed's preferred inflation gauge – decelerated from 3.7% to 2.9% during the reported period. Furthermore, the US Initial Jobless Claims dropped to 235K last week vs. 238K expected. 

The data suggested that the US economy still holding up well, which, in turn, should act as a tailwind for the Greenback. Apart from this, persistent worries about a slowdown in China – the world's second-largest economy – might hold back traders from placing aggressive bullish bets around the China-proxy Australian Dollar (AUD). This makes it prudent to wait for strong follow-through selling before confirming that the AUD/USD pair has bottomed out in the near term.

• USD/CAD trades in negative territory around 1.3815 in Friday’s Asian session. 
• Economic activity in the US was stronger than expected during the second quarter. 
• The growing bets that the BoC would continue to cut interest rates weigh on the Loonie. 

The USD/CAD pair trades with mild losses near 1.3815, snapping the seven-day winning streak during the early Asian session on Friday. However, the pair currently trades near the highest level since April 17 after the Bank of Canada (BoC) reduced its key borrowing rates again at its July meeting. The US Personal Consumption Expenditures (PCE) - Price Index for June will take centre stage later on Friday. 

Data released by the Commerce Department showed on Thursday that an initial estimate of US Real Gross Domestic Product (GDP) during the April-through-June period, expanded at a 2.8% annualized pace adjusted for seasonality and inflation. This figure came in better than the market expectation of 2.1% following a 1.4% rise in the first quarter.

Currently, there's a 92.8% chance that the US Federal Reserve (Fed) will maintain its benchmark interest rate between 5.25% and 5.50% at the upcoming July meeting next week, according to the CME FedWatch Tool. Nonetheless, the release of the US PCE on Friday might offer some hints about the Fed interest rate path. The softer reading could weaken the Greenback and cap the pair’s upside.

The Canadian Dollar (CAD) remains under selling pressure as investors expect the Bank of Canada (BoC) to continue to ease policy after its latest interest rate cut on Wednesday. Financial markets expect one more 25 bps rate cut this year, with nearly 60% odds that the BoC will cut rates again in its September meeting. Meanwhile, the recovery of crude oil prices might provide some support to the commodity-linked Canadian Dollar. Higher oil prices generally lift the CAD as Canada is the leading exporter of Oil to the United States (US).