• USD/CHF holds lower grounds after witnessing the Fed-inspired heavy daily losses.
• Fed’s 0.75% rate hike couldn’t impress USD bulls as Chairman Powell sounds normal.
• SNB is less likely to alter current interest rates but hints for September rate hike will be crucial to watch.
• SNB Monetary Policy Statement, Governor Macklem’s press conference will be eyed too.

USD/CHF remains depressed around mid-0.9900s, after posting the biggest daily loss in three weeks, as traders await the Swiss National Bank’s (SNB) monetary policy decision. The Swiss currency’s (CHF) inaction during Thursday’s Asian session could also be linked to a light calendar and fewer catalysts amid the post-Fed relaxation.

That said, the US Federal Reserve (Fed) announced the biggest interest rate hike since 1994 to battle inflation fears. The US central bank also revised up inflation forecasts for this year and the next while cutting down the inflation expectations. Further, the policymakers also signaled either a 50 bp or 75 bp rate hike in the next meeting. However, the Fed’s rejection of the odds of a 100 bp rate increase and Chairman Jerome Powell’s measured comments seem to have drowned the Treasury yields and the US dollar afterward.

It’s worth noting that the quarterly report of the Swiss State Secretariat for Economic Affairs (SECO) revised GDP forecasts to 2.6% versus 2.8% previous expectations for 2022 while also cutting down the 2023 GDP predictions to 1.9% from 2.0%. The SECO report also quoted government warning risks stemming from the war in Ukraine and food and energy inflation has increased.

On the other hand, US Retail Sales marked a contraction of 0.3% MoM versus an anticipated growth of 0.2% and downwardly revised 0.7% previous readings. Also, the NY Empire State Manufacturing Index dropped to -1.2 compared to 3.0 market consensus and -11.6 prior.

Looking forward, USD/CHF moves are likely to depend upon the SNB’s reaction to the latest inflation fears. The Swiss central bank isn’t expected to alter the benchmark rate, currently at -0.75%. However, signals for a September rate hike will be a welcome sign for the USD/CHF bears. “Twenty-four of 26 economists expect the SNB to keep its policy rate steady at minus 0.75%, the lowest in the world and the rate it has maintained since 2015,” said the latest Reuters poll on SNB.

Technical analysis

USD/CHF pulls back from the 1.0050 hurdle amid nearly overbought RSI conditions, suggesting further declines. However, a two-week-old support line, near 0.9930 by the press time, restricts the pair’s immediate downside.

• Silver struggles to extend Fed-inspired rally as bulls jostle with a short-term key resistance confluence.
• 10-DMA, weekly descending trend line restricts immediate upside.
• Sluggish MACD, RSI challenges further upside, bears need validation from monthly horizontal support.

Silver (XAG/USD) prices remain sidelined at around $21.70, following the biggest daily jump in over three months, as bulls struggle to cross the key hurdle during Thursday’s Asian session.

That said, bright metal rallied over 3.5% to post the biggest daily rise since early March after the US Federal Reserve’s (Fed) monetary policy decision. However, a convergence of 10-DMA and a downward sloping trend line from June 06 challenges the XAG/USD upside around $21.75.

Not only the $21.75 resistance confluence but sluggish MACD and steady RSI (14) also challenge the commodity’s immediate upside.

It’s worth noting that a quote’s run-up beyond the $21.75 hurdle enables the silver buyers to aim for a downward sloping resistance line from early May, around $22.25 by the press time, a break of which could direct the bulls to the 50-DMA resistance level of $22.71.

Alternatively, pullback moves need validation from a one-month-old horizontal support area surrounding $21.40-45.

Should the XAG/USD prices drop below $21.40, a fall towards the $21.00 threshold will be imminent before the monthly low and May’s bottom, respectively around $20.90 and $20.45 lures the metal sellers.

Silver: Daily chart

Trend: Pullback expected 

• The GBP/JPY trims weekly losses though prevails down, losing 1.34%.
• The cross-currency is trading near the top of a bearish flag.
• GBP/JPY upward break above the bearish flag might send the cross towards 164.00.

The GBP/JPY is recovering some ground, following a 700 pip drop from YTD highs around 168.70s towards 161.30s, courtesy of constant verbal intervention by Japanese authorities, expressing that fundamentals need to reflect the yen value. At 163.19, the GBP/JPY jumped from weekly lows, gaining 0.20% as the Asian session kicked in.

Asian equity futures rise, depicting an upbeat market mood. Investors appear calmed that the US Fed raised rates 75 bps, though the US central bank put a lid on the size of subsequent movements to the Federal funds rate (FFR), easing tensions of aggressive increases.

GBP/JPY Price Forecast: Technical outlook

1-hour chart

Elsewhere, the GBP/JPY marches firmly within the boundaries of a bearish flag, as illustrated in the 1-hour chart. The cross-currency reclaimed the 50-simple moving average (SMA) at 162.63 and accelerates to the top of the bearish flag.

If the GBP/JPY breaks upwards, that would invalidate the bearish flag and open the door for further gains. The cross-currency first resistance would be the R1 daily pivot at 163.44. Once cleared, it would pave the way to the confluence of the 100-SMA and the R2 daily pivot at 164.01-05, followed by June’s 13 high at 164.32.

On the flip side, the GBP/JPY first support would be the confluence of the 50-SMA and the central pivot point at around 162.58-62. A breach of the latter would send the pair towards the bottom of the bearish flag around 162.20. Once broken, the following demand zone would be the S1 daily pivot at 162.00

Key Technical Levels

• AUD/NZD has reversed its intraday gains and has tumbled again to near 1.1150.
• The quarterly and annual GDP have landed at -0.2% and 1.2% respectively.
• This week, investors’ focus will remain on the aussie employment data.

The AUD/NZD pair has pared most of its gains recorded on the release of the downbeat Gross Domestic Product (GDP) data by Statistics New Zealand. A country’s GDP data states its overall economic growth and possess significant importance. The GDP has tumbled to 1.2%, significantly lower than the estimates of 3.3% and the prior print of 3.1%on an annual basis. More adverse, the quarterly figures have shifted to negative territory. The quarterly GDP has landed at -0.2%, much lower than the consensus and the former figure of 0.6% and 3% respectively.

A vulnerable performance by the kiwi economy on the economic growth front has weakened the kiwi dollar against aussie. The cross has confidently overstepped 1.1165 and is expected to extend further considering the upside momentum.

On the aussie front, investors are awaiting the release of the labor market data due in the Asian session. The Australian Bureau of Statistics is expected to report a significant improvement in the employment generation opportunities program. As per the market estimates, the Australian economy has added 25k in May, principally higher than the 4k job additions reported earlier. Also, the Unemployment Rate is expected to reduce to 3.8% from the prior print of 3.9%.

An upbeat employment data will delight the Reserve Bank of Australia (RBA) to tighten its policy further without much fear of a slowdown in employment opportunities. It is worth noting that the RBA elevated its Official Cash Rate (OCR) by 50 basis points (bps) in the first week of June and more rate hikes are expected going forward.

“Food price inflation in Britain is likely to peak at up to 15% this summer and high levels will persist into 2023, industry researcher the Institute of Grocery Distribution (IGD) said on Thursday,” per Reuters.

The news also mentioned that IGD predicted that the average monthly spend on groceries for a typical family of four would reach 439 pounds ($528) in January 2023, up from 396 pounds in January 2022.”

On a different path, the Financial Times (FT) said, “A sharp rise in the number of people dropping out of the UK workforce has been largely because of older workers choosing to retire early, according to new analysis by the Institute for Fiscal Studies.”

FT also adds, “Almost half a million fewer people were in paid work in first quarter than before pandemic.”

Furthermore, Reuters said that Brexit is no reason to radically alter British financial regulation and regulators should not be forced to water down rules to boost London’s competitiveness, or stray from global standards, a UK parliamentary committee report said on Thursday.

GBP/USD braces for BOE

Following the news, GBP/USD retreats to 1.2160, paring the post-Fed gains, as the cable traders await the Bank of England’s (BOE) monetary policy decision.

Also read: BOE Preview: Why GBP/USD set to suffer even in response to a 50 bps hike, a lose-lose event

• NZD/USD takes offers to refresh intraday low after NZ Q1 GDP disappoints.
• New Zealand Q1 GDP drops to -0.2% QoQ versus 0.6% expected.
• Fed’s rate hike, economic forecasts failed to impress USD bulls on Powell’s measured tone.
• Aussie data/events, risk catalysts can entertain intraday traders.

NZD/USD fails to hold the post-Fed gains as it slumps nearly 20 pips after New Zealand’s Q1 Gross Domestic Product (GDP) release on early Thursday morning in Asia. That said, the quote rose the most in a week the previous day before dropping back to 0.6265 at the latest.

New Zealand’s Q1 GDP dropped to -0.2% on QoQ compared to 0.6% market forecasts and 3.0% previous readings. Further details suggest the YoY figures easing to 1.2% versus 3.3% market consensus and 3.1% prior.

Ahead of the NZ GDP release, global rating agency Fitch mentioned that New Zealand's large banks are well-placed for rising interest rates, suggesting Fed-liked interest rate announcements, which in turn should have favored the NZD/USD buyers but could not. The reason could be linked to the market’s consolidation of the Fed-linked moves amid a quiet Asian session.

The US Federal Reserve (Fed) announced the biggest interest rate hike since 1994 to battle inflation fears. The US central bank also revised up inflation forecasts for this year and the next while cutting down the inflation expectations. However, the Fed’s rejection of the odds of a 100 bp rate increase and Chairman Jerome Powell’s measured comments seem to have drowned the Treasury yields and the US dollar afterward. The policymakers also signaled either a 50 bp or 75 bp rate hike in the next meeting.

Looking forward, NZD/USD traders will pay attention to Australia’s data/events including Consumer Inflation Expectations for June, the jobs report for May and the Reserve Bank of Australia’s (RBA) quarterly Bulletin. However, major attention will be given to the Asian market’s reaction to the Fed moves, as well as the US data/events.

Technical analysis

NZD/USD fades the bounce off yearly low below the two-week-old resistance line, around 0.6320 by the press time, which in turn suggests the quote’s further fall towards retesting the yearly bottom surrounding 0.6200.

New Zealand’s first quarter (Q1) 2022 Gross Domestic Product (GDP) dropped to -0.2% on QoQ compared to 0.6% market forecasts and 3.0% previous readings.

Further details suggest the YoY figures easing to 1.2% versus 3.3% market consensus and 3.1% prior.

Following the NZ GDP data release, NZD/USD refreshed intraday low to 0.6265 by flashing a 15-pip downside. That said, the pair rallied the most in two weeks the previous day after the Fed’s 75 bp rate hike.

About New Zealand GDP

The Gross Domestic Product (GDP), released by Statistics New Zealand, highlights the overall economic performance on a quarterly basis. The gauge has a significant influence on the Reserve Bank of New Zealand’s (RBNZ) monetary policy decision, in turn affecting the New Zealand dollar. A rise in the GDP rate signifies improvement in the economic conditions, which calls for tighter monetary policy, while a drop suggests deterioration in the activity. An above-forecast GDP reading is seen as NZD bullish.

• A swift move above the 20- and 50-EMAs has strengthened the pound bulls.
• The cable has attacked the formed inventory distribution, which supports the bullish reversal.
• A (60.00-80.00) bullish range shift by the RSI (14) adds to the upside filters.

The GBP/USD pair displayed a firmer rebound after hitting a low of 1.1933 on Wednesday. The asset witnessed a responsive buying action as the market participants found it a value bet and initiates significant longs, which drove it higher swiftly. The pound bulls have attacked the round-level barricade of 1.2200 and are expected to overstep the same for further upside.

The formation of a buying tail near the lowest prices dictates a firmer responsive buying, which states that the greenback bulls’ party is over now. An upside drive in cable has challenged the former inventory distribution, which placed in a narrow range of 1.2107-1.2208. A vertical upside move into the former balancing area strengthens a bullish reversal.

The pound bulls are auctioning above the 20- and 50-period Exponential Moving Averages (EMAs) at 1.2103 and 1.2113 respectively, which signals a short-term bullish trend.

Also, the Relative Strength Index (RSI) (14) has shifted into a bullish range of 60.00-80.00, which adds to the upside filters.

A minor pullback towards the 20-EMA at 1.2103 will be a bargain buy for the market participants, which will drive the asset towards Wednesday’s high at 1.2205. A breach of the latter will unleash the pound bulls for a quick upside move towards the round-level resistance at 1.2300.

On the flip side, the greenback bulls could regain strength if the asset drops below the psychological support of 1.2000. This will drag the asset towards Tuesday’s low at 1.1934, followed by the 26 March 2020 opening price at 1.1879.

GBP/USD hourly chart

• AUD/USD remains sidelined after positing the biggest daily gains in six weeks.
• US Treasury yields, USD dropped after Fed matched wide market expectations by announcing 75 bp rate hike.
• Aussie employment numbers are expected to improve in May, Consumer Inflation Expectations, RBA Bulletin eyed as well.

AUD/USD grinds higher around 0.7000 as bulls take a breather following the Fed-inspired rally, the biggest daily jump since early May. That said, the Aussie pair’s inaction during the initial hours of Thursday morning in Asia could be linked to the cautious mood of traders ahead of Australia’s inflation expectations and employment numbers, as well as a light calendar by the press time.

Aussie bulls returned to the table after the US dollar failed to cheer the Fed’s 75 basis point (bp) rate hike. The pair’s gains could also be linked to the softer yields, firmer equities and upbeat gold prices, not to forget expectations of firmer jobs reports and RBA’s aggression.

The US Federal Reserve (Fed) announced the biggest interest rate hike since 1994 to battle inflation fears. The US central bank also revised up inflation forecasts for this year and the next while cutting down the inflation expectations. However, the Fed’s rejection of the odds of a 100 bp rate increase and Chairman Jerome Powell’s measured comments seem to have drowned the Treasury yields and the US dollar afterward. The policymakers also signaled either a 50 bp or 75 bp rate hike in the next meeting.

Following the Fed’s verdict, the US 10-year Treasury yields not only snapped the five-day uptrend but slumped the most since early March, by falling around 10 bps to 3.29%. The resulted in moves allowed Wall Street benchmarks to witness the biggest daily jump in over a week, as well as dragging the US Dollar Index (DXY) from a 20-year high to 104.87 at the latest.

It’s worth noting that the latest reaction to the Fed’s rate hike isn’t a signal for the AUD/USD pair’s trend reversal as the trader's eye monthly jobs report for May and Melbourne Institute’s Consumer Inflation Expectations for June. RBA’s Quarterly Bulletin will be important to watch too.

Forecasts suggest an improvement in the headline Employment Change by 25K versus 4K prior whereas the Unemployment Rate is expected to decline to 3.8% from the 3.9% forecast. Further, the Consumer Inflation Expectations were 5.0% at the latest.

“Despite the robust demand for labor as evinced by job vacancies, weekly payrolls remain weak; Westpac therefore anticipates employment to lift by 5k in May (vs. consensus +25k) with a clear risk of a negative print. A very small decline in participation should see the unemployment rate round down to 3.8%. MI inflation expectations should continue to hold at an elevated level in June,” said Westpac ahead of the release.

Technical analysis

Multiple levels marked since early May highlight 0.7030-35 as the immediate key hurdle to cross for the AUD/USD if bulls wish to keep the reins. Otherwise, a downside break of January’s low near 0.6965 could be enough to recall the bears.

• The USD/JPY is erasing its previous weekly gains and is losing 0.40%.
• A hawkish Fed hiked 75 bps in a dovish way.
• USD/JPY Price Forecast: Headed for a pullback before resuming the overall uptrend.

USD/JPY slides for the first time in the week, following a hawkish rate by the Fed, though smoothed it later by Fed’s Chairman Jerome Powell, who said that moves of that size, he does not expect them to be “common,” in response to that, the USD/JPY plunged close to 80 pips in just 10 minutes, giving way for a break below 134.00. At the time of writing, the USD/JPY is trading at 133.82, barely up 0.02% as the Asian session begins.

US equities finished Wednesday’s session with gains, reflecting a relief rally, while Asian stocks prepare for a higher open. The greenback remains on the defensive, as illustrated by the US Dollar Index (DXY) down 0.57%, trading at 104.874. US Treasury yields edged lower but stayed above the 3% threshold.

USD/JPY Price Forecast: Technical outlook

Daily chart

The USD/JPY daily chart depicts the pair as upward biased. Nevertheless, the last couple of cycle highs were recorded as the Relative Strenght Index (RSI) registered two peaks, but the second peak was lower than the previous one, meaning a negative divergence formed. That said, the USD/JPY might be headed for a pullback, targeting the May 9 daily high-turned-support at 131.34.

4-hour chart

The USD/JPY 4-hour chart illustrates the pair as upward biased. However, the negative divergence between price action and the RSI mentioned in the paragraph above is further reinforced in the present time frame. With that said, the USD/JPY first support would be the 50-simple moving average (SMA) in the 4-hour chart at 133.62. A breach of the latter would expose the S1 daily pivot at 133.00, followed by the S2 pivot point at 132.21.

Key Technical Levels

• Gold price is holding itself above $1,830.00 despite a 75 bps rate hike by the Fed.
• Solid economic growth in the US economy has facilitated the Fed to announce a 75 bps rate hike.
• The 10-year US Treasury yields have eased 5.50% on a mega rate hike by the Fed.

Gold price (XAU/USD) has witnessed a firmer rebound after hitting a low of $1,815.00 in the late New York session as the Federal Reserve (Fed) dictated a 75 basis point (bps) rate hike after its two-day policy discussion meeting. Fed chair Jerome Powell went beyond his words, took 75 bps into the consideration, and featured the same in the monetary policy decision.

As per the market consensus, a rate hike by 50 bps was expected, however, fresh prints of the US Consumer Price Index (CPI) reported last week, forced the Fed policymakers to move beyond the estimates and elevate the interest rates vigorously. Although various economies are facing the headwinds of higher inflation, their unsteady economic strength and inability to generate significant job opportunities are not providing them much room to stretch their benchmark rates. As per Fed Powell’s speech, the US economy is very strong and is well-positioned to handle tighter monetary policy.

Meanwhile, the 10-year US Treasury yields have plunged 5.50% and have settled at 3.9% on Wednesday. The US dollar index (DXY) has surrendered the psychological support of 105.00 and has slipped to near 104.60. A significant fall in the DXY and yields has supported the gold prices.

Gold technical analysis

The gold prices are attempting to balance above the supply zone placed in a narrow range of $1,831.70-1,833.88 on an hourly scale. The gold bulls have attacked the 200-period Exponential Moving Average (EMA) at $1,839.18 and a violation of the same will strengthen the precious metal. Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bullish range of 60.00-80.00, which adds to the upside filters.

Gold hourly chart

• AUD/JPY bears are in control of the longer-term time frames.
• The bulls, on the other hand, could be on the verge of a break of key short-term resistance. 

As per the hourly chart, despite the better mood in financial markets and a relief rally in US stocks, the bulls are not out of the woods yet, and may not find their way out according to the higher time frames. 

The following illustrates this in a top-down analysis as follows:

AUD/JPY daily chart

The trend is down and will remain so until the resistance highlighted above is cleared. A retest of the structure and a 38.2% Fibonacci retracement, however, is not out of the question. 

AUD/JPY H4 chart

The 4-hour chart's price inefficiency between resistance levels is a compelling feature that could offer an opportunity for bulls to scalp towards the 94.40s on a break of near-term resistance of 93.90.

AUD/JPY H1 chart

The hourly time frame shows that the price is accumulating and with a break of the aforementioned resistance levels, then the bulls could be in the running for a retest of 95.10 and 95.80 thereafter. 

What you need to take care of on Thursday, June 16:

Central banks are in the eye of the storm amid global stubbornly high inflation. The US Federal Reserve was the star of the day. The central bank hiked rates by 75 bps, the most significant hike since 1994, but dismissed the chances of a 100 bps hike. Chief Powell said it was the current pace of hikes is appropriate and that it could be either 50 or 75 bps in the next meeting, adding they are “front-loading.”

Overall, chief Powell managed to cool down market fears. US government bond yields sharply retreated, with that on the 10-year Treasury note currently at 3.29%. Wall Street, on the other hand, managed to end the day with gains. The Nasdaq Composite was the best performer, up 2.5%, while the DJIA added 1% and the S&P 500 recovered 1.46%.

US policymakers revised PCE inflation to 5.2% for this year, from 4.3% previously. Also seen at 2.6% in 2023, 2.2% in 2024. Growth for this year, on the other hand, has been downwardly revised to 1.7% from 2.8%.

Earlier in the day, the European Central Bank called for an emergency reunion. The ECB decided that it would apply flexibility in reinvesting redemptions coming due in the pandemic emergency purchase programme (PEPP) portfolio, concerned about the bonds’ sell-off over the last few days.

Also, Japanese Prime Minister Fumio Kishida noted that he expects the Bank of Japan to continue efforts to meet the price target. The BOJ is having a monetary policy meeting at the end of the week.

Meanwhile, the EU has announced new legal action against the UK government over its plans to scrap parts of the Northern Ireland Protocol. The UK aimed to change trade, tax and governance arrangements that disrupted trade in the kingdom. UK Prime Minister Boris Johnson’s spokesman said afterwards that the UK  is disappointed with the EU bringing legal action over the Brexit deal.

The EUR/USD pair bottomed at 1.0358, ending the day around 1.0450. GBP/USD was also able to recover and settled in the 1.2170 area. Commodity-linked currencies were able to advance against the greenback amid stocks’ rallies. AUD/USD trades around 0.7000, while USD/CAD hovers around 1.2900. The USD/JPY pair, in the meantime, pressures the base of its latest range, trading at 133.70.

Gold closed the day with gains at $1,834 a troy ounce, while crude oil prices kept retreating. The barrel of WTI now changes hands at $116.00.

• S&P 500 closes 1.46% higher post less hawkish Fed. 
• However, analysts argue that financial asset prices will remain under pressure.

US stocks closed higher Wednesday after the Federal Reserve approved its biggest interest-rate increase in nearly 30 years. However, the relief came in the words of the chairman, Jerome Powell, when speaking at the post-meeting press conference.

He said that he does not expect 75bps moves to be common, which was the magnitude that they were hiked by on Wednesday.  However, he did say that it may be necessary to raise rates by that magnitude again at the next meeting at the end of July if inflation has not moderated.

Powell said that front-loading rate increases over the next few meetings would give the FOMC more flexibility later in the year to slow down the pace of tightening if conditions allow it.

The Summary of Economic Projections now suggests another 175 basis points of increase by the end of 2022 to a median of around 3.4% and another 25 to 50 basis points of increase in 2023 to 3.8% before easing back to 3.4% in 2023. These levels are well above the 2.5% neutral rate.

• Fed swaps price 75bp rate hike for July; 140bp over July/Sept.
• US rate futures price in 93.4% chance of 75 bps hike in July; 55% probability of 50 bps rise in September after Fed decision - CME's FEDWATCH.

However, the expectations for overall PCE inflation were revised and are now sharply higher and the rates are expected to remain above the 2% target at least through that period. At the same time, expectations show slower growth and higher unemployment rates over the next three years than in the March SEP update.

Nevertheless, US stocks have breathed a sigh of relief, but ''until evidence emerges that inflation is peaking and on a sustained downwards track, financial asset prices will remain under pressure,'' analysts at ANZ Bank argued. 

• The US central bank raised rates by 75 bps, to 1.75%.
• Fed Chair Jerome Powell opened the door for 50 or 75 bps increases in the July meeting.
• The Federal Reserve would begin cutting rates in 2024, according to the Fed’s SEP.

The NZD/USD advanced after the Federal Reserve hiked 75 bps, the biggest rate increase since 1994, which sent the NZD/USD towards the daily low of around 0.6214. However, Fed Chair Powell shifted less hawkish than expected, so the New Zealand dollar got bid and is rallying above 0.6300, gaining 1.55%, during the day.

Sentiment remains positive, as traders have already priced in the expectations of a higher-than-expected rate increase. US equities record gains between 1.41% and 2.73%. In the FX space, the greenback is getting battered. Portraying the previously-mentioned is the US Dollar Index, falling 0.52%, back below the 105.000 figure.

In his press conference, Jerome Powell, the Federal Reserve Chair, said that “Clearly, today’s 75 basis point increase is an unusually large one and I do not expect moves of this size to be common.” However, he kept the door open for the July meeting, stating that 50 or 75 rate hikes are in play.

Recap of the FOMC’s statement

The Federal Reserve decision did not catch the markets off guard. The US central bank reiterated its commitment to reach the 2% target and reiterated that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

Concerning the US economic outlook, the board added that activity picked up after the Q1 negative reading. Regarding the reduction of the balance sheet, also known as Quantitative Tightening (QT), the plan started as revealed in May.

The aftermath of the monetary policy decision and Chair Powell’s press conference leaves a weaker US Dollar. US Treasury yields fell more than 10 basis points, from 2s-to-30s. The 10-year benchmark note yields 3.297%, almost 20 bps off highs.

The Federal Reserve Chair Jerome Powell reiterated at the press conference that ongoing increases are appropriate and emphasized that the labor market is extremely high and inflation too. Powell commented that when May inflation surprised to the upside alongside inflation expectations elevating, the FOMC decided that 75 bps was warranted in response.

Furthermore, in the same meeting, the Federal Reserve Open Market Committee (FOMC) unveiled the Summary of Economic Projections (SEP), which showed that the Fed reduced its expectations for growth from 2.8% in March to 1.7%, while the unemployment rate would uptick to 3.7% from 3.5% projected in March.

Concerning their inflation outlook, Fed policymakers estimate the Core PCE at 4.3%, more than the 4.1% foreseen in March. Regarding interest rates, the Federal Funds Rate by the end of 2022 is forecasted to increase by 3.4%, 150 bps more elevated than the 1.9% projected in March. Also, the FOMC expects rates to peak at around 3.8% in 2023, and they expect a rate cut by 2024.

Late in the day, the New Zealand economic docket will feature the Gross Domestic Product Growth Rates in the first quarter on a QoQ and YoY reading.

Key Technical Levels

• AUD/USD bulls turn it up on the back of a less hawkish Fed outlook. 
• The technicals now lean bullish, at least for the near term. 

AUD/USD is recovering on the back of a risk rally and relief that the Federal Reserve's chairman, Jerome Powell, is arguing the case for less aggressive tightening. This leads the technicals into a bullish outlook as per the following analysis below:

AUD/USD daily chart

From a daily perspective, the price is attempting to reach into the 0.7050s in a correction of the last leg of the M-formation's bearish impulse. This aligns with a 50% mean reversion. 

AUD/USD hourly chart

The bulls have cracked a number of hourly resistances in the move out of the downtrend and are un the runnings for higher corrective highs in the coming sessions. 

The Federal Reserve raise the key interest rate by 75 basis points on Wednesday, the biggest move since 1994. According to analysts at Wells Fargo, the action demonstrates FOMC’s growing concern over inflation as well as its increased commitment to restore price stability.

Key Quotes: 

“The statement and updated Summary of Economic Projections (SEP) showed the FOMC is prepared to continue to tighten policy at a historically aggressive pace. The median estimate for the fed funds rate at year-end rose to 3.375%, implying another 175 bps of tightening before the year is over.”

“Despite aiming to move policy into restrictive territory by year-end, the SEP continues to paint a rather optimistic picture of the economy ahead. GDP growth next year is expected to slow only slightly below trend, while inflation falls back to 2-3% and the unemployment rate rises modestly enough to where it remains within its "longer-run" neutral range. In our view, it will take a more material slowdown in economic growth to bring core inflation back to the FOMC's 2% target and more damage is likely to be inflicted to the labor market (or greater weakening in the labor market is likely to ensue).”

“Today's hike boosts the Fed's credibility and demonstrates that the door is open for similar adjustments at future meetings. This suggests to us a much more sensitive reaction function from the FOMC, and similar upside inflation surprises in the future very well may be met with equally aggressive upside surprises for the federal funds rate.”
 

Fed Chair Jerome Powell said in his post-Fed meeting press conference that the worst mistake that the Fed could make would be to fail to get inflation back down, reported Reuters. "We need to restore price stability," Powell reiterated, adding that the Fed wants to get the job done. 

Additional Remarks:

• "We are not seeing a wage-price spiral."
• "We think the public believes we'll get back down to 2%."
• "It's key that we sustain confidence in the Fed's ability to get inflation down."
• "Clearly inflation is incredibly unpopular and painful."
• "It will take some time to get inflation back down."
• "We need to make sure the public has the confidence we have the tools, and they do work, to get inflation down."
• "I think our projections meet the test of a softish landing."
• "I think we can get a softish landing."
• "But events have raised the degree of difficulty."
• "There is a much bigger chance that it will now depend on factors outside our control."
• "We just don't know if we can."
• "Fluctuations in commodity prices could take the possibility of a softish landing out of our hands."
• "If we see data going in a different direction and we will adapt policy."
• "This is a highly uncertain environment."
• "We are determined and resolved but flexible."
• "You couldn't get this kind of inflation without a change on the supply side."
• "On QT, I have no reason to think it will lead to liquidity issues."
• "We are watching to see how much rate rises will affect residential investment, house prices."
• "House prices might keep going up for a while due to supply constraints."
• "Prices in housing may keep going up for a while even when rates are going up."

• US dollar tumbles during Powell’s press conference after Fed rate hike.
• EUR/USD back in recent range, looking now at 1.0500.
• Wall Street adds to gains, and Treasury yields decline.

The EUR/USD bounced from near the May low and jumped back above 1.0450. As Powell’s press conference ends, the pair is hovering around 1.0460, almost 70 pips above the level it had before the FOMC statement.

A weaker dollar boosted the EUR/USD from the four-week low at 1.0357. It is back in the weekly familiar range. A break above 1.0500 should strengthen the recovery of the euro. On the flip side, under 1.0390 a new test of the year-to-date low at 1.0345/50 seems likely.

Fed moves, traders sell the fact

At the end of the June meeting, the Federal Reserve decided to raise its target interest range by 75 basis points, the biggest move since 1994. In the statement, the Fed mentioned that more rate hikes are coming and warned about the increasing risks of a recession.

Fed Chair Powell mentioned he does not expect 75bp rake hikes to be common. He said the pace of rate hikes will depend on incoming data. Inflation developments warranted a bigger hike at the June meeting, Powell commented.

The dollar turned lower after his comments while Wall Street indices rose sharply. The Dow Jones is up by 1.27% and the Nasdaq gains 2.80%. Treasuries recovered with the US 10-year yield falling to 3.33%.

The improvement in risk sentiment and lower US yields pushed the dollar to the downside across the board. The DXY is falling 0.70%, the worst day in almost a month. The rally of the dollar is being challenged at the moment.

Technical levels

Fed Chair Jerome Powell said in his usual post-Fed meeting press conference that if the Fed can bring inflation down whilst the unemployment rate only rises to 4.1%, that would be a successful outcome, as that is still a historically low level, reported Reuters. The Fed does not seek to put people out of work, of course, Powell continued, but it is not possible to sustain the current strong labour market in the absence of price stability. 

The Fed is not trying to induce a recession, Powell noted, restating the Fed's goal to get inflation back to 2.0% whilst maintaining a strong labour market. The pathway to achieving this has become more challenging, Powell conceded, noting that the Fed will get rates up to where ever they need to be in the coming months. 

The Fed is watching consumer spending very closely, Powell added, noting that while the Fed is seeing shifts in consumption, overall spending remains very strong. Consumer are spending and there is no sign of a broader slowdown in the economy, he continued, adding that the Fed sees the economy slowing a bit but still at healthy growth levels.  

• The US Federal Reserve decided to hike 75 bps, greatly influenced by last Friday’s hot 8.6% CPI reading.
• Fed Chair Powell does not expect moves of 75 bps to be common; the USD/CAD plunged from 1.2995 to 1.2915 as a reaction.
• The US central bank expects to cut rates by 40 bps in 2024.

The USD/CAD is erasing earlier gains after the Federal Reserve released its monetary policy statement and peaked at 1.2995. However, is nosediving once the Federal Reserve Chair Jerome Powell, at his presser, stated that he does not expect moves of 75 bps to be common but opened the door for the July meeting of raising rates in the 50-75 bps range. At the time of writing, the USD/CAD is seesawing in the 1.2920-40 range.

The Federal Reserve Chair Jerome Powell reiterated at the press conference that ongoing increases are appropriate and emphasized that the labor market is extremely high and inflation too. Powell commented that when May inflation surprised to the upside alongside inflation expectations elevating, the FOMC decided that 75 bps was warranted in response.

Summary of the FOMC monetary policy statement

The Fed reiterated that it is committed to returning inflation to its 2% target. They added that economic activity picked up after the negative print in the first quarter. Furthermore, the Fed would continue to reduce its balance sheet as planned in the May meeting.

The FOMC added that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

Additionally, in the same meeting, the Federal Reserve Open Market Committee (FOMC) unveiled the Summary of Economic Projections (SEP), which showed that the Fed reduced its expectations for growth from 2.8% in March to 1.7%, while the unemployment rate would uptick to 3.7% from 3.5% projected in March.

Concerning their outlook about inflation, Fed policymakers estimate the Core PCE at 4.3%, more than the 4.1% foreseen in March, while the Federal Funds Rate by the end of 2022 is estimated to increase to 3.4%, 150 bps more elevated than the 1.9% projected in March.

It’s worth noting that the Federal Reserve expects another 50 bps hike in 2023, and then in 2024 would be the first-rate cut

USD/CAD 1-hour chart

Key Technical Levels

Fed Chair Jerome Powell said on Wednesday in his post-Fed meeting press conference that if the Fed doesn't see progress on inflation, it will react, reported Reuters. However, Powell said that soon enough there will be some progress on bringing inflation back down and that he thinks the Fed's guidance is still credible. 

Additional Remarks:

• "It is unusual to get data late during the Fed's blackout period." 
• "We won't declare victory until we really see compelling evidence inflation is coming down."
• "We are going to be careful about declaring victory."
• "Our policy will be sensitive and flexible."
• "I do think our goal is to bring inflation down to 2% while the labor market remains firm."
• "What is becoming clear is many factors we don't control will play a large part in if that happens."
• "We can't control supply-side issues."
• "There is a path for us to keep a firm labor market, but it's not getting easier."

• The Fed is causing volatility in financial markets and GBP/USD bulls need to get above the resistance of 1.2125.
• 1.2100 area would be expected to act as support in the near term. 

At 1.2137, GBP/USD is bid and has tallied over 1.2% of gains on the day in a short squeeze that has come about during the Federal Reserve's chairman's comments in the press conference that has followed today's interest rate hike of 75bps. 

In what has been the biggest hike since 1994, the Fed has raised the benchmark interest to leave the target range standing at 1.50% - 1.75%. This was in line with expectations and as a consequence, there had been a  slow reaction in financial markets.

• Fed swaps price 75bp rate hike for July; 140bp over July/Sept.
• US rate futures price in 93.4% chance of 75 bps hike in July; 55% probability of 50 bps rise in September after Fed decision - CME's FEDWATCH.

However, during the presser, chairman Jerome Powell pushed back against the market's aggressive expectations of a series of big interest rate hikes. Powell said either 50bps or 75bps are most likely at the next meeting but that he does not expect 75bps moves to be common. Consequently, the USD dollar and short-term rates have eased back from their initial post-Fed rate hike highs on the day and this has given sterling bulls and the US stocks some relief. 

GBP/USD technical analysis

The price is carving out a channel to the upside and the bulls will need to get above the resistance of 1.1225 to open risk towards 1.22 the figure. 1.2100 area would be expected to act as support in the near term. 

Fed Chair Jerome Powell on Wednesday said in the post-Fed meeting press conference that demand in the US economy is still very hot and the Fed would like to see this moderate, reported Reuters.

Additional Remarks:

• "We'd like to see labor market in better balance."
• "The neutral rate is pretty low these days."
• "We are not going to be model driven."
• "The data shows that inflation expectations are still in place where short-term inflation is high but comes down sharply over the medium term."
• "Last week's University of Michigan inflation reading was quite eye-catching."
• "We also noticed the Fed's inflation expectations have moved up."
• "We felt we had to take that seriously."
• "Inflation expectations were a factor in today's decision."
• "We will react to incoming data."
• "We don't know how restrictive we need to be." 

The US economy is very strong and is well positioned to handle tighter monetary policy, Fed Chair Jerome Powell stated on Wednesday in the post-Fed meeting press conference. 

Additional Remarks:

• "We will do all we can to achieve our dual goals."
• "We always aim to provide as much clarity as we can about our intentions."
• "In the current circumstances, we think it helpful to provide more clarity than usual on policy."
• "When I offered guidance of 50 bps hike at the last meeting, I said that if data came in worse than expected, we would consider a more aggressive move."
• "The CPI data and inflation expectations data last week made us realize 75 bps was the way to go."
• "We want to see a series of declining monthly inflation readings."
• "We had expected to see inflation flattening out by now."
• "But inflation surprised to the upside."
• "We thought strong action was needed at this meeting."
• "We decided we needed to do more frontloading."
• "The next meeting could well be a decision between 50 bps and 75 bps."
• "It is desirable to be up to neutral on interest rates."
• "That would get us to a more normal range, and then would have optionality."
• "The Summary of Economic Projections really says that we want to see policy at modestly restrictive level at end of this year."
• "That is generally a range of 3 to 3.5%."
• "For much of the yield curve now, real rates are positive, but that's not true for the short end."

• Federal Reserve raises key rate by 75 bps.
• US dollar rises but then plummets at the beginning of Powell’s press conference. 

The USD/JPY dropped below 134.00 and hit a fresh daily low at 133.78 as Fed Chair Powell delivered initial remarks at the press conference following the FOMC meeting. The central bank raised the key interest rate by 75 basis points.

The dollar initially appreciated across the board but then reversed sharply, erasing gains in a few minutes. Stocks rebounded sharply and printed fresh highs while at the same time, US yields turned to the downside.

The Federal Reserve raised its target rate by 75 basis points, the biggest move since 1994. In the statement, the Fed mentioned that more interest rates are coming and warned there are increasing risks of a recession.

Chair Powell does not expect 75bp rake hikes to be common. The pace of rate hikes will depend on incoming data. He sees that inflation developments warranted a bigger hike at the June meeting. The dollar turned lower after his comments. The conference is taking place and remains a source of volatility.

Vulnerable while under 134.50

The USD/JPY four-hour chart is biased to the downside. A consolidation in USD/JPY below 133.50 would point to an extension of the correction, with the next support seen at 132.90. On the upside, immediate resistance is located at 134.40/50 and above at 135.00.

Technical levels

The Fed continues to see upside risks to inflation, Fed Chair Jerome Powell noted in the opening statement of his post-Fed meeting press conference. Supply chain constraints have been longer than anticipated and price pressures have broadened, with Covid-19 disruptions in China likely to make things worse ahead. 

The Fed is highly attentive to the risks of high inflation and is strongly committed to bringing it down, Powell continued, noting that the Fed's policy will continue to be adaptive ahead. Since the Fed's May meeting, inflation has surprised to the upside, he continued, with indicators of inflation expectations also rising. As a result, the Fed decided a larger interest rate hike was warranted, Powell stated. 

This continues the approach of expeditiously raising interest rates and will help to ensure longer-term inflation expectations remain well anchored, Powell explained. The Fed's projections are not a plan, as no one knows with any certainty where the economy will be in one year's time, Powell remarked. 

Nonetheless, the Fed will in the coming months be looking for compelling evidence that inflation is coming down and the pace of rate hikes will depend on this incoming data, Powell said, noting that he does not expect moves of 75 bps to be common. At the Fed's next meeting, a 50 or 75 bps rate hike is likely, he noted, saying that the Fed needs to be nimble given that there could be further surprises in store for inflation. 

• The US Federal Reserve hiked rates by 75 bps.
• The AUD/USD spiked to fresh highs as a reaction, then tumbled towards the 1-hour 50-SMA.
• The US Federal Reserve Chairman Jerome Powell’s press conference is to begin.

On Wednesday, the US Federal Reserve raised rates by 0.75%, not as initially expected by market participants, as Federal Reserve Chairman Jerome Powell discounted a hike of that size. Nevertheless, the article published on Monday about the possibility of the Fed raising rates by the abovementioned size proved true. At the time of writing, the AUD/USD seesaws around the 0.6915-70 range as a reaction to the Fed’s monetary policy meeting.

Summary of the FOMC monetary policy statement

The FOMC stated its commitment to return inflation to the 2 percent target. They added that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

Regarding the US economic outlook, the Fed noted that the economic activity picked up after the negative reading in Q1. They added that the Fed would continue reducing its holdings, so the Quantitative Tightening (QT) began.

Also, in the same meeting, the Federal Reserve Open Market Committee revealed the Summary of Economic Projections (SEP), which showed that the Fed reduced its expectations for growth from 2.8% to 1.7%, while the unemployment rate would uptick to 3.7% from 3.5% projected in March.

Regarding their outlook about inflation, Fed officials expect the Core PCE at 4.3%, higher than the 4.1%, while the Federal Funds Rate by the end of 2022 is expected at 3.4%, 150 bps more elevated than the 1.9% projected in March.

It’s worth noting that the Federal Reserve expects another 50 bps hike in 2023, and then in 2024 would be the first-rate cut. Nevertheless, contrary to what the Bank of England (BoE) said in their last meeting, slashing growth to negative territory, the Fed appears optimistic.

AUD/USD 1-Hour Chart

Key Technical Levels

Fed Chair Jerome Powell said in the opening statement of his usual post-Fed meeting press conference that the Fed is moving expeditiously to lift interest rates and that the Fed has resolve to restore price stability, reported Reuters. The US economy has been through a lot and is resilient, Powell continued, noting that it is essential to bring inflation down. The current picture is that the labour market is extremely tight and inflation is too high, he stated. 

Powell said the Fed thinks that ongoing interest rate increases are appropriate and that the Fed is also in the process of significantly reducing the size of its balance sheet. Activity in the housing sector appears to be softening, he continued, noting that the recent tightening of financial conditions ought to temper demand. 

The labour market has remained extremely tight and wage growth elevated, Powell stated, while labour supply has remained subdued and demand for labour strong. The Fed expects supply and demand conditions in the labour market to come into better balance and then temper wage gains, the Fed Chair noted.  

• Gold is under pressure as the US dollar firms on the back of the Fed. 
• The Fed raised as expected and now markets are tuned into the Chairman's presser.

The gold price has made little of a reaction to what was a well-telegraphed move from the Federal Reserve on Wednesday. The central bank has raised the benchmark interest rate by 75bps so to leave the target range standing at 1.50% - 1.75%. This was in line with expectations and as a consequence, there has been a mooted reaction in financial markets so far following plenty of positioning and volatility ahead of the event. 

The lift was the biggest hike since 1994 and the statement signals that there will be more o the same to come in the foreseeable future.

• Fed swaps price 75bp rate hike for July; 140bp over July/Sept.
• US rate futures price in 93.4% chance of 75 bps hike in July; 55% probability of 50 bps rise in September after Fed decision - CME's FEDWATCH.

As such, the greenback and front-end yields are bid following the decision and statement. Now markets await to hear from Fed's chairman, Jerome Powell which is where the meat on the bone for markets could be. 

Follow our live coverage of the Fed's policy announcements and the market reaction.

Gold technical analysis

From a technical perspective, the daily chart is poised for further downside while below the 61.8% ratio's confluence with the counter trendline.

On the hourly chart, the breakout points are illustrated as follows:

The W-formation is a reversion pattern that would be expected to keep the price hamstringed to the neckline and potentially see the bears take over.

• Federal Reserve hikes rates by 75bps.
• US dollar rises across the board, DXY at fresh cycle highs. 
• US yields move higher, 10-year back above 3.40%. 

The EUR/USD dropped to 1.0353 after the decision of the Federal Reserve. The US central bank raised interest rates and boosted the greenback.  The pair is approaching the five-year low it reached in May at the 1.0350 area.  A larger decline would see the lowest prices for the euro since 2002.

The EUR/USD remains under pressure, seeing strong support ahead around 1.0350 and resistance at 1.0400.

After its two-day meeting, the Federal Reserve raised rates by 75 basis points, the largest hike since 1994. In the statement it mentioned that more interest rates are coming and increasing risk of a recession. Attention now turns to Jerome Powell's press conference. 

The US dollar gained momentum across the board after the release of the FOMC statement. The DXY hit fresh multi-year highs above 105.70. US stocks trimmed gains and hits fresh lows, although still holding in positive territory for the day.

Technical levels

The US Federal Reserve on Wednesday announced that it had lifted interest rates by 75 bps to 1.50-1.75%, as expected. The vote split was 10 to one, with Esther George favouring a 50 bps rate hike. The US central bank said in its statement that it anticipates ongoing increases to interest rates to be appropriate, noting that it is strongly committed to returning inflation to 2.0%. 

The Fed released its quarterly economic projections. It now sees PCE inflation ending 2022 at 5.2%, up from 4.3% in March, ending 2023 at 2.6%, at 2.2% in 2024 and then back to 2.0% in the long run. The Fed said it sees US real GDP growth at 1.7% in 2022, down from 2.8% in its March forecasts, then growing at a pace of 1.7% in 2023 and 1.9% in 2024, before then growing at a long-run rate of 1.8%.  

The Fed also released its latest dot-plot, which shows where policymakers expect rates to be at the end of 2022, 2023 and 2024. The median view amongst Fed members is that interest rates ill end 2022 at 3.4%, well up from the last dot-plot back in March, when the median view was 1.9%. Rates are then seen ending 2023 at 3.8%, before dropping back to 3.4% by the end of 2024. The Fed's long-run view of interest rates was lifted slightly to 2.5% from 2.4% back in March. 

Click here for real-time coverage of the Fed's policy announcement.  

Market Reaction

The dollar saw kneejerk upside in wake of the Fed's 75 bps rate hike and hawkish new set of economic forecasts (which see much higher inflation) and dot-plot rate guidance. Some analysts had been still thinking the Fed might lift interest rates by 50 bps, so these dovish bets being priced out is the reason for the kneejerk rally.

The DXY momentarily hit fresh multi-decade highs near 105.80, but has since fallen back to close to 105.60. 

• The GBP/USD remains negative in the week, down by 1.76%.
• An upbeat market sentiment ahead of the US central bank decision keeps equities in the green.
• Mixed US economic data, mainly ignored by investors, ahead of the Fed decision.

The British pound gained some ground on Wednesday and trimmed five days of consecutive losses after reaching a 2-year low at around 1.1935. However, the GBP/USD stages a recovery and is back above the 1.2000 mark, trading at 1.2092, up by 0.81% at the time of writing.

Positive sentiment and lower US Treasury yields, a tailwind for GBP/USD

The pullback in US Treasury yields weighed on the greenback against the pound. The US 10-year Treasury yield is sliding five bps, at 3.418%. Meanwhile, the US Dollar Index, a measure of the buck’s value against some peers, records minimal losses of 0.06%, down at 105.411.

Sentiment remains positive, with US equities trading in the green. In the meantime, the US economic docket featured May’s US Retail Sales, which missed monthly expectations and decreased by -0.3% MoM, lower than April’s downward revision to 0.7%. However, excluding autos and gas, it rose 0.1% MoM but trailed the previous month’s figure. At the same time, June’s NY Empire State Manufacturing Index rose to -1.2, worse than estimations but better than the -11.6 May reading.

Despite the ongoing correction, analysts at Scotiabank expected cable to fall below 1.2000. They wrote in a note that “In addition to the UK’s economic weakness, EU-UK tensions over No10’s push to unilaterally re-write the Northern Ireland Protocol and Sturgeon’s push for a Scottish independence vote next year are weighing on GBP sentiment.”

“We think the BoE will deliver a less hawkish message than markets are expecting tomorrow that combined with a large hike from the Fed today risks losses extending a few cents below 1.20 in coming weeks,” Scotiabank analysts said.

Key Technical Levels

• Gold is poised for another downside but a short squeeze is not off the table.
• The Fed at the top of the hour is expected to seal the deal one way or another.

As per the pre-open analysis on gold for the week, Gold, Chart of the Week: XAU/USD bulls need to commit or face an avalanche of supply, where the bears committed to below $1,885, the downside risk to May 16 lows at $1,786 and beyond have been opened.

The W-formation's neckline failed to support and as such, the price has broken not only that horizontal support but also the dynamic trendline support as follows:

With the price embedded deeply below resistances, the bulls have a tall order if they are going to break out o the bear's cage. The path of least resistance is to the downside. With that being said, volatility could see retests of resistance, where the 61.8% Fibo aligned with the counter trendline will be the last defence on the upside. A sell-the-news rally could catalyze a counter-intuitive knee-jerk reaction in gold.

Analysts at TD Securities said,  ''with markets already nearly fully pricing in two consecutive 75bp hikes, gold and risk markets alike could be set-up for a short-squeeze, which has typically served to shake weak shorts out of the markets and spark some optimism that the worst is over, which ultimately sets the market up for the next leg lower thereafter.'' 

The Fed's communication will be key in this regard, no matter if today they hike by 50 or 75bps. A 100bp hike would be a catalyst for huge volatility but the yellow metal should ultimately succumb to the Fed's fight against inflation.

Jerome Powell, Chairman of the Federal Reserve System, will be delivering his remarks on the monetary policy outlook at a press conference following the meeting of the Board of Governors. Powell's speech will start at 18:30 GMT.

Follow our live coverage of the Fed's policy announcements and the market reaction.

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

• The USD/CHF extends its weekly rally and is up by 1.60%.
• Risk appetite is back as stocks rally, and safe-haven peers suffer.
• USD/CHF Price Forecast: Might test new YTD highs, otherwise, would be vulnerable to selling pressure.

The USD/CHF clings to parity for the second consecutive day, trading at 1.0028, recording minimum gains of 0.11%, ahead of the US Fed monetary policy decision.

Positive sentiment is weighing on safe-haven peers, in this case, the Swiss franc. European and US stocks are recovering, but the correction could be short-lived unless Fed Chair Powell & Co disappoints investors. In the meantime, the greenback remains in the driver’s seat.

The US Dollar Index, a gauge of the buck’s value against a basket of six currencies, edges up 0.04% and clings to 105.516. Contrarily, US Treasury yields are under pressure. The 10-year benchmark note rate falls eight basis points, yielding 3.395%.

In the meantime, the USD/CHF Wednesday’s price action remained choppy, but in the mid-European session, the major dropped below the parity and printed a daily low at 0.9961, just below the daily pivot point. Nevertheless, the pair jumped above 1.000 and may remain around that level into Fed’s decision.

USD/CHF Price Forecast: Technical outlook

The USD/CHF daily chart depicts the pair as upward biased, but it appears the price is overextended. For USD/CHF bulls is crucial a break to new year-to-date highs above 1.0064 because failure to do that would leave the major exposed to selling pressure and could form a double top.

The USD/CHF 1-hour chart illustrates that the major is battling near this week’s highs around 1.0037. It’s worth noting that the 50-hour simple moving average (SMA) at around 0.9971 was tested earlier during the day but acted as a dynamic support level.

If the USD/CHF is headed towards new YTD highs, the first resistance would be 1.0064. A breach of the latter would expose the R1 daily pivot at 1.0080, followed by the 1.0100 figure. On the other hand, failure to conquer new highs, the USD/CHF first support would be the parity (1.0000). Break below would expose the daily pivot point at 0.9980, followed by the confluence of the 100-hour SMA and the S1 pivot point at 0.9910.

Key Technical Levels

• The AUD/USD  is trimming some weekly losses but is still down by 1.30%
• Sentiment shifted positive but will remain fragile as the Fed’s decision lurks.
• US Retail Sales dropped more than expected, though it would not change June’s Fed decision.
• AUD/USD Price Forecast: Despite being in a correction, the path of least resistance is downwards.

The Australian dollar stages a comeback vs. the greenback, climbing close to 70 pips on Wednesday amidst an upbeat market mood, ahead of the Federal Reserve monetary policy decision. After reaching a weekly low near 0.6850, the AUD/USD bounces off those lows and is trading at 0.6950 during the North American session.

An upbeat market lifts the AUD/USD; the Fed is next

European and US equities record gains, portraying the market’s risk-on impulse. Nevertheless, the greenback stays in positive territory, up by 0.05%, at 105.525, erasing earlier losses that witnessed the DXY dipping below the 105.000 mark. US Treasury yields dropped, as traders prepared for the FOMC’s decision. Contrarily, the US 10-year Treasury yield slides eight basis points, settling at around 3.395%.

Data-wise, in the North American session, May’s US Retail Sales missed monthly expectations and decreased by -0.3% MoM, lower than April’s downward revision to 0.7%. However, excluding autos and gas, it rose 0.1% MoM but trailed the previous month’s figure. At the same time, June’s NY Empire State Manufacturing Index rose to -1.2, worse than estimations but better than the -11.6 May reading.

During the Asian session, Australia’s Westpac Consumer Confidence Index for June rose by 86.4, lower than the 90.4 expected. “The survey detail shows a clear picture of a slump in sentiment being driven by rising inflation; an associated lift in interest rates; and a loss of confidence around the economic outlook, both here and abroad,” according to the report. Later in the day, the Fair Work Commission granted a $40 per week or 5.2% increase in Australia’s minimum wage.

AUD/USD Price Forecast: Technical outlook

AUD/USD Wednesday’s correction could be short-lived unless the Fed disappoints the market. The major is still downward biased, with the daily moving averages (DMAs) above the exchange rate, positioned in a bearish order, with the short-term below the longer-term ones. Also, the Relative Strength Index (RSI) jumped but will keep bulls unhopeful because it remains in negative territory. Therefore, the AUD/USD path of least resistance is downwards.

That said, the major’s first support would be 0.6900. Break below will send the pair towards June 14 low at 0.6850, which, once cleared, could pave the way and tumble the AUD/USD to the YTD low at 0.6828.

European Central Bank President Christine Lagarde said on Wednesday that crises are never the same twice and that they must have the courage to act when facts are not clear, as reported by Reuters.

"We cannot just be bold, we must be consistent too," Lagarde added and said that they must be true to the spirit not just the letter of the mandate.

Market reaction

The shared currency stays on the back foot following these comments and the EUR/USD pair was last seen losing 0.27% on a daily basis at 1.0387.

• Euro under pressure after ECB emergency meeting.
• US dollar mixed ahead of the Fed’s decision.
• FOMC statement to be released at 18:00 GMT.

The EUR/USD is falling on Wednesday, trading at daily lows near 1.0380 ahead of the Fed’s decision. The US dollar is posting mixed results while the euro is falling across the board weakened after the European Central Bank emergency meeting.

Eyes on the Fed

In a few minutes, at 18:00 GMT the Fed will announce its decision. A rate hike is expected. Analysts consider the central bank could raise interest rates by 50 or 75bps. The decision, the statement and the staff macroeconomic projections will likely trigger sharp moves across financial markets.

The US dollar is mixed ahead of the meeting. The DXY is hovering around 105.50, up 0.05%. US yields are modestly lower on Wednesday, with the 10-year yield at 3.38%.

The euro is among the worst-performing currencies weakened after an emergent meeting from the European Central Bank. The Governing Council discussed policies to address widening spreads. The ECB said it will use PEPP reinvestments with flexibility and that it is working on an “anti-fragmentation” instrument. “We do not think today’s message will be enough to soothe markets and expect further volatility and higher spreads ahead”, say Jan von Gerich, Chief Analyst at Nordea Research.

The EUR/USD awaits the outcome of the two-day Fed meeting trading at daily lows and looking at the May bottom of 1.0345/50. The mentioned area is a key support that if broken could open the doors to 1.0300 and below. Also, the area could trigger a rebound. Resistance levels might be located at 1.0420 and then 1.0490/1.0500.

Technical levels

• Euro weaker and EZ yields lower after ECB emergency meeting.
• Pound steady ahead of the BoE meeting.
• EUR/GBP looks to more gain while above 0.8600.

The EUR/GBP turned to the downside in Wednesday after hitting at 0.8720, the highest level since February 2021. The euro retreated to as low as 0.8613 following the European Central Bank emergency meeting.

EUR/GBP still bullish despite retreat

The ECB surprised market participants with an emergency meeting although the outcome showed no majors surprises. The central bank “decided that it will apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism” and also “decided to mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by the Governing Council.”

Analysts at Rabobank point out the ECB strengthened its commitment to contain Eurozone spreads. “However, the statement leaves much uncertainty over how powerful the ECB’s intervention will actually be. We expect more clarity in July.” Stocks markets in Europe rose on the back of the meeting and Eurozone bonds rose sharply. The 10-year Italian yield is at 3.90%, falling 8.50%.

On Thursday will be the turn of the Bank of England. The consensus if for a rate hike of 25bps. Economists at TD Securities expected the BoE to continue with a cautious message. “But with 4 votes to hike by 50bps, we think the meeting will mark a slightly hawkish pivot, and we look for further 25bps hikes through year-end.”

In a few hours, on Wednesday the Federal Reserve announce its decision that could trigger volatility. Ahead of the FOMC statement, EUR/GBP is hovering around 0.8620/25, away from the top but still above the 0.8600 key level. The outlook is biased to the upside while above 0.8550.

Technical levels

• US stocks are climbing ahead of the Federal Reserve monetary policy decisions, expected to hike 75 bps.
• The Nasdaq Composite leads the pack, followed by the S&P 500 and the Dow Jones.
• The US Dollar Index falls, weighed by the drop of US Treasury yields.

US equities recovered some ground after a string of five days of losses and are gaining between 1.05% and 1.54% on Wednesday as investors expect the Federal Reserve’s monetary policy decision, with the majority of estimates around a 75 bps rate hike.

Risk appetite increased, but for how long?

The S&P 500 is rising 1.12% currently at  3,776.07, followed closely by the heavy-tech Nasdaq Composite, jumping 1.31% at 11459.56. At the bottom of the pile is the Dow Jones Industrial Average, which is up by 0.95% sitting at 30,654.16

US Retail Sales recorded their first drop in five months, decreasing 0.3% MoM; excluding autos and gas, uptick by 0.1%. It’s worth noting that April’s figures were revised down but stayed positive. Meanwhile, comparing numbers on an annual basis, Retail Sales jumped to 8.1%, higher than April’s 7.8%.

In the meantime, the US Dollar Index retreats from the fresh 20-year high and sits around 105.318, down 0.15%. US Treasury yields remain elevated but tumbled. The US 10-year note yields 3.398%, down eight basis points.

The market sentiment is positive but remains fragile. While Wall Street adjusted their forecasts to 75 bps, some voices suggest the Fed would need to move by 1% so that they can restore the central bank’s “credibility.” However, a move of that size would turn the mood sour, and equities could continue sliding.

In terms of sector specifics, the leading gainers are Consumer Discretionary, up 1.75%, followed by Real Estate and Technology, each recording gains of 1.34% and 1.27%, respectively. The main losers are Energy, Materials, and Consumer Staples, losing 1.45%, 0.05%, and 0.01% each.

In the commodities complex, the US crude oil benchmark, WTI, is losing 0.94%, trading at $117.90 BPD, while precious metals like gold (XAU/USD) is gaining 0.70%, exchanging hands at $1820.86 a troy ounce, as US Treasury yields, fall ahead of the FOMC’s decision.

S&P 500 Daily Chart

Key Technical Levels

• WTI recently fell to fresh session lows and is eyeing a test of its 21DMA pre-Fed rate announcement. 
• Commentary about a weak outlook for demand growth and China lockdowns is being cited as weighing.
• But oil markets look set to remain right for the rest of the year amid OPEC+ output woes. 

Front-month WTI futures recently fell to fresh weekly lows in the $116s and are currently trading with losses on the day of just over $2.0 as traders brace for what could be the largest rate hike from the Fed in 28 years later in the session. The American benchmark for sweet light crude oil is looking to test its 21-Day Moving Average, which currently sits just above $116, suggesting that, for now, though WTI is trading nearly $6.0 below earlier weekly highs, the bullish trend remains intact. 

In terms of fundamental catalysts, some are citing downbeat commentary from the International Energy Agency (IEA), who on Wednesday said that higher oil prices and a worsening economic outlook are dimming the outlook for crude oil demand. Various Chinese cities have been moving to reimpose restrictions this week as the nation continues to struggle in its efforts to stamp out Covid-19. Meanwhile, the latest US Retail Sales figures have pumped recession calls. 

All of this might be weighing on oil on an intra-day basis, but WTI continues to derive support from expectations for tight oil market conditions to persist for the near future. OPEC said earlier in the week that output fell in May despite the cartel aiming for to increase production, as some of its smaller members struggle to lift output. Libya is currently in a political crisis that has currently halted around 1M barrels per day in output. Meanwhile, Russian output also remains under pressure from Western sanctions over its invasion of Ukraine.  

One commodity strategist said that the recent drop in OPEC+ output means that oil markets are likely to remain in a deficit of around 1.5M barrels per day for the remainder of the year. That means further drawdown on already heavily drained oil reserves, supporting the case for oil prices to remain supported well within triple-digit territory.

• USD/JPY corrected sharply from over a two-decade high touched earlier this Wednesday.
• Overbought RSI prompted some profit-taking ahead of the highly-anticipated FOMC decision.
• The technical set-up still favours bulls and supports prospects for the emergence of dip-buying.

The USD/JPY pair witnessed a corrective pullback from a 24-year top touched earlier this Wednesday, though the downfall stalled near the 134.30 area. The pair quickly recovered a few pips from the daily low and was last seen trading just above mid-134.00s, still down 0.70% for the day.

The risk-on impulse - as depicted by a generally positive tone around the equity markets - undermined the safe-haven Japanese yen. Apart from this, the emergence of some US dollar dip-buying, bolstered by hawkish Fed expectations, turned out to be key factors that extended support to the USD/JPY pair.

From a technical perspective, perspective, the recent move up witnessed over the past one week or so has been along an upward-sloping trend channel and favours bullish traders. That said, the overbought RSI (14) on the daily chart prompted some profit-taking ahead of the highly-anticipated FOMC decision.

Nevertheless, the set-up supports prospects for the emergence of some dip-buying and warrants some caution before positioning for deeper losses. That said, some follow-through selling might still drag the USD/JPY pair towards testing the trend-channel support, currently near the 134.00-133.90 area.

A convincing break below would suggest that the USD/JPY pair has formed a near-term top and prompt aggressive long-unwinding trade.

On the flip side, immediate resistance is pegged near the 135.10-135.15 region ahead of a multi-year high, around the 135.55-135.60 area. The latter coincides with the top boundary of the aforementioned trend channel, which if cleared decisively would be seen as a fresh trigger for bullish traders.

The USD/JPY pair might then aim to reclaim the 136.00 round-figure mark and prolong the upward trajectory towards the next relevant hurdle near the mid-136.00s.

USD/JPY 1-hour chart

Key levels to watch

The Bank of England (BoE) is set to announce its policy decision on Thursday, June 16 at 11:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of nine major banks. 

The BoE is likely to hike the key rate by another 25 bps to 1.25%. A surprise 50 bps hike cannot be ruled out if the “Old Lady” prioritizes inflation control.

UOB

“Previously, we had held a cautious view of the BoE pausing once the policy rate reaches 1.00%. However, the last voting outcome by the MPC has turned out a little less dovish than our expectations, and we thus now look for another 25 bps hike in June. As for asset sales, we will likely have to wait until at least then for some guidance, though we expect sales to begin in 4Q22 at GBP5 bn a month.”

TDS

“We expect the MPC to announce a 25 bps hike in Bank Rate. Guidance is likely to be left broadly unchanged but multiple votes for a 50 bps hike imply a hawkish shift. We now expect sequential 25 bps hikes through the end of 2022, with Bank Rate reaching 2.25% by year-end.”

Danske Bank

“We expect the BoE to hike the Bank Rate by another 25 bps to 1.25% but simultaneously still sending slightly mixed signals by repeating that ‘some degree of further tightening in monetary policy may still be appropriate in the coming months’.”

Deutsche Bank

“We expect a 25 bps hike this week and have updated their terminal rate forecast from 1.75% to 2.5%.”

Nordea

“We expect the BoE to bring home the message that it will continue pushing interest rates to fight inflation, despite the flagged recession signs back in March. Even with the economy showing signs of slowing, the labour market is red-hot. The latest job report revealed a 40-year low for the unemployment rate alongside wages rising by 7% amidst record-high vacancies. Looking back at the bank’s forecasts in May, the latest economic data should push the needle for the Bank of England to stay on a hawkish trajectory revising inflation higher. We expect this will include four hikes this year bringing the policy rate to 2% by year-end, which is the neutral rate of interest, and two hikes next year ending at 2.5%.”

Nomura

“We expect a 25 bps rate hike with another 25 bps hike in August and a final move in November for a terminal rate of 1.75%.” 

SocGen

“The BoE is likely to announce another 25 bps rate increase. Moreover, with some other major central banks favouring 50 bps moves, we expect the MPC vote again to be split between 25 bps and 50 bps moves.”

ING

“We expect the committee as a whole to vote in favour of a more gradual 25 bps move. Admittedly, we are likely to see at least three, possibly four, officials vote for a 50 bps move, as was the case in May.  The wild card scenario is that we get a three-way vote split – that is some officials opting for no change, some for 50 bps, and an overall majority in favour of 25 bps. This would be unusual, and a three-way vote has only happened six times since 1997 and not since the financial crisis. We also suspect the announcement of a new government spending package since the May meeting will probably tempt those wavering committee members to continue backing a rate hike for the time being. But at some point, we are likely to see further cracks in the MPC’s resolve on tightening. We expect three more hikes in quick succession, taking Bank Rate to 1.75% in the autumn. But markets, which are now pricing a terminal rate above 3% next summer, are still likely overestimating the pace of hikes.”

Wells Fargo

“We expect the MPC to hike rates by 25 bps with another 25 bps increment at its next policy meeting on August 4. We look for another 50 bps of tightening this autumn and early next year, which would take the Bank Rate to 2.00%. We do not expect the MPC to tighten as much as current market pricing indicates – the market is currently priced for a Bank Rate of nearly 3.00% by next May – due to the downside risks that significant monetary tightening poses to the economy. Real income is being eroded rapidly by high inflation, and the combination of potential retrenchment in consumer spending and significant monetary tightening could cause economic activity to crater.”

GBP/USD rebounds to 1.21 but strong headwinds remain. Economists at Scotiabank expect cable to drop below 1.20 in the coming weeks.

Clear improvement in broad market sentiment needed to clearly regain the 1.20 zone

“In addition to the UK’s economic weakness, EU-UK tensions over No10’s push to unilaterally re-write the Northern Ireland Protocol and Sturgeon’s push for a Scottish independence vote next year are weighing on GBP sentiment.”

“We think the BoE will deliver a less hawkish message than markets are expecting tomorrow that combined with a large hike from the Fed today risks losses extending a few cents below 1.20 in coming weeks.”

“The GBP would need a clear improvement in broad market sentiment (and so broad USD losses) to clearly recover above the 1.20 zone.”

Markets now expect the Federal Reserve (Fed) to hike its policy rate by a total of 150 bps at the next two meetings. Economists at TD Securities believe that gold and risk markets alike could be set-up for a short-squeeze.

Sell-the-news rally could catalyze a counter-intuitive knee-jerk reaction in gold

“Careful: this Fed day, a sell-the-news rally could catalyze a counter-intuitive knee-jerk reaction in gold.”

“With markets already nearly fully pricing in two consecutive 75 bps hikes, gold and risk markets alike could be set-up for a short-squeeze, which has typically served to shake weak shorts out of the markets and spark some optimism that the worst is over, which ultimately sets the market up for the next leg lower thereafter.”

See – Fed Preview: Forecasts from 12 major banks, increasing bets of a 75 bps rate hike

• EUR/USD is hovering above 1.0400 after the ECB failed to give it a boost and despite weak US data. 
• The upcoming Fed meeting, if more hawkish than expected, risks sending towards 2017 lows at 1.0340. 

Despite very weak US Retail Sales figures for May (inflation-adjusted sales were down 1.3% MoM), EUR/USD has been under pressure in recent trade and is currently probing session lows in the 1.0400 area. Traders are attributing recent downside in the pair to euro weakness after the ECB announced that it would apply flexibility to its PEPP reinvestments to ease “fragmentation” in the transmission of monetary policy (essentially, to close yield spreads between Eurozone nations). 

Seemingly, markets do not think the ECB went far enough in addressing fragmentation risk (German/Italian yield spreads jumped, for example) and this seems to have hurt the euro. With these two big catalysts (US data and the ECB) out of the way, attention has turned to the upcoming Fed meeting at 1800GMT and follow-up press conference with Fed Chair Jerome Powell. 

The Fed is now expected to raise interest rates by 75 bps, though some are still calling for a 50 bps rate hike (as the Fed had been signalling prior to last week’s hot US inflation figures), while some are even calling for a 100 bps hike. There hasn’t been this much uncertainty about Fed interest rate policy for some time, meaning that the reaction in markets could be very volatile. Note that the Fed is also releasing new economic forecasts and a new dot plot. 

If investors interpret the meeting outcome as more hawkish than expected, EUR/USD runs the risk of falling below its annual lows in the 1.0350 area. This could open the door to a run lower towards the 2017 lows at 1.0340 and then closer to parity.

• EUR/USD witnessed selling after the ECB failed to offer much in dealing with fragmentation risks.
• Hawkish Fed expectations helped revive the USD demand and contributed to the intraday decline.
• The USD bulls seemed unaffected by weaker US Retail Sales as the focus remains on the FOMC.

The EUR/USD pair struggled to find acceptance above the 1.0500 psychological mark and surrendered its modest intraday recovery gains during the early North American session. The pair refreshed its daily low in the last hour and was last seen trading around the 1.0400 mark, just a few pips above a nearly one-month low touched the previous day.

The shared currency lost steam after the European Central Bank failed to deliver any new measures to support highly indebted nations in the bloc or ease nervousness over fragmentation risks. The ECB issued a rather underwhelming statement that it would apply flexibility to reinvestments of the Pandemic Emergency Purchase Programme (PEPP).

On the other hand, the US dollar reversed its intraday corrective decline and inched back closer to a two-decade higher amid expectation for a more aggressive policy tightening by the Fed. This was seen as another factor that contributed to the EUR/USD pair's intraday slide of over 100 pips, shifting the bias back in favour of bearish traders.

The USD bulls seemed rather unaffected by the disappointing US macro data, showing that Retail Sales fell 0.3% MoM in May. This was well below consensus estimates pointing to a deceleration in growth to 0.2% from the 0.7% increase in April. Excluding autos, core retail sales also missed expectations and rose 0.5% during the reported month.

It, however, remains to be seen if bears are able to seize back control or prefer to move on the sidelines ahead of the key central bank event risk. The Fed is scheduled to announce the outcome of a two-day policy meeting later during the US session. Market participants expect the US central bank to deliver a jumbo 75 bps rate hike.

Furthermore, Fed fund futures indicate rising odds of another jumbo rate hike in July. Hence, market participants would look for fresh clues to reaffirm expectations for a more aggressive policy tightening by the Fed. This would be enough to provide a fresh lift to the buck and set the stage for a further depreciating move for the EUR/USD pair.

Technical levels to watch

• Gold Price staged a decisive recovery following the two-day drop.
• XAUUSD closes in on strong resistance that aligns at $1,840.
• US T-bond yields' reaction to Fed policy decisions could impact gold's valuation.

Gold Price made a sharp U-turn from the monthly low it touched at $1,805 on Tuesday and climbed above $1,830 on Wednesday. The near-term technical outlook suggests that sellers remain on the sidelines for the time being but XAUUSD could find it difficult to attract buyers unless it manages to clear $1,840.

US T-bond yields retreat

After having gained nearly 10% this week, the benchmark 10-year US Treasury bond yield reversed its course on Wednesday and was last seen losing more than 3% on a daily basis. The US Dollar Index is also pulling away from the multi-decade high it set at 105.65 on Tuesday, helping XAUUSD preserve its bullish momentum ahead of the FOMC's highly-anticipated policy announcements.

Also read: Gold Price Forecast: XAUUSD could stage a solid comeback on dovish Fed rate hike.

Gold Price set to react strongly to Fed

The Federal Reserve is expected to hike its policy rate in June. Although the market consensus points to a 50 basis points (bps) rate increase, reports from earlier this week suggested that a 75 bps hike was likely at this meeting. According to the CME Group FedWatch Tool, markets fully price in a total of 150 bps rate increase at the next two meetings. A hawkish policy decision should boost yields and weigh on gold and vice versa. Previewing this event, "a "buy the dip" in stocks has now turned into one for the US dollar," said FXStreet Analyst Yohay Elam. "The Fed decision on June 15 will likely include several gut-wrenching twists, and I think the dollar would be able to stomach every move and come out on top."

FOMC Chairman Jerome Powell

The European Central Bank (ECB) held an emergency meeting to address the fragmentation issue on Wednesday. "The Governing Council decided that it will apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism," the ECB stated. XAUEUR gained more than 1% with long-term German government bond yields falling sharply and provided an additional boost to positively-correlated XAUUSD.

Earlier in the day, the upbeat macroeconomic data releases from China eased concerns over gold's demand outlook mid-week. On a yearly basis, Industrial Production in China grew by 0.7% in May, surpassing the market expectation for a contraction of 0.7%. Additionally, Retail Sales fell by 6.7% in the same period, which was better than analysts' estimate for a decrease of 7.1%.

In the meantime, Retail Sales in the United States fell by 0.3% on a monthly basis in May, the US Census Bureau reported on Wednesday. Other data revealed that the Federal Reserve Bank of New York's Empire State Manufacturing Index improved to -1.2 in June from -11.6. Following the mixed US data, Wall Street's main indexes remain on track to open in positive territory, possibly limiting the dollar's upside.

Gold Price technical outlook

Gold Price climbed above $1,830 during the European trading hours on Wednesday and the Relative Strength Index (RSI) indicator on the daily chart rose toward 50, suggesting that buyers are looking to take control. On the upside, however, the 200-day SMA forms significant resistance at $1,840. In order to attract additional buyers, XAUUSD needs to flip that level into support. In that scenario, additional gains toward $1,850 (20-day SMA) and $1,860 (static level) could be witnessed.

On the other hand, strong static support seems to have formed at $1,810. If the dollar rally picks up steam on a hawkish Fed rate outlook, gold could test this level and eye $1,800 (psychological level) next.

Gold Price Report: What's next for commodity prices?

• Silver just hit session highs in the $21.60s post-weak US Retail Sales data ahead of Wednesday’s Fed announcement.
• XAG/USD remains at risk of reversing the day’s gains if the Fed delivers a hawkish surprise. 

Spot silver (XAG/USD) prices rallied to fresh session highs in the $21.60s per troy ounce in wake of the latest US Retail Sales report that showed, when adjusted for inflation, headline sales were down 1.3% in May. The latest US data will undoubtedly result in fresh negative revisions to Q2 GDP growth expectations, which ought to spur fresh US recession calls from analysts. 

XAG/USD is now trading nearly 3.0% higher on the day, having bounced from around $21.00, with recession fears seemingly offering support to safe-haven precious metals for now. But whether this upside can last through the upcoming Fed meeting remains to be seen. The US central bank is expected to lift interest rates by 75 bps and sound much, much more hawkish on the inflation outlook, as well as on the outlook for the so-called terminal interest rate. 

Though this hawkishness is arguably already priced in to a large degree, precious metals like silver remain at risk of suffering losses. Fed hawkishness is typically seen as a negative for precious metals given it is associated with a stronger US dollar and higher US yields, both of which tend to weigh on the likes of silver. XAG/USD may struggle to get above its 21-Day Moving Average in the hours ahead and bears will be eyeing a return to $21.00 on a hawkish Fed surprise. 

• GBP/USD gain traction on Wednesday and staged a goodish bounce from over a two-year low.
• Retreating US bond yields prompted some USD profit-taking and extended support to the pair.
• Weaker US Retail Sales data failed to impress the USD bulls as the focus remains on FOMC.

The GBP/USD pair gained some positive traction on Wednesday and snapped a five-day losing streak to the lowest level since March 2020, around the 1.1935 region touched the previous day. The pair held on to intraday recovery gains through the early North American session, albeit lacked follow-through and remained below the 1.2100 mark post-US macro data.

A sharp pullback in the US Treasury bond yields prompted the US dollar bulls to take some profits off the table, especially after the recent runup to a two-decade high. The USD maintained its softer tone and failed to gain any respite from the disappointing release of the US Retail Sales figures. In fact, the headline sales fell 0.3% MoM in May as against consensus estimates pointing to a deceleration in growth to 0.2% from the 0.7% rise in the previous month.

Excluding autos, core retail sales also fell short of market expectations and climbed 0.5% during the reported month, though was slightly better than the 0.4% increase in April. The data did little to ease concerns about softening US economic growth or impress the USD bulls. That said, expectations for a more aggressive policy tightening by the Fed helped limit any deeper USD losses and kept a lid on any meaningful upside for the GBP/USD pair, at least for now.

Investors seem convinced that the Fed would hike interest rates at a faster pace to curb soaring inflation. Fed funds futures indicate rising odds for a jumbo 75 bps rate hike over the next two meetings. Hence, the market focus will remain glued to the outcome of a two-day FOMC policy meeting. The decision is scheduled to be announced later during the US session, which will influence the USD and produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch

USD/CHF is stalling around parity. Consequently, economists at Credit Suisse neutralize their successful tactical bullish bias from 0.9550, expecting the pair to stay trapped in a range.

Resistance at 1.0064/90 to hold to maintain the broader range view

“USD/CHF has reached the top of our anticipated 0.95 to parity range, leading us to neutralize our tactically bullish view. We thus look for strength to eventually fade from here, with key resistance at the YTD high and downtrend from 2016 at 1.0064/90 expected to serve as a solid cap to maintain our rangbeound outlook.” 

“Support is seen at 0.9870 and further below at 0.9724/04, with a break below here needed to shift the risk back lower again and prompt another short-term swing lower within our highlighted 0.95 to parity range.” 

“We expect resistance at 1.0064/90 to hold to maintain the broader range view. Should strength extend above here though, the next key medium-term resistance would be seen at the 2019 high at 1.0226/35.”

NZD/USD has edged below key support at 0.6230/15. Although the breakdown is not convincing yet, analysts at Credit Suisse stay biased lower for a move to 0.5919.

Kiwi to suffer further downside 

“We reiterate our tactically negative view, which is supported by the falling 55-day and 200-day moving averages, by daily MACD momentum crossing back lower from neutral territory, as well as by the strongly negative medium-term momentum. All this suggests a clear break below 0.6231/6196 is likely in due course, which would open up an eventual move to the next medium-term support at 0.5919/5841.”

“Near-term resistance moves to 0.6294, above which on the back of a close above 0.6231 would point to a concerning failure to break lower and likely trigger a recovery within the recent 0.6231/6196-0.6569/77 range.”

• Retail Sales unexpectedly fell by 0.3% MoM in May versus a 0.2% expected rise. 
• The DXY didn't react much at the time, though the data will pump US recession fears. 

Retail Sales in the US fell by 0.3% MoM in May, versus expectations for a 0.2% rise and following a 0.7% MoM gain in April (revised down from 0.9%), data released by the US Census Bureau on Wednesday showed. Meanwhile, Core Retail Sales rose by 0.5% MoM, below the expected gain of 0.8%, while April's figure was also revised lower to a gain of 0.4% from 0.6% previously. The Retail Control, meanwhile, was stagnant in May and remained unchanged versus expectations for a 0.5% rise, while April's figure was revised lower to a 0.5% gain from 1.0% previously. 

Market Reaction

The DXY appeared to see some momentary weakness in wake of the downbeat US Retail Sales numbers, but the DXY continues to broadly change close to pre-data levels in the 105.20 area. The data is likely to pump US recession fears, which could weigh on sentiment ahead of Wednesday's Fed meeting. 

USD/CAD continues to rise. The pair is getting closer to 1.3076/3100, where analysts at Credit Suisse are mildly biased toward a cap to keep the market in its gently upward sloping trend channel.

Only below 1.2678 would warn of a deeper setback

“There is scope for further upside within the broader 1.2400-1.3100 gently upward sloping trend channel from October 2021.”

“Near-term resistance is seen at 1.30 and then further above at the 38.2% retracement of the 2020/21 fall at 1.3023/24. Should the current strength extend above here, we would look for the market to remain capped at the top of the trend channel around ∼1.3076/3100.”

“Support moves to 1.2900/2883 initially and next to 1.2864. Though below here would relieve some of the strong upward pressure, only below 1.2678 would warn of a deeper setback again to 1.2492/00, which we would expect to hold to keep our view of a broader range intact.”

• USD/CAD retreated from over a one-month high amid some USD profit-taking slide.
• Sliding crude oil prices undermined the loonie and helped limit losses for the major.
• Aggressive Fed rate hike bets acted as a tailwind for the USD and extended support.

The USD/CAD pair witnessed an intraday turnaround from the 1.2970-1.2975 area on Wednesday and for now, has snapped a five-day winning streak to over a one-month peak touched the previous day. The pullback dragged spot prices to a fresh daily low, around the 1.2915 region heading into the North American session.

A sharp retracement slide in the US Treasury bond yields prompted the US dollar bulls to take some profits off the table, especially after the recent runup to a two-decade high. This, in turn, exerted downward pressure on the USD/CAD pair amid some repositioning trade ahead of the key central bank event risk later this Wednesday.

The Federal Reserve is scheduled to announce its monetary policy decision later during the US session and is expected to hike interest rates by 75 bps - the biggest since 1994. Moreover, Fed fund futures indicate rising odds of another jumbo rate hike in July, which should continue to lend support to the greenback and the USD/CAD pair.

Apart from this, a softer tone around crude oil prices could undermine the commodity-linked loonie and further help limit any meaningful corrective slide for the USD/CAD pair. The worsening global economic outlook has raised concerns about fuel demand and dragged the black liquid away from a three-month high touched the previous day.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the USD/CAD pair has topped out in the near term and positioning for any further losses. Next on tap would be the release of the US monthly Retails Sales figures. The data might do little to influence the buck or provide any impetus to the major.

Technical levels to watch

The European Central Bank (ECB) said on Wednesday that it would apply flexibility to its reinvestments of Pandemic Emergency Purchase Programme (PEPP) redemptions with a view to preserving the functioning of monetary policy transmission mechanisms, reported Reuters. 

• NZD/USD has rebounded to close to 0.6250 after hitting its lowest since June 2020 on Tuesday. 
• Traders are focused on imminent US Retail Sales data and the upcoming Fed policy announcement. 

A bout of pre-US Retail Sales data and Fed policy announcement meeting weakness in the US dollar, that seems partially driven by a modest improvement in risk appetite as European equities rebound from Tuesday’s multi-month lows and global yields pare back from highs, is boosting NZD/USD in pre-US open Wednesday trade. The pair was last trading higher by about 0.7% in the 0.6250 region, a little over 50 pips higher versus Tuesday’s lows just under 0.6200, which was the lowest the pair has been since June 2020. 

Amid a lack of major macro updates, traders have their attention fixated on Wednesday’s economic calendar. US Retail Sales figures for May are due at 1230GMT and will be viewed in the context of rising US recession fears. Given that inflation in the US is so bad (as per last week’s inflation figures), bad data is unlikely to be interpreted as good for risk appetite as the Fed doesn’t have the room to be more dovish to support growth. 

That suggests that poor US data risks sending risk assets lower and NZD/USD potentially back towards 0.6200 once again. Speaking of the Fed, the US central bank is expected to lift interest rates by 75 bps to a target range of 1.5-1.75% from 0.75-1.0% in its policy announcement at 1800GMT. There will also be a lot of focus on fresh quarterly economic forecasts and rate guidance via a new dot-plot. Fed Chair Jerome Powell will then appear for his usual post-meeting press conference which will begin at 1830GMT. 

US Monthly Retail Sales Overview

Wednesday's US economic docket highlights the release of monthly Retail Sales figures for May, scheduled later during the early North American session at 12:30 GMT. The headline sales are estimated to rise by a seasonally adjusted 0.2% during the reported month as against the 0.9% growth recorded in April. Excluding autos, core retail sales probably climbed by 0.8% in May, up from the 0.6% increase reported in the previous month.

According to Joseph Trevisani, Senior Analyst at FXStreet: “Over the six months to April Retail Sales have averaged 0.95%. That is a strong record and comparative to the best periods of the last decade. The problem for US economic growth is that sales figures are uncorrected for price increases. In the same half year, the Consumer Price Index (CPI) rose 0.70% each month. While sales and CPI do not track the same items, and are not directly comparable, it is evident that the bulk of the gains in Retails Sales are simply rising prices.”  

How Could it Affect EUR/USD?

Ahead of the key macro data, retreating US Treasury bond yields triggered a modest US dollar corrective pullback from a two-decade high touched the previous day. A weak sales number would fuel concerns about softening US economic growth and exert additional downward pressure on the buck. Conversely, stronger readings could lend some support to the buck. That said, any immediate market reaction is likely to be limited as traders might refrain from placing aggressive bets ahead of the FOMC policy decision, due later during the US session.

Meanwhile, Eren Sengezer, Editor at FXStreet, outlined important technical levels to trade the EUR/USD pair: “The Fibonacci 23.6% retracement of the latest downtrend forms first resistance at 1.0500. In case the pair rises above that level and starts using it as support, it could target 1.0540 (Fibonacci 38.2% retracement) and 1.0580 (Fibonacci 50% retracement, 200-period SMA on the four-hour chart).”

“On the downside, 1.0460 (20-period SMA) aligns as initial support ahead of 1.0400 (static level, psychological level) and 1.0380 (static level),” Eren added further.

Key Notes

 •  US Retail Sales May Preview: Consumption is suddenly a trailing indicator

 •  EUR/USD to enjoy further gains on a break above 1.05

 •  EUR/USD Price Analysis: A 50-EMA violation to strengthen euro bulls further

About US Retail Sales

The Retail Sales released by the US Census Bureau measures the total receipts of retail stores. Monthly per cent changes reflect the rate of changes in such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish).

German Economy Minister Robert Habeck said on Wednesday that possible restrictions on energy deliveries from Russia were not yet over, as reported by Reuters.

Habeck further noted that perhaps restrictions had just begun and added that the reduction in Russian gas supply was a political decision rather than a technical one.

Market reaction

These comments don't seem to be having a significant impact on risk sentiment. As of writing, Germany's DAX Index was up more than 1% on the day at 13,439. Meanwhile, EUR/USD clings to strong daily gains and trades slightly below 1.0500 as investors wait for the European Central Bank's emergency meeting to conclude.

• Gold gained traction on Wednesday and snapped a two-day losing streak to a near one-month low.
• Retreating US bond yields prompted some USD profit-taking and extended some support to the metal.
• Hawkish Fed expectations might cap gains for the XAUUSD ahead of the key central bank event risk.

Gold attracted some buying on Wednesday and for now, has snapped a two-day losing streak to a near one-month low, around the $1,805 region touched the previous day. The XAUUSD built on its steady intraday ascent through the first half of the European session and climbed to a fresh daily high, around the $1,826 region in the last hour.

Retreating US Treasury bond yields prompted traders to take some profits off their US dollar bullish bets, especially after the recent strong bullish run to a two-decade high. This, in turn, was seen as a key factor that prompt some short-covering around the dollar-denominated commodity. That said, the attempted recovery move runs the risk of fizzling out rather quickly and remains capped amid expectations for a more aggressive policy tightening by the Fed.

Investors now seem convinced that the US central bank would tighten its monetary policy at a faster pace to combat stubbornly high inflation, which surged to a four-decade high in May. In fact, Fed fund futures indicate rising odds of a 75 bps rate hike at the conclusion of a two-day FOMC meeting on Wednesday and another 75 bps hike in July. This should act as a tailwind for the US bond yields and the USD, which, in turn, might cap gains for the non-yielding gold.

Hence, the focus remains glued to the outcome of a two-day FOMC monetary policy meeting, due later during the US session. A 75 bps Fed rate hike move would be the biggest since 1994 and send shockwaves across asset classes, boosting the USD and lending some support to gold prices. In the meantime, traders might take cues from the US monthly Retail Sales figures, though any immediate market reaction is more likely to be short-lived.

Technical levels to watch

Japanese PM Fumio Kishida was on the wires in the last minutes, via Reuters, noting that he expects the Bank of Japan (BOJ) to continue efforts to meet the price target.

Additional quotes

Market reaction

USD/JPY is unfazed by these comments, as it currently trades at 134.42, down 0.76% on the day. The pair is following the price action in the US dollar and the yields.

• EUR/USD regained positive traction on Wednesday and climbed back closer to the weekly high.
• Retreating US bond yields dragged the USD away from a two-decade high and extended support.
• Investors now await the ECB's ad hoc meeting for some impetus ahead of the FOMC decision.

The EUR/USD pair attracted fresh buying in the vicinity of the 1.0400 round figure on Wednesday and moved further away from a near one-month low touched the previous day. The recovery momentum pushed spot prices back closer to the weekly high, though bulls seemed struggling to capitalize on intraday gains beyond the 1.0500 psychological mark.

Following the recent bullish run to a two-decade high, the US dollar witnessed some profit-taking on Wednesday amid a softer tone surrounding the US Treasury bond yields. Apart from this, signs of stability in the financial markets further undermined the greenback's relative safe-haven status and acted as a tailwind for the EUR/USD pair.

On the other hand, the shared currency drew additional support from a hawkish shift by the European Central Bank (ECB), signalling that it would deliver its first rate hike since 2011 in July. The ECB also left the door open for a potentially larger move in September, which supports prospects for some meaningful upside for the EUR/USD pair.

Bulls seemed rather unaffected by the IFO institute's downward revision of the 2022 GDP growth projections for the German economy. The Munich-based research institution lowered its 2022 forecast for German growth to 2.5%, from 3.1% previously predicted in March, and revised its inflation forecast sharply higher to 6.8%, up from an earlier 5.1%.

Investors now seem to wait for headlines from the ECB’s ad hoc Governing Council meeting to discuss the recent sell-off in bond markets before placing fresh bets. Apart from this, traders will take cues from the US monthly Retail Sales data and ECB President Christine Lagarde's speech. The focus, however, remains on the FOMC decision, due later during the US session.

Technical levels to watch

• GBP/USD extends the bounce ahead of the critical Fed outcome.
• US dollar retreats alongside yields and amid a rally in EUR/USD.
• BOE is set to hike rates by 25 bps while the Fed could go for a 75 bps hike.

GBP/USD is consolidating the steep upsurge below 1.2100, as bulls take a breather after extending the recovery by over 150 pips.

The main catalyst behind cable’s impressive rebound could be linked to the broad-based US dollar correction, as investors take profits off the table on their USD longs ahead of the all-important Fed interest rate decision. The Fed pre-committed to a 50 bps rate hike in June and July, although markets have baked in a 75 bps lift-off after Friday’s hot US inflation.

Meanwhile, the pick up in the EUR/USD recovery following news that the ECB has called on an emergency meeting to discuss the recent sell-off in the bond market. The euro capitalized on the ECB news, as it fuelled hopes that the central bank was ready to act on the market turmoil. The renewed uptick in the main currency pair triggered a fresh downswing in the dollar across its main peers, boding well for the beleaguered pound.

On Thursday, the Bank of England (BOE) monetary policy decision will take the center stage after Wednesday’s Fed outcome is out of the way. The BOE Is widely expected to hike the key rates by 0.25 bps to 1.25% this month.

Although a surprise 50 bps rate hike remains on the table amid higher inflation expectations and hopes that the BOE could take a strong action to control inflation.

Ahead of these central bank policy outcomes, the US Retail Sales data will be eyed for near-term trading impetus. The data, however, is unlikely to drive markets.

Also read: GBP/USD Price Analysis: Rebounds as bearish channel target achieved, Fed awaited

GBP/USD: Technical levels to consider

US President Joe Biden on Wednesday asked Energy Secretary to hold an emergency meeting on oil refining capacity.

Biden, in a letter, demanded oil companies explain why they aren't putting more gasoline on the market, sharply escalating his rhetoric against the industry.

Key quotes

"At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable.”

“The lack of refining was driving gas prices up faster than oil prices.”

"The lack of refining capacity - and resulting unprecedented refinery profit margins - are blunting the impact of the historic actions my Administration has taken to address Vladimir Putin's Price Hike and are driving up costs for consumers."

 Market reaction

In an immediate reaction to the above news, WTI tumbled to hit daily lows at $114.82, now trading at $115.00, still down 1.25% on the day.

ECB’s Wunsch speaks on fragmentation ahead of the emergency meeting

more to come ...

In its latest oil market report, the International Energy Agency (IEA) said that the oil demand growth is set to be slowed by higher prices and a weaker economic outlook.

Additional takeaways

• USD/JPY corrected sharply from a 24-year high touched earlier this Wednesday.
• Speculations for an intervention by Japanese authorities benefitted the JPY.
• Retreating US bond yields weighed on the USD and contributed to the selling bias.
• The Fed-BoJ policy divergence should limit losses ahead of the key FOMC decision.

The USD/JPY pair witnessed an intraday turnaround from a 24-year high touched earlier this Wednesday and continued losing ground through the early part of the European session. Spot prices dropped to a fresh daily low, around mid-134.00s in the last hour, reversing a major part of the previous day's positive move.

The Japanese yen drew support from speculations that authorities were uncomfortable about the recent speed of the yen's decline and would respond appropriately. Bearish traders further took cues from retreating US Treasury bond yields, which prompted aggressive long-unwinding around the US dollar. The combination of factors exerted downward pressure on the USD/JPY pair.

That said, the downside seems cushioned, at least for the time being, amid a big Japan-US interest rate differential, which is poised to widen further on more hawkish Fed expectations. Investors now seem convinced that the US central bank would tighten its monetary policy at a faster pace to combat stubbornly high inflation, which surged to a four-decade high in May.

In fact, Fed fund futures indicate rising odds of a 75 bps rate hike at the conclusion of a two-day FOMC meeting on Wednesday and another 75 bps hike in July. This had pushed the 2-year Treasury note - seen as a proxy for the Fed's policy rate - to its highest level since 2007 and the yield on the benchmark 10-year US government bond to levels not seen since April 2011.

In contrast, the BoJ has promised to conduct unlimited bond purchase operations to defend its near-zero target for 10-year yields. The Japanese central bank has also made it clear that it will stick to its ultra-loose policy settings until core inflation in Japan can stabilize near the 2% level. This, in turn, supports prospects for the emergence of some dip-buying around the USD/JPY pair.

Investors might also refrain from positioning for a deeper corrective pullback and prefer to wait on the sidelines ahead of the key central bank event risk. The Fed is scheduled to announce its decision later during the US session. A 75 bps Fed rate hike move would be the biggest since 1994 and enough to boost the buck, validating the positive outlook for the USD/JPY pair.

Technical levels to watch

EUR/USD has recovered sharply toward 1.05. EUR/USD needs to flip 1.05 into support for an extended rebound, FXStreet’s Eren Sengezer reports.

1.0460 aligns as initial support 

“The Fibonacci 23.6% retracement of the latest downtrend forms first resistance at 1.05. In case the pair rises above that level and starts using it as support, it could target 1.0540 (Fibonacci 38.2% retracement) and 1.0580 (Fibonacci 50% retracement, 200-period SMA on the four-hour chart).”

“On the downside, 1.0460 (20-period SMA) aligns as initial support ahead of 1.0400 (static level, psychological level) and 1.0380 (static level).”

Gold is recovering on the back of a weaker US dollar and has climbed to around $1,820. The US Federal Reserve will be concluding its two-day meeting this evening and announcing whether and to what extent it will be raising interest rates. A 50 basis points (bps) rate hike could see the yellow metal gaining some ground, economists at Commerzbank report.

Gold could continue its downswing if Powell sounds very hawkish

“The Wall Street Journal had raised the prospect the day before yesterday of a rate increase of 75 bps, prompting market expectations to be revised considerably upwards and bond yields to rise massively. There has even been speculation on the market recently about a possible rate hike of 100 bps, though this is unrealistic.”

“If the Fed were to raise interest rates by ‘only’ 50 bps today, this could be viewed as disappointing. In this case, some of the movements seen over the last few days could be reversed, i.e. yields could fall, the US dollar could weaken and gold could gain.”

“It will be interesting to hear how Powell assesses the outlook for interest rates. If he sounds very hawkish and raises the prospect of bigger rate increases – contrary to his previous remarks – we believe that the gains that gold might potentially make would be limited, or that the gold price could continue its downswing.”

See – Fed Preview: Forecasts from 12 major banks, increasing bets of a 75 bps rate hike

The IFO institute said on Wednesday slashed the 2022 GDP growth projections for the German economy while sharply revising up its inflation forecast.

Key quotes

“Cuts its 2022 forecast for German growth to 2.5%, from 3.1% previously predicted in March, while revising its inflation forecast to 6.8%, up from an earlier 5.1%.”

“Raises 2023 economic growth forecast to 3.7% from 3.3%.”

"At the beginning of the year, high prices led to a loss of purchasing power among private households and in turn to a decline in goods consumption."

“Commodity prices and supply bottlenecks are expected to gradually ease in the second half of the year.”

Market reaction

EUR/USD consolidates the latest leg up below 1.0500, awaiting the ECB’s emergency meeting, due at 0900 GMT, for the next move. The pair is up 0.63% so far.

• AUD/USD staged a goodish rebound from over a one-month low and snapped a five-day losing streak.
• Modest USD pullback from a two-decade higher prompted some short-covering around the major.
• Aggressive Fed rate hike bets should act as a tailwind for the USD and keep a lid on any further gains.

The AUD/USD pair witnessed a short-covering bounce on Wednesday and for now, seems to have snapped a five-day losing streak to over a one-month low. The pair held on to its intraday recovery gains through the early European session and was last seen trading near the daily high, just above the 0.6900 round-figure mark.

Following the recent bullish run to a two-decade high, the US dollar witnessed some profit-taking on Wednesday amid a softer tone surrounding the US Treasury bond yields. Apart from this, signs of stability in the financial markets further undermined the greenback's safe-haven demand and offered some support to the risk-sensitive aussie.

That said, any meaningful recovery still seems elusive amid expectations that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation. In fact, Fed fund futures indicate rising odds of a jumbo 75 bps rate hike at the conclusion of a two-day FOMC monetary policy meeting on Wednesday and another 75 bps hike in July.

The prospects for a more aggressive move by the Fed should act as a tailwind for the US bond yields and favours the USD bulls. Hence, it will be prudent to wait for strong follow-through buying before confirming that the AUD/USD pair has formed a near-term bottom. Nevertheless, the focus remains glued to the FOMC decision, due later during the US session.

Heading into the key event risk, the US monthly Retail Sales figures, scheduled for release later during the early North American session, might do little to influence the USD. That said, the broader market risk sentiment might still provide some impetus to the AUD/USD pair and allow traders to grab short-term opportunities.

Technical levels to watch

The European Central Bank (ECB) will discuss the reinvestment of the Pandemic Emergency Purchase Programme (PEPP) bonds at the emergency meeting on Wednesday, Bloomberg reported, citing sources familiar with the matter.

The ECB is reportedly looking to tilt pandemic bond reinvestment to aid weaker countries.

Market reaction

With the initial reaction to this headline, the EUR/USD pair pulled away from the daily high it set at 1.0494 earlier in the session. As of writing, the pair was still up 0.5% on the day at 1.0467.

The Federal may well match market expectations and hike by 75 bps today. Economists at ING cannot exclude some "sell-the-fact" reaction in the dollar, but any correction should be very short-lived, and the overall outcome should be USD-positive beyond the very short-term.

75 bps by the Fed today

“Our base case scenario is a 75 bps hike today. Markets are fully pricing in such a scenario, and the updated set of projections – in particular the dot plots – will be key in driving the market reaction.”

“We expect the outcome of today’s meeting to be overall positive for the dollar's short-term outlook. This is not to say that the dollar’s immediate reaction will necessarily be positive today, as there are indeed multiple scenarios where the Fed may fall short of expectations; by all means, some ‘sell-the-fact’ dollar correction today after a big rally is possible.”

“We think any dollar correction will be quite short-lived, as we deem it unlikely that investors will turn materially less bullish on USD in an environment of accelerating Fed tightening, sharply rising Treasury yields (and inverted yield curve), the prospect of a global slowdown and equities in bear-market territory.”

See – Fed Preview: Forecasts from 12 major banks, increasing bets of a 75 bps rate hike

The European Central Bank's Governing Council has announced it will hold an ad-hoc meeting today “to discuss current market conditions”. EUR/USD could stage a mini-rally to the 1.0520/50 area if the ECB steps with some reassurance for Italian bonds, economists at ING report.

ECB stepping in on fragmentation?

“The move to call an ad-hoc meeting appears to be in contrast with what we heard from Isabel Schnabel yesterday, who appeared to see no urgency to pre-announce any measure to reduce bond-market fragmentation.”

“Markets will now await some ECB headlines sometime today, and all this should make the long list of ECB speakers even more interesting to watch. The main speech will come from Christine Lagarde this afternoon, but we’ll also hear from three hawks this morning – Robert Holtzmann, Joachim Nagel and Georg Muller – and another one – Klaas Knot, later in the day. On the more dovish front, we’ll hear from Pablo Hernández De Cos, Fabio Panetta and Mario Centeno.”

“There are some risks of a small correction in the dollar today, and if this combines ECB steps with some reassurance for Italian bonds, we might see a mini-rally in EUR/USD today to the 1.0520-1.0550 mark. However, as we see any dollar correction as short-lived, our base case remains a return to sub-1.05 levels in the coming days.”

GBP/USD briefly traded below 1.20 at the end of Tuesday’s session, having fallen to the March 2020 lows. Economists at ING expect the pair to extend its decline toward the 1.17/18 region.

Negatives piling up

“It does appear to us that a lot of negatives regarding a slowdown in the UK economy are in the price, but there is still some downside risk related to a potential re-pricing in the Bank of England rate expectations, which continue to be overly hawkish (more than seven rate hikes expected by year-end).”

“For today, EUR/GBP should be a function of ECB-related news, and we could see some support above 0.8700.”

Cable will largely be a function of the FOMC meeting and some support around 1.20 is possible today, even though risks remain skewed to the 1.17-1.18 area in the short-term, with more Brexit and Scottish referendum news potentially adding fuel to the fire.”

The Australian Bureau of Statistics is set to release the May jobs report in the early trading hours of the Asian session on Thursday. However, the data is unlikely to move the aussie. Economists at ING expect the AUD/USD to stay below the 0.70 level over the next few weeks.

Jobs numbers no game changer

“Australian jobs numbers for the month of May will be released overnight. While jobs markets tended to have a key role in driving rate expectations, we believe that today’s actions by the Fed will have a bigger impact on the Reserve Bank of Australia rate expectations and on the aussie dollar.”

“AUD and RBA dynamics have not moved too much in tandem and we continue to see AUD/USD as mostly a USD and external drivers’ story.”

“With more USD support ahead, we think the pair will struggle to climb back above 0.70 before the end of the summer.”

Rising inflation, rate hikes, supply-chain problems and the Russia-Ukraine war have contributed to growing recession fears. While recessions are impossible to predict, economists at Charles Schwab think the risk of one – sooner rather than later – has picked up.

Signs point to rising recession risk

“Recession fear has risen swiftly this year. Inflation is rising at its fastest pace in decades, the Federal Reserve has begun what is expected to be an aggressive rate-hike cycle, global supply-chain problems persist, and the Russia-Ukraine war has upended commodity markets. All this has driven a rise in market volatility and fear of a coming economic downturn.”

“We think the risk of a recession – sooner rather than later – has picked up. Intense market volatility, sour consumer confidence, and downward pressure on income growth all point to an economy that is slowing down.”

• EUR/GBP gained some traction for the fourth straight day and climbed to over a one-year high.
• The prospects for a less hawkish BoE and Scottish referendum continued weighing on sterling.
• Market participants look forward to the ECB's ad hoc meeting for some meaningful impetus.

The EUR/GBP cross built on the previous day's bullish breakout momentum through the 0.8600 mark and gained some follow-through traction for the fourth successive day on Wednesday. The strong move pushed spot prices to over a one-year high, around the 0.8720 region during the early European session.

The incoming UK macro data, especially the monthly GDP report released on Monday that showed a surprise contraction in April, suggests that the Bank of England may opt for a more cautious approach to raising interest rates. This, along with the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement and the prospects of a fresh referendum on Scottish independence, weighed on sterling.

On the other hand, the shared currency drew support from a more hawkish shift by the European Central Bank (ECB), signalling that it would deliver its first rate hike since 2011 in July. The ECB also left the door open for a potentially larger move in September, which was seen as another factor that continued acting as a tailwind for the EUR/GBP cross and remained supportive of the strong move up.

That said, the recent widening of the spread between the yields of Germany and embattled southern nations, particularly Italy, which soared to its highest in over two years, capped gains. Hence, the market focus will remain glued to the ECB's ad hoc Governing Council meeting to discuss the recent sell-off in government bond markets, scheduled at 0900 GMT on Wednesday.

Apart from this, traders will take cues from ECB President Christine Lagarde's scheduled speech later during the US session. The market attention would then shift to the BoE monetary policy meeting on Thursday, which will play a key role in influencing the near-term sentiment surrounding the British pound. This, in turn, would provide a fresh directional impetus to the EUR/GBP cross.

Technical levels to watch

USD/HKD is now trading near 7.85 as US yields rise. Economists at Credit Suisse do not expect any change to the USD/HKD trading band of 7.75-7.85.

No reason to be concerned about the sustainability of the peg

“USD/HKD has traded near the 7.85 band limit since early May, and we expect this to continue as US yields rise. However, we do not expect any change to the long-standing USD/HKD trading band of 7.75-7.85.” 

“The HKMA has sufficient FX reserves to enforce the peg, and an intentional devaluation would negatively impact Hong Kong’s economy.”

Analysts at Credit Suisse stay bearish on the Czech koruna and stick to a target of 25.50 in EUR/CZK. 

Stay bearish on CZK

“We stay bearish on the Czech koruna given our view that investor nervousness around the monetary policy outlook is going to intensify once a new governor – Ales Michl – steps in in early July.”

“We think that EUR/CZK downside is currently limited to 24.40 even in the event of a sizable policy rate hike next week (e.g. 100bps-125bps).”

“We stick to a target of 25.50 for EUR/CZK.

Economists at Credit Suisse see the risks for the Swiss National Bank’s (SNB) meeting skewed in a hawkish direction and revise tehir EUR/CHF target lower from 1.01 to 0.99.

Rate hike by the SNB on the cards

“We see the risk that the central bank will alter its language regarding the franc's value and shift its long-term inflation forecast upwards. We would also not be surprised if the SNB were to hike interest rates by 25 bps.”

“We shift our previous target from 1.01 to 0.99 and would consider our view incorrect at 1.0551, slightly revised upwards from 1.0525 previous.”

• USD/CAD retreats from monthly top, flirts with short-term support line of late.
• Overbought RSI, impending bear cross on MACD teases sellers.
• Weekly ascending trend line, horizontal support from early May restricts immediate moves.
• Buyers have a bumpy road to the yearly top marked in May.

USD/CAD fades upside momentum at the monthly high, retreating to 1.2950 during early Wednesday morning in Europe.

The Loonie pair’s pullback could be linked to the overbought RSI conditions, as well as a looming bear cross of the MACD. That said, the pullback remains elusive until the quote breaks the weekly support line, around 1.2950 by the press time.

Even so, a horizontal area comprising multiple levels marked since May 02, around 1.2920-15, will challenge the USD/CAD sellers.

Additionally, the 61.8% Fibonacci retracement (Fibo.) of May 12 to June 08 downside, near 1.2860, will precede the 1.2795 support confluence, including the 200-SMA and 50% Fibo, to limit the further downside of the pair.

Alternatively, recovery moves could initially be challenged by mid-May swing high, close to 1.2980, before highlighting the 1.3000 threshold as the key hurdle.

In a case where the USD/CAD prices rally beyond 1.3000, multiple resistances surrounding 1.3040-50, followed by May’s peak of 1.3076, might question the upside momentum.

Overall, USD/CAD is likely to witness a pullback but the downside appears limited.

USD/CAD: Four-hour chart

Trend: Pullback expected

USD/JPY broke below 135.00 on Wednesday. Still, economists at Credit Suisse now leave room for USD/JPY to rise to as high as 142.00 this month, in case the Bank of Japan maintains rigid adherence to YCC at its Friday meeting. 

Risk reversal skews are becoming bid for JPY calls

“It’s very understandable why risk reversal skews are becoming bid for JPY calls and implied USD/JPY volatility is rising, even as spot pushes still higher.”

“We now leave room for USD/JPY to rise to as high as 142.00 this month, in the case where Kuroda maintains his rigid stance on Friday. But we still maintain our 4 May view that 125.80 is a range low rather than raise that too, as a shift in stance on YCC (be it a higher target level or a shorter duration as target) could be a catalyst for a step shift lower and a new narrative for JPY.”

GBP/USD has moved below the 1.2073/13 support zone. Subsequently, economists at Credit Suisse see broader risk for 1.1500.

Initial resistance moves to 1.2431

“With GBP expected to stay weak in its own right in Trade Weighted Terms and with the USD also expected to stay strong we see no reason not to look for a sustained break below 1.20, clearing the way for further weakness to 1.1500/1.1470, potentially the 1.1409 low of 2020.”

“Resistance is seen moving to 1.2431 initially, with 1.2668 ideally continuing to cap.”

The 0.68 level looks like the next obvious target for the aussie near-term. Nonetheless, the AUD/USD is expected to recover towards 0.74 in the third quarter, economists at Westpac report.

Equity turbulence could see a return to trade with the 0.68 handle

“The economic ripples from Russia’s invasion of Ukraine continue to underpin energy prices, strengthening the outlook for Australia’s already large trade surpluses. But the AUD remains at risk against a US dollar backed by the Fed’s determination to frontload rate hikes and shrink its balance sheet, a notably more aggressive tightening stance than the RBA (at least for now).”

“Daily correlations with equity markets are elevated even by the aussie’s historical standards, so any renewed equity turbulence could see a return to trade with the 0.68 handle (along with occasional squeezes higher).” 

“Recovery to 0.74 in Q3 remains likely. Australian growth should be swift in Q2 and Q3, supporting pricing for RBA tightening, while China’s policy focus will once again turn to infrastructure-led growth. And at some point, USD yield support will reach the cyclical peak.”

On Tuesday, EUR/SEK only dipped briefly before returning to the 10.60 level. Economists at Commerzbank expect the Swedish krona to remain under pressure as risk aversion dominates.

SEK to benefit from a hawkish Riksbank if recession fears abate

“While the market is dominated by risk aversion SEK will struggle to regain ground. Even if the inflation expectations, due for publication today, rise and point towards a restrictive Riksbank on 30th June.”

“The recession fears of the market would have to have calmed a little by the end of June for SEK to benefit from a Riksbank that is more hawkish than expected.”

Here is what you need to know on Wednesday, June 15:

News of the European Central Bank (ECB) holding an ad hoc Governing Council meeting to discuss the current market conditions, namely the bond rout, triggered a rally in the shared currency in the early European session on Wednesday. Ahead of the US Federal Reserve's highly-anticipated rate decision, the US Dollar Index started to pull away from the multi-decade high it set at 105.65 late Tuesday. Industrial Production data will be featured in the European economic docket and ECB President Christine Lagarde is scheduled to speak at 16:20 GMT. The US Census Bureau will release the Retail Sales data for May as well.

Federal Reserve Interest Rate Decision Preview: Damn the inflation, full speed ahead.

While speaking on Tuesday, ECB Governing Council member Isabel Schnabel said that the monetary policy can and should respond to a disorderly repricing of risk premia. "We will react to new emergencies with existing and potentially new tools," Schnabel added and noted that they are monitoring current market developments closely.

The market expectation points to a 50 basis points (bps) Fed rate hike later in the day. Reports from earlier this week, however, laid the groundwork for a 75 bps hike and the CME Group FedWatch shows that markets are now pricing in a 90% probability of the Fed hiking its policy rate by a total of 150 bps at the next two meetings.

Fed Preview: Powell to plunge markets or raise yields, a win-win for the dollar, five scenarios.

Earlier in the day, the data from China revealed that Industria Production expanded by 0.7% on a yearly basis in May, compared to the market expectation for a contraction of 0.7%. Additionally, Retail Sales declined by 6.7% in the same period but this reading came in better than analysts' estimate for a fall of 7.1%. 

EUR/USD rose sharply toward 1.0500 with the immediate reaction to the ECB news on Tuesday. The 10-year Italian government bond yield is down more than 8% in the European morning and the Eurostoxx futures trade in positive territory. 

GBP/USD clings to modest gains above 1.2000 early Tuesday. EUR/GBP advanced to its highest level since late April above 0.8700, making it difficult for GBP/USD to gain traction. BBC reported on Tuesday that the European Union was preparing to take legal action against the UK over changes made to post-Brexit arrangements.

USD/JPY broke below 135.00 on Wednesday ad was last seen trading deep in the red near 134.50. Japanese Chief Cabinet Secretary Hirokazu Matsuno reiterated on Wednesday that the authorities will take appropriate action on forex if required.

Gold is taking advantage of the pullback seen in the US Treasury bond yields early Tuesday and trading near $1,820 following the two-day slump. 

Ahead of the first-quarter Gross Domestic Product data from New Zealand, NZD/USD trades above 0.6200. In the early trading hours of the Asian session on Tuesday, the Reserve Bank of Australia will publish its Bulleting for the first quarter and the Australian Bureau of Statistics will release the May jobs report. AUD/USD, which declined to its lowest level since early May at 0.6850 on Tuesday, was last seen posting strong daily gains at 0.6910.

NZ GDP Preview: Forecasts from three major banks, at risk of contraction.

Bitcoin trades at its lowest level since December at $21,200 early Tuesday, losing more than 4% on a daily basis. Ethereum is down 7% and testing $1,100.

Could the Federal Reserve meeting be negative for the dollar? Economists at Commerzbank do not expect the world's most powerful central bank decision to provide additional support to the USD.

USD unlikely to profit from Fed’s meeting 

“While new forecasts and the dot plots can provide guidance, these are unlikely to take into account recent inflation figures and the turmoil in the financial markets. This is why this debate within the FOMC, which we will only get in the minutes in three weeks’ time, would likely provide most momentum for the US dollar.”

“Fed Chair Jerome Powell will likely want to keep all options open for himself at tonight’s press conference and provide little in the way of news but will only give a well-worded ‘we will continue to hike at a rapid pace’. That in turn would not constitute any additional fuel for the dollar bulls as market expectations have already gone a long way. That is why I do not assume that today’s meeting will provide additional support to the dollar so that EUR/USD will not ease below 1.04 on a sustainable basis as a result of the rate decision.”

“If Powell were to fuel doubts in any way or form that the Fed might disappoint the tight market expectations or even slow its course the dollar might even dip temporarily.”

See – Fed Preview: Forecasts from 12 major banks, increasing bets of a 75 bps rate hike

S&P 500 has fallen sharply for a conclusive break below the 3855/15 key support cluster. Analysts at Credit Suisse maintain their negative outlook for support next at the 50% retracement of the 2020/2021 bull trend and 200-week average at 3505/3500.

S&P 500 in a bear market

“We look for further weakness with support seen next at the March 2021 low at 3723, ahead of our next major objective at 3505/00 – the 50% retracement and 200-week average. Our bias would be to try and look for at least a temporary floor here. A direct break though can see support next at the Q1 2020 pre-pandemic high at 3394, then the 38.2% retracement of the entire uptrend from the 2009 GFC low at 3232.”

“Resistance is seen at 3838 initially, then 3900, with 4017/18 now ideally capping to keep the immediate risk lower.”

FX option expiries for June 15 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0415 264m
• 1.0500 665m

- USD/CHF: USD amounts        

• 0.9950 400m

- AUD/USD: AUD amounts  

• 0.7050 651m

- NZD/USD: NZD amounts

• 0.6100 381m

- AUD/JPY: AUD amounts

• 94.85 295m

Stats NZ is set to release Gross Domestic Product (GDP) figures for the first quarter on Wednesday at 22:45 GMT and as we get closer to the release time, here are forecasts from economists and researchers at three major banks regarding the upcoming growth data. 

New Zealand’s economy is seen expanding by 0.6% in the three months to March, on a quarterly basis, after rebounding by 3% in the final quarter of 2021. Meanwhile, the country’s GDP rate is at 3.3% YoY.

Westpac

“We estimate that GDP was flat in the March quarter. This is a downgrade from our earlier forecast of a 0.6% rise, due to some softness in the final batch of sectoral data releases. Covid continues to act as a handbrake on the economy. While the December quarter was marked by ongoing Government-mandated restrictions, the March quarter included the peak of the Omicron wave, with worker absenteeism being a substantial issue. We expect a stronger pickup in the June quarter, and our forecast for growth in 2022 overall remains broadly unchanged.”

ANZ

“We’ve pencilled in a flat quarter (0% QoQ) for economic activity. That’s a decent downgrade from our previously published forecast of 0.6% and much weaker than the RBNZ’s May MPS forecast of 0.7% QoQ.”

Standard Chartered

“We expect Q1 GDP to have contracted 0.2% QoQ (1.6% YoY), versus 3% q/q growth recorded in Q4, as the Omicron wave likely weighed on the economy. Retail sales ex-inflation contracted 0.5% QoQ, milk and chicken production contracted YoY, and the manufacturing PMI contracted YoY in Q1 as well. Meanwhile, the construction sector was a bright spot for the economy, with building works put in place expanding in Q1. The central bank’s forecast is for a q/q expansion of 0.7%. Given that Q1 GDP is backward-looking and weakness can be attributed to the Omicron wave, we think it may not do much in dampening the central bank’s hawkish tone for now. However, we maintain our view that it is difficult for the central bank to hike policy rates significantly above neutral given weaker sentiment indicators.”

• EUR/USD takes the bids to refresh intraday high, extend previous day’s rebound from monthly low.
• ECB unveils a surprise meeting to discuss current market conditions.
• Yields stay pressured, stock futures fade recent gains ahead of the key central bank meetings.
• ECB may try to compensate for previous failures to please hawks, Fed’s 75 bp rate hike is the key.

EUR/USD holds onto the previous day’s recovery around 1.0480 as markets brace for the European Central Bank’s (ECB) surprise monetary policy meeting in early Wednesday. The major currency pair’s latest gains could also be linked to the pullback in the US Treasury yields, as well as the market’s cautious optimism.

As per the latest update from ECB, the regional central bank has called an unscheduled meeting to discuss current market conditions. Amid a dearth of details, the Euro traders have started betting on the hawkish outcome considering the ECB’s previous failures to please optimists. The bloc’s central bank previously failed to impress hawks by announcing only a 25 bps rate hike in July, versus 50 bps expected. The same raises expectations of a bold move by the ECB, which in turn could propel the EUR/USD prices.

Elsewhere, US 10-year Treasury bond yields ease from the highest levels since 2002, down three bps near 3.45% at the latest, amid the market’s anxiety ahead of the key Federal Open Market Committee (FOMC). The softer yields probe the US dollar bulls and favor the US stock futures, despite the latest retreat in equities.

This contrasts with the market’s gung-ho about the 75 basis points (bps) of the Fed’s rate lift during today’s meeting, as well as the political pressure on the US central bank witnessed during late Tuesday.

Moving on, EUR/USD traders will keep their eyes on the ECB and the Fed moves for clear directions as both the central banks have recently conveyed hawkish bias but Powell has an upper hand over Lagarde. Should Fed Chair Jerome Powell manage to please hawks, with or without the widely anticipated 75 bp rate hike, the EUR/USD could return to the monthly lows. Before that, ECB President Christine Lagarde will have an opportunity to position the bulls if she manages to surprise markets.

Other than the central bank moves, Eurozone Industrial Production for April and the US Retail Sales for May are also important to forecasts the short-term EUR/USD moves.

Technical analysis

Monday’s inverted hammer joins nearly oversold RSI conditions to suggest further recovery of the EUR/USD prices until the quote stays beyond May’s low of 1.0349. The recovery moves, however, need validation from 1.0630 to convince bulls.

Gold Price rebounds from multi-month lows but will it last? As FXStreet’s Dhwani Mehta notes, XAUUSD could stage a solid comeback on a dovish Fed rate hike.

XAU/USD’s fate hinges on a dovish or hawkish rate hike by the Fed

“Gold’s fate will remain at the mercy of the Fed outcome, with the fully baked-in 75 bps rate hike to trigger a ‘sell the fact’ reaction in the dollar, which could underpin the bright metal.” 

“A 50 bps rate hike could come as a dovish surprise, saving the day for Wall Street indices. Risk flows could return if the Fed delivers a dovish hike that could reduce the dollar demand, boding well for the USD-priced gold.”

See – Fed Preview: Forecasts from 12 major banks, increasing bets of a 75 bps rate hike

• GBP/USD is recovering after a minor correction to near 1.2000 amid a positive market mood.
• The DXY has slipped sharply to near 105.00 ahead of the Fed’s policy.
• The higher UK jobless rate has left less room for the BOE to elevate its interest rates.

The GBP/USD pair has attracted some significant bids to near 1.2000 after witnessing a mild correction from 1.2041. A sharp rebound in the risk-on impulse has underpinned the pound bulls against the greenback. The cable is expected to recapture its day’s high on soaring market mood ahead of the monetary policy by the Federal Reserve (Fed).

The US dollar index (DXY) has extended its intraday losses after slipping below 105.16. A firmer downside move has drifted the DXY lower to near 105.00, at the press time, which is a crucial hurdle for the DXY bears. An extreme sell-off in the DXY has been witnessed as investors have ignored the uncertainty over the Fed’s policy.

A rate hike by at least 50 basis points (bps) is imminent amid soaring price pressures. Also, the odds of a rate hike by 75 bps have bolstered. As per the CME Fedwatch tool, the chances of announcing a rate hike of 75 basis points (bps) are 99%. The market participants have accepted the fact and have liquidated their longs from the DXY.

On the pound front, the Bank of England (BOE) will dictate its monetary policy on Friday. A rate hike by 25 bps is expected as the higher Unemployment Rate has left less room for the BOE to stretch the interest rates. The jobless rate in the UK economy landed at 3.8%, higher than the expectations of 3.6% and the prior print of 3.7%.

Bank of Japan (BOJ) once again announced to offer an additional emergency bond-buying operation, in a desperate attempt to defend the yield target.

Key details

BOJ offers to buy unlimited amounts of 10-year JGBs at 0.25% on June 16 and 17.

BOJ to continue to conduct additional bond buying as needed taking into account market moves.

Market reaction

USD/JPY was last seen trading at 137.76, down 0.51% on the day, tracking the renewed downside in the US dollar across its major peers.

• Gold Price bounces off one-month low to challenge bears, grinds higher around short-term key hurdle of late.
• US Treasury yields, DXY retreat from multi-day high as traders brace for hawkish Fed.
• Softer US PPI, upbeat data from China also allowed bears to take a breather.

Gold Price (XAUUSD) rebounds from monthly low as traders brace for the Fed’s verdict amid a sluggish session during early Wednesday morning in Europe. That said, the precious metal recently picks up bids to $1,816, reversing the pullback from the intraday high surrounding $1,820, by the press time.

Gold Price rebounds on softer yields

US 10-year Treasury bond yields ease from the highest levels since 2002, down three bps near 3.45% at the latest, amid the market’s anxiety ahead of the key Federal Open Market Committee (FOMC). This contrasts with the market’s gung-ho about the 75 basis points (bps) of the Fed’s rate lift during today’s meeting, as well as the political pressure on the US central bank witnessed during late Tuesday. The reason for the bond coupon’s recent weakness could be linked to the bond-buying by China and Japan, as well as softer the US Producer Price Index (PPI) data. That said, the US PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Also read: Gold Price Forecast: XAUUSD could stage a solid comeback on dovish Fed rate hike

China data, PBOC moves underpin gold’s recovery

Upbeat prints of China’s Retail Sales and Industrial Production for May join the People’s Bank of China’s (PBOC) liquidity injection to keep the gold prices afloat. The reason could be linked to China’s status as one of the world’s top gold consumers. China’s Retail Sales improved to -6.7% versus -7.1% expected and -11.1% prior while the Industrial Production reversed -0.7% forecast with 0.7% expansion during May. Further, PBOC injected CNY200 billion via one-year medium-term lending (MLF) facility on Wednesday. Additionally, the Chinese central bank also matched wide market expectations while keeping the rate for one-year MLF operation rate unchanged at 2.85%.

US diplomats push for inflation control

US policymakers crossed wires during late Tuesday while indirectly pushing the Fed towards faster/heavier rate hikes. Notable among them were, White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti. WH’s Deese mentioned that the White House’s aim is to ease the price pressure and the Federal deficit during the interview. On the same line, Bharat Ramamurti told Bloomberg TV on Tuesday that inflation was a global problem but added that the United States was "well prepared."

Fed’s Powell holds the key to further XAUUSD upside

US Federal Reserve Chairman Jerome Powell

Federal Reserve Chairman Jerome Powell has a tough task on hand as the swirling inflation and recession fears challenge the US central bank’s previous bias to announce a 50 bp rate hike in June. “Investors have dramatically raised their bets that the U.S. Federal Reserve will raise interest rates by 75 basis points (bps) rather than 50 bps on Wednesday, a swing in expectations that has fuelled a violent selloff across world markets,” said Reuters. In his latest comments, published in late May, Fed’s Powell showed readiness to act given the inflation woes continue to challenge policies’ impact.

ECB is important too

European Central Bank (ECB) is up for an unscheduled meeting to discuss the current market conditions. The surprise from the central bank keeps Gold Price traders on the edge as the bloc’s central bank previously failed to impress hawks by announcing only a 25 bps rate hike in July, versus 50 bps expected. The same raises expectations of a bold move by the ECB, which in turn could propel the XAUUSD.

Gold Price technical outlook

Gold Price recovers from a monthly low as buyers attack 78.6% Fibonacci retracement (Fibo.) of December 2021 to March 2022 upside. In addition to the key Fibo. level, the most bearish MACD signal in a month joins the downbeat RSI, not oversold, to keep XAUUSD bears hopeful.

Even if the quote rises past the $1,820 immediate hurdle, the 200-DMA and a downward sloping trend line from March, respectively around $1,842 and $1,862, could challenge the gold buyers. Also acting as an important upside hurdle is the 50-DMA level of $1,878.

Alternatively, pullback moves may initially aim for the $1,800 threshold before highlighting the yearly horizontal support area close to $1,787-82. Following that, the late 2021 bottom around $1,753 will be in focus.

Overall, Gold Price remains on the bear’s radar despite the latest corrective pullback.

Gold range pattern activated ahead of the FOMC

European Central Bank (ECB) is set to hold ad hoc Governing Council meeting on Wednesday to discuss the recent sell-off in government bond markets, Reuters reported, citing a an ECB spokesperson.

The spokesperson said: "The Governing Council will have an ad-hoc meeting on Wednesday to discuss current market conditions.”

This comes after the spread between the yields of Germany and embattled southern nations, particularly Italy, soared to its highest in over two years, amid increasing concerns over fragmentation.

Market reaction

The shared currency received a fresh boost from the above headlines, with EUR/USD climbing further towards 1.0500.

The pair was last seen trading at 1.0470, adding 0.56% on the day.

EUR/USD 15-minutes chart

• Copper prices have turned sideways but are expected to resume their upside journey on sold China’s data.
• China’s Industrial Production has turned positive to 0.7% vs. -2.9% reported earlier.
• An expectation of a 75 bps rate hike by the Fed is backed by higher CPI reported last week.

Copper, futures on COMEX, have displayed a firmer responsive buying action after hitting a low of 4.1305 in the late New York session. The asset has turned sideways now after a responsive buying in which the market participants consider the asset a value bet. The inventory distribution in the rangebound move will scale the copper prices higher towards 4.2300. 

A significant recovery in the copper prices is backed by a rebound in the positive market sentiment and the release of upbeat China’s economic data.

Investors are awaiting the announcement of the interest rate decision by the Federal Reserve (Fed), which is expected to remain on the extremely hawkish side as soaring inflation could be tamed by extremely tightening measures only. The odds of a rate hike by 75 basis points (bps) are fuelled by last week’s firmer inflation figures. The US dollar index (DXY) has remained firmer during these trading sessions on expectations of a higher interest rate announcement. The DXY displayed some exhaustion signals at open but has recovered a majority of its losses now as clouds of uncertain Fed policy loom again.

Meanwhile, upbeat China’s economic data despite the two-month period of serious lockdown in Shanghai and Beijing has bolstered the copper bulls. China’s National Bureau of Statistics has reported the annual Retail Sales at -6.7%, much better than the expectation of -7.1% and the prior print of -11.1%. While the Industrial Production has turned positive as it has landed at 0.7%, significantly higher than the consensus of -0.7% and the former figure of -2.9%.  

• DXY picks up bids to consolidate intraday losses around a two-decade high.
• Fears of aggressive Fed rate hike favor greenback bulls.
• Downbeat US PPI joined cautious optimism surrounding China to trigger pullback.
• US Retail Sales is important but Fed’s ability to tame inflation, keep growth intact will be crucial for clear directions.

US Dollar Index (DXY) trims the daily loss as buyers flex muscles ahead of the key Federal Open Market Committee (FOMC) on Wednesday. That said, the greenback’s gauge versus the six major currencies takes the bids to 105.40 as it reverses the early-day pullback from a 20-year high heading into the European session.

While fresh chatters surrounding the Fed’s aggressive rate hikes could be linked to the latest DXY run-up, as well as preparations to welcome European traders, the market remains dicey and fails to firmly support the US dollar buyers ahead of the Fed’s verdict.

“Investors have dramatically raised their bets that the U.S. Federal Reserve will raise interest rates by 75 basis points (bps) rather than 50 bps on Wednesday, a swing in expectations that has fuelled a violent selloff across world markets,” said Reuters.

As per the latest readings of the CME’s FedWatch Tool, there is a 99% probability for a 75 bp rate increase during today’s meeting. Comments from the US diplomats, suggesting an indirect push to the Fed also seem to keep the DXY firmer. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

While justifying the cautious mood, the US 10-year Treasury bond yields pare daily losses around 3.44%, down four basis points (bps). It’s worth noting that the US bond coupons refreshed a two-decade high the previous day amid increasing bets over the Fed’s aggressive rate hikes.

Even so, the US Producer Price Index (PPI) readings for May allowed the US bond coupons to retreat from the 11-year high and trigger a pullback in the US dollar.  That said, the US PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Additionally, upbeat Retail Sales and Industrial Production from China, for May, also challenged the US dollar’s safe-haven demand.

Moving on, the US Retail Sales for May could entertain traders, expected at 0.2% MoM versus 0.9% prior, but major attention will be given to the FOMC. While the Fed rate hike is almost given, the size of the same and the economic forecasts, coupled with Chairman Jerome Powell’s ability to tame inflation and growth fears will be crucial to watch for fresh directions.

Technical analysis

Unless dropping back below May’s top of 105.00, the US Dollar Index remains on the way to challenging an upward sloping resistance line from November 2021, around 106.50 by the press time.

• AUD/USD retreats from intraday high as traders revisit the upper line of weekly falling channel.
• Monthly horizontal support adds to the downside filters, oversold RSI tests bears.
• MACD teases bulls while suggesting corrective pullback towards 200-HMA.

AUD/USD pares intraday gains around 0.6900, the first in six days, as the quote fails to extend the short-term channel breakout heading into Wednesday’s European session.

The Aussie pair’s latest weakness appears doubtful amid oversold RSI (14). Also likely to challenge the AUD/USD sellers is the resistance-turned-support line of the one-week-old descending trend channel, around 0.6900 by the press time.

Even if the quote drops before 0.6900, a five-week-old horizontal area surrounding 0.6850-40 will be a crucial support to watch for the pair bears, a break of which could direct prices towards the mid-June 2020 low near 0.6775.

Meanwhile, the Aussie pair’s further upside may aim for the broad resistance area surrounding 0.7037-52, including multiple levels marked since May 11.

Following that, the 200-HMA level of 0.7075 appears the last defense of the AUD/USD bears.

In a case where the Aussie pair rises past 0.7075, the monthly high of 0.7283 will gain the market’s attention.

Overall, AUD/USD holds onto the recovery bias, despite the latest pullback, ahead of the key Federal Open Market Committee (FOMC).

AUD/USD: Hourly chart

Trend: Further recovery expected

• Asian equities are attracting dip-buyers on a rebound in the positive market sentiment.
• Chinese stocks are extremely positive on upbeat economic data.
• The Fed is highly expected to announce a 75 bps rate hike in its monetary policy meeting.

Markets in the Asian domain are attracting some bids at dips as the US Treasury yields have displayed a loss of momentum after recording peaks. The 10-year US Treasury yields are trading at 3.43%, mildly lower from its 11-year high of 3.5%. This has improved the risk appetite of the market participants ahead of the Federal Reserve (Fed) monetary policy meeting and Asian equities have found some dip-buying but still eyes more filters for a fresh buying scenario.

At the press time, Japan’s Nikkei225 tumbled almost 1%, and Nifty50 eased 0.25% while Hang Seng jumped 1.36%, and China A50 added 1.86%.

Chinese equities have got an adrenaline rush on upbeat economic data. China’s National Bureau of Statistics has reported the annual Retail Sales at -6.7%, much better than the expectation of -7.1% and the prior print of -11.1%. While the Industrial Production has turned positive as it has landed at 0.7%, significantly higher than the consensus of -0.7% and the former figure of -2.9%. Despite, the two-month extreme lockdown restrictions by the Chinese authorities to contain the spread of the Covid-19, the Chinese economy has displayed an outperformance.

Going forward, the mega event of the interest rate decision by the Federal Reserve (Fed) will guide the risk-sensitive assets. Last week’s stronger US Inflation data has bolstered the odds of a 75 basis point (bps) rate hike by the Fed. The odds of a rate hike by 75 bps have increased sharply, which has sidelined investors. Fed chair Jerome Powell dictated in his testimony that a 75 bps rate hike is not into consideration. So it will be exciting to see in which way the highest official of the Fed will deal with the inflation mess.

• USD/IDR picks up bids to pare intraday losses on downbeat catalysts from Indonesia.
• Indonesia Exports eased in May, President announces readiness to reshuffle cabinet.
• DXY pullback, optimism in China challenge buyers ahead of the Fed.

USD/IDR consolidates intraday losses around $14,745, down 0.15% intraday, as downbeat Indonesia trade numbers join political uncertainty in the Asian session to test the pair sellers. That said, the quote remains on the back foot for the second consecutive day during early Wednesday morning in Europe.

Indonesia's Exports eased from 38.69% to 27.00%, versus 47.76% prior, as per the latest trade numbers from Statistics Indonesia. Details suggest that Imports rose 30.74% versus 32.80% forecasts and 21.97% previous readouts while the Trade Balance eased to $+2.9 billion compared to $3.83 billion market consensus and $7.56 billion prior.

Elsewhere, Indonesian President Joko Widodo is up for a cabinet reshuffle on Wednesday afternoon, per Reuters, “Bima Arya Sugiarto, a member of the National Mandate Party (PAN) and the mayor of Bogor, confirmed the reshuffle would take place later on Wednesday after a meeting with the president,” the news adds.

On the contrary, a pullback in the US Treasury yields from the multi-year high and China’s upbeat Retail Sales, as well as Industrial Production, challenge the USD/IDR buyers. It’s worth noting that that CME’s FedWatch Tool, there is a 99% probability for a 75 bp rate increase during today’s Fed meeting, which in turn suggests the Indonesia rupiah (IDR) pair’s further upside.

Other than the Fed-linked concerns, US Retail Sales for May expected at 0.2% MoM versus 0.9% prior, could entertain USD/IDR traders.

Technical analysis

USD/IDR pullback from the yearly resistance line, around $14,810 by the press time, directs the quote towards the weekly support near $14,600. 

• USD/JPY stays pressured around intraday low after reversing from the highest levels since 1998.
• Softer yields, upbeat Japan data adds strength to the pullback.
• BOJ vs. Fed play becomes crucial for near-term directions, risk catalysts, US Retail Sales may also entertain traders.

USD/JPY keeps the early Asian session losses as sellers flirt with the intraday low while flashing the biggest daily loss in three weeks. In doing so, the yen pair reverses from the highest levels since 1998 during early Wednesday morning in Europe, around 135.00 by the press time.

The yen pair’s latest weakness could be linked to upbeat Japanese data and a pullback in the US Treasury yields, as well as the market’s preparations for the Federal Open Market Committee (FOMC).

Japan’s Machinery Orders for April jumped 19% YoY versus 5.3% expected and 7.6% prior. The Government report raised hopes of an economic recovery following the data. Elsewhere, the Reuters Tankan sentiment index, a business confidence gauge that strongly correlates with the Bank of Japan’s (BOJ) quarterly Tankan survey, found sentiment among manufacturing and service-sector firms was expected to improve over the next three months, though companies reported pressure from rising costs aggravated by a weaker yen.

On the other hand, the US Dollar Index (DXY) retreats from the highest level since 2002, down 0.20% intraday around 105.20, as the US Treasury yields ease from a multi-year top. That said, the US 10-year Treasury bond yields dropped 5.6 basis points (bps) to 3.43%. In doing so, the benchmark US bond coupons eased from the fresh high since 2011, marked the previous day.

The softer US Producer Price Index (PPI) readings for May allowed the US bond coupons to retreat from the 11-year high and trigger a pullback in the US dollar ahead of the Fed meeting.  That said, the US PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Above all, the Bank of Japan’s (BOJ) ability to buy up to 2.45tln yen of Japanese Government Bonds (JGBs), as mentioned on Tuesday, seems to favor the USD/JPY sellers. However, fears of the faster/heavier Fed rate also keep the USD/JPY buyers hopeful.

As per the latest readings of the CME’s FedWatch Tool, there is a 99% probability for a 75 bp rate increase during today’s meeting. Comments from the US diplomats, suggesting an indirect push to the Fed also seem to keep the USD/JPY afloat. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

On a different page, Reuters poll said, "The yen is at risk of weakening further against the dollar for at least the rest of 2022, more than two-thirds of economists polled, underscoring the consequences of the Bank of Japan being the lone major central bank clinging to easy policy."

That said, USD/JPY traders may pay attention to the risk catalysts, namely the covid updates and the US-China tussles, not to forget the Russia-Ukraine tensions, to determine immediate moves. However, major attention will be given to the US Retail Sales for May and the US Federal Reserve’s (Fed) ability to tame inflation and keep the economic growth intact.

Read: Fed Preview: Powell to plunge markets or raise yields, a win-win for the dollar, five scenarios

Technical analysis

A 13-day-old support line near 134.70 restricts immediate USD/JPY downside but the bears remain cautious until the quote stays above April’s peak of 131.25.

Meanwhile, multiple resistances marked during late 1998 could test the pair buyers around 137.60. 

• An Inverted Flag formation is bolstering the greenback bulls for a downside move towards 1.0300.
• The greenback bulls have defended the 50-EMA, which marks a major hurdle.
• A (40.00-60.00) range move by the RSI (14) is favoring consolidation ahead.

The EUR/USD pair has attracted some significant offers around 1.0400 in the Tokyo session amid a rebound in the positive market sentiment. A recovery in the asset is observed after a sheer downside move from Thursday’s high at 1.0774. The pair has turned sideways in a range of 1.0397-1.0418 from the last two trading sessions.

The formation of an Inverted Flag chart pattern on an hourly scale is indicating a consolidation phase after a sheer downside move, which will be followed by a fresh leg of selling in the counter. Usually, a consolidation phase denotes inventory distribution by the initiative sellers, who enter an auction after an establishment of a bearish bias.

The greenback bulls have confidently defended the 50-period Exponential Moving Average (EMA) at 1.0485, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which signals a continuation of a rangebound move.

A slippage below Monday’s low at 1.0400 will trigger the Inverted Flag formation and will drag the asset towards May 12 low at 1.0350, followed by the round-level cushion at 1.0300.

Alternatively, the shared currency bulls could regain their glory if the asset oversteps Tuesday’s high at 1.0485. An occurrence of the same will send the asset towards May 20 low at 1.0571. A breach of the May 20 low on the upside will drive the asset towards the round-level resistance at 1.0600.

EUR/USD hourly chart

• USD/INR pares the biggest daily loss in three weeks.
• India reports highest daily rise in covid infections since late February.
• Pullback in yields, DXY tests pair buyers, China data also exert downside pressure.
• Fed’s ability to tame inflation and recession fears will be at a test as markets expect aggressive action.

USD/INR stays defensive around 78.00, following a pullback from 78.27, as coronavirus woes in India jostle with the US dollar retreat ahead of the key Federal Open Market Committee (FOMC).

India reports an 8,822 daily rise in coronavirus infections, the highest since February 27, against 6,594 reported yesterday, per the latest NewsRise update shared by Reuters. It’s worth noting that the fears of economic slowdown and rallying inflation were cited in the latest Reserve Bank of India (RBI) monetary policy meeting. The same could intensify if virus cases escalate, which in turn suggests further pain for the Indian rupee (INR).

The fears of the faster/heavier Fed rate also keep the USD/INR buyers hopeful. As per the latest readings of the CME’s FedWatch Tool, there is 99% probability for a 75 bp rate increase during today’s meeting. Comments from the US diplomats, suggesting an indirect push to the Fed also seem to keep the USD/INR afloat. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

Even so, the US Dollar Index (DXY) retreats from the highest level since 2002, down 0.20% intraday around 105.20, as the US Treasury yields ease from a multi-year top. That said, the US 10-year Treasury bond yields dropped 5.6 basis points (bps) to 3.43%. In doing so, the benchmark US bond coupons eased from the fresh high since 2011, marked the previous day.

It’s worth noting that softer US Producer Price Index (PPI) readings for May allowed the US bond coupons to retreat from the 11-year high and trigger a pullback in the US dollar ahead of the Fed meeting.  That said, the US PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Moving on, US Retail Sales for May, expected at 0.2% MoM versus 0.9% prior, could entertain USD/INR traders but major attention will be given to how Fed Chairman Jerome Powell manages to tame inflation and growth fears amid hopes of 75 bp moves versus previous signaled 50 bp rate lift.

Technical analysis

A one-week-old support line restricts immediate USD/INR downside, around 77.95, ahead of multiple tops marked since mid-May near 77.85. That said, buyers need to defy Monday’s Doji with successful trading above 78.40 to keep reins.

• Gold price is facing a hurdle around $1,820.00, however, the recovery looks firmer amid a risk-on mood.
• Investors have started accepting the fact that a 75 bps rate hike is imminent.
• The 10-year US Treasury yields have tumbled sharply to 3.42%.

Gold price (XAU/USD) has moved northwards firmly after hitting a low of $1,805.20 in the late New York session. The precious metal has displayed some signs of exhaustion and the asset is expected to overstep $1,820.00 going forward.

The odds of a 75 basis point (bps) rate hike by the Federal Reserve (Fed) have improved significantly and investors have understood the fact that an extreme rate hike is highly required to tame the soaring inflation. Therefore, investors are ignoring the rate hike-associated uncertainty and shifting their funds from the US dollar index (DXY) to gold prices and other risk-sensitive currencies. As per the CME Fedwatch tool, the chances of announcing a rate hike of 75 basis points (bps) are 99%.

A follow-up decline has been witnessed in the DXY after a weak open. The DXY has tumbled to 105.20 but is likely to find a cushion around 105.00. Also, the 10-year US Treasury yields have eased around 2% and have slipped to 3.42%.

Gold technical analysis

On an intraday sale, the downside move in the gold prices has displayed a loss of momentum, which has pushed the precious metal higher to near $1,820.00. The Relative Strength Index (RSI) (14) didn’t align with the gold prices and showed a higher low while the asset recorded a lower low. The precious metal has firmly crossed the 50-period Exponential Moving Average (EMA) at $1,813.82, which adds to the upside filters.

Gold intraday chart

• GBP/USD stages a solid comeback amid risk-on mood, USD retreat.
• Investors reposition ahead of the Fed and BOE event risks.
• Cable achieved a bearish channel measured target; a rebound is inevitable.

GBP/USD is hovering in the green zone for the first time in six trading days, bears seem to have faced exhaustion after a tumultuous week so far.

Cable is seeing fresh signs of life, helped by the return of risk appetite on upbeat Chinese activity data and as nervousness eases ahead of the expected 75 bps rate hike by the Fed.

In doing so, the currency pair extends the recovery towards 1.2050, adding 0.35% on the day, as of writing. The upbeat market mood has doused the ongoing rally in the safe-haven US dollar.

Additionally, investors resort to repositioning ahead of the critical Fed and BOE monetary policy decisions. The BOE Is widely expected to hike rates by 25 bps to 1.25% this Thursday, although the debate on the central bank’s rate hike path will hold the key for GBP bulls to sustain the recovery.

Looking at cable’s daily chart, a rebound seems to have some conviction as the price has already achieved the measured target of the rising channel breakdown at 1.1964.

The spot hit the lowest level since January 2020 at 1.1933 on Tuesday, having faced a double whammy from the aggressive Fed rate hike expectations and deepening fears about the future of the UK economy.

The Relative Strength Index (RSI) has now managed to come out of the oversold territory, trading at 30.71, backing the renewed uptick in GBP/USD.

Recapturing the 1.2050 psychological level is critical to unleashing the additional recovery towards 1.2100, above which doors will open up once again towards 1.2200.

GBP/USD: Daily chart

On the flip side, the immediate support now awaits at the 1.2000 round figure.

Fresh selling will see the channel target being tested again at 1.1964, below which the multi-month lows of 1.1933 will be back in focus.

GBP/USD: Additional technical levels

• NZD/USD is advancing towards 0.6250 on a rebound in the risk-on impulse.
• The odds of a rate hike of 75 bps by the Fed have increased to 99%.
• Higher-than-expected PMI numbers will support the kiwi dollar.

The NZD/USD pair has displayed a decent rebound after hitting a low of 0.6196 in the late New York session. A rebound in the positive market sentiment has underpinned the risk-perceived currencies, which has eventually supported the kiwi dollar. It would be justify claiming that the clouds of uncertainty over the rate hike announcement by the Federal Reserve (Fed) are fading away and the market participants have started pouring liquidity into the risk-sensitive assets.

As per the CME Fedwatch tool, the chances of announcing a rate hike of 75 basis points (bps) are 99%. Considering a weakness in the US dollar index (DXY), a significant jump in the odds of a rate hike is being discounted by the market participants.

The DXY is declining towards the psychological support of 105.00 after recording a fresh 19-year high at 105.65.  The fundamentals in the US economy have not changed yet as price pressures are accelerating sharply. Therefore a corrective move in the DXY should not be considered a bearish reversal in the counter.

On the kiwi front, investors are awaiting the release of the Business NZ Purchase Managers Index (PMI), which is due on Friday. The Business NZ PMI IS seen at 52.7, higher than the prior print of 51.2. A better-than-expected reading will be beneficial for the antipodean while subdued or vulnerable figures will bring offers in the counter.

• USD/CNH extends the previous day’s pullback from monthly high.
• China Retail Sales improved, Industrial Production reversed previous contraction in May.
• PBOC injects CNY 200 billion while keeping one-year MLF unchanged at 2.85%.
• Fed Chair Powell’s ability to tame inflation, recession woes and meet market expectations will be a test.

USD/CNH holds lower ground near the intraday bottom surrounding 6.7250, near 6.7350 by the press time, as strong China data joins the People’s Bank of China’s (PBOC) action to please the bears during early Wednesday. Also exerting downside pressure on the offshore Chinese yuan (CNH) pair is the US Treasury bond yields’ retreat.

China’s Retail Sales improved to -6.7% versus -7.1% expected and -11.1% prior while the Industrial Production reversed -0.7% forecast with 0.7% expansion during May. Earlier in the day, Australia’s Westpac Consumer Confidence for June dropped below -0.7% market forecasts to -4.5%, versus -5.6%.

PBOC injected CNY200 billion via one-year medium-term lending (MLF) facility on Wednesday. Additionally, the Chinese central bank also matched wide market expectations while keeping the rate for one-year MLF operation rate unchanged at 2.85%.

On the other hand, a softer US Producer Price Index (PPI) for May allowed the US bond coupons to retreat from the 11-year high and trigger a pullback in the US dollar ahead of the key Federal Open Market Committee (FOMC).

The US PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

US 10-year Treasury bond yields drop 5.6 basis points (bps) to 3.43% as the bond coupons ease from the fresh high since 2011. The same underpins the mildly bid S&P 500 Futures around 3,750 and weighs on the USD/CNH afloat.

Looking forward, major attention will be given to the Fed’s interest rate decision and the economic forecasts as Chairman Jerome Powell has a tough task of pleasing markets and taming inflation at the same time.

It’s worth noting that the US diplomats have recently pushed the Fed, indirectly, towards aggressive action, which in turn propelled the market’s expectations of a 75 bp rate hike from the US central bank. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively. The same enables the CME’s FedWatch Tool to print 99% probabilities for a 75 bp rate increase during today’s meeting.

Other than the Fed, US Retail Sales for May, expected 0.2% MoM versus 0.9% prior, will also be important to watch for USD/CNH. Additionally, the covid conditions and the Sino-American tussles are extra catalysts to watch for the pair traders.

Read: Fed June Preview: In the world we live in, a 50 bps hike is a dovish surprise

Technical analysis

A one-week-old ascending trend line joins the previous resistance line from May 13 to highlight 6.7200-7150 is the key support. Alternatively, recovery moves need validation from monthly horizontal resistance near 6.7900.

Japanese Chief Cabinet Secretary Hirokazu Matsuno reiterated on Wednesday that the authorities will take appropriate action on forex if required.

Matsuno, however, said that he has no comments on FX intervention.

Market reaction

USD/JPY is off the 24-year highs of 135.60, as it remains under pressure around 135.20 heading into the all-important Fed rate hike decision.  

Following the release of the May activity numbers, China’s National Bureau of Statistics (NBS) released a statement, via Reuters, expressing their take on the economy.

Key headlines

• AUD/USD grinds higher past 0.6900 on upbeat China data dump, Fed eyed

• AUD/USD extends the corrective pullback from monthly low on firmer China data.
• China’s Retail Sales, Industrial Production both improved in May.
• Australia Westpac Consumer Confidence shrank more than expected for June.
• Market consolidation awaits Fed’s verdict, US data, risk catalysts may offer intermediate moves.

AUD/USD seesaws around intraday high near 0.6920-25 as upbeat China data joins softer US Treasury yields to entertain buyers ahead of the key Federal Open Market Committee (FOMC). That said, the hawkish hopes from the Reserve Bank of Australia (RBA) and news of higher Aussie wage prices also favored the pair buyers during early Wednesday.

China’s Retail Sales improved to -6.7% versus -7.1% expected and -11.1% prior while the Industrial Production reversed -0.7% forecast with 0.7% expansion during May. Earlier in the day, Australia’s Westpac Consumer Confidence for June dropped below -0.7% market forecasts to -4.5%, versus -5.6%.

Read: China’s May Industrial Output unexpectedly rebounds 0.7%, Retail Sales beat estimates

It’s worth noting that news of an increase in the Aussie minimum wage by 5.2%, to A$40/week, joined the strong Australia Treasury bond yields and calls for the Reserve Bank of Australia’s (RBA) aggression to favor AUD/USD bulls.

That said, Australia’s 10-year Treasury yields remain mildly bid near 4.11%, the highest levels in eight years. The bond coupons recently rose on the comments from Goldman Sachs (GS) Chief Australia Economist Andrew Boak. “We now expect the RBA to raise rates by 50bps in August and September, up from 25bps previously,” said Boak from GS.

While Aussie fundamentals seemed to have recently favored the AUD/USD pair’s corrective pullback, a retreat in the US bond coupons and the softer US data could also be cited as the catalysts.

US 10-year Treasury bond yields drop 5.6 basis points (bps) to 3.43% as the bond coupons ease from the fresh high since 2011. The same underpins the mildly bid S&P 500 Futures around 3,750 to keep the AUD/USD afloat.

Moving on, the PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Alternatively, rising expectations of a 75 bps rate hike from the Fed join the diplomatic push from the White House officials to hint at the US dollar’s rebound, which challenges the AUD/USD pair. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

Additionally, covid woes in China, the world’s second-largest economy and Australia’s key customer, also weigh on the Aussie prices. Beijing reported the highest coronavirus cases in three weeks the previous day and called for more activity restrictions. Shanghai, on the other hand, marked ease into the COVID-19 cases but keeps the recently announced limits to curb the virus from spreading too fast.

That said, AUD/USD pair may witness lackluster moves and can keep the latest rebound from the monthly low ahead of the US Retail Sales for May, expected 0.2% MoM versus 0.9% prior. Though, the Fed meeting will be crucial to watch for clear directions.

Read: Federal Reserve Interest Rate Decision Preview: Damn the inflation, full speed ahead

Technical analysis

AUD/USD bulls need to cross the 2021 bottom near 0.7000 before directing the quote the further north. Otherwise, a clear downside break of the yearly low surrounding 0.6830, marked in May, could highlight June 2020 low surrounding 0.6775 for bears.

China’s May Retail Sales YoY, arrived at -6.7% vs. -7.1% expected and -11.1% previous while Industrial Production YoY came in at 0.7% and -0.7% estimated and -2.9% prior.

Meanwhile, the Fixed Asset Investment YoY rises to 6.2% vs 6.0% expected and 6.8% last.

Additional details

Market reaction

The Australian dollar remains uninspired by the big beat on the Chinese data. The AUD/USD pair is holding onto its latest recovery gains near 0.6915, adding 0.66% so far.

• Silver takes the bids to refresh daily high during the first positive rise in three days.
• Monthly horizontal resistance area challenges buyers ahead of weekly resistance line and the key SMA confluence.
• MACD, RSI hints at a further rebound, 78.6% Fibonacci retracement level limits immediate declines.

Silver (XAG/USD) refreshes intraday high near $21.20 as it extends the bounce off a short-term key Fibonacci support during Wednesday’s Asian session. The bright metal’s rebound from the monthly low, however, has multiple challenges ahead.

That said, the one-month-old horizontal area surrounding $21.30 appears the immediate hurdle for the XAG/USD buyers to tackle.

Following that, a weekly resistance line and a convergence of the 100-SMA and 200-SMA, respectively near $21.80 and $21.90, could test the bulls before directing them to the monthly high near $22.50.

It should be noted that the RSI rebound from oversold territory and the MACD’s impending bull cross tease the metal buyers.

Even so, a clear break of the 78.6% Fibonacci retracement of May 13 to June 06 upside, around $20.90, won’t hesitate to direct the silver sellers towards the previous monthly low of $20.45.

During the quote’s weakness past $20.45, the $20.00 round figure may check the XAG/USD bears.

Silver: Four-hour chart

Trend: Further recovery expected

• USD/CHF retreats from monthly high, stays pressured around intraday low of late.
• Softer US PPI allowed markets to brace for Fed’s anticipated aggressive rate hike.
• Yields ease from 11-year high, stock futures dribble around 17-month low.
• SECO forecasts, US Retail Sales may entertain traders ahead of FOMC.

USD/CHF bulls take a breather at a one-month high as the quote stays pressured around the intraday low near 0.9995 during the mid-Asian session on Wednesday. The Swiss currency (CHF) pair’s latest retreat could be linked to the market’s positioning for today’s US Federal Reserve (Fed) monetary policy, amid a pullback in the US Treasury yields.

That said, US 10-year Treasury bond yields drop 3.9 basis points (bps) to 3.45% as the bond coupons ease from the fresh high since 2011. The same underpins the mildly bid S&P 500 Futures around 3,750 to exert downside pressure on the USD/CHF prices.

Underlining the latest pullback in the bond coupons could be the US Producer Price Index (PPI) for May. The PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

It should be noted that the CHF’s safe-haven status also allows the pair sellers to take entries amid the rep-Fed cautious.

Rising expectations of a 75 bps rate hike from the Fed join the diplomatic push from the White House officials to hint at the US dollar’s rebound, which challenges the EUR/USD pair. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

Elsewhere, covid woes in China, the world’s second-largest economy, also weigh on the metal prices. Beijing reported the highest coronavirus cases in three weeks the previous day and called for more activity restrictions. Shanghai, on the other hand, marked ease into the COVID-19 cases but keeps the recently announced limits to curb the virus from spreading too fast.

Looking forward, the quarterly release of Switzerland’s SECO Economic Forecasts will precede the US Retail Sales for May, expected 0.2% MoM versus 0.9% prior, to direct intraday USD/CHF moves ahead of the Federal Open Market Committee (FOMC).

Technical analysis

The overbought RSI line joins multiple hurdles around 1.0050-65 to challenge USD/CHF bulls. The pair sellers, however, need validation from the weekly support line surrounding 0.9900. 

The People’s Bank of China (PBOC) injected CNY200 billion via one-year medium-term lending (MLF) facility on Wednesday.

The Chinese central bank kept the rate for one-year MLF operation rate unchanged at 2.85%, as widely expected.

The PBOC pumped 10 bln yuan via 7-day reverse repos at 2.10% vs. 2.10% prior.

Market reaction

USD/CNY met fresh supply on the latest PBOC operation. The spot is currently trading at 6.7410, almost unchanged on the day.

Meanwhile, the AUD/USD pair is extending the recovery once again above 0.6900, awaiting the Chinese activity numbers for fresh impetus. The pair is adding 0.68% on the day.

The People’s Bank of China (PBOC) set the USD/CNY reference rate at 6.7518 on Wednesday when compared to the previous fix and the previous close at 6.7482 and 6.7425 respectively.

• EUR/USD extends recovery from monthly low, grinds higher of late.
• Pullback in Treasury yields from 11-year high allows bears to position for the Fed.
• Hawkish ECBSpeak, mixed US data also underpin corrective pullback.
• High expectations from FOMC highlight fears of disappointment, ECB’s Lagarde will be eyed too.

EUR/USD holds onto the previous day’s corrective pullback around 1.0400 amid a sluggish Asian session on Wednesday. The major currency pair cheers recently hawkish comments from the ECB policymakers and a retreat by the US Treasury bond yields to portray short-covering moves ahead of the key Federal Open Market Committee (FOMC).

European Central Bank (ECB) Governing Council member Isabel Schnabel said on Tuesday that the monetary policy can and should respond to a disorderly repricing of risk premia, per Reuters. On the same line was ECB policymaker Klaas Knot, during an interview with Le Monde, who said that there is a real probability that rates will continue to rise in October and December.

On the other hand, US 10-year Treasury bond yields drop 3.9 basis points (bps) to 3.45% as the bond coupons ease from the fresh high since 2011. The same underpins the mildly bid S&P 500 Futures around 3,750 to favor the EUR/USD buyers.

Also likely to have favored the EUR/USD rebound could be the easy US data. That said, the US Producer Price Index (PPI) matched 0.8% MoM forecasts for May, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

However, rising expectations of a 75 bps rate hike from the Fed join the diplomatic push from the White House officials to hint at the US dollar’s rebound, which challenges the EUR/USD pair. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

Elsewhere, covid woes in China, one of the world’s biggest gold consumers, also weigh on the metal prices. Beijing reported the highest coronavirus cases in three weeks the previous day and called for more activity restrictions. Shanghai, on the other hand, marked ease into the COVID-19 cases but keeps the recently announced limits to curb the virus from spreading too fast.

Moving on, Eurozone Industrial Production for April and the US Retail Sales for May could entertain EUR/USD traders, along with the risk catalysts. Additionally, ECB President Christine Lagarde is also up for a speech and may help the EUR/USD prices gain upside traction.

However, major attention will be given to the Fed’s interest rate decision and the economic forecasts as Chairman Jerome Powell has a tough task of pleasing markets and taming inflation at the same time.

Read: Federal Reserve Interest Rate Decision Preview: Damn the inflation, full speed ahead

Technical analysis

EUR/USD rebound remains elusive until crossing multiple hurdles surrounding 1.0500, marked during early May. That said, bears need a clear break of 1.0400 to refresh the yearly low, currently around 1.0350.

• Failing to overstep 38.2% Fibo retracement at 93.23 will bring a fresh downside move.
• The confluence of the trendline and the 50-EMA will act as major resistance for the aussie bulls.
• A death cross, represented by the 50- and 200-EMA adds to the downside filters.

The AUD/JPY pair is attempting to recapture the territory above the critical hurdle of 93.00 after sensing a buying action from Tuesday’s low at 92.45.  The risk barometer faced extreme selling in the last week after failing to kiss the round-level resistance of 97.00.

On an hourly scale, the aussie bulls are attacking the 38.2% Fibonacci retracement (which is placed from May 12 low 87.31 to June 8 high at 96.89) at 93.23. The downwards sloping trendline placed from June 8 average traded price at 96.71 will act as a major resistance for the counter. Also, the confluence of the 50-period Exponential Moving Average (EMA) with the trendline at 93.47 will strengthen the trendline hurdle.

A death cross, represented by the 50- and 200-EMAs at 94.55 is indicating more weakness in the counter.

Meanwhile, the Relative Strength Index (RSI) (14) has bounced from 40.00, which indicates a sideways movement.

A decisive move above the round-level resistance of 94.00 will drive the asset towards a 23.6% Fibo retracement at 94.63, followed by Friday’s high at 95.54.

On the flip side, the Japanese bulls could regain control if the asset drops below Tuesday’s low at 92.45, which will send the asset towards a 50% Fibo retracement at 92.11. A breach of the latter will expose the asset to more downside towards May 31 low at 91.59.

AUD/JPY hourly chart                             

• Gold Price prints mild gains around one-month low, snaps two-day downtrend.
• Risk appetite improves on pre-Fed positioning, mixed Asian session.
• Yields retreat from multi-year high, stock futures print mild gains.
• FOMC is up for 0.50% rate increase but 75 bp calls are loud and making it harder for Powell to please markets.

Gold (XA/USD) seesaws around $1,810 as it pares recent losses around the monthly low during early Wednesday. In doing so, the bright metal prints the first daily gains in three while preparing for the US Federal Reserve’s (Fed) monetary policy decision. Also favoring the corrective pullback from the monthly low is the retreat in the US Treasury yields and mildly bid US stock futures.

US 10-year Treasury bond yields drop 3.9 basis points (bps) to 3.45% as the bond coupons ease from the fresh high since 2011. The same underpins the mildly bid S&P 500 Futures around 3,750 to exert downside pressure on the gold prices.

In addition to the shift in market sentiment, a light calendar in Asia ahead of China’s Retail Sales and Industrial Production joins the anxiety ahead of the Federal Open Market Committee (FOMC) to limit AUD/USD moves and allow bears to take a breather.

Alternatively, pressure from the US diplomat to battle inflation and improve balance sheet join updates surrounding Taiwan and China’s covid conditions to challenge gold’s rebound.

White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

Further, Beijing reported the highest coronavirus cases in three weeks the previous day and called for more activity restrictions. Shanghai, on the other hand, marked ease into the COVID-19 cases but keeps the recently announced limits to curb the virus from spreading too fast.

Talking about the data, the US Producer Price Index (PPI) matched 0.8% MoM forecasts for May, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Looking forward, US China’s monthly prints of Industrial Production and Retail Sales for May can entertain intraday traders ahead of the US Retail Sales and the FOMC. Given the higher expectations from the Fed, the odds of a disappointment from the US central bank and the resulted likely spike in the gold prices can’t be ruled out. It should be noted that the CME FedWatch Tool shows more than a 99% chance of a 75 bp rate increase at the latest.

Also read: Gold Price Forecast: On its way to challenging the $1,800 threshold

Technical analysis

Gold flirts with buyers inside a short-term falling wedge bullish chart pattern as it pokes the weekly resistance line around $1,810.

Given the RSI’s nearly oversold conditions, a corrective pullback towards the monthly top surrounding $1,880 can’t be ruled out if the quote manages to stay beyond $1,810. However, the June 01 low around $1,830 could act as the validation point for a fresh run-up.

Alternatively, pullback moves may initially aim for the $1,800 threshold before challenging May’s low of $1,786. In a case where the XAU/USD bears manage to conquer the $1,786 support, there are multiple hurdles between $1,780 and $1,785, comprising the yearly bottom, to challenge the further downside.

Gold: Four-hour chart

Trend: Rebound expected

• The DXY has opened lower around 105.30 but is sustaining itself above the critical support of 105.00.
• Investors should brace for a rate hike of 75 bps by the Fed.
• The tight labor market is facilitating the Fed to sound extremely hawkish hassle-free.

The US dollar index (DXY) has witnessed a steep fall at open and has tumbled below 105.30 as the uncertainty over the rate hike announcement by the Federal Reserve (Fed) is fading now. The market participants have already discounted a rate hike announcement of 75 basis points as higher price pressures are demanding a serious acceleration in the interest rate that will cap the Consumer Price Index (CPI).

Price pressures and tight labor market- a deadly duo

Soaring inflation is seldom responsible for higher interest rates in the US economy at this current juncture. The US CPI has reached 8.6% on an annual basis while the core CPI that doesn’t include food and energy prices has reached 6%. But one should be aware of the fact that the upbeat Nonfarm Payrolls (NFP) have provided more liberty to the Fed. In case, the US economy remained unable to create significant job opportunities then the Fed would resort to lower rate hikes as higher rate hikes dent the labor market. Therefore, already available higher employment opportunities in the US economy are empowering the Fed to sound extremely hawkish if it wants.

Key events this week: Producer Price Index (PPI), Retail Sales, Building permits, Initial Jobless Claims.

Major events this week:  Fed interest rate decision, Eurogroup meeting, Swiss National Bank (SNB) interest rate decision, Bank of England (BOE) interest rate, Bank of Japan (BOJ) rate decision.

• AUD/USD extends rebound from monthly low, snaps five-day downtrend.
• Market’s consolidation ahead of Fed joins hawkish bets on RBA, Aussie wage price updates to underpin the recovery.
• Chatters over inflation keep exerting more pressure on the Fed, covid, Taiwan are extra catalysts testing bulls.
• Westpac Consumer Confidence Index, China’s monthly Industrial Production and Retail Sales can direct immediate moves.

AUD/USD picks up bids to pare the recent losses around a five-week low, refreshing intraday high to 0.6890 during the mid-Asian session on Wednesday. In doing so, the Aussie pair portrays the market’s positioning ahead of the key Federal Open Market Committee (FOMC) while also cheering mildly bid US stock futures.

That said, US diplomats seem to ignore the recent mixed factory-gate inflation data while indirectly pushing the Fed towards aggressive rate hikes and balance-sheet normalization. The same join updates surrounding Taiwan and China’s covid conditions to weigh on the market sentiment, which in turn challenge AUD/USD bulls due to the pair’s risk barometer status.

White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

Elsewhere, Beijing reported the highest coronavirus cases in three weeks the previous day and called for more activity restrictions. Shanghai, on the other hand, marked ease into the COVID-19 cases but keeps the recently announced limits to curb the virus from spreading too fast.

Furthermore, the US Producer Price Index (PPI) matched 0.8% MoM forecasts for May, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Comments from Goldman Sachs (GS) Chief Australia Economist Andrew Boak also helped the AUD/USD prices to recover. “We now expect the RBA to raise rates by 50bps in August and September, up from 25bps previously,” said Boak from GS.

Additionally, news that Australia’s minimum wage to be increased 5.2% after the review also seems to favored the pair’s latest rebound. “New minimum wage to be increased A$40/week,” adds Reuters.

Amid these plays, the US stock futures remain sluggish around the lowest levels since early 2021, up 0.20% intraday of late, while the Treasury bond yields dribble at the 11-year top near 3.5%, around 3.475% at the latest.

Looking forward, Australia’s Westpac Consumer Confidence Index for June, expected -0.7% versus -5.6% prior, could offer immediate directions to the AUD/USD pair ahead of China’s monthly prints of Industrial Production and Retail Sales for May. Though, major attention will be given to the Fed’s ability to tame inflation and not disappoint the markets as it walks on a knife’s edge.

Read: Fed June Preview: In the world we live in, a 50 bps hike is a dovish surprise

Technical analysis

Bears need a clear downside break of the yearly low surrounding 0.6830, marked in May, to aim for a June 2020 low near 0.6775. Alternatively, recovery moves need validation from 2021 bottom near 0.7000.