CFD Markets News and Forecasts — 22-08-2022

• USD/JPY bulls testing the bear's commitments near the daily resistance area.
• The bears will be looking for a significant retracement in the sessions ahead. 

USD/JPY has been relentless on the bid, reaching a daily resistance structure following six consecutive days of higher highs and lows. However, there are higher prospects of a correction the further the rally goes without giving back some ground. The following illustrates this from a daily and hourly perspective. 

USD/JPY daily chart

At current levels, the price is reaching into a prior structure that could act as a resistance area and lead to a Fibonacci correction along the scale as illustrated.

USD/JPY H1 chart

For the contrarians, the price could be on the verge of making a peak formation from which the bears will be then seeking a significant correction as a consequence. The price is testing through 137.50 and this could extend into test the 137.80s. However, should the bulls capitulate, then there will be prospects of a move below current support for a run below with 137.13 eyed as an important structure guarding a fall below the 137 round number for a look in below 136.80 in a pump and dump scenario. 

• Silver price remains pressured at one-month low after six consecutive days of downside.
• Bearish MACD signals, downbeat RSI keeps sellers hopeful below weekly resistance line.
• 21-DMA adds to the upside filters, yearly low lures the XAG/USD bears.

Silver price (XAG/USD) fades corrective pullback from the monthly low marked the previous day as it renews its daily bottom around $18.95 during Tuesday’s Asian session. In doing so, the bright metal justifies the downbeat oscillators while extending the six-day downtrend below a one-week-old descending resistance line.

That said, the quote’s further weakness eyes the yearly low marked in July at around $18.20, before hitting the $18.00 threshold.

It’s worth noting that the XAG/USD weakness past $18.00 could quickly direct bears towards the 61.8% Fibonacci Expansion (FE) of late April to mid-August moves, around $17.45.

However, a convergence of the downward sloping support line from May 13 and 78.6% FE, near $16.60-50 could challenge the bears afterward.

Meanwhile, recovery moves need validation from the weekly resistance line, at $19.10 by the press time.

Following that, the 21-DMA and the monthly high could challenge the silver buyer at around $19.90 and $20.90 respectively.

It should be observed that the XAG/USD upside past $20.90 should provide a daily closing beyond the $21.00 round figure to recall the buyers.

Silver: Daily chart

Trend: Further downside expected

• The break of the neutral triangle will result in an expansion of volume and tick size.
• A bearish range shift by the RSI (14) is indicating more downside ahead.
• The violation of horizontal support placed from 136.56 has triggered the downside bias for a shorter period.

The EUR/JPY pair has displayed a less-confident pullback after printing a fresh three-day low of 136.40 on Monday. The cross has recovered minutely to near 136.76, however, the downside remains favored as the asset has violated the horizontal support placed from Thursday’s low at 136.56.

On an hourly scale, the asset is auctioning in a symmetrical triangle that signals for slippage in the volatility followed by an expansion in the same. An expansion in volatility results in wider ticks and heavy volume. The upward sloping trendline of the above-mentioned chart pattern is placed from the August 2 low at 133.40 while the downward sloping trendline is plotted from the August 10 high at 138.40.

The 20-and 50-period Exponential Moving Averages (EMAs) at 136.68 and 137.10 respectively are expected to overlap with each other, which will result in consolidation ahead.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which indicates more downside ahead. 

Should the asset oversteps the round-level resistance of 138.00, the shared currency bulls will drive the asset towards July 29 high at 139.51. A breach of the July 29 high will send the cross towards July 18 high at 140.80.

On the flip side, the yen bulls could gain control if the asset drops below the August 4 low at 135.64. An occurrence of the same will drag the cross towards the previous week’s low at 134.90, followed by an August 2 low at 133.40.

EUR/JPY hourly chart

• AUD/USD retreats from intraday high on downbeat flash PMIs for Australia.
• Australia’s preliminary S&P Global PMIs for August arrived softer than expected and prior releases.
• Recession fears underpin the US dollar’s demand ahead of Friday’s key Jackson Hole speech from Fed Chair Powell.
• US activity and housing numbers could entertain the intraday traders, risk catalysts are the key.

AUD/USD struggles to recover from the 12-day low marked the previous day as downbeat activity data from Australia challenge the pair buyers around 0.6880 during Tuesday’s Asian session. While the S&P Global PMIs are the latest challenge for the Aussie pair, recession fears and hopes of the Fed’s aggression, not to forget talks surrounding China’s worries, appear bigger challenges for the quote.

The preliminary readings of Australia’s S&P Global PMIs for August are all down from the previous releases and market consensus. The headline Manufacturing PMI dropped to 54.5 versus 57.3 expected and 55.7 prior whereas the Services PMI fell into the contraction region with 49.6 figures compared to 54 market expectations and 50.9 previous readings. Further, the Composite PMI also marked a contraction in activities to 49.8 versus 51.1 prior.

Elsewhere, S&P 500 Futures print mild gains as traders lick their wounds after Wall Street saw the red and the yields rose to the fresh monthly high.

The latest corrective pullback in the AUD/USD prices could also be linked to the hopes of more rate cuts from the People’s Bank of China (PBOC) as Chinese media signals more such moves.  China's Securities Times reported that the PBOC may reduce RRR this year to compensate for medium-term lending facility (MLF) maturity. The article states that reserve requirement ratio (RRR) cuts may lower lending prime rates. It is with noting that this is a state-run agency reporting such opinions.

On the other hand, hawkish Fed bets increased after firmer US data, which in turn drowned the AUD/USD prices the previous day. On the other hand, Chicago Fed National Activity Index improved to 0.27 in July, from a downwardly revised -0.25 prior. “Fed funds futures on Monday have priced in a 54.5% chance of a 50 basis-point (bp) rate hike at the Fed's policy meeting next month. The fed funds rate is seen hitting roughly 3.6% by the end of the year, with a peak rate of nearly 3.8% in March 2023,” mentioned Reuters.

Looking forward, preliminary readings of the US PMIs for August will join the US New Home Sales for July and Richmond Fed Manufacturing Index for August to decorate the calendar. Given the recession fears, the AUD/USD prices are likely to remain pressured ahead of the key Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, up for publishing on Friday.

Technical analysis

61.8% Fibonacci retracement of July-August upside, around 0.6850, challenges short-term AUD/USD sellers. However, the recovery moves need validation from the one-week-old descending trend line and 200-SMA, respectively around 0.6910 and 0.6920, to convince the bulls.

• USD/CHF is juggling after a decent rally as the focus shifts to Jackson Hole Economic Symposium.
• The spell of an interest rate hike by the Fed won’t get interrupted but the extent of the rate hike will scale down.
• A decline in the US Durable Goods Orders may halt the DXY’s rally.

The USD/CHF pair has shifted into an inventory accumulation phase around 0.9640 after witnessing a juggernaut rally near 0.9580 on Monday. On a broader note, the asset has displayed a seven-day winning streak after printing a fresh four-month low of 0.9371 on August 11. The major is expected to continue its winning streak after violating Monday’s high at 0.9659.

Bulls will stay for a tad longer period as investors are likely to underpin the greenback ahead of the Jackson Hole Economic Symposium. Federal Reserve (Fed) chair Jerome Powell will dictate the economic situation of the US, price pressures, and the consequences of liquidity shrinkage in the economy.

No doubt, the odds of exhaustion in the price pressures are accelerating as oil prices have weakened dramatically. However, the price rise index is still extremely higher than the desired rate of 2%. Therefore, the spell of interest rate hike won’t get interrupted but the extent of the rate hike will definitely scale down.

On the economic data front, the preliminary estimates for the US Durable Goods Orders are painting a rosy picture of the overall demand in the US. The economic data is expected to trim drastically to 0.5% from the prior release of 2%. The investing community is aware of the fact that the US core Consumer Price Index (CPI) remained steady at 5.9%. Despite that, a slump in the Durable Goods Orders indicates a decline in the overall demand.

• GBP/JPY seesaws around the 161.70 area, failing to reach the head-and-shoulders 161.00 target.
• The GBP/JPY 1-hour chart portrays that the head-and-shoulders is still in play, so bears are pilling around further GBP/JPY rallies.

The GBP/JPY is trading almost flat during the Asian Pacific session after Monday’s price action formed a doji, meaning that neither buyers nor sellers are in control. On Tuesday, the AUD/JPY is trading at 161.76, up by 0.03%.

GBP/JPY Price Analysis: Technical outlook

The daily chart is neutral-to-downward biased, with the exchange rate below the 20, 50, and 100-day EMAs. GBP/JPY traders should be aware that price action formed a successive series of lower highs and lows for four consecutive days, sliding steadily. However, the average daily range (ADR) shrank to 110-130 pips a day, meaning that the pair is about to see high volatility levels, which could send the pair towards the 200-day EMA at 158.93.

The GBP/JPY on the hourly scale had not fulfilled the head-and-shoulders target of 161.00, falling short on Monday, when it reached the 161.15 daily low. Since then, the cross bounced off towards the 161.70 area, where the 20-hour EMA lies, in confluence with the daily pivot point. Therefore, a break above will expose the GBP/JPY to higher prices, which is not likely to happen due to the Relative Strength Index (RSI) being in negative territory with a 47.22 reading, aiming lower.

Therefore, the GBP/JPY path of least resistance is downwards, and its first support would be the August 22 low at 161.15. The break below will expose the head-and-shoulders target at 161.00, followed by the S2 daily pivot at 160.43, followed by the August 15 daily low at 160.08.

GBP/JPY Key Technical Levels

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, rose for the fourth consecutive day at the latest as bulls prepare for this week’s Jackson Hole Symposium.

That said, the inflation precursor marched to 2.57% at the latest, after crossing July’s high on Friday.

The jump in the US inflation expectations could be linked to the increased expectations of the Fed’s aggression. “Fed funds futures on Monday have priced in a 54.5% chance of a 50 basis-point (bp) rate hike at the Fed's policy meeting next month. The fed funds rate is seen hitting roughly 3.6% by the end of the year, with a peak rate of nearly 3.8% in March 2023,” said Reuters.

Given the fears of recession dominating the market sentiment, the higher inflation and increasing odds of the Fed’s aggression weigh on the risk appetite. The same fueled the US 10-year Treasury yields to a fresh monthly high of around 3.02% while Wall Street closed in the red on Monday.

Amid these plays, the US dollar cheers the safe-haven appeal as it dropped to the fresh 20-year low versus its European counterpart the previous day.

Also read: EUR/USD dribbles at multi-year low near 0.9950 amid recession fears, focus on EU/US PMIs

After a monthly meeting, the PBOC lowered the one-year loan prime rate by 5 basis points to 3.65% from 3.7%, while the five-year rate was cut by 15 basis points to 4.3% from 4.45%, reducing the cost of payments on existing loans. 

Markets reacted negatively to the policymakers trimming the lending rates due to the deepening troubles in the economy. China's economy narrowly avoided a contraction in the second quarter with an expansion of just 0.4% as virus lockdowns weighed on industrial and consumer spending. Nevertheless, despite the economic damage inflicted by its strict virus policies, President Xi Jinping's signature strategy remains in play even as much of the world drops restrictions.

In recent trade, there is news that China's Securities Times reported that China may reduce RRR this year to compensate for MLF maturity. The article states that RRR cuts may lower lending prime rates. It is with noting that this is a state-run agency reporting such opinions. 

We saw another slide in the yuan to its lowest since late summer 2020 at 6.8753 overnight. This was good news for the US dollar as the policy gap widens but will likely continue to weigh on the Aussie, reflecting China's position as the largest buyer of Australian resources. The property crisis, which accounts for about a quarter of gross domestic product, is also under pressure, hitting Australia's iron ore export market.

• USD/CAD remains sidelined after refreshing five-week high, probes four-day uptrend.
• Successful break of one-month-old ascending trend line, bullish MACD signals favor buyers.
• Bears stay off the table unless breaking 200-DMA support.

USD/CAD remains sidelined around the monthly high surrounding mid-1.3000s as bulls take a breather after a four-day uptrend to the initial Asian session on Tuesday. Even so, the Loonie pair holds onto the previous day’s upside break of an ascending resistance line from July 25, now support near 1.3030.

In addition to the successful break of the monthly resistance line, bullish MACD signals also keep USD/CAD buyers hopeful.

However, multiple tops marked between early May and early July, around 1.3080-85, offer strong resistance to the bulls.

In a case where the quote rises past 1.3085, the 1.3135 mark may act as an intermediate halt before fueling prices the USD/CAD prices towards the yearly peak of 1.3223.

Alternatively, pullback remains elusive until the quote stays beyond the aforementioned resistance-turned-support near 1.3030. Also acting as an immediate downside filter is the 1.3000 psychological magnet.

It’s worth noting that multiple levels around 1.2935-30 and the 1.2800 threshold could lure USD/CAD bears past 1.3000. Even so, the pair sellers should remain cautious unless witnessing a clear break of the 200-DMA support of 1.2760.

USD/CAD: Daily chart

Trend: Further upside expected

• AUD/JPY extended its rally to four straight days, gaining 0.28% on Tuesday.
• The daily chart illustrates the cross-currency pair seesawing in a 150 pip range.
• The AUD/JPY 4-hour chart shows a rising-wedge emerging, which targets the 93.00 figure.

The AUD/JPY edges lightly lower as the Asian Pacific session begins, but on Monday, it extended its gains for three consecutive days, finishing the session around 94.60, up by 0.47%. At the time of writing, the AUD/JPY is trading at 94.53, below its opening price by 0.08%.

AUD/JPY Price Analysis: Technical outlook

In the last five days, the AUD/JPY has been consolidated within the 93-00-94-50 area, unable to break the top/bottom of the range. Worth noting that from a daily chart perspective, the AUD/JPY is neutral-to-upward bias but unless buyers reclaim the 95.10 August 12 daily high, the cross-currency pair will remain to seesaw amidst a lack of catalyst.

With AUD/JPY buyers reclaiming the abovementioned scenario, their first resistance would be the July 27 high at 95.67, followed by the YTD high at 96.88. Failure to do so, the AUD/JPY might fall towards the bottom of the range at 93.00.

Zooming into the 4-hour chart, the AUD/JPY formed a rising-wedge that targets the 93.23 mark. Further cementing the case, it’s that the RSI crossed below its 7-SMA, signaling that sellers are gathering momentum, despite being above the 50-midline, at 58.46. Therefore, the AUD/JPY first support would be the S1 daily pivot at 94.05. Break below will expose the S2 and S3 pivot points, at 93.57 and 93.17.

AUD/JPY Key Technical Levels

• GBP/USD has shifted into an extremely tight range after printing a fresh two-year low of 1.1742.
• A discussion of 50 bps rate hike by the Fed at Jackson Hole looks certain.
• The vulnerable employment data has trimmed the confidence of the BOE in hiking interest rates.

The GBP/USD pair is auctioning in a minor range of 1.1756-1.1769 in the early Asian session. The asset is displaying a volatility contraction that results in expansion in volume and tick size. The cable has witnessed a short-lived pullback after printing a fresh two-year low of 1.1742 on Monday. The less confident pullback move is expected to turn into a fresh downside move ahead and the asset may fall to near 1.1700.

The mighty US dollar index (DXY) has recaptured the elevated territory of 109.00 and is expected to sustain above the same as investors are awaiting the Federal Reserve (Fed) chair Jerome Powell’s speech at Jackson Hole Economic Symposium.

After observing evidence of exhaustion in the price pressures and accelerating consequences of liquidity shrinkage from the economy, it is likely that the Fed will scale don its hawkish tone on the interest rates. Therefore, a rate hike by 50 basis points (bps) could be discussed at the Economic Symposium.

On the pound front, investors are still in a hangover from the downbeat employment data released last week. The Claimant Count Change landed at -10.5k, significantly lower than the expectations of -32k and the prior release of -26.8k. Also, the Unemployment Rate remained unchanged at 3.8%. The vulnerable employment data has trimmed the confidence of the Bank of England (BOE) in deploying tight quantitative measures unhesitatingly.

• EUR/USD remains sidelined after declining to the lowest levels since December 2002.
• Fears of Eurozone recession escalated after Russia’s unscheduled maintenance of Nord Stream 1 pipeline.
• Yields rose, equities dropped as traders fear more economic hardships ahead, hawkish Fed bets increase.
• Preliminary reading of August S&P Global PMIs for Eurozone, US will decorate calendar.

EUR/USD bears take a breather after renewing a two-decade low near 0.9925 marked the previous day, a 0.9945 by the press time, as they await the flash readings of August PMIs during early Asian session on Tuesday. The major currency pair refreshed the multi-year low as market’s fear of recession, as well as the Fed’s aggression, escalated ahead of this week’s top-tier data/events.

Russia’s unscheduled maintenance of Nord Stream 1 pipeline unveiled a blow to the struggling Eurozone economy amid the energy crisis. The fears grew stronger as the firmer US data signalled the Fed’s aggression.

It’s worth noting that Bundesbank President, as well as the European Central Bank (ECB) policymaker, Joachim Nagel mentioned that the ECB must keep raising interest rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high all through 2023. Also, the Germany’s monthly report from Bundesbank signalled that a recession in Germany is increasingly likely while also suggesting that inflation will continue to accelerate and could peak at more than 10%. On the contrary, German Economy Minister Robert Habeck stated, “A good chance to get through winter without drastic energy measures.”

On the other hand, Chicago Fed National Activity Index improved to 0.27 in July, from a downwardly revised -0.25 prior.

Amid these plays, Reuters mentioned that Fed funds futures on Monday have priced in a 54.5% chance of a 50 basis-point (bp) rate hike at the Fed's policy meeting next month. The fed funds rate is seen hitting roughly 3.6% by the end of the year, with a peak rate of nearly 3.8% in March 2023.

It’s worth noting that the US 10-year Treasury yields rose to the fresh monthly high around 3.02% while Wall Street closed in the red amid the risk-off mood.

Moving on, EUR/USD traders should pay attention to the preliminary readings of German and the US PMIs for August for fresh impulse ahead of the same activity data for the US scheduled to be released later in the day. However, major attention will be given to Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, up for publishing on Wednesday.

Technical analysis

A daily closing below the previous 20-year low, marked in July around 0.9952, appeared to have opened the door for the EUR/USD slump towards the 61.8% Fibonacci Expansion (FE) of May-August downturn, near 0.9850-45.

• Gold price is auctioning in a $1,733.40-1,740.00 range ahead of US Durable Goods Orders.
• It is highly expected that Fed’s tone will remain slightly hawkish in Jackson Hole.
• The precious metal has picked bids around 61.8% Fibo retracement but still carries downside bias.

Gold price (XAU/USD) is displaying topsy-turvy moves in a narrow range of $1,733.40-1,740.00 in the early Tokyo session. The precious metal is dealing with volatility contraction after a firmer rebound from a low of $1,727.85 on Monday. The yellow metal is in a fix on mixed commentary over the extent of the hawkish tone to be delivered by Federal Reserve (Fed) chair Jerome Powell at Jackson Hole Economic Symposium.

After a scrutiny of the Fed minutes released last week, one cannot deny the fact that Fed policymakers agreed on the availability of little evidence, which clears that inflation pressures were subsiding and that it would take a considerable time for the situation to be resolved. In addition to that, the Fed is also committed to bringing price stability to the economy. And, in order to cater to the same, the spree of rate hiking should not be abandoned. It would be optimal to go for a 50 basis point (bps) interest rate hike to respect judgments.

But before that, the release of the US Durable Goods Orders is in focus, which is due on Wednesday.  As per the market consensus, the economic data is likely to decline to 0.5% from the prior release of 2%. In times, when the US economy has already displayed an unchanged US core Consumer Price Index (CPI), a decline in the economic data is not lucrative for the US dollar index (DXY).

Gold technical analysis

After hitting the 61.8% Fibonacci retracement (placed from July 21 low at $1,680.91 to August 10 high at $1,807.93) at $1,729.44, gold prices have rebounded firmly. The precious metal is continuously facing barricades from the 20-period Exponential Moving Average (EMA) at $1,738.60, which favors the downside bias.

Also, the Relative Strength Index (RSI) (14) is oscillating in a bearish range of 20.00-40.00, which indicates more downside ahead.  

Gold hourly chart

• WTI recovered from reaching a daily low of around $86.29 and finished up 0.80%.
• US Department of State noted that a nuclear deal with Iran is closer now, a headwind for oil prices.
• Oil traders are worried about a possible US recession and China’s economic slowdown.

Western Texas Intermediate (WTI), the US crude oil benchmark, recovered some ground on Monday, rallying late after the Wall Street close, up by 2.36%. At the time of writing, WTI is trading at $90.48 per barrel.

WTI’s price action witnessed the black gold hitting a daily low at $86.29 PB, but as the New York session progressed and news that the OPEC+ saying that they will need to tighten output to stabilize the market augmented oil’s appeal. So WTI rallied since the mid-North American session and trades above its opening price.

Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC+ could cut output against the possibility of a nuclear deal agreement with Iran, which could return the sanctioned country to the oil market.

Meanwhile, discussions between EU members and the US appear to be progressing, as stated by a US Department of State note, saying that a nuclear deal is closer now than It was two weeks ago.

Earlier during the day, oil prices tumbled on worries that China’s demand for oil could diminish, fueled by fears of a possible economic slowdown further cemented by the People’s Bank of China (PBoC) cutting rates from its main lender benchmark rate. Additionally, US recession fears are lingering in traders’ minds, with the US Federal Reserve set to continue tightening monetary policy as they battle to tame inflation towards its 2% goal.

In the meantime, the US Dollar Index is rising 0.78%, sitting at 108.950, its highest level in six weeks, another reason for the US dollar-denominated commodity to extend its losses.

All that said, investors’ focus shifts to Friday’s US Federal Reserve Chair Jerome Powell’s speech, where market participants expect him to reassure that the Fed is committed to tackling inflation, despite ongoing recession fears.

WTI Price Analysis: Technical outlook

From a daily chart perspective, WTI is slightly neutral-to-downward biased, but it could be headed upwards in the near term. Why? Because a falling wedge emerged, and as price action progresses, WTI is about to break upwards, putting into play a test of the 20-day EMA at $91.78, the 200-day EMA at $95.65, and the 50-day EMA at $99.56.

• NZD/USD remains pressured as risk-off markets take hold. 
• US stocks end lower in anticipation of higher rates. 

NZD/USD has been on the backfoot and will enter the roll-over close to fresh six-day lows near 0.6150. The bears engaged after the People's Bank of China trimmed lending rates was taken as only a minor positive due to the deepening troubles in the economy. 

 After a monthly meeting, the PBOC lowered the one-year loan prime rate by 5 basis points to 3.65% from 3.7%, while the five-year rate was cut by 15 basis points to 4.3% from 4.45%, reducing the cost of payments on existing loans. Consequently, the yuan cropped and the commodities complex was dragged lower, taking down the antipodeans. 

Meanwhile, ''inflation remains at front of mind, and US markets seem to be warming to the idea that it could be harder to tame this time around given energy market woes, dents in supply chains and tight labour markets,'' analysts at ANZ Bank argued. '

'This is, in turn, driving a shift in bond markets, which have of late been content to assume a slowdown might miraculously drive inflation lower; and that, in turn, is driving the USD up (the DXY is only 25bps from July’s 20-year high).''

The US two-year Treasury yield has risen by 3% to 3.346% while the 10-year yield climbed 1.68% to 3.04%, implying the yield curve between the two maturities remains inverted, a bearish signal if sustained. This is fuelling a bid on the greenback. Against a basket of currencies, the US dollar was 0.85% higher at 109.09 DXY, not far from the two-decade high of 109.29 touched in mid-July.

US stocks started the week in negative territory in anticipation of higher rates which has also weighed on the antipodeans. The Dow Jones Industrial Average dropped 2% to 33,063.61 while the S&P 500 was also down 2% to 4,137.99, making Monday's session their worst day since June. The Nasdaq Composite was 2.6% lower at 12,381.57. 

Ahead of Jackson Hole, ''financial conditions have continued to ease,'' analysts at TD Securities said. ''Powell's speech will likely aim to reinforce the message that multiple, sizable hikes are still in the pipeline, and easing should not be expected to be on the horizon anytime soon.''

• AUD/USD is back to flat on the day following a risk-off-led drop at the start of the week. 
• The bears are lurking with the Jackson Hole around the corner amid Chinese economic woes. 

AUD/USD bulls are attempting to stabilise the pair following a test of daily lows at the start of the week. The price dropped from a high of 0.6929 to a low of 0.6862 following a fresh fall in the yuan that has seen the US dollar rise and weigh on commodities. 

China on the brink

Despite the Chinese best efforts, markets are alarmed by the implications for world growth as the second largest economy and Australia's biggest trade partner struggles with a resurgence of COVID-19 lockdowns and the property crisis. After a monthly meeting, the PBOC lowered the one-year loan prime rate by 5 basis points to 3.65% from 3.7%, while the five-year rate was cut by 15 basis points to 4.3% from 4.45%, reducing the cost of payments on existing loans. However, the news that policymakers have trimmed lending rates was taken as only a minor positive due to the deepening troubles in the economy. 

China's economy narrowly avoided a contraction in the second quarter with an expansion of just 0.4% as virus lockdowns weighed on industrial and consumer spending. Nevertheless, despite the economic damage inflicted by its strict virus policies, President Xi Jinping's signature strategy remains in play even as much of the world drops restrictions.

Another slide in the yuan to its lowest since late 2020 at 6.8520 added to the pressure on the Aussie, reflecting China's position as the largest buyer of Australian resources. The property crisis, which accounts for about a quarter of gross domestic product, is also under pressure, hitting Australia's iron ore export market. 

US dollar rises over global economic woes

Overall, global risk aversion combined with the slide in the yuan has overshadowed domestic considerations and the Aussie's higher beta relationship to the stock market has seen the currency on a knife's edge as traders look ahead to risks this week in the Jackson Hole. The hawkish expectations from a speech by the Fed chairman, Jerome Powell, have put a bid on the greenback and are weighing on risk appetite sending the Dow Jones Industrial Average lower1.82% to 33,085, with the S&P 500 also down over 2%. 

The US two-year Treasury yield has risen by 3% to 3.346% while the 10-year yield climbed 1.68% to 3.04%, implying the yield curve between the two maturities remains inverted, a bearish signal if sustained. This is fuelling a bid on the greenback. Against a basket of currencies, the US dollar was 0.85% higher at 109.09 DXY, not far from the two-decade high of 109.29 touched in mid-July.

What you need to take care of on  Tuesday, August 23:

Risk aversion took over financial markets at the beginning of the week amid recession fears hitting European shores. Gas prices soared in the region to new record highs as Russia announced unscheduled maintenance on the Nord Stream 1 pipeline, announcing it will shut it down for three days starting August 31.

European stocks collapsed, with the German DAX suffering the most. Also, the German Bundesbank released its monthly report, which noted that a recession in Germany is increasingly likely, and that could inflation will continue to accelerate and could peak at more than 10%.

The EUR/USD pair collapsed to a fresh 22-year low of 0.9925, holding nearby early in the Asian session. GBP/USD fell to its lowest since March 2020, trading at around 1.1760. Commodity-linked currencies were also down, with AUD/USD trading at the lower end of its August range in the 0.6870 area and the USD/CAD pair reaching a one-month high of 1.3060.

The greenback appreciated against its safe-haven rivals, with USD/CHF trading at 0.9640 and USD/JPY 137.40. Gold trades at around $1,737 a troy ounce.

Crude oil prices fell sharply ahead of the US opening, recovering afterwards. WTI traded as low as $86.28 a barrel to settle at around $90.60. Saudi Energy Minister said that OPEC+ might need to tighten output to stabilise the market.

Wall Street plunged and had its worst day since mid-June. US indexes lost roughly 2% each.  US Treasury yields edged north, with that on the 10-year note currently at 3.03%.

 Bitcoin price is at a crossroads – time to buy or should you wait for Jackson Hole Symposium?

• EUR/USD sinks to fresh bear cycle lows as the greenback picks up the risk-off flows. 
• The Jackson Hole and prospects of a recession in the eurozone are driving the euro into the ground. 

EUR/USD has been marking fresh lows below parity in the New York session. The cross has fallen from a high of 1.0046 to a low of 0.9926 on the day so far and is down by some 1% on the day ahead of the Jackson Hole this week and with eyes on the European Central Bank minutes of the previous meeting that will be released on Thursday.

The ECB meets to discuss monetary policy on Sept. 9. On the weekend, Bundesbank President Joachim Nagel told a German newspaper that the European Central Bank must keep raising rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high through 2023. 

Meanwhile, Russia's announcement late on Friday of a three-day halt to European gas supplies via the Nord Stream 1 pipeline at the end of this month has weighed heavily on the euro for fears that this could tip the economy into a recession in the face of higher inflation. 

Markets are focused on US events later in the week, with the second estimate of the second quarter growth data in  Gross Domestic Product on Thursday, before the release of personal income and spending data for July on Friday. The main event will be the Federal Reserve comments from the Jackson Hole conference Thursday through Saturday. The main event of the Jackson Hole conference will be Fed Chair Jerome Powell's speech at 10:00 am ET Friday.

The hawkish expectations from a speech have put a bid on the greenback and are weighing on risk appetite sending the Dow Jones Industrial Average lower1.82% to 33,085, with the S&P 500 also down over 2%. Weighing on the euro is the rise in the US two-year yield which has risen by 3% to 3.346% while the 10-year yield climbed 1.68% to 3.04%, implying the yield curve between the two maturities remains inverted, a bearish signal if sustained. This is fuelling a bid on the greenback. Against a basket of currencies, the US dollar was 0.85% higher at 109.09 DXY, not far from the two-decade high of 109.29 touched in mid-July.

In the build-up to the Jackson Hole, there has been a chorus of speakers from the Fed, with hawkish rhetoric fueling a surge in the US dollar. The most hawkish of Fed officials were James Bullard. The central banker advocates a 75bp hike at September's meeting and added he isn’t ready to say the economy has seen the worst of the inflation surge.

“We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation” and “I don’t see why you want to drag out interest rate increases into next year,” Mr Bullard said in a Wall Street Journal interview. The latest of these officials, Richmond Fed President Thomas Barkin, on Friday said the "urge" among central bankers was toward faster, front-loaded rate increases.

''Financial conditions have continued to ease,'' analysts at TD Securities said. ''Powell's speech will likely aim to reinforce the message that multiple, sizable hikes are still in the pipeline, and easing should not be expected to be on the horizon anytime soon.''

• USD/JPY buyers reclaimed the 137.00 figure and prepared to assault 138.87, ahead of the YTD high.
• The 4-hour chart suggests the USD/JPY might dip towards 135.58, before continuing its uptrend.

The USD/JPY advances sharply during the day, above its opening price, after hitting a daily high at 13.7.65, but late as there is one hour left for the Wall Street close, the major surrendered some of its gains amidst a risk-off trading session on Monday. At the time of writing, the USD/JPY is trading at 137.50, up by 0.47%.

USD/JPY Price Analysis: Technical outlook

The USD/JPY is upward biased, shifting from neutral after the pair dipped towards 130.39 on August 2. Nevertheless, that’s been the lowest the pair has traded since three months ago, and when it broke a downslope trendline on August 17, it shifted from neutral bias to upward biased.

That said, the USD/JPY is trading nearby the July 27 daily highs at 137.65, which, once cleared, will send the major rallying towards the July 21 swing high at 138.87, followed by the YTD high at 139.38.

In the four-hour time frame, the USD/JPY faces sold resistance at the R1 daily pivot, which is also the confluence of the July 27 daily high at 137.46. It’s worth nothing that the Relative Strength Index (RSI) is entering overbought conditions. Therefore, the USD/JPY might register a leg-down before continuing upwards.

If that scenario plays out, the USD/JPY first support will be the 20-EMA at 136.25, followed by the confluence of the 200-EMA and the August 7 daily high at 135.58.

USD/JPY 4-Hour chart

USD/JPY Key Technical Levels

• Gold is firmly in the hands of the bears as the US dollar takes off. 
• Bears eye $1,710 although, considering the support area, we could see a correction in coming sessions. 
• The Jackson Hole will be a key driver for the week.

Gold is being kept under pressure at the start of the week, although the gold price is currently off the lows from the day and attempting to correct. At $1,735, the yellow metal is still down 0.7% on the day so far and has travelled between a low of $1,727.85 and $1,749.09.

Gold is down for the sixth consecutive day on Monday amid an environment that is favouring the US dollar while looming Federal Reserve interest rate hikes weigh on bullion's appeal. The hawkish expectations from a speech at the Jackson Hole, Wyoming central banking conference later this week by Fed Chair Jerome Powell have put a bid on the greenback and are weighing on risk appetite.

Risk-off mood weighs on gold

The Dow Jones Industrial Average dropped 1.82% to 33,085, with the S&P 500 down over 2%. The US two-year yield jumped 3% to 3.346%, and the 10-year yield climbed 1.68% to 3.04%, implying the yield curve between the two maturities remains inverted, a bearish signal if sustained. Meanwhile, against a basket of currencies, the dollar was 0.82% higher at 108.98 DXY, not far from the two-decade high of 109.29 touched in mid-July.

In the build-up to the Jackson Hole, there has been a chorus of speakers from the Fed, and last week was particularly busy in that respect.  The most hawkish of Fed officials was Bullard who expressed a desire for a 75bp hike at September's meeting and added he isn’t ready to say the economy has seen the worst of the inflation surge. “We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation” and “I don’t see why you want to drag out interest rate increases into next year,” Mr Bullard said in a Wall Street Journal interview. The latest of these officials, Richmond Fed President Thomas Barkin, on Friday said the "urge" among central bankers was toward faster, front-loaded rate increases.

Meanwhile adding to the risk-off mood,  Russia's announcement late on Friday of a three-day halt to European gas supplies via the Nord Stream 1 pipeline at the end of this month sank the euro, supporting DXY higher.  On the weekend, Bundesbank President Joachim Nagel told a German newspaper that the European Central Bank must keep raising rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high through 2023. The combination has sent the euro below parity vs. the greenback again. At the time of writing, EUR/USD is down by over 1% to a low of 0.9926. 

Elsewhere in the forex space, China's yuan dropped to its lowest in nearly two years after the country's central bank cut its benchmark lending rate and lowered the mortgage reference by a bigger margin on Monday. The people's Bank of China's move is adding to last week's easing measures to support the ailing economy in the face of a resurgence of COVID-19 and the property crisis. This has also supported the greenback and has weighed on precious metals. 

''Shanghai traders have also been unwinding their recent length, with lockdowns and industrial woes likely to weigh on Chinese demand,'' analysts at TD Securities said. ''Our tracking of positioning for the top ten traders in Shanghai suggests they have sold nearly 40,000 SHFE lots of silver over the past month, in contrast with the nation's blockbuster imports of gold from Switzerland in July.''

 Gold technical analysis

The price of gold has left behind an M-formation on the daily chart, a reversion pattern that would be expected to see the price revert towards the neckline in due course. However, given the over-extension of the latest impulse, the correction will more probably only reach as far as the prior support near a 38.2% Fibonacci around $1,755. Meanwhile, the bears have their sights on $1,710 support.

• USD/CHF climbs but retreats at the 100-day EMA at 0.9644.
• The 4-hour chart illustrates that the USD/CHF might print a leg-down before resuming upwards.
• A break above the 100-day EMA to open the door for 0.9700.

The USD/CHF rallied in the North American session, bolstered by broad US dollar strength and risk aversion, so traders seeking safety bought the greenback, to the detriment of the Swiss franc. At the time of writing, the USD/CHF is trading at 0.9642 above its opening price by 0.60%.

USD/CHF Price Analysis: Technical outlook

From a daily chart perspective, the USD/CHF is upward biased, testing the 100-day EMA at 0.9644, breaking on its way north the 50-day EMA at 0.9629. USD/CHF traders should be aware that the price is testing the August 3 high at 0.9651, which, once cleared, would pave the way towards the 0.9700 figure, ahead of the July 14 daily high at 0.9886.

Reviewing the four-hour scale, the USD/CHF broke from consolidation around the 0.9574-0.9605 area, exposing the major to higher exchange rates, and on its way, north printed a daily high at 0.9658. Nevertheless, selling pressure entering in August 3 highs sent the pair sliding towards current price levels.

Even though the USD/CHF retreated, it opened the door for further gains. Still, the Relative Strength Index (RSI) entering overbought conditions suggests the pair might record a leg-down towards the 200-EMA at 0.9619 before resuming the uptrend.

Therefore, the USD/CHF first resistance would be the R3 daily pivot at 0.9652. The break above will expose the R4 daily pivot at 0.9680, followed by the August 22 daily high at 0.9704.

USD/CHF Key Technical Levels

• USD/CAD reaches a fresh six-week high at 1.3048 on falling crude oil prices and broad US dollar strength.
• Last week’s Fed hawkish commentary weighed on market mood, with traders preparing for Fed Chair Jerome Powell’s speech.
• Money market futures odds of a 75 bps rate hike by the Fed lie at 82.8%.

The USD/CAD broke to fresh two-month highs above the 1.3000 figure on risk aversion, crude oil prices falling, and broad US dollar strength across the board, as traders brace for US Federal Reserve Economic Symposium at Jackson hole. Amongst those and additional factors, the USD/CAD is trading at 1.3038, up by 0.37% at the time of writing.

Wall Street extended its losses as Fed’s hawkish rhetoric weighed on traders’ mood. US Treasury yields jumped between three-to-six basis points, while the US Dollar Index, a  gauge of the buck’s value vs. a basket of currencies, broke the 109.000 barrier up 0.84%.

USD/CAD climbs on buoyant US dollar due to Fed’s hawkish commentary

During the last week, Fed officials reiterated the need to bring inflation down, led by San Francisco Fed’s Mary Daly, who said that it was premature to “declare victory” on inflation while adding that she foresees a 50 or 75 bps for the September meeting. Echoing her comments was the uber-hawk St. Louis Fed President James Bullard, saying he’s leaning towards 75 bps and emphasized the need to get to the 3.75%-4% range by the year’s end. In his view, he added that it will take 18 months to get back prices back to the Fed’s 2% target.

In the meantime, money market future STIRs portray that the Fed will hike a minimum 50 bps rate hike for September, while odds for a 75 bps increase lie at 82.8%.

On the Canada front, an absent Canadian docket left investors adrift to market sentiment and oil prices. Meanwhile, the oil price is staging a comeback, exchanging hands at $89.49 PB, but remains below its opening price by 0.39% after hitting a daily low of $86.29.

Even though expectations are that the Bank of Canada will continue to tighten monetary policy, it will get slightly behind the Federal Reserve, with forecasts of a 50 bps hike which would lift rates to 3%. Aside from this, according to Reuters, speculators have raised their bullish bets on the Loonie to its highest level since July 2021, as shown by US CFTC data released on August 19, with long positions increasing from 21 223 to 26,867.

What to watch

The Canadian economic docket will feature Average Weekly Earnings by Thursday. Meanwhile, by Friday, the US calendar will reveal S&P Global PMIs, Fed speaking led by Minnesota’s Neil Kashkari, alongside inflation figures, ahead of Jerome Powell’s speech at Jackson Hole.

USD/CAD Key Technical Levels

• DXY up by 0.82%, near multi-year highs.
• US yields rise further, 10-year back above 3.0%-
• GBP/USD drops for the fourth consecutive day, below July lows.

The GBP/USD dropped further and printed a fresh two-year low at 1.1736. It is undress pressure amid a stronger US dollar and risk aversion.

Yields up, stocks sharply lower

Equity prices in Wall Street are falling sharply. The Dow Jones is at 12 day lows, falling by 1.44% and the Nasdaq tumbles more than 2%. The FTSE 100 lost 0.22%.

Despite risk aversion, Treasury bonds are adding to last week's losses. The US 10-year stands at 3.02%, the highest since July 21 and the 30-year is at 3.25%, the highest since July 8. The US Dollar Index is testing 109.00, up 0.82%, on its way to the highest daily close since September 2002.

Expectations about more aggressive tightening from the Federal Reserve keeps the dollar on demand ahead of the Jackson Hole symposium. On Friday, Jerome Powell will deliver a speech. A 50 basis point rate hike is fully priced, although a 75 bps hike is also likely according to money markets.

Below 1.1740, the next support could be seen around 1.1710 and then not much until 1.1630. The 2020 low waits near 1.1400 but before a strong area is located at 1.1450. On the upside, 1.1795 has become the immediate resistance, followed by 1.1835 (Aug 22 high).

Technical levels

Citing an interview given to Bloomberg, the Saudi Press Agency (SPA) reported on Monday that Saudi Arabia's energy minister said that OPEC+ has the means to deal with market challenges including cutting production at any time, in different forms.

"Paper oil market has fallen into a self-perpetuating vicious circle of very thin liquidity, extreme volatility undermining market’s essential function of efficient price discovery," the minister added. "OPEC+ will start working on a new agreement behind 2022 building on previous successes."

Market reaction

Crude oil prices rebounded from daily lows on these remarks. As of writing, the barrel of West Texas Intermediate, which dropped to a daily low of $86.25 earlier in the day, was trading at $89, losing 0.8% on the day. 

The EUR/USD dropped to the lowest level since December 2002, reaching 0.9942. It remains under pressure, testing levels under the 0.9950 support area.

A stronger US dollar across the board is pushing EUR/USD to the downside on Monday. The combinations of risk aversion and higher US yields support the greenback. Also, technical factors weighed on the euro. 

The US Dollar Index (DXY) is up by 0.69%, about to post the highest daily close in years. In Wall Street, the Dow Jones is falling by 1.33% and the Nasdaq drops by 2.13%.

EUR/USD daily chart

• AUD/USD hit a daily low of around 0.6929 but tumbled as sentiment shifted sour.
• Global equities dropped as investors brace for Fed’s Jerome Powell speech on Friday.
• China’s PBoC’s rate cut lifted the AUD/USD just above the 0.6900 figure before dropping towards daily lows.

The AUD/USD slightly declines in the North American session, amidst a risk-off tone in the market, with global equities sliding, as traders brace for Fed Chair Jerome Powell’s speech on Friday. Reflection of the aforementioned is global equities tumbling, led by US stocks, down between 1.40% and 2.30%.

The AUD/USD is trading at 0.6875 below its opening price by 0.02%, after hitting a daily high of 0.6929, just above the 50-day EMA. Nevertheless, the major softened and dropped from the 0.6900 figure due to broad US dollar strength.

Meantime, the US Dollar Index, a gauge of the buck’s value vs. a basket of peers, advances almost 0.60%, up at 108.729, closing to the YTD high at 10.9.294.

In the meantime, a lack of economic data keeps traders focused on the Jackson Hole event. Worth noting that last week’s Fed’s policymakers continued expressing that although inflation data is encouraging, the central bank is far from declaring victory. Even the most dovish, like Kansas City Fed’s Esther George, expressed that additional rate hikes are coming, though she mentioned that the size of increases is open for discussions.

At the time of writing, money market futures STIRs show that investors have fully priced in a 50 bps rate hike by the Federal Reserve, while odds of a 75 bps increase lie at 82.8%.

Aside from this, early in the Asian session, the People’s Bank of China (PBoC) cut its benchmark lending rate by 5 bps from 3.70% to 3.65% to stimulate the economy. The AUD/USD jumped towards 0.6906 on China’s decision, which benefits the Australian economy, as China is one of its largest trading partners.

What to watch

The Australian economic docket will feature the Australian S&P Global PMIs for the August readings, estimated to decrease, except for the Services PMI. On the US side, the calendar will release the S&P Global PMIs, a prelude for next week’s ISM PMI figures, alongside Fed speakers, led by Minnesota Fed’s Neil Kashkari on Tuesday, and the beginning of the Jackson Hole Economic Symposium by Wednesday.

AUD/USD Price Analysis: Technical outlook

From a technical perspective, the AUD/USD pierced the 50-day EMA around 0.6916 but dropped, threatening to turn negative in the day, exacerbating a fall towards the five-month-old downslope trendline, previously a resistance area shifted support around the 0.6800 figure. A daily close below last week’s low at 0.6859 will pave the way for further losses.

Platinum (XPT/USD) is currently trading below the $900 level. Economists at Commerzbank have adjusted their forecast lower to $1,000 by the end of the year.

Platinum is suffering from continued selling by ETF investors

“We are revising our year-end price forecast for platinum downwards to $1,000 (previously $1,050).”

“Platinum is also suffering from continued selling by ETF investors. Since the beginning of the year, these have now totalled more than 400 thousand ounces. The platinum market could therefore be more oversupplied this year than previously expected.”

Silver has come under pressure in recent months and fell to a two-year low of just over $18 in July. Strategists at Commerzbank are revising their price forecast for silver downwards. 

Gold/silver ratio should fall to 76 by end-2023

“We now expect a silver price of $20.50 at the end of the year (previously $24) and a price of $25 at the end of 2023 (previously $27).” 

“The gold/silver ratio should fall from the current level of a good 90 to 76 by the end of 2023.” 

“In addition to the rising gold price, silver should benefit from the politically forced expansion of photovoltaics, where it is used in solar cells. In a historical comparison, however, silver still remains cheap compared to gold.”

Further tightening of monetary policy may temporarily hamper the current price recovery, which is why strategists at Commerzbank are lowering their gold price forecast for the end of the year to $1,800. The yellow metal is expected to regain a lot of its shine from the turn of the year onwards though.

Too early for a real comeback of gold

“In the short-term, gold could come under pressure again because the US Federal Reserve is likely to raise interest rates further until the end of the year.”

“As soon as it becomes apparent that the rate hike cycle is coming to an end, the gold price should start to rise. This is likely to be the case in the fourth quarter.”

“The price increase should gain momentum when noticeable Fed rate cuts become apparent, which we expect from mid-2023 onwards. Gold should thus regain its strength significantly next year.”

“We are revising our gold price forecast for the end of the year downwards to $1,800 (previous forecast $1,900). Next year, gold should rise to $1,900 (previously $2,000).

• Gold continues losing ground for the sixth straight day and drops to a nearly four-week low.
• Hawkish Fed expectations, rising US bond yields, sustained USD buying exert heavy pressure.
• Recession fears and the risk-off impulse could limit the downside for the safe-haven XAU/USD.

Gold prolongs its recent bearish trajectory for the sixth successive day and drops to a nearly four-week low on Monday. The downfall, however, stalls near the $1,728 area amid the prevalent risk-off environment, which tends to benefit the safe-haven precious metal.

The market sentiment remains fragile amid growing worries over a global economic downturn. This, along with headwinds from COVID lockdowns in China, triggers a fresh wave of the global risk-aversion trade and forces investors to take refuge in traditional safe-haven assets. The anti-risk flow allows gold to trim a part of its heavy intraday losses, though any meaningful recovery still seems elusive.

The relentless US dollar buying remains unabated on the first day of a new week amid expectations that the Fed would continue to tighten its monetary policy to tame surging inflation. In fact, the USD Index, which tracks the greenback's performance against a basket of six other currencies, climbs to its highest level since mid-July and should act as a headwind for the dollar-denominated gold.

The prospects for further interest rate hikes remain supportive of elevated US Treasury bond yields. This turns out to be another factor that should keep a lid on any attempted recovery for the non-yielding yellow metal. The fundamental backdrop suggests that the path of least resistance for gold is to the downside, though bearish traders might prefer to wait for this week's key event risk.

Market participants will closely scrutinize Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday for clues about the possibility of a 75 bps rate hike move at the September meeting. Furthermore, this week's important US macroeconomic releases will play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for gold.

Technical levels to watch

• EUR/USD extends the downside below the parity zone.
• A deeper retracement could see the 2022 in the mid-0.9900s retested.

EUR/USD breaks below the parity level to clinch fresh 6-week lows at the beginning of the week.

Further losses appear in the pipeline for the time being. Against that, the pair could confront the 2022 low at 0.9952 (July 14) in case of a convincing breakdown of the parity region.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0852.

EUR/USD daily chart

Senior Economist at UOB Group Alvin Liew assesses the latest publication of the FOMC Minutes.

Key Takeaways

“The key takeaways from the 26-27 Jul FOMC minutes released overnight (18 Aug, 2am) were that as at late Jul, Fed policy makers agreed there was ‘little evidence’ inflation pressures were subsiding and that it would take considerable time for situation to be resolved. The Fed officials were committed to raise rates as high as required to tame inflation - even as they began to recognise explicitly the risk that they might tighten too much and overly curb economic activity.”

“The participants ‘concurred’ future rate hikes would depend on incoming information, and it will be appropriate ‘at some point’ to eventually slow the pace of rate hikes. Participants observed that, following this [July] meeting's policy Fed Funds Target rate (FFTR) hike [of 75bps to 2.25-2.50%], the nominal federal funds rate would be within the range of their estimates of its longer-run neutral level. In their discussion of risks, the policymakers see risk to inflation remaining on the upside while the risks to GDP growth are mainly on the downside.”

“FOMC Outlook – No Change To Our 50bps Rate Hike Expectations For Sep: The latest minutes does not change our Fed view, and we maintain our expectations for the FFTR to be hiked by 50 bps in the Sep 2022 FOMC. We also still expect another one more 50 bps rate hike in Nov FOMC before ending the year with a 25bps hike in Dec, and this implies a cumulative 350bps of increases in 2022, bringing the FFTR higher to the range of 3.50-3.75% by end of 2022, a range largely viewed as well above the neutral stance (which is confirmed in this minutes as 2.25-2.50%, the Fed’s long run projection of FFTR).”

USD/CAD holds near 1.30. Economists at Scotiabank note that the Canadian dollar is unlikely to enjoy gains for now.

Broader USD tone will continue to overshadow the CAD for now

“Weaker stocks and softer oil prices remain headwinds for the CAD and while the BoC policy backdrop remains supportive in broad terms, there is little opportunity for the CAD to differentiate itself from the USD ahead of the key Jackson Hole event at the end of the week at least.” 

“USD-bullish, short-term trend indicators suggest the bar to a strong CAD rebound is quite high at the moment.”

“USD losses may be limited to the low/mid 1.29s.”

“Resistance is 1.3020/50.”

There is nothing in terms of good news for the UK or the GBP. Economists at Scotiabank expect the GBP/USD to slump towards the 1.17100/00 region.

Prospects for sterling remain very dim

“Prospects for sterling remain very dim but a lot of bad news may already be priced into the GBP outlook – which might be the best we can say about the pound for now.” 

“A drop to the 1.17000/10 is the least we can expect from the GBP in the coming days.”

“Resistance is 1.1840 and 1.1925/30.”

“Key resistance – and safe ground for the GBP – is 1.2005 (double top trigger) but that looks too distant to be relevant from a short-term point of view.”

• DXY advances further north of the 108.00 level to new highs.
• Beyond 109.00 comes the 2022 high near 109.30.

DXY clinches new highs further north of the 108.00 mark at the beginning of the week.

The continuation of the upside momentum looks increasingly likely in the very near term at least. That said, there is an initial hurdle at the round level at 109.00. Once cleared, the YTD high at 109.29 (July 14) should come to the fore ahead of the September 2002 high at 109.77.

In the meantime, the 6-month support line continues hold the upside just above 105.00. Above this zone, the index is expected to keep the short-term positive stance.

Looking at the long-term scenario, the bullish view in the dollar remains in place while above the 200-day SMA at 100.42.

DXY daily chart

EUR/USD edged below par briefly earlier in the session. In the view of economists at Scotiabank, the world’s most popular currency pair looks prone to more persistent softness again.

Minor EUR rallies are a sell

“The par zone did provide a fairly solid base last month, however – aside from a brief break to the 0.9952 low – so a daily close below 1.0000 is likely to be taken as a cue for a further, more sustained, push lower in the EUR.” 

“Trend indicators here are solidly bearish. Minor EUR rallies are a sell from a technical point of view.”

“Resistance is 1.0050 and 1.0120.”

• USD/JPY gains traction for the fifth straight day and climbs to a nearly four-week high on Monday.
• The Fed-BoJ policy divergence, elevated US bond yields, sustained USD buying remain supportive.
• Recession fears, the risk-off impulse benefit the safe-haven JPY and seem to cap gains for the pair.

The USD/JPY pair reverses an intraday dip to the 136.70 area and now seems headed back to a three-and-half-week high touched earlier this Monday. The pair holds on to its positive bias for the fifth successive day and is seen trading above the 137.00 mark during the early North American session.

A big divergence in the monetary policy stance adopted by the Bank of Japan and the Federal Reserve turns out to be a key factor acting as a tailwind for the USD/JPY pair. It is worth recalling that the BoJ has repeatedly said that it would retain its ultra-easy policy settings. In contrast, the recent hawkish comments by several Fed officials reaffirmed market expectations that the US central bank would continue to tighten its monetary policy to tame inflation.

The prospects for a further interest rate hike by the Fed remain supportive of elevated US Treasury bond yields, widening the US-Japan rate differential and further weighing on the Japanese yen. In fact, the yield on the benchmark 10-year US government bond is hovering around the 3.0% threshold. This, in turn, pushes the USD to its highest level since mid-July and provides an additional lift to the USD/JPY pair, contributing to the ongoing positive move.

That said, the prevalent risk-off environment offers some support to the safe-haven JPY and caps any further gains for spot prices, at least for the time being. Investors might also prefer to wait for Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday, which will be scrutinized for hints about a 75 bps rate hike move at the September meeting. This will play a key role in influencing the USD and provide a fresh directional impetus to the USD/JPY pair.

Apart from this, investors this week would further take cues from important US macroeconomic releases. In the meantime, traders are likely to refrain from placing aggressive bullish bets amid absent relevant market-moving US economic data on Monday. Nevertheless, the fundamental backdrop remains tilted in favour of bulls and supports prospects for an extension of the recent appreciating move witnessed over the past one-and-a-half week or so.

Technical levels to watch

• Chicago Fed National Activity Index moved into positive territory in July.
• US Dollar Index clings to daily gains above 108.00 after the data.

The Federal Reserve Bank of Chicago's National Activity Index (CFNAI) improved to 0.27 in July from -0.25 (revised from -0.19) in June.

"The CFNAI Diffusion Index, which is also a three-month moving average, edged up to –0.05 in July from –0.08 in June," the publication further read. "Fifty-five of the 85 individual indicators made positive contributions to the CFNAI in July, while 30 made negative contributions. Fifty-five indicators improved from June to July, while 30 indicators deteriorated. Of the indicators that improved, 17 made negative contributions."

Market reaction

This report failed to trigger a noticeable market reaction and the US Dollar Index was last seen rising 0.26% on a daily basis at 108.40.

• NZD/USD stages a goodish recovery from a one-month low touched last Friday.
• The PBoC moves to ease policy further and boosts antipodeans, including kiwi.
• Sustained USD buying, recession fears cap any meaningful upside for the pair.

The NZD/USD pair gains some positive traction on Monday and snaps a five-day losing streak to a one-month low, around the 0.6165 region touched last week. The pair maintains its bid tone through the mid-European session and is currently placed around the 0.6200 mark, though seems to struggle to capitalize on the move.

The People’s Bank of China (PBoC) cut lending rates for the second time in two weeks to stimulate the economy, which, turns out to be a key factor that benefits antipodeans, including the kiwi. Apart from this, the attempted recovery lacks any obvious fundamental catalyst and remains capped amid sustained US dollar buying.

Firming expectations that the Fed will stick to its policy tightening path to tame inflation remains supportive of elevated US Treasury bond yields. In fact, the benchmark 10-year US government bond is holding just below the 3.0% threshold, which, along with the prevalent risk-off mood, continues to underpin the USD.

The market sentiment remains fragile amid growing worries about a global economic slowdown. Apart from this, unease over the Chinese economic headwinds from COVID lockdowns triggers a fresh bout of the risk-aversion trade. This is seen as another factor benefitting the safe-haven buck and capping gains for the risk-sensitive kiwi.

The fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has formed a near-term bottom and positioning for any further gains. In the absence of any market-moving US economic data, the broader risk sentiment might influence the USD and provide some impetus to the major.

Technical levels to watch

Flash Purchasing Managers' Indexes (PMIs) start coming out tomorrow. A disappointing figure from Germany could drag the EUR/USD pair sustainably under parity, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

The Damoclean sword hanging over the European economy is not going away

“In Europe, national surveys have been stronger than the PMI data, which may give some hope for a stronger figure, but in Germany, gas prices, the water level in the Rhine and inflation are having a devastating impact on business confidence.” 

“A very bad German PMI might be enough to cement EUR/USD under parity, even if other countries fare patter.”

EUR/USD is on track to test the July 14 cycle low near 0.9950. Below here, the pair could sink as low as the September 2002 low near 0.9615, economists at BBH report.

The Bundesbank offered a worrisome outlook

“The single currency traded below parity today to the lowest level since July 14 and is on track to test that day’s low near 0.9950. After that, the next target is the September 2002 low near 0.9615.”

“The Bundesbank noted that continued normalization of ECB policy is appropriate since inflation risks skewed to the upside.  Lastly, the bank warned that the odds of economic contraction this winter have risen significantly due to the outlook for natural gas.”

Economists at ABN Amro have lowered their growth and inflation forecasts for the US, with a significantly weaker recovery in investment now expected. They see the US heading for a mild recession.

Fed to continue hiking interest rates aggressively

“We have halved our forecast for fixed investment to just 2.5% for 2022, down from 5% previously, and made a more modest downward adjustment for 2023 to 1.9% from 3.3% previously. Our expectation for stagnant consumption in H2 2022 remains broadly unchanged. This takes our overall GDP forecast for 2022 down to 1.7% from 2.2% previously, and to 1.0% from 1.3% previously.”

“We do expect the labour market to deteriorate on the back of softening demand, with unemployment expected to begin rising from Q4 onwards. Ultimately, we expect unemployment to rise c.1.5pp to around 5% by end-2023, with the NBER calling a recession perhaps in H2 2023.”

“Our base case remains for the Fed to raise rates in 50 bps steps in September and October, with 25 bps hikes expected in December and February – taking the upper bound of the fed funds rate to 4%.”

“Beyond the hiking cycle, we continue to expect the Fed to begin reversing course in the second half of 2023. Our base case is that the Fed cuts rates in four 25 bps steps in H2 2023, taking the upper bound of the fed funds rate to 3% by end-2023.”

The US dollar continues to gain as the new week begins. Economists at BBH expect the US Dollar Index (DXY) to test the July 14 high around 109.30.

Dollar to remains firm 

“DXY is up for the fourth straight day and is coming off of its best week since March 2020, trading near 108.17 currently. This is the highest since July 15 and it is on track to test the July 14 high near 109.294.”

“As risk-off impulses ebb, the dollar should continue to benefit from the relatively strong US economic outlook and heightened Fed tightening  expectations. These drivers are likely to persist this week, with Fed Chair Powell expected to deliver a hawkish message at Jackson Hole and eurozone PMIs expected to show further softness in August.”

USD/IDR could extend the rally further and revisit the 14,925 level in the short-term horizon, suggests X Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“The swift and sharp rebound in USD/IDR last week came as a surprise (we were of the view that the weakness in USD/IDR could extend to 14,620 first before stabilization is likely).”

“The rapid rebound has scope to rise above the trend-line resistance at 14,925. While daily MACD is turning positive, overbought shorter-term conditions suggest the next resistance at 14,990 is unlikely to come under threat. Support is at 14,820 followed by 14,750.”

• EUR/JPY seems to have now moved into a consolidative phase.
• Immediately to the upside emerges the August high at 138.40.

EUR/JPY fades Friday’s advance and resumes the downside around the 137.00 region on Monday.

If the cross manages to break above the ongoing range bound theme, the so far August high at 138.39 (August 10) is expected to come into focus once again. Above the latter, EUR/JPY could attempt a move to the 55-day SMA, today at 139.36.

While above the 200-day SMA at 134.08, the prospects for the pair should remain constructive.

EUR/JPY daily chart

Analysts at Natixis show in the cases of the United States and the eurozone that after an inflationary shock, inflation subsides spontaneously. But this does not absolve the central banks from acting against inflation.

Inflation subsides spontaneously, but too slowly to stabilise the price level

“The inflation dynamics is stable: inflationary shocks in the US and the eurozone gradually disappear.” 

“In reality, central banks must react to inflation even if it subsides spontaneously. The pace of inflation’s retreat is slow. This means that if the central bank does not act to accelerate the rate of disinflation, inflation expectations may diverge. The price level has time to rise above the reference price level, leading to a loss of cost competitiveness and a loss of credibility for the central bank.”

• USD/CAD struggles to capitalize on its modest intraday gains to over a one-month high.
• An uptick in crude oil prices underpins the loonie and acts as a headwind for spot prices.
• Hawkish Fed expectations, the risk-off mood boosts the USD and limits the downside.

The USD/CAD pair retreats from over a one-month high touched earlier this Monday and drops to the 1.2980-1.2975 area, closer to the daily low during the first half of the European session.

A modest uptick in crude oil prices underpins the commodity-linked loonie, which, in turn, is seen as a key factor acting as a headwind for the USD/CAD pair. Concerns that the European Union embargoes on Russian oil imports could tighten supply offer support to the black liquid. That said, efforts to revive Iran's nuclear deal and worries about a global economic downturn could cap any meaningful gains for the commodity. Apart from this, sustained US dollar buying should help limit the downside for the major, at least for the time being.

Firming expectations that the Fed will retain its aggressive policy tightening path remains supportive of the ongoing USD rally to its highest level since mid-July. Apart from this, the prevalent risk-off environment further drove some haven flows towards the greenback. Growing recession fears continue to weigh on investors' sentiment, which is evident from a generally weaker tone around the equity markets and boosts demand for safe-haven assets. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair.

Furthermore, traders might also prefer to wait for Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday. Apart from this, traders this week will take cues from important US macro data. This, in turn, should influence the USD demand and provide a fresh directional impetus to the USD/CAD pair. In the meantime, absent relevant economic releases on Monday, either from the US or Canada, should hold back investors from placing aggressive bets.

Technical levels to watch

FX Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggested USD/MYR could maintain the bullish bias for the time being.

Key Quotes

“While we expected USD/MYR to strengthen last week, we were of the view that ‘a sustained advance above 4.4615 is unlikely’. We did not anticipate the strong rally as USD/MYR soared to 4.4780 last Friday before extending its advance today.”

“Further USD/MYR strength is not ruled out but shorter-term conditions are deeply overbought and the 2017 high at 4.4980 is likely out of reach for now (there is another resistance at 4.4900). On the downside, the ‘break-out’ level at 4.4615 is a solid support level now.”

• USD/CHF gains traction for the sixth straight day and climbs to over a two-week high on Monday.
• Hawkish Fed expectations continue to underpin the USD and remain supportive of the move up.
• Recession fears, the risk-off mood benefits the safe-haven CHF and seems to cap gains for the pair.

The USD/CHF pair prolongs its bullish move witnessed over the past one week or so and edges higher for the sixth successive day on Monday. Spot prices climb to over a two-week high during the first half of the European session, though bulls seem struggling to capitalize on the move beyond the 0.9600 mark.

The US dollar buying remains unabated on the first day of a new week and turns out to be a key factor that continues to act as a tailwind for the USD/CHF pair. In fact, the USD Index climbs to its highest level since mid-July and remains well supported by hawkish Fed expectations. The recent comments by several Fed officials suggest that the US central bank will stick to its aggressive policy tightening path.

Investors, however, remain divided over the size of the next rate hike at the September meeting. Hence, Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday will be looked upon for clues about the central bank's policy outlook. Traders would further take cues from this week's important US macro releases, which will influence the USD and provide a fresh directional impetus to the USD/CHF pair.

In the meantime, growing worries about a global economic downturn continue to weigh on investors' sentiment. This is evident from the prevalent risk-off environment, which offers support to the safe-haven Swiss franc and seems to cap gains for the USD/CHF pair. The mixed fundamental backdrop warrants caution for bullish traders and positioning for any further gains amid absent relevant US economic data on Monday.

Technical levels to watch

Quek Ser Leang at UOB Group’s Global Economics & Markets Research noted USD/THB could advance further in the near term.

Key Quotes

“Last Monday (15 Aug, spot at 35.50), we highlighted ‘35.06 is likely a short-term bottom’ and we expected the rebound in USD/THB to ‘extend to 35.80’. Our view turned out to be correct as USD/THB rose to 35.81 last Friday before extending its advance today.”

“Further USD/THB strength appears likely even though overbought conditions suggest that 36.36 is unlikely to come into the picture, at least for this week. On a shorter-term note, 36.05 is already a strong resistance level. On the downside, a breach of 35.55 would indicate that the current upward pressure has eased.”

• Further weakness prompts EUR/USD to breach the parity level.
• Extra downside could challenge the YTD low near 0.9950.
• The dollar extends the rally further beyond the 108.00 yardstick.

Sellers remain well in control of the sentiment surrounding the European currency and drag EUR/USD to levels just below parity at the beginning of the week.

EUR/USD now looks to a probable test of 2022 low

EUR/USD retreats for the third straight session on Monday on the back of the unabated move higher in the greenback, which has so far pushed the US Dollar Index (DXY) well past the 108.00 mark to new multi-week peaks.

Indeed, the solid performance of the dollar remains propped up by recent the recent hawkish tone from Fed speakers and divided opinions regarding the size of the Fed’s rate hike next month. On this, CME Group’s FedWatch Tool now sees the probability of a 75 bps raise at nearly 55% vs. around 45% of a 50 bps hike.

The daily decline in the pair comes along another positive performance in the German 10y Bund yields, which already approach the 1.25% region.

There are no data releases scheduled in the euro area on Monday, whereas the Chicago Fed index will be the only release across the pond in a week dominated by the Jackson Hole Symposium towards the end of the week.

What to look for around EUR

EUR/USD hovers around the parity level, or multi-week lows, in a context clearly favoured to further dollar strength.

Price action around the European currency, in the meantime, is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

On the negatives for the single currency emerge the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment gauges and the incipient slowdown in some fundamentals.

Key events in the euro area this week: Germany, EMU Flash PMIs, EMU Advanced Consumer Confidence (Tuesday) – Germany Final Q2 GDP Growth Rate, Germany IFO Business Climate, ECB Accounts (Thursday) – Germany GfK Consumer Confidence.

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. Fragmentation risks amidst the ECB’s normalization of its monetary conditions. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is losing 0.26% at 1.0012 and a break below 0.9989 (monthly low August 22) would target 0.9952 (2022 low July 14) en route to 0.9859 (December 2002 low). On the other hand, the next up barrier comes at 1.0202 (high August 17) followed by 1.0295 (55-day SMA) and finally 1.0368 (monthly high August 10).

• Gold price extends its losing streak into the sixth straight day on Monday.
• US dollar resumes its rally as risk-aversion gathers steam amid surging energy costs.
• XAU/USD needs to crack $1,730 to extend the sell-off towards $1,720 and $1,714.  

Gold price remains under intense selling pressure at the start of the week, extending the previous week’s bearish momentum into the sixth straight day. The relentless demand for the safe-haven US dollar could be linked as the main underlying factor behind the latest sell-off in the bright metal. Investors witness flight to safety amid hawkish Fed expectations and surging energy costs in Europe and Asia after Russia’s Nord Stream 1 pipeline announced its closure due to maintenance end of this month. Global central banks’ fight to tame inflation is likely to prolong amid rising food and energy prices, which dents risk appetite while weighing negatively on the non-interest bearing yellow metal. Gold traders shrug off the minor pullback in the US Treasury yields, as the dollar will likely remain the preferred safety bet heading into the much-awaited Kansas City Fed’s Jackson Hole Symposium, scheduled later this week.

Also read: Gold Price Forecast: Will XAU/USD bulls defend the 50% Fibo support?

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is eyeing a fresh downswing towards the Bollinger Band one-day Lower at $1,720 should bears yield a sustained break below the $1,730 barrier. That level is the intersection of the pivot point one-day S3 and pivot point one-week S1.

The next critical support area is located around $1,714, the Fibonacci 232.6% one-month.

Alternatively, the metal could rebound towards the pivot point one-day S2 at $1,737 should bears face exhaustion.

Further up, the pivot point one-day S1 at $1,743 will come into the picture. Bulls will then look to recapture the previous day’s low of $1,746.

The last line of defense for XAU sellers is envisioned at the confluence of the SMA200 four-hour and the Fibonacci 23.6% one-day around $1,750.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

• AUD/USD catches fresh bids on Monday and snaps a five-day losing streak to a multi-week low.
• The PBoC's move to lower benchmark rates offers support to the China-proxy Australian dollar.
• Recession fears, sustained USD buying interest should cap gains for the perceived riskier aussie.

The AUD/USD pair kicks off the new week on a positive note and snaps a five-day losing streak to a nearly one-month low touched on Friday. The pair maintains its bid tone through the early European session, albeit struggles to find acceptance or build on the momentum beyond the 0.6900 round-figure mark.

The People’s Bank of China (PBoC) lowered its benchmark rates for a second consecutive week in a bid to support a slowing economy. This, in turn, offers some support to the China-proxy Australian dollar and prompts some short-covering around the AUD/USD pair. That said, sustained US dollar buying might hold back traders from placing aggressive bullish bets around the major and keep a lid on any meaningful upside, at least for the time being.

The greenback prolongs its one-and-half-week strong upward trajectory and climbs to the highest level since mid-July amid hawkish Fed expectations. The recent comments by several Fed officials suggested that the US central bank will stick to its policy tightening path. This, along with a generally weaker tone around the equity markets, continues to underpin the safe-haven buck and should act as a headwind for the risk-sensitive aussie.

Hence, it would be prudent to wait for strong follow-through buying before confirming that the recent sharp pullback from a two-month high has run its course and positioning for any further gains. In the absence of any major market-moving US economic releases on Monday, the AUD/USD pair remains at the mercy of the USD price dynamics. Traders would further take cues from the broader risk sentiment to grab short-term opportunities.

Technical levels to watch

After having lost nearly 300 pips last week, GBP/USD has failed to stage a rebound. The pair now eyes fresh multi-year lows at 1.1760, FXStreet’s Eren Sengezer reports.

GBP/USD could rise to 1.1840 if it manages to stay above 1.18

“In case the pair manages to go into a consolidation phase above 1.1800, additional recovery gains toward 1.1840 (static level) and 1.1900 (psychological level) could be witnessed.”

“On the downside, GBP/USD could target 1.1760 (multi-year lows) and 1.1700 (psychological level) if buyers give up on 1.1800.” 

• GBP/USD continues losing ground for the fourth straight day and drops to a fresh monthly low.
• Hawkish Fed expectations, the risk-off mood underpin the safe-haven USD and exert pressure.
• The UK’s bleak economic outlook continues to weigh on the GBP and contribute to the decline.

The GBP/USD pair turns lower for the fourth straight day on Monday and drops to over a one-month low during the early European session. The pair is currently trading just below the 1.1800 round-figure mark and seems vulnerable to prolonging its bearish trend witnessed over the past two weeks or so.

The US dollar buying remains unabated on the first day of a new week and turns out to be a key factor exerting downward pressure on the GBP/USD pair. In fact, the USD Index climbs to its highest level since mid-July amid firming expectations that the US central bank will stick to its aggressive policy tightening path. The bets were reaffirmed by the recent hawkish comments by several Fed officials, which, along with a fresh bout of the global risk-aversion traders, continues to boost demand for the safe-haven greenback.

The British pound, on the other hand, is weighed down by the UK's bleak economic outlook and growing recession fears. The worries were further fueled by a further deterioration in the UK Gfk consumer confidence index, which dropped to another record low level of -44 in August. This, to a larger extent, overshadowed the prospects for a 50 bps rate hike by the Bank of England in September and might undermine sterling. This, in turn, supports prospects for an extension of the GBP/USD pair's ongoing depreciating move.

Hence, a subsequent fall towards challenging the YTD low, around the 1.1760 region touched in July, now looks like a distinct possibility. In the absence of any major market-moving economic releases, either from the UK or the US, the USD price dynamics will continue to play a key role in influencing the GBP/USD pair.

Technical levels to watch

EUR/USD has started the new week under bearish pressure. The pair looks to test parity as markets remain risk-averse, FXStreet’s Eren Sengezer reports.

Risk perception could drive the pair's action 

“Unless there's an improvement in risk sentiment, the greenback should be able to continue to outperform its risk-sensitive rivals.”

“In case the the all-important parity support level fails, the next bearish target could be seen at 0.9950 (multi-year low set on July 14) and 0.9900 (psychological level).” 

“1.0050 (static level) aligns as initial resistance before 1.0100 (static level, psychological level, 20-period SMA on the four-hour chart and 1.0170 (200-period SMA).”

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, the continuation of the upside momentum could motivate USD/CNH to challenge the next resistance at 6.8600 ahead of 6.8800.

Key Quotes

24-hour view: “The strong and rapid rise in USD last Friday is accompanied by strong upward momentum and USD is likely to strengthen further. Resistance is at 6.8600. As conditions are overbought, the next resistance at 6.8600 is not expected to come under threat. On the downside, a break of 6.8240 (minor support is at 6.8330) would indicate that the current strong upward pressure has eased.”

Next 1-3 weeks: “Last Friday, USD soared to a 2-year high of 6.8440 before closing at 6.8318 for a weekly gain of 1.43%. The weekly gain is the largest 1week advance since Apr last week. Solid upward momentum is likely to lead to further USD strength. Resistance levels are at 6.8600 and 6.8800. Overall, only a break of 6.8100 would indicate that USD is unlikely to advance further.”

• Silver turns lower for the sixth successive day and drops to a nearly four-week low.
• Acceptance below the 61.8% Fibo. level and the $19.00 mark favour bearish traders.
• Attempted recovery moves could be seen as a selling opportunity and remain capped.

Silver meets with a fresh supply near the $19.15 area on Monday and turns lower for the sixth straight day. The white metal drops to a nearly four-week low during the early European session and is now looking to prolong the slide further below the $19.00 mark.

From a technical perspective, the emergence of fresh selling near the 61.8% Fibonacci retracement level of the July-August move and a subsequent break below the aforementioned handle favour bearish traders. Furthermore, oscillators on the daily chart are holding deep in the negative territory and are still far from being in the oversold zone. This, in turn, supports prospects for a further near-term depreciating move for the XAG/USD.

Hence, some follow-through weakness towards testing the next relevant support, around the $18.45-$18.40 area, now looks like a distinct possibility. The downward trajectory could further get extended and the XAG/USD could eventually drop back to challenge the YTD low, around the $18.15 zone touched in July. This is closely followed by the $18.00 round-figure mark, which if broken decisively should pave the way for an extension of the downfall.

On the flip side, recovery beyond the daily swing high, around the $19.15 region (61.8% Fibo. level), might now be seen as a selling opportunity and remain capped near the $19.40-$19.50 area. The latter marks a static support breakpoint and coincides with the 50% Fibo. level. This, in turn, should act as a pivotal point, above which a bout of a short-covering move could allow the XAG/USD to aim back to reclaim the $20.00 psychological mark.

Silver daily chart

Key levels to watch

EUR/USD is close to a breach of parity. Economists at MUFG Bank believe that this move could be more sustained than last month’s break under parity.

A break below parity at this juncture could well be meaningful

“A break below parity at this juncture could well be meaningful. The break in parity last month was fleeting and was only below parity on an intra-day basis on one day – 14th July. To then bounce but retrace the bounce and break back below parity would be an indication of increased confidence of the next breach being more sustained. That’s certainly what we expect.”

“The decline in optimism over inflation and some signs that the equity market recovery could be petering out.”

“The Fed and other central banks want tighter financial conditions to be sustained in order to reinforce downward pressure on inflation and the concerted effort through rhetoric by the Fed is helping in achieving that.”

The US dollar gained across G10 last week. The Jackson Hole Symposium at th end of the week is set to reinforce a tougher Fed’s rhetoric, providing further support to the US dollar, economists at MUFG Bank report.

Jackson Hole to reinforce recent comment

“The 2-year UST bond yield has rebounded in response to the tougher rhetoric with a number of Fed speakers dismissing the idea of a pause or pivot any time soon. It seems quite likely that the Jackson Hole Symposium at the end of this week will be used to reiterate this message to the financial markets.”

“We are set to see the Fed fuel further yield curve inversion with the Fed slow in acknowledging that the inflation battle is won and showing a willingness to forgo growth in order to bring inflation down more quickly.”

• The index advances further north of the 108.00 mark.
• US yields appear offered at the beginning of the week.
• The Chicago Fed Index will be the sole release in the US docket.

The greenback, in terms of the US Dollar Index (DXY), maintains the bid bias well and sound for yet another session and extends the upside further north of the 108.00 hurdle.

US Dollar Index in 6-week tops

The index advances for the fourth consecutive session and navigates 6-week peaks well past the 108.00 yardstick, as market participants continue to assess the recent hawkish messages from FOMC governors ahead of the key September meeting.

In the meantime, the price action around the risk complex appears depressed, while yields give aways part of the recent advance on both sides of the Atlantic.

The Chicago Fed National Activity Index for the month of July will be the sole release in the US docket at the beginning of the week.

What to look for around USD

Hawkish rhetoric from Fed’s rate-setters coupled with deteriorating sentiment in the risk complex propel the index back above the 108.00 barrier, exposing at the same time a probable move to cycle highs north of 109.00 in the near term.

Bolstering the dollar’s strength appears the firm conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

DXY, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, namely a 50 bps or 75 bps hike in September.

Looking at the macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Chicago Fed National Activity Index (Monday) – Flash PMIs, New Home Sales (Tuesday) – MBA Mortgage Applications, Durable Goods Orders, Pending Home Sales (Wednesday) – Jackson Hole Symposium, Advanced Q2 GDP Growth Rate, Initial Claims (Thursday) - Jackson Hole Symposium, PCE, Personal Income, Personal Spending, Fed Powell, Final Consumer Sentiment (Friday) - Jackson Hole Symposium (Saturday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict.

US Dollar Index relevant levels

Now, the index is gaining 0.20% at 108.31 and a breakout of 109.00 (round level) would open the door to 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the other hand, immediate support comes at 105.89 (55-day SMA) followed by 104.63 (monthly low August 10) and finally 104.17 (100-day SMA).

West Texas Intermediate crude has plunged from just over $120/bbl in mid-June to around $90 presently. Economists at the Bank of Montreal now forecast that WTI at $100 by the end of the year.

Clear as mud

“Forecasting the price of crude oil has never been trickier as the trajectory of both global oil supply and demand remains far from certain.”

“We have trimmed our full-year 2022 forecast for WTI to $100/bbl (previously $105) but have maintained our 2023 projection of $95.”

Europe’s economic powerhouse, Germany, kicked off the second half of this year on a weak note, as the country’s exports beyond the European Union (EU) fell by 7.6% on the month in July, the Federal Statistics Office said on Monday.

Key takeaways (via Reuters)

“The United States remained the most important trading partner for German exporters in July, with exports of goods to the US market rising 14.9% on the year. “

“Exports to China rose 6.1% on the year. Exports to Russia fell 56.0% on the year.”

“The German economy became more dependent on China in the first half of 2022.”

Over the weekend, Bundesbank President Joachim Nagel said that the German economy is “likely” to suffer a recession over the winter if the energy crisis (specifically Russia cutting gas supply) continues to deepen.

Market reaction

EUR/USD was last seen trading at 1.0016, down 0.16% on the day, undermined by the ongoing gas crisis and the broad-based US dollar strength.

Both the eurozone and the UK are likely headed for a recession so the European Central Bank (ECB) and the Bank of England (BoE) will likely miss market pricing for rate hikes, weighing on the EUR and GBP. Even if there were an accelerated and front-loaded tightening, any currency gain would unlikely be sustained, in the view of economists at HSBC.

EUR and GBP will likely face downside pressures over the medium term

“The ECB and the BoE may find it hard to match market pricing for rate hikes, weighing on the EUR and GBP.”

“Even if the ECB (or the BoE) were to deliver an outsized rate hike), we are not convinced that it would be positive for the EUR (or the GBP) beyond the knee-jerk reaction. An accelerated and front-loaded tightening would likely exacerbate growth concerns and possibly raise the risk of policy reversal in 2023.”

“More and more, the EUR and GBP seem to recognise that hiking into weakness is rarely positive. With risk aversion to be elevated amid continuing concerns about global growth, we look for both currencies to slip in equal fashion against the USD, albeit without reaching new year-to-date (YTD) lows in the coming few weeks.”

The dollar continues to perform very well. This trend looks set to continue this week which will culminate with a speech on Friday by Federal Reserve Chair, Jay Powell on the economic outlook, economists at ING report.

Dollar in the ascendance

“This week's focus should be on some mildly positive US data and culminate in Fed's Powell speech on the US economic outlook on Friday. The Fed is probably quite comfortable with what the market prices for its policy rate this year (around 125 bps of hikes to a 3.50-3.75% target range.) What could be vulnerable to re-pricing higher would be the subsequent 40 bps of easing priced in for the second half of next year. The Fed is quite keen to counter notions of a 2023 pivot.”

“With European and Chinese data remaining soft this week – and no end in sight for the surge in gas prices – expect the dollar to hold its gains.”

“The 109.30 July high in DXY looks like the direction of travel.”

GBP/USD is back below 1.20 and heading to new lows. Economists at MUFG Bank note that the 1.15 could be in sight on a break under the low from July at 1.1760.

Downside risks to H2 GBP forecasts

“We are close to hitting our end-Q3 GBP/USD forecast of 1.1790 and we certainly expect levels below that over the near-term. We also expect the low from July of 1.1760 to break.”

“Covid-19 lows just below 1.1500 would be next in sight.”

EUR/USD is struggling to stage a recovery following last week's sharp decline. The pair remains very heavy and could sink below parity at any time, analysts at ING report. 

Adding to the sell-off may well be the portfolio adjustments of Asian central banks 

“Asian FX remains under heavy pressure and will prompt intervention to sell dollars and support local currencies. Asian FX reserve managers will then need to sell EUR/USD to re-balance FX portfolios to benchmark weightings.”

“The market prices a 54 bps rate hike for the September 8th meeting. Could the ECB start to discuss prospects of more aggressive rate increases if it wants to offer EUR/USD some support? Watch out for any speeches from the hawks in northern Europe this week.”

“A retest of July's 0.9950 low looks to be the bias for EUR/USD this week.”

• USD/JPY struggles to preserve modest intraday gains to a one-month high touched on Monday.
• Recession fears, sliding US bond yields offer support to the safe-haven JPY and act as a headwind.
• Hawkish Fed expectations continue to underpin the USD and should limit any meaningful slide.

The USD/JPY pair gains traction for the fifth straight day - also marking the seventh day of a positive move in the previous eight - and climbs to a one-month high on Monday. The momentum, however, falters just ahead of the 137.50 area, forcing spot prices to surrender a major part of intraday gains and retreat below the 137.00 mark during the early European session.

Investors remain concerned about a global economic downturn, which is evident from a generally weaker tone around the equity markets. This, in turn, offers some support to the safe-haven Japanese yen and acts as a headwind for the USD/JPY pair. The flight to safety led to a modest downtick in the US Treasury bond yields, narrowing the US-Japan rate differential and further benefitting the JPY. That said, sustained US dollar buying continues to lend some support to the major.

Apart from this, a big divergence in the monetary policy stance adopted by the Bank of Japan and the Federal Reserve supports prospects for the emergence of some dip-buying around the USD/JPY pair. It is worth mentioning that the BoJ has repeatedly said that it would retain its ultra-easy policy settings. In contrast, the recent hawkish comments by several Fed officials reaffirmed market expectations that the US central bank would continue to tighten its monetary policy to tame inflation.

That said, market participants remain divided over the size of the next Fed rate hike in September. Hence, Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday will be looked upon for clues about the central bank's policy outlook. Apart from this, investors would take cues from this week's important US macro releases, which will influence the near-term USD price dynamics. This would help determine the next leg of a directional move for the USD/USD pair.

In the meantime, traders might refrain from placing aggressive bets and prefer to move on the sidelines amid absent relevant US economic data on Monday. Nevertheless, the fundamental backdrop seems tilted firmly in favour of bullish traders, suggesting that any meaningful dip might still be seen as a buying opportunity and remain limited.

Technical levels to watch

Extra gains in USD/JPY are likely once the pair clear the 137.85 level in the next weeks, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Last Friday, USD soared to a high of 137.23 before closing on a strong note at 136.93 (+0.77%). Not surprisingly, conditions are overbought but the advance in USD appears to have enough momentum to extend further. However, the major resistance at 137.85 is likely out of reach for today (there is another resistance at 137.50).  Support is at 136.80 followed by 136.40.”

Next 1-3 weeks: “The strong advance in USD last week is likely to extend to 137.85. Further extension is not ruled but USD has to break the major resistance at 137.85 before further USD strength is likely. Overall, the risk for USD is on the upside as long as it does not move below the ‘strong support’ level, currently at 135.90.”

GBP/USD lost nearly 300 pips last week and continues to trade on the back foot within a touching distance of 1.18. In the view of economists at ING, cable could fall as low as 1.15.

Does 1.15 beckon for cable?

“The mighty dollar is causing problems for all and cable could well retest July's 1.1760 low this week. Thereafter it is hard to rule out a move to 1.15 – a level seen in the March 2020 flash crash.”

“We still have a preference that EUR/GBP does not need to rally too hard – given challenges faced in the eurozone – but acknowledge that sterling does look vulnerable.” 

CME Group’s flash data for natural gas futures markets noted open interest rose marginally by just 84 contracts at the end of last week, resuming the uptrend after the previous day’s pullback. Volume, instead, dropped by around 77.7K contracts and offset the previous build.

Natural Gas could face some near-term consolidation

Natural gas prices charted decent gains on Friday amidst some consolidative mood. That uptick was amidst a small increase in open interest and a strong drop in volume, exposing some consolidation in the very near term. The longer run target remains at the 2022 high at $9.75 per MMBtu (July 26).

Gold snapped a four-week winning streak as it lost more than 2%. As focus shifts to key data releases from the US and central bankers' appearance at the Jackson Hole Symposium next week, sellers look to retain control, FXStreet’s Eren Sengezer reports.

Powell's comments could have a significant impact on the dollar's valuation

“The S&P Global will publish the preliminary Manufacturing and Services PMI surveys for August on Tuesday. In case the surveys point to softer inflation, the dollar could find it difficult to preserve its strength and help XAU/USD recover and vice versa. A significant decline in headline PMIs could also weigh on the greenback.”

“July New Home Sales data will also be looked upon for fresh impetus. A straightforward market reaction with a disappointing print hurting the USD could be witnessed.” 

“On the second day of the annual Jackson Hole Symposium, on Friday, FOMC Chairman Jerome Powell will be delivering a speech. In case Powell pushes back against the market view of the Fed turning dovish in the second half of 2023, the dollar should be able to continue to outperform its rivals and drag XAU/USD lower. On the other hand, a relief rally could be triggered in case the chairman hints at a 50 basis points (bps) rate hike in September rather than a 75 bps increase. In that case, US T-bond yields could fall sharply and open the door for a decisive rebound in gold.”

EUR/USD is struggling to stage a recovery following last week's sharp decline and trading below 1.0050. Meanwhile, GBP/USD continues to trade on the back foot within a touching distance of 1.1800. Economists at DBS Bank expect EUR/USD and GBP/USD to stablilze around 1.00 and 1.18, respectively.

Inflation will keep rising in the coming months in the eurozone and the UK

“In contrast to the US, inflation will keep rising in the coming months in the eurozone and the UK. In September, the European Central Bank and the Bank of England might join the Fed with 50 bps hikes to prevent inflation expectations from de-anchoring.”

“After last week’s heavy losses, EUR/USD and GBP/USD may find support around parity and 1.18 respectively.”

AUD/USD’s corrective downtrend is predicted to meet strong contention around 0.6830 in the next weeks, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Despite the relatively large decline in AUD last Friday, downward momentum has not improved by much. That said, AUD could test the support at 0.6855 first before a rebound is likely. The next support at 0.6830 is unlikely to come under threat. Resistance is at 0.6910 followed by 0.6925.”

Next 1-3 weeks: “The outsized decline of 3.46% (Friday’s close of 0.6875) in AUD last week appears to be overdone. However, with no sign of stabilization just yet, there is scope for AUD to extend its decline but any further weakness is expected to encounter solid support at 0.6830. On the upside, a breach of 0.6960 would indicate that AUD is unlikely to weaken further.”

USD/CNY has gapped up at the open to the highest level this year at just under 6.83. Economists at Commerzbank believe that a weaker yuan will weigh on the rest of Asian currencies.

PBoC to keep a close eye on the pace of depreciation

“We could be seeing the start of an ‘all-of-government effort’ to support growth, namely increased government infrastructure spending plans, lower rates, and a weaker CNY. However, on the covid-zero policy, we suspect there won’t be a change this side of the Party Congress in October.”

“Although People’s Bank of China (PBoC) is seemingly accepting and acquiescing to a weaker CNY, it will continue to keep a close eye on the pace of depreciation.”

“For the rest of Asia, a weaker CNY will have ripple effects and weigh on the rest of Asian currencies. As such, the rest of Asian central banks would have to prepare for another a bout of volatility.”

Bank Indonesia (BI) will hold its monthly governor board meeting on 23-24 August. Here you can find the expectations as forecast by the economists and researchers of five major banks regarding the upcoming central bank's decision. 

BI is expected to keep rates steady at 3.5%. However, nearly a quarter of the 22 analysts polled by Bloomberg look for a 25 bps hike to 3.75%.

ANZ

“BI will not commence its rate lift-off. The strengthening of the IDR over the past month and the absence of a US Fed policy meeting in August both reduce the impetus for BI to act in the very near-term. Still, we believe that pandemic-era stimulus is no longer warranted in Indonesia. We expect BI’s rate lift-off to start in September when the planned hikes to the reserve requirement ratio would have been fully implemented.”

Standard Chartered

“We expect BI to maintain the 7-day reverse repo rate at 3.5% to anchor IDR stability and keep financing costs low to support the growth recovery. According to a recent statement by BI’s governor, the central bank is not in a hurry to hike rates; we think this is due to the recent strengthening of the IDR and still-low core inflation. Going forward, we think monetary policy will be data-dependent, with policymakers watching the impact of a growth recovery on inflationary pressure and the external balance through higher imports. We maintain our call for a rate hike in September, but acknowledge the risk of a delayed hike towards year-end should an improving external environment continue to provide a tailwind to IDR appreciation.”

ING

“We could see BI Governor Perry Warjiyo whipping out a surprise 25 bps rate increase after staying on hold for all of 2022. BI has held firm despite tightening from regional players, indicating that inflation has stayed ‘manageable’. Recently, however, plans to decrease the energy subsidy, floated by President Joko Widodo, suggest that the price of subsidised fuel could increase in the near term. A jump in fuel prices could be enough to nudge core inflation past the target and this could be reason enough for BI to hike rates as early as this week.”   

UOB

“We expect inflation expectations to continue building up, and look for BI to hike its benchmark interest rates as early as August by 25 bps. Our forecast is for two 25 bps hikes in Q3 2022 to 4.00%, followed by another two 25 bps hikes in Q 2022 to 4.50%.”

TDS

“While July headline inflation rose to 4.9% YoY, core inflation was modest at 2.86% YoY and within BI's 2-4% target range. From BI's lens, core inflation may still appear as manageable and BI may not signal a hawkish pivot yet and reiterate their focus on FX stability and the economy. Further, BI's Governor recently commented that BI is in no rush to increase interest rates.”

European Central Bank (ECB) talk is irrelevant jabbering from the market's perspective. In the view of economists at Commerzbank, interest rate policy has to show any sign of effort of emerging from the “behind the curve” position to lift the euro.

Euro susceptible for a revision of the underlying Fed expectation

“The euro is likely to be particularly susceptible for a revision of the underlying Fed expectation, as the ECB has taken the second-strongest possible dovish position amongst the G10 central banks (after the Bank of Japan).”

“The euro can only be supported by action now. That is where the ECB is lacking, even if it talks the talk.”

“I don’t mind which ECB board members talk about what subject in Jackson Hole or what they say at other occasions. I no longer believe that the market will be more than marginally impressed by that.”

Here is what you need to know on Monday, August 22:

The greenback preserves its strength to start the week after having registered impressive gains against its rivals last week. The US Dollar Index rose 2.3% to post its biggest one-week gain last week and was last seen trading modestly higher on the day at around 108.20. The Federal Reserve Bank of Chicago's National Activity Index for July will be featured in the US economic docket and Statistics Canada will release the New Housing Price Index data. In the absence of high-impact data releases, investors will also keep a close eye on risk perception. In the early European session, US stock index futures were down between 0.45% and 0.65%.

Although markets are yet to make up their mind about the size of the September Fed rate hike, Reuters reported that only 18 of 94 economists surveyed in a recent poll expected the US central bank to opt for a 75 basis points (bps) rate hike. Nevertheless, the CME Group FedWatch Tool shows that markets are pricing in a 48.5% probability of a 75 bps rate increase next month.

During the Asian trading hours, the People's Bank of China announced that it lowered the one-year loan prime rate (LPR) and the five-year LPR by 5 basis points and 13 points, respectively to 3.65% and 4.3%. This dovish step taken by the Chinese central bank helped the AUD and NZD stay resilient against the USD at the beginning of the week. As of writing, the NZD/USD pair was up 0.53% on the day at 0.6200 and the AUD/USD pair was up 0.42% at 0.6900.

EUR/USD is struggling to stage a recovery following last week's sharp decline and trading below 1.0050. According to several news outlets, Russia plans to shut down the Nord Stream gas pipeline for three days for maintenance at the end of the month.

GBP/USD lost nearly 300 pips last week and continues to trade on the back foot within a touching distance of 1.1800. 

USD/JPY consolidates last week's gains and trades in a relatively tight channel at around  137.00 early Monday.

Gold registered losses for five straight days and stays under modest bearish pressure in the European morning on Monday. At the time of press, XAU/USD was trading in negative territory slightly above $1,740.

After having suffered heavy losses last Friday, Bitcoin recovered modestly over the weekend but struggled to gather bullish momentum. BTC/USD trades in negative territory below $21,500 on Monday. Ethereum is down more than 2% on the day, continuing to push lower toward $1,500.

Gold closed every day of the week in negative territory and snapped a four-week winning streak. The near-term technical outlook shows sellers look to dominate XAU/USD's action, FXStreet’s Eren Sengezer reports.

Technicals point to a bearish tilt

“The Relative Strength Index (RSI) indicator on the daily chart fell below 50 and gold closed the last two trading days below the 20-day SMA.” 

“On the downside, the immediate support is located at $1,740 (static level) ahead of $1,720 (static level) and $1,700 (psychological level, the end-point of the latest downtrend).”

“The 20-day SMA aligns as interim resistance at $1,770 before $1,780 (50-day SMA, Fibonacci 23.6% retracement). In case the price rises above the latter and starts using it as support, $1,800 (psychological level) could be seen as the next recovery target.”

The Indian rupee's fair value is around 80 against the US dollar despite the country's balance of payment challenges and the Reserve Bank of India's (RBI) interventions, Arindam Sandilya, J P Morgan's Head of Emerging Asia local markets strategy said in a Reuters interview.

Key quotes

"India's CAD (current account deficit) is tracking 4% of the GDP, historically a wide number. If left unchecked, this should reflect on the price of the rupee. But things are not left unchecked, and RBI has been managing the rupee.”

"Taking a holistic view on India's forex-relevant BoP position and the RBI, we reckon the fair value of the rupee is around 80."

“JPMorgan's fair value was near 81-82 at the beginning of the current quarter, but the surprising turnaround in equity flows has led it to reassess its fair value to near 80.”

He said that the rupee's valuations remained "a little rich" relative other emerging markets (EM) currencies and short rupee positions had potentially "have more runway".

• USD/INR Price Analysis: Aims to recapture all-time-highs at 80.20

“Disconnect”.  On one hand the market expects the Federal Reserve to once again lower its key rate significantly in 2023 whereas the Fed itself assumes that it will have to continue keeping its key rate at quite high levels for some time to fight inflation successfully and also seems willing to do so. Economists at Commerzbank expect the US dollar to stay strong.

USD to appreciate significantly if things develop as the Fed assumes

“‘Disconnect’ implies for the USD exchange rates: the risks clearly point towards USD strength.”

“If the Fed caves in, not that much will happen to the USD exchange rates. To assume the contrary, one would have to assume that there is a considerable segmentation between money market (on which the Fed projections are being priced in) and the FX market. That is possible short-term but unlikely.”

“At current, we project EUR/USD exchange rates of 0.98 by year-end, based on our house view that there will be Fed rate cuts next year. If the market tips and its disagreement with the Fed comes to an end, lower EUR/USD levels would also be possible.”

NZD/USD has continued its journey south. Economists at ANZ Bank expect the kiwi to remain under pressure as the market believes that the Reserve Bank of New Zealand (RBNZ) is near the end of the tightening cycle.

A risk-off vibe/flight to safety may keep the USD supported

“The USD looks to be garnering support from ongoing hawkish Fed rhetoric (and consequent realisation that interest rates will likely need to remain higher for longer), alongside an uneasy sense that this could be a bumpy road, which is feeding flight-to-safety motivations.”

“We now expect the Fed to keep up with the RBNZ with three more 50 bps hikes this year; that too is erasing what many have long felt was almost an automatic birth right for the kiwi.” 

“We don’t buy into the idea that the RBNZ is near the end of the tightening cycle, but the market does, and in recent days that has been a weight on the kiwi.”

Considering advanced prints from CME Group for crude oil futures markets, open interest kept the downtrend unchanged on Friday, this time by around 13.5K contracts. In the same line, volume shrank for the third session in a row, now by around 30.3K contracts.

WTI continues to target $95.05

Prices of the barrel of the WTI ended Friday’s session with losses after briefly surpassing the $92.00 mark. The downtick was amidst shrinking open interest and volume, hinting at the idea that extra losses are no favoured in the very near term. Further upside continues to target recent tops around the $95.00 mark.

Silver (XAG/USD) is trading slightly above the 19.00 level. Strategists at TD Securities expect the precious metal to extend its decline.

Additional downside in demand on the horizon

“Our quantamental indicators are pointing to additional downside in demand on the horizon, which fits with the weakening in growth dynamics. However, silver markets appear particularly vulnerable to additional downside, given their little exposure to the rise in supply risk premia that has supported industrial metals.”

“We also expect its precious-metal allure to fade into the Jackson Hole symposium, where we expect Chair Powell may pushback against market expectations that rate cuts may immediately follow the hiking cycle.” 

“As the pain trade in gold gathers steam, we anticipate a capitulation event in gold that should further weigh on silver prices.”

Gold price is consolidating the recent run of declines near four-week lows below $1,750. Will XAU/USD bulls defend the 50% Fibo support? FXStreet’s Dhwani Mehta analyzes the yellow metal’s technical outlook.

Buyers need acceptance above $1,760 to initiate any meaningful recovery

“Failure to defend $1,744, which is the 50% Fibonacci Retracement (Fibo) level of the recovery from yearly lows of $1,681 to the August 10 high of $1,808, on a daily closing basis will intensify the bearish momentum, with a test of the $1,700 threshold inevitable. Ahead of that, the $1,730 demand area could limit the downside.”

“Buyers need acceptance above $1,760 to initiate any meaningful recovery. That level is the confluence of the 38.2% Fibo level and the previous day’s high. The next upside target is aligned at the bullish 21-Daily Moving Average (DMA) at $1,766, above which the bearish 50 DMA at $1,773 will come into play.”

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, further downside in GBP/USD should meet a tough support near around 1.1730.

Key Quotes

24-hour view: “The sharp and rapid drop in GBP last Friday is deeply oversold. While further GBP weakness is not ruled out, the downside risk appears to be limited, at least for today. To look at it another way, GBP could drop further but a sustained decline below July’s low near 1.1760 appears unlikely for now (next support is at 1.1730). Resistance is at 1.1850 followed by 1.1885.”

Next 1-3 weeks: “The sharp drop in GBP last week has gathered considerable momentum and further GBP weakness appears likely. While conditions are oversold, a break of the year-to-date low near 1.1760 would not be surprising. In view of the oversold conditions, the pace of any further decline is likely to be at a slower pace and 1.1730 is expected to offer solid support. Resistance is at 1.1885 but only a break of 1.1935 would indicate that the current GBP weakness has stabilized.”

• NZD/USD has extended its recovery to near 0.6200 after printing a monthly low of 0.6166.
• PBOC’s dovish policy will improve kiwi exports and will trim its fiscal deficit.
• The Fed will continue its hawkish tone at Jackson Hole Economic Symposium.

The NZD/USD pair has overstepped the immediate hurdle of 0.6200 and is looking to add bonus pips ahead. The market participants have underpinned the kiwi bulls after the dovish monetary policy by the People Bank of China (PBOC).

In monetary policy meetings, the PBOC has elevated its one-year and five-year Prime Lending Rate (PLR) by 5 basis points (bps) and 15 bps respectively. A dovish stance was highly expected by the PBOC as the Chinese economy is facing the headwinds of shrinkage in economic activities, particularly in infrastructure, construction, and chemical manufacturing.

It is worth noting that New Zealand is a leading trading partner of China. Therefore, a loose monetary policy by the PBOC is strengthening the antipodean. A loose monetary policy by the PBOC will increase exports to China and will trim the kiwi’s fiscal deficit.

Last week, the kiwi bulls remained in the grip of bears despite the fourth consecutive 50 basis points (bps) Official Cash Rate (OCR) hike by the Reserve Bank of New Zealand (RBNZ). Now, the RBNZ’s OCR stands at 3% and the central bank is targeting 4%.

On the US dollar front, the US dollar index (DXY) has turned into a consolidating trajectory after printing a monthly high of 108.29. Investors are awaiting the commentary from Federal Reserve (Fed) chair Jerome Powell on monetary policy guidance. The odds are favoring a tad less hawkish tone as price pressures have displayed exhaustion signals and the unavailability of cheap money is impacting the US economic activities.

FX option expiries for August 20 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9865 223m
• 0.9950-60 518m
• 1.000 258m
• 1.0140 360m
• 1.0180 536m

- USD/JPY: USD amounts                     

• 135.00 630m
• 137.00 367m
• 137.20 300m
• 137.50 230m
• 138.00 280m

- AUD/USD: AUD amounts  

• 0.6760 385m
• 0.6945 399m
• 0.7000 450m

- USD/CAD: USD amounts       

• 1.2925 360m
• 1.2950 231m

- NZD/USD: NZD amounts

• 0.6150 403m

- EUR/JPY: EUR amounts

• 137.50 230m

- EUR/CHF: EUR amounts

• 0.9550 493m
• 0.9800 491m

Open interest in gold futures markets rose for the third session in a row on Friday, this time by around 1.5K contracts according to preliminary readings from CME Group. Volume followed suit and went up by around 17.3K contracts, extending the erratic performance for yet another session.

Gold: Next support comes at $1,711

Prices of the ounce troy of gold extended the leg lower for yet another session on Friday. The move was against the backdrop of rising open interest and volume and opens the door to a probable drop to the weekly low at $1,711 (July 27).

Bank of Japan (BOJ) policymakers will keep policy unchanged even though consumer inflation will continue rising for a further six months, former BOJ Chief Economist Kazuo Momma predicted, in an MNI interview on Monday.

Additional quotes

"Core CPI this fiscal year on average is expected to rise above the BOJ's median forecast of +2.3%,"

“The BOJ won't be able to exit its strategy of easy policy until inflation stabilizes around 2% for at least two years.”

"Unless the US economy falls into recession, it will not be able to show a path pointing to inflation falling to appropriate levels.”

"The extreme views are that the mismatch will be corrected completely and the mismatch will not be corrected completely (leaving unemployment at 4% or 7% respectively). I'm in the middle of these and the U.S. unemployment rate could rise to around 5%.”

Market reaction

At the time of writing, USD/JPY is trading at 137.17, off the 137.43 highs while still up 0.18% on the day.

• USD/CAD is attempting a decisive break above 1.3000 amid weaker oil prices.
• The overall structure of the DXY is bullish ahead of Jackson Hole Economic Symposium.
• Accelerating recession fears in the US economy have weakened oil prices.

The USD/CAD pair has turned sideways after failing to overstep the psychological resistance of 1.3000 in the early European session. The asset is displaying back-and-forth moves in a narrow range of 1.2985-1.2994. An upside bias remains favored as loonie bulls are facing the headwinds of weak oil prices. Also, the overall bullish structure of the US dollar index (DXY) is strengthening the greenback bulls.

Oil prices have surrendered their short-lived pullback towards $89.58 and have resumed their downside run as recession fears are escalating dramatically in the US economy. As per the Reuters poll “Thirty-seven of 48 economists said if the U.S. enters a recession within the next two years, it would be short and shallow. Ten said it would be long and shallow and only one said long and deep.”

Also, growing recession fears are forcing the Federal Reserve (Fed) to slow down the pace of hiking interest rates. It is worth noting that Canada is a leading exporter of oil to the US and plummeting oil prices have a significant impact on loonie bulls.

On the dollar front, the US dollar index (DXY) is aiming to recapture its fresh monthly highs at 108.29. The DXY is likely to remain upbeat despite a slowdown in the pace of hiking interest rates. No doubt, the rate hike pace will slow down due to resurging consequences of extreme shrinkage of liquidity from the US economy. But the plain-vanilla inflation rate is still above 8.5% and is needed to get fixed sooner. Therefore, the Fed will continue its hawkish tone at Jackson Hole Economic Symposium.

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang noted EUR/USD still risks further downside, with the initial target at the parity level.

Key Quotes

24-hour view: “EUR dropped by 0.54% and closed at a 5-week low of 1.0034 last Friday. While clearly oversold, the weakness in EUR has yet to stabilize. In other words, EUR could continue to weaken albeit likely at a slower pace and a sustained decline below 1.0000 is unlikely for today. Resistance is at 1.0060 but only a break of 1.0085 would indicate that the current EUR weakness has stabilized.”

Next 1-3 weeks: “Last Friday, EUR closed at 1.0034 and posted a large weekly loss of 2.18%. The sharp decline is accompanied by strong downward momentum and further EUR weakness appears likely. A break of 1.0000 would not be surprising but it is left to be seen if the oversold decline could break the year-to-date low at 0.9950. On the upside, a breach of 1.0115 (‘strong resistance’ level) would indicate that EUR is unlikely to weaken further.”

• EUR/USD holds onto the latest upside but remains below 1.0050.
• US dollar struggles to find demand amid PBOC cuts fuelled optimism.
• The euro looks vulnerable amid the deepening EU energy crisis and growth risks.

EUR/USD is trading better bid while holding above the parity in early Europe on Monday, as the US dollar takes a backseat amid the renewed optimism around China’s stumbling economy.

The People’s Bank of China (PBOC) cut the Loan Prime Rate (LPR), earlier on, to support credit expansion and economic growth, which eased the risk-off pressure and fuelled a pullback in the safe-haven US dollar across the board. The US dollar index retreated from five-week highs of 108.29 to trade at 108.10, at the time of writing.

Despite the latest uptick, the downside risks remain intact for the main currency pair amid hawkish Fed expectations and the worsening European gas crisis. The Fed remains on track to hike the key rates by 50 bps in September amid growth concerns and signs of peak inflation. However, the policy tightening cycle is likely to continue in the coming months, as inflation may not come down any time soon.

Meanwhile, a recession in Germany is inevitable as the European gas crisis deepens, with Russia’s Gazprom announcing on Friday that its Nord Stream 1 pipeline will be shut down from August 31-September 2, as one of the pipeline’s compressors is left for maintenance. The hit to the German industrial sector is likely to be profound amid reduced gas supplies, courtesy of the Russia-Ukraine war.

Also read: Germany's Habeck: A good chance to get through winter without drastic energy measures

The pair now looks forward to the German Bundesbank’s Monthly Economic report amidst a scarce economic docket on both sides of the Atlantic. Tuesday’s Preliminary S&P Global Manufacturing and Services PMIs from the euro area could have a significant impact on the shared currency while the dollar awaits the Jackson Hole Symposium, scheduled in the second half of this week.

EUR/USD: Technical outlook

“The pair is now showing a lot of bearish signs below the 1.0100 level. On the downside,  initial support is near the 1.0020 level. The main support is near the 1.0000 level. A downside break below the 1.0000 support might spark heavy losses. On the upside, the pair is facing resistance near the 1.0080 level. The next major resistance is near the 1.0150 level. A clear move above the 1.0150 resistance might send the pair higher towards the 1.0200 level. To move into a positive zone, the EUR/USD pair must settle above the 1.0200 resistance zone and the 100 simple moving average (red, 4-hours),” Aayush Jindal at TitanFX explains.

EUR/USD: Additional technical levels to watch

• Gold price has given a downside break of $1,745.02-1,749.15 territory and has refreshed day’s low at $1,744.00.
• The odds of a 50 bps rate hike by the Fed are accelerating vigorously.
• A decline in US Durable Goods Orders in times of soaring inflation will impact the DXY prices.

Gold price (XAU/USD) displayed an inventory distribution profile, oscillating in a narrow range of $1,745.02-1,749.15 but has given a downside break and has refreshed its day’s low at $1,744.00 in the Asian session. The precious metal has continued its five-day losing streak after surrendering Friday’s low of $1,745.59. The yellow metal is likely to remain on the tenterhooks as investors are awaiting Federal Reserve (Fed)’s commentary on policy guidance.

Considering the Fed minutes, the hawkish tone may trim as price pressures are reaching their peak levels and the consequences of shrinking liquidity from the US economy could display its true colors later. To maintain balance, a rate hike by 50 basis points (bps) looks optimal. Also, “Most economists in an Aug. 16-19 Reuters poll have predicted a half percentage point hike next month, the same as in the last poll, which would take the key interest rate to 2.75%-3.00%.”

This week, the cues from US Durable Goods Orders will also provide insights into the overall demand. As per the market consensus, the economic data is likely to decline to 0.6% from the prior release of 2%. In times, when the US economy has already displayed an unchanged US core Consumer Price Index (CPI), a decline in the economic data is not lucrative for the US dollar index (DXY).

Gold technical analysis

Gold prices have declined to near 50% Fibonacci retracement (placed from July 21 low at $1,680.91 to August 10 high at $1,807.93) at $1,744.70 on an hourly scale. The downward sloping trendline placed from August 12 high at $1,804.00 will act as major resistance for the counter.

The 50-period Exponential Moving Average (EMA) at $1,755.00 is declining firmly, which adds to the downside filters. Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a bearish range of 20.00-40.00, which favors more downside ahead.  

Gold hourly chart

German Economy Minister Robert Habeck is out with some conciliatory remarks on Monday after Russia’s Gazprom announced Friday that it will shut down its Nord Stream 1 pipeline for three days next week in the latest blow to the European gas crisis.

Key quotes

Market reaction

EUR/USD is keeping its recovery mode intact near 1.0040 on the above comments, adding 0.07% on the day.

• USD/INR is advancing sharply to recapture its all-time high at 80.21.
• The upward-sloping trendline placed from 79.14 will act as major support for the counter.
• Ascending 20-and 50-EMAs add to the upside filters.

The USD/INR pair is displaying volatile moves in the Asian session. The asset is struggling to kiss the immediate hurdle of 79.94, however, the upside remains favored in the overall bullish structure. The major has displayed a three-day winning streak and is likely to continue the same after overstepping Friday’s high at 79.92.

On a four-hour scale, the asset is advancing to recapture the all-time high of 80.21, recorded on July 27. Also, the upward-sloping trendline placed from the August 16 low at 79.14, adjoining the August 18 low at 79.36 will act as major support for the counter.

Advancing 20-and 50-period Exponential Moving Averages (EMAs) at 79.72 and 79.58 respectively have bolstered the greenback bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00 from the neutral range of 40.00-60.00, which indicates more upside ahead.

An upside break of the immediate hurdle at 79.94 will drive the asset towards the all-time high at 80.21. A break of the latter will send the asset into unchartered territory and will drive the asset towards a crucial resistance at 80.50.

On the flip side, a downside move below Tuesday’s low at 79.14 will drag the asset towards July 7 low at 78.90, followed by the August 2 low at 78.42.

USD/INR four-hour chart

• GBP/USD is marching towards 1.1850 as DXY skids on trimmed Fed hawkish bets.
• As per a Reuters poll, a rate hike of 50 bps by the Fed looks likely.
• Higher UK labor cost data is expected to delight the BOE ahead.

The GBP/USD pair has rebounded sharply after the pound bulls defended the critical support of 1.1800 in the Tokyo session. The cable is heading towards the critical hurdle of 1.1850 and is likely to cross the same as the US dollar index (DXY) is facing the heat of exhaustion after a juggernaut rally. The asset is on the verge of giving an upside break of the consolidation formed in a chartered territory of 1.1805-1.1834.

For a while, the pound bulls have violated the continuation of the three-day losing streak by not surrendering Friday’s low of 1.1791. The DXY has displayed a minor downside move after failing to sustain above 108.20. The asset has picked offers after the expectations of a consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed) trimmed.

“Most economists in an Aug. 16-19 Reuters poll predicted a half percentage point hike next month, the same as in the last poll, which would take the key interest rate to 2.75%-3.00%.”

Although, the commentary from Fed chair Jerome Powell will clear the clouds of uncertainty over further guidance. Well, a slowdown in the pace of hiking interest rates by the Fed is on the cards in order to avoid the consequences of squeezing liquidity from the market.

On the pound front, vulnerable employment data impacted the pound bulls. However, a decent improvement in the labor cost data has resulted in a sigh of relief for the Bank of England (BOE).

The inflation rate is accelerating in the UK zone dramatically and in order to pay off the higher payouts, improvement in the wage rate was vulnerable. Therefore, the BOE policymakers were not deploying the tightening quantitative measures with full independence. Now, the meaningful improvement in the labor cost index will delight BOE Governor Andrew Bailey while drafting the monetary policy.

• USD/JPY consolidates the upswing below 137.50 as bulls take a breather.
• The US dollar eases off multi-week highs as risk tone improves on China rate cuts.
• Bulls need a firm break above 137.50 to confirm ascending triangle on the 1D chart.

USD/JPY is retreating from monthly highs towards 137.00, having paused its five-day winning streak, as bulls take a breather.

The latest leg down in the major is led by the pullback in the US dollar from five-week highs against its major peers, as risk sentiment improves after China’s central bank cuts Loan Prime Rates (LPR) to stimulate credit spending and in turn the country’s stumbling economic growth.

The recovery in the Asian markets is driven by Chinese stocks while the S&P 500 futures pare losses. Meanwhile, the renewed weakness in the US Treasury yields also adds to the weight on the USD/JPY pair.

Earlier in the Asian session, the major enjoyed sizeable gains and recaptured the 137.00 level, as investors cheered Friday’s gains in the dollar, as well as, the yields on increasing odds of hawkish Fed rate hikes heading into the all-important Jackson Hole Symposium, starting from August 26.

From a short-term technical perspective, bulls need to crack the horizontal trendline resistance near 137.50 on a daily closing basis to extend the bullish momentum.

The upside break will confirm an ascending triangle formation on the daily sticks.

The next strong hurdle is seen at 138.00 the round number, above which bulls will target 138.87, the July 21 high.         

The next crucial resistance is aligned at 135.00, which is the confluence of the round figure mark and the bearish 21-Daily Moving Average (DMA).  

The 14-day Relative Strength Index (RSI) is on a gradual ascent above the midline, adding credence to a potential move higher.

USD/JPY: Daily chart

On the flip side, the upward-sloping 50-Daily Moving Average (DMA) at 135.53 will guard the downside on rejection at higher levels.

Further south, the horizontal 21 DMA at 134.59 could come to the rescue of buyers.

USD/JPY: Additional levels to consider

• AUD/USD has picked bids around 0.6866 and has moved above 0.6900 on dovish PBOC policy.
• The PBOC has elevated its one-year and five-year PLR by 5 bps and 15 bps respectively.
• Clouds of uncertainty over the commentary from the Fed in Jackson Hole will keep the asset volatile.

The AUD/USD pair has given an upside break of the consolidation formed in a narrow range of 0.6866-0.6883 in the Asian session. The pair is attempting to overstep the immediate hurdle of 0.6900 confidently as the US dollar index (DXY) is sensing exhaustion signals after printing a fresh monthly high of 108.29.

The asset has got significant bids after the People’s Bank of China (PBOC) elevated its one-year and five-year Prime Lending Rate (PLR) by 5 basis points (bps) and 15 bps respectively. A dovish stance was highly expected by the PBOC as the Chinese economy is facing the headwinds of shrinkage in economic activities, particularly in infrastructure, construction, and chemical manufacturing. It is worth noting that Australia is a leading trading partner to China. Therefore, a loose monetary policy by the PBOC is strengthening the antipodean.

Confusion ahead of the Jackson Hole Economic Symposium has resulted in exhaustion in the DXY’s rally. Federal Reserve (Fed) policymakers are dictating mixed commentary as price pressures have trimmed and a slowdown in the pace of hiking interest rates is expected to dodge the consequences of liquidity shrinkage. On the other part, the annual inflation rate of 8.5% is still fairly far from the desired rate of 2%. Therefore, the clouds of uncertainty over the commentary from Fed chair Jerome Powell at the Jackson Hole Economic Symposium will keep the asset volatile.

Going forward, investors are awaiting the release of the US Durable Goods Orders data, which is expected to decline to 0.6% from the prior release of 2%. In times, when the US economy has already displayed an unchanged US core Consumer Price Index (CPI), a decline in the economic data is not lucrative for the DXY.

According to economists surveyed in the latest Reuters poll, the US Federal Reserve (Fed) is seen raising rates by 50 basis points (bps) in September.

Key findings

“Most economists in an Aug. 16-19 Reuters poll predicted a half percentage point hike next month, the same as in the last poll, which would take the key interest rate to 2.75%-3.00%.”

“Eighteen of the 94 surveyed expected the Fed to go for 75 basis points.”

“A cumulative 225 basis points of hikes since March and with more to come have brought a recession closer and the survey showed a 45% median probability of one over the coming year, up from July's 40%, and a 50% chance of one within two years.”

“Nearly 90% of participants saw the key policy rate at 3.25%-3.50% or higher by the end of this year.”

“Thirty-seven of 48 economists said if the U.S. enters a recession within the next two years, it would be short and shallow. Ten said it would be long and shallow and only one said long and deep.”

“Consumer price inflation was expected to remain above the Fed's 2% target until at least 2024 - averaging 8.0% and 3.7% this year and next.”

Economists at Goldman Sachs forecast USD/CNY to firm up in the near term amid Chinese growth concerns and a broad-based US dollar strength.

Key quotes

"July data have shown an unequivocal picture of weak domestic demand in China.”

“Meanwhile, China is also facing the strong headwinds from rising Covid cases and an unusually hot and dry summer that has been stressing power supply and causing production cuts in certain provinces and some energy-intensive sectors, together with lingering property-related risks."

"Taking these factors into account, our China economics team has recently cut their 2022 full-year GDP growth forecast for China to 3.0% from 3.3%."

"Another major surprise was the PBOC's surprise policy rate cut (on Aug 15th)."

"All of this has fed through into FX markets: the yuan has remained under pressure from weak growth expectations and the surprise PBoC rate cut despite China's strong goods trade surplus."

"The PBoC's tone on FX in its Q2 monetary policy report remained largely unchanged, and the PBoC reiterated it would keep the exchange rate broadly stable at equilibrium levels."

"Given our expectations for broad US dollar strength and still-weak China growth, we still see risks of further upside to USD/CNY in the near term and expect that the CNY can underperform NJA FX in H222."

Reserve Bank of New Zealand (RBNZ) monetary policy committee (MPC) member Adam Richardson commented on hot inflation and on the board’s rate hike debate, in an interview with The Wall Street Journal (WSJ).

Key quotes

"The inflation shock that is going on around the world continues to leak into domestic prices a bit more than we assumed,"

"What we tend to find is that domestic inflation is a lot more persistent than imported inflation."

“The monetary policy committee’s Aug. 17 meeting did canvas all options for the size of its rate increase, but a smaller 25-basis-point move wasn’t given much consideration.”

"It's always in there, but it wasn't a huge or major part of the discussion or landscape."

“Long-term inflation expectations have remained "relatively well anchored.”

“As any central bank would say, what we’ll be focused on is bringing core [inflation] measures down. You might see a bit of volatility in headline [inflation], but the core will be the key focus for us.”

Related reads

• RBNZ Hawkesby: Considered 25 bps and 75 bps hikes before settling on 50 bps
• NZD/USD faces barricades around 0.6180 as investors await Jackson Hole

• Gold is correcting in Asia as the US dollar decelerates from fresh highs.
• Gold has formed an M-formation on the daily chart, a reversion pattern that would be expected to pull in the price.

The gold price is correcting higher in Asia but remains pressured in the grander scheme of things. It has hardened to $1,746. The focus is on the US dollar, rates and what will come of the Jackson Hole symposium.

Chair Powell's remarks will likely be ''a key avenue for the Fed to push back against the notable easing in financial conditions sparked by his last remarks, which has seen markets price-in rate cuts immediately following the rate hiking cycle, and is likely to be inconsistent with the Fed's inflation mandate,'' as analysts at TD Securities explained. '' As market expectations for rate cuts subside, speculative appetite in precious metals should dry up even further.''

In the build-up to event, we have heard from a chorus of Fed speakers. San Francisco Federal Reserve Bank President Mary Daly crossed the wires and said in an interview with CNN it was way too early to declare victory on inflation and that said either a 50 basis point or a 75 basis points hike would be appropriate.

Daly's rhetoric kicked up the dust and sent the US dollar higher by 0.12% on the day at 106.78 which has since gone parabolic to print a 108.285 in Tokyo's opening hour. US bond yields continue to rise, taking a lead from the selloff in Europe, and the curve steepened. 2-year government bond yields rose from 3.23% to 3.24% via 3.29%, and 10-year government bond yields rose from 2.90% to 2.97%. The rates rising are especially bad news for the gold bugs as the yellow metal is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion. 

Fed funds futures traders are pricing in a 55% expectation that the Fed will hike rates by 50 basis points in September and a 45% probability of a 75 basis points increase. In anticipation of higher rates, speculators' net long positioning on the US dollar continues to rise while net shorts on the euro increase, according to calculations by Reuters and US Commodity Futures Trading Commission data released on Friday. The value of the net long dollar position climbed to $13.37 billion in the week ended Aug. 16, from $12.97 billion the previous week, CFTC data shows. Net long dollar positions have increased for the first time in four weeks.

Meanwhile, in data ahead of the Jackson Hole, Core PCE will be important. Prices likely slowed sharply in July and to an even slower pace than the core CPI (0.1% vs 0.3%), analysts at TD Securities said. 

''Shelter weights remain a key cause behind this divergence. The YoY pace likely fell to 4.6% from 4.8% in June, suggesting the series has peaked. Separately, personal spending likely slowed to a still firm 0.6% MoM pace after registering an even stronger 1.0% gain in June.''

Gold technical analysis

The M-formation is a reversion pattern that would be expected to pull in the price, at least into the structure at $1,754 and a touch through there in the opening days of the week. The support structures are based on a volume profile of the bull trend while the resistance in the $1,760s has a confluence of the prior lows and structure and a 38.2% Fibonacci area. However, a downside continuation without a near-term correction will target the $1,720s.

• The greenback bulls are aiming to re-test the 19-year low at 0.9952.
• The 10-and-20-EMAs are scaling lower, which adds to the downside filters.
• A (20.00-40.00) bearish range shift by the RSI (14) signals more downside ahead.

The EUR/USD pair has given a downside break of the consolidation formed in a narrow range of 1.0030-1.0046 in the Tokyo session. The asset is declining sharply towards parity on volatility expansion as a downside break of the consolidation has set a stage for a downside move with volumes and wider ticks. The major as continued its two-day losing streak after violating Friday’s low of 1.0032.

On the daily scale, the asset is declining firmly towards the horizontal support, which is placed from July 14 low at 0.9952. It would be worth observing the re-test of the 19-year low as the downside momentum will provide cues for further direction.

Declining 10-and 20-period Exponential Moving Averages (EMAs) at 1.0136 and 1.0175 respectively are indicating more downside ahead.

Also, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which signals that the greenback bulls are on an adrenaline rush and more downside looks favored.

A downside break of Monday’s low at 1.0023 will drag the asset towards July 14 low at 0.9952, followed by the round-level support at 0.9900.

On the flip side, a meaningful move above the August 17 low at 1.0150 will send the asset towards Aug 17 high at 1.0203. A breach of the latter will drive the asset towards the August 5 high at 1.0254.

EUR/USD daily chart

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.8198 vs. the last close of 6.8170.

It also cut the 1 year loan prime rate to 3.65% (est 3.6%, prev 3.7%) and the 5 year loan prime rate to 4.3% (est 4.35%, prev 4.45%).

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

• GBP/JPY has climbed above 162.00 firmly as odds of further BOE-BOJ policy divergence advance.
• Higher UK labor cost data will delight the BOE policymakers.
• The BOJ may adopt a neutral stance as the inflation rate sustains above 2%.

The GBP/JPY pair has crossed the critical hurdle of 162.00 vigorously as investors are expecting further escalation in Bank of England (BOE)-Bank of Japan (BOJ) policy divergence. The cross is expected to extend its gains after establishment above the crucial resistance of 162.00.

A decent improvement in Average Earnings in the UK zone has strengthened the BOE policymakers to elevate interest rates unhesitatingly. The labor cost data landed at 4.7%, higher than the expectations of 4.5% and the prior release of 4.4%.

Earlier, the BOE policymakers were worried over sluggish paychecks to the households. The inflation rate is accelerating in the UK zone dramatically and in order to pay off the higher payouts, improvement in the wage rate was vulnerable. Therefore, the BOE policymakers were not deploying the tightening quantitative measures with full independence. Now, the meaningful improvement in the labor cost index will delight BOE Governor Andrew Bailey while drafting the monetary policy.

The UK Claimant Count Change was trimmed to 10.5k, lower than the expectations of 32k and the prior release of 26.8k. The Unemployment Rate remained unchanged at 3.8%.

On the Tokyo front, the yen bulls failed to display a buying action despite an improvement in the National Consumer Price Index (CPI). The economic data landed at 2.6%, higher than the consensus of 2.2% and the prior release of 2.4%. Sustainability of the inflation rate above 2% may force the Bank of Japan (BOJ) to turn neutral ahead, however, the escalation in the policy divergence is imminent.

The European Central Bank must keep raising interest rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high all through 2023, Bundesbank President Joachim Nagel repeats.

The German economy is “likely” to suffer a recession over the winter if the energy crisis (specifically Russia cutting gas supply) continues to deepen, he said.

He explained that ''the probability is rising that inflation will be higher than previously forecast and will average six point something next year," Nagel said, indicating a big upside risk to the Bundesbank's previous, 4.5% projection for 2023.

"With the high inflation rates, further interest rate hikes must follow," Nagel said.

Meanwhile, EUR/USD fell from 1.0090 to 1.0024 and fresh one-month lows while the greenback continues to firm.

Reuters reports that the Reserve Bank of New Zealand Deputy Governor Christian Hawkesby said on Monday that policymakers had "certainly considered 25 or 75" basis point increases before ultimately deciding to raise the cash rate by 50 basis points (bps).

Hawkesby told Reuters in a phone interview that if the committee thought that market pricing was wrong and they need to shift it they would consider a larger move than 50 bps.

"At the meeting last week, we sort of reflected that actually market pricing for the OCR (official cash rate) over the period ahead was reasonably similar to what we were putting out in our OCR projections," he said.

Meanwhile, the Kiwi continued its journey south on Friday with the USD moving higher, taking its lead from higher US 10yr bond yields and reaching a low of 0.6160.

• It is difficult to ascertain a bias as the asset is hovering around the demand zone of 0.6860-0.6870.
• Declining 20-and 50-EMAs add to the downside filters.
• The RSI (14) has shifted into the bearish range of 20.00-40.00, which indicates more downside ahead.

The AUD/USD pair is displaying back-and-forth moves in a narrow range of 0.6871-0.6880 in the Asian session. The asset is declining from the past three trading sessions consecutively after surrendering the psychological support of 0.7000 on Wednesday.

On an hourly scale, the asset is hovering around the potential demand zone, which is placed in a narrow range of 0.6860-0.6870. It is critical to ascertain the further move and place a viewpoint as the asset has yet not displayed any strong movement yet.

The 20-and 50-period Exponential Moving Averages (EMAs) at 0.6888 and 0.6913 respectively are declining sharply, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which strengthens the greenback bulls.

A decisive drop below the above-mentioned demand zone will drag the asset towards July 6 high at 0.6827, followed by July 5 low at 0.6761.

On the flip side, the break of the July 27 low at 0.6911 will drive the asset towards the psychological resistance of 0.7000. A breach of 0.7000 may open doors for aussie bulls for hitting July high at 0.7048.

AUD/USD hourly chart

• USD/CAD bears could be about to move in.
• The price has reached a key resistance area on the 4-hour chart.

As per the prior series of technical analysis, USD/CAD Price Analysis: Bulls eye 1.3000 for the sessions ahead, the bulls have been in control all of the way and have reached the 1.3000 psychological area as the following prior analysis and update illustrates:

As shown, the price followed the projected price trajectory:

The price has been rising along the trendline but moved away last week which could result in a correction has the price meets a resistance zone.

• AUD/JPY is facing barricades around 94.20, upside remains favored ahead of PBOC.
• The release of job lay-offs by the Australian economy didn’t bring a meaningful impact on aussie bulls.
• Going forward, the S&P PMI data will be of utmost importance.

The AUD/JPY pair has sensed short-lived exhaustion in the uptrend around 94.20 in the early Tokyo session. The risk barometer has displayed a bullish open-drive movement as the asset is scaling sharply higher right from the first tick in today’s session. The short-lived hurdle is expected to fade sooner as investors are expecting a dovish stance from the People’s Bank of China (PBOC).

It is worth noting that Australia is a leading trading partner to China. Therefore, a loose monetary policy by the PBOC will also strengthen the antipodean. More liquidity flush in the Chinese economy will increase Australian exports and will strengthen the Fiscal balance sheet.

The Aussie bulls defended them last week despite a serious decline in the Australian Employment Change. Instead of expectations of job additions by 25k, the Australian Bureau of Statistics reported a lay-off of 40.9k. However, the Unemployment Rate was trimmed to 3.4% from the expectations and the prior release of 3.5%.

Meanwhile, the yen bulls failed to display a buying action despite an improvement in the National Consumer Price Index (CPI). The economic data landed at 2.6%, outperforming the consensus of 2.2% and the prior release of 2.4%. Sustainability of the inflation rate above 2% may force the Bank of Japan (BOJ) to turn neutral ahead.

Going forward, the S&P Purchase Managers Index (PMI) data by the IHS Markit will be of utmost importance. The Aussie Manufacturing and Services PMI are expected to improve to 57.3 and 54 respectively. While Japanese Manufacturing and Services PMI may accelerate to 51.8 and 50.7 respectively.