Forex-novosti i prognoze od 27-07-2022

• AUD/USD remains sidelined after refreshing multi-day high, crossing the key hurdles.
• Bullish MACD signals back the technical breakouts to direct buyers towards mid-June high.
• 50-DMA restricts immediate downside, 100-DMA challenges buyers past 0.7070.

AUD/USD buyers flirt with the 0.7000 threshold, after refreshing the six-week high the previous day, as traders await Australia’s Q2 Import Price Index and Retail Sales for June during Thursday’s Asian session.

Even so, a successful upside break of the previous resistance line from April and the 50-DMA, as well as the bullish MACD signals, hint at the AUD/USD pair’s further upside.

That said, the 38.2% Fibonacci retracement of the April-July downside, also nearing the mid-June swing high around 0.7070, appears to be the immediate resistance for the pair.

Following that, the 100-DMA level near 0.7125 could challenge the AUD/USD bulls/

Alternatively, pullback moves may initially aim for the 50-DMA level of 0.6972 before testing the previous resistance line near 0.6930.

However, the AUD/USD bears remain cautious until the quote stays beyond an upward sloping support line from May 12, close to 0.6885 by the press time.

Overall, AUD/USD remains on the bull’s radar ahead of the key Aussie data.

AUD/USD: Daily chart

Trend: Further upside expected

Silver (XAG/USD) prices remain firmer around a two-week high near $19.65 during Thursday’s Asian session. In doing so, the bright metal justifies the upbeat signals from the options markets after the US Federal Reserve (Fed) favored commodities and Antipodeans.

That said, Fed matched market forecasts by announcing a 75-bps rate increase. The underlying reason for the pair’s weakness could be attributed to Fed Chairman Jerome Powell’s speech as it signaled that the hawks are running out of fuel. Key comments from the Fed’s Powell were that the rates had reached neutrality, so there won't be any more forward guidance, as well as rates will be decided meeting by meeting.

It’s worth noting that the one-month XAG/USD risk reversal (RR), a gauge of the spread between call options and put options, rallied to the four-day high by the end of Wednesday’s North American session, to +0.040 at the latest. In doing so, the options market barometer justifies the commodity traders’ optimism favored by the Fed’s latest actions.

Given the recent Fed-inspired run-up and the firmer RR, silver prices are likely to keep the post-Fed advances ahead of the US Q2 Gross Domestic Product (GDP) Annualized, expected 0.4% versus -1.6% prior.

Also read: US Gross Domestic Product Preview: Would the US avoid a technical recession?

• NZD/USD bulls take back control but are yet to break into blue skies.
• The bird's wings are clipped below the hourly structure and below the counter trendline resistance. 

Following the Federal Reserve's dovish outcome, NZD/USD has rallied, correcting what was a break of trendline support on the hourly time frame and has moved in on a key resistance area. The price is now bound by support and resistance as the following illustrates. 

NZD/USD H1 chart

The price will need to break the counter-trendline resistance as well as the horizontal resistance as illustrated on the chart above. Meanwhile, a correction could be on the cards to the downside with the key Fibonaccis marked in red that aligns with market structures. If they were to give out to the bears, then the final hurdles, marked by green dashed support lines, will need to be taken out if the prioce is to revisit a potential demand zone between 0.6100 and 0.6120.

• USD/CAD remains pressured around six-week low, keeps Fed-inspired bearish bias despite oil’s pullback.
• Fears of US recession also recently poked bears even as Fed’s Powell favored sellers.
• FOMC matched market’s forecast of 0.75% rate hike, Fed Chair Powell signaled lesser aggression.
• Advance readings of US Q2 GDP will be important, risk catalysts should be watched too.

USD/CAD bears approach 1.2800 while extending the post-Fed losses during Thursday’s Asian session. In doing so, the Loonie pair ignores a pullback in prices of Canada’s key export item, namely WTI crude oil, as well as the easing of the risk-on mood.

That said, the intact fears of the US economic slowdown as portrayed by the US Treasury yield curve, conveyed by Reuters, appeared to have recently probed the optimists and challenged the USD/CAD bears. The analysis mentions that the US government bond market is sending a fresh batch of signals that investors are increasingly convinced the Federal Reserve's aggressive actions to tame inflation will result in recession. “Some of those moves reversed slightly on Wednesday, with rates at the short end of the curve turning lower on expectations of the Fed being less likely to continue with super-sized hikes,” adds Reuters.

The US 10-year Treasury yields dropped nearly four basis points (bps) to 2.78% while the 2-year bond coupons slumped by 2.58% to 2.98% after the Fed’s 0.75% rate hike. Even so, the gap between the key US bond coupons remains the widest since 2000 and in turn hints at the US recession woes.

It’s worth noting that the USD/CAD prices slumped to the lowest levels since June 13 after the US Federal Reserve (Fed) matched market forecasts by announcing a 75-bps rate increase. The underlying reason for the pair’s weakness could be attributed to Fed Chairman Jerome Powell’s speech as it signaled that the hawks are running out of fuel. Key comments from the Fed’s Powell were that the rates had reached neutrality, so there won't be any more forward guidance, as well as rates will be decided meeting by meeting.

Elsewhere, US Durable Goods Orders rose by 1.9% MoM versus expectations of -0.4% and the revised prior of 0.8%. Further, the Nondefense Capital Goods Orders excluding Aircraft also increased by 0.5% compared to 0.2% market consensus and 0.6% prior. Additionally, the US Pending Home Sales dropped by 8.6% MoM in June, compared to the market expectation for a decrease of 2% and following May's growth of 0.4%.

It should be observed that the WTI crude oil prices pare the biggest daily jump in over a week around 97.25 while the S&P 500 Futures drop 0.10% intraday at the latest.

Moving on, USD/CAD traders should pay attention to the risk catalysts for fresh impulse ahead of the first readings of the US Q2 Gross Domestic Product (GDP) Annualized, expected 0.4% versus -1.6% prior.

Also read: US GDP Preview: Win-win for the dollar? Economy's flirt with recession to boost the buck

Technical analysis

The first daily closing below the 50-DMA since early June keeps USD/CAD sellers hopeful of keeping the reins until the quote rises back beyond the stated moving average surrounding 1.2855.

• USD/CHF has surrendered the critical support of 0.9580 amid weakness in the DXY.
• A tad lower hawkish guidance and softening commentary on retail demand have weakened the greenback.
• For further guidance, investors may rely on US GDP data.

The USD/CHF pair displayed a modest rebound after hitting a low of 0.9586 in the late New York session. However, the greenback bulls have dragged the asset below Wednesday’s low at 0.9586 as investors have initiated short positions after considering the rebound a bargain sell.

The asset is prepared to deliver a fresh bearish impulsive wave as the US dollar index (DXY) has shifted into a negative trajectory after the rate hike announcement by the Federal Reserve (Fed).

It’s not the 75 basis points (bps) rate hike by the Fed, which is responsible for the plummeting DXY but its mild hawkish guidance and concerns for retail demand have forced investors to dump the safe haven. The Fed is expecting interest rate elevation to 3.5% by the end of 2022. However, positive commentary on the labor market has eased some concerns for the economy.

In today’s session, the entire focus of investors will shift to the US Gross Domestic Product (GDP) numbers. As per the market consensus, the US GDP data will shift lower to 8% against the prior release of 8.3% on a quarterly basis. While the annualized figure will significantly improve to 0.4% vs. -1.6% in the prior release.

On the Swiss franc front, investors will keep an eye on Real Retail Sales data. The economic data landed at -1.6%. The economic catalyst is expected to remain higher as soaring energy bills and prices of food products will elevate Real Retail Sales. However, a slippage in the economic data will indicate a major slump in the overall demand. This may weaken the Swiss franc bulls ahead.

• EUR/JPY trims its weekly gains but remains up around 0.17%.
• Investors cheered the US Fed’s dovish commentary, though Thursday’s US GDP would give traders clues about the Fed’s next move.
• EUR/JPY Price Analysis: Downward biased; a break below 139.00 would pave the way for further losses.

On Wednesday, EUR/JPY climbed towards the intersection of the 20 and 50-day EMAs as the US Fed hiked rates by 75 bps, aligned to market expectations. The EUR/JPY reacted upwards, following the lead of the EUR/USD, which rallied sharply, as the greenback, instead of strengthening, weakened. A slight change in the Fed monetary policy statement, acknowledging that the US economy is “softening,” was cheered by bulls. The EUR/JPY is trading at 139.15, slightly down 0.03% as the Asian session begins.

EUR/JPY Price Analysis: Technical outlook

The EUR/JPY daily chart is neutral-to-downward biased. Wednesday’s jump faced solid resistance around the 20-day EMA at 139.34, though the EUR/JPY hit a daily high at 139.50, retraced below the former, so EUR/JPY sellers remain in charge. Further, the Relative Strength Index (RSI) stayed in negative territory and is still below the 7-day RSI’s SMA. Therefore, the EUR/JPY is subject to additional selling pressure.

EUR/JPY 1-hour chart

The EUR/JPY hourly chart and the daily chart are downward biased. As the Asian session began, the EUR/JPY slipped below the 100-hour EMA at 139.28, paving the way toward 139.00. It’s worth noting that below the latter, the intersection of the 20 and 50-hour EMAs around 138.96 would be difficult support to overcome. If EUR/JPY sellers reclaim the latter, the next support would be the S1 daily pivot point at 138.61. Once cleared, the EUR/JPY’s next support would be the July 26 low at 138.16, followed by the S3 pivot at 137.52.

EUR/JPY Key Technical Levels

“I strongly urge the Senate to act on this bill as soon as possible, and the house to do the same,” Said US President Joe Biden in support of the latest move by US Senate Majority Leader Chuck Schumer and Senator Joe Manchin.

US President Biden announced his support to the recent deal between the key US Senators during early Thursday in Asia.

“Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.V., on Wednesday announced that they have struck a long-awaited deal on legislation that aims to reform the tax code, fight climate change and cut health-care costs,” said CNBC news. "The reconciliation bill would invest more than $400 billion over 10 years, to be fully paid for by closing tax loopholes on the richest Americans and corporations, the senators said in a joint statement. It would reduce deficits by $300 billion over that decade, the senators said, citing estimates from nonpartisan congressional tax and budget offices," adds the news.

Market reaction

The news failed to impress buyers as fears of the US recession remains on the table and tames the Fed-inspired optimism. While portraying the same, the S&P 500 Futures drop 0.15% intraday by the press time.

• GBP/USD eases from one-month high but holds onto post-Fed breakout of the key technical hurdles.
• Bullish MACD signals also favor buyers to aim for 50-DMA.
• Previous resistance line holds the key to seller’s entry.

GBP/USD bulls take a breather around a one-month high during Thursday’s Asian session, paring the Fed-inspired rally to 1.2186 by easing to 1.2150.

Even so, the Cable pair buyers keep the reins as it holds onto the previous day’s upside break of the key resistance line from April, now support around 1.2070.

Also favoring the bulls is the pair’s sustained trading above 21-DMA and a two-week-old support line, as well as firmer signals from the MACD.

It’s worth noting that the quote’s weakness below the resistance-turned-support line, around 1.2070, won’t be considered a welcome sign for the bears as a convergence of the 21-DMA and a fortnight-old support line, near 1.2000, will be a tough nut to crack for the GBP/USD sellers.

If the quote remains weak past 1.2000, the odds of witnessing a gradual south-run toward the yearly low near 1.1760 can’t be ruled out.

Alternatively, the 50-DMA level near 1.2230 guards the quote’s immediate upside ahead of a descending resistance line from late March, close to 1.2410 at the latest.

In a case where the GBP/USD bulls keep reins past 1.2410, it can reverse the four-month-old downtrend while targeting May’s peak of 1.2666 as the next hurdle.

GBP/USD: Daily chart

Trend: Further upside expected

• AUD/JPY is juggling in a minute range, upside looks likely as odds of RBA-BOJ policy divergence soars.
• The release of higher Australian Inflation print has accelerated RBA’s rate hike expectations.
• This week, the entire focus will remain on Japan’s labor market data.

The AUD/JPY pair is displaying back and forth moves in a narrow range of 95.40-95.57 in the early Tokyo session. The asset has witnessed a mild correction after attempting a break above 95.70. However, the cross has managed to establish comfortably above the crucial hurdle of 95.35 amid a soaring market mood.

The risk barometer is looking to extend its gains as investors are expecting an escalation in the Reserve Bank of Australia (RBA)-Bank of Japan (BOJ) policy divergence. A higher inflation print posted by the Australian Bureau of Statistics on Wednesday has paddled up the odds of one more new normal 50 basis points (bps) rate hike announcement by the RBA.

The Australian Bureau of Statistics reported the overall inflation rate for the second quarter of CY2022 at 6.1%, minutely lower than the estimates of 6.2% but remained extremely higher than the prior release of 5.1%. Also, the trimmed CPI has increased to 4.9%, higher than the expectations and the prior release of 4.7% and 3.7% respectively.

There is no denying the fact that RBA Governor Philip Lowe will go for more policy tightening measures in August monetary policy to contain the inflationary pressures. However, the Bank of Japan (BOJ) will carry forward its ultra-loose monetary policy as pre-pandemic levels are yet to be achieved.

Going forward, investors’ focus will remain on Japan’s employment data. The jobless rate may trim to 2.5% vs. the prior release of 2.6%. Also, the Jobs/Applicants ratio may increase to 1.25 from the former figure of 1.24. An occurrence of the same will strengthen the yen bulls.

• AUD/USD bulls take a breather after rising the most in a week, around 1.5-month high.
• Growth fears from Australia, recession woes in the US probe bulls.
• Fed announced 0.75% rate hike to match market forecasts, Chairman Jerome Powell tried to renew optimism and succeeded.
• Australia’s Retail Sales for June, US preliminary Q2 GDP will be important for fresh impulse.

AUD/USD seesaws near the 0.7000 threshold, after the Fed-inspired rally to the six-week high, as traders await the key data from Australia and the US during early Thursday morning in Asia. In doing so, the Aussie pair justifies the market’s cautious mood amid recently mixed concerns over the US recession and also relating to Aussie GDP, inflation and interest rates.

The Aussie pair’s latest inaction could be linked to the statements from excerpts of an economic statement to be delivered to parliament Thursday by Aussie Treasurer Jim Chalmers, as reported by Bloomberg, which cuts the nation’s GDP growth outlook. “The economy expanded 3.75% in the 12 months ended June 30, compared with the previous government’s estimate of 4.25% ahead of a May election,” said the news.

Also weighing on the pair could be the intact fears of the US economic slowdown as portrayed by the US Treasury yield curve, as conveyed by Reuters. The analysis mentions that the US government bond market is sending a fresh batch of signals that investors are increasingly convinced the Federal Reserve's aggressive actions to tame inflation will result in recession. “Some of those moves reversed slightly on Wednesday, with rates at the short end of the curve turning lower on expectations of the Fed being less likely to continue with super-sized hikes,” adds Reuters.

It’s worth noting that the US 10-year Treasury yields dropped nearly four basis points (bps) to 2.78% while the 2-year bond coupons slumped by 2.58% to 2.98% after the Fed’s 0.75% rate hike. Even so, the gap between the key US bond coupons remains the widest since 2000 and in turn hints at the US recession woes.

On Wednesday, the US Federal Reserve (Fed) matched market forecasts by announcing a 75-bps rate increase. However, the risk appetite improved after the rate lift as Chairman Powell’s speech spurred speculations that the hawks are running out of fuel. Key comments from the Fed’s Powell were that the rates had reached neutrality, so there won't be any more forward guidance, as well as rates will be decided meeting by meeting. The Fed meeting spurred the market’s risk-on mood, before the latest cautious sentiment and fueled the AUD/USD prices.

Before that, Australia’s downbeat Q2 Consumer Price Index (CPI) and mixed US data joined the pre-Fed anxiety to weigh on the AUD/USD prices. Australia’s headline Consumer Price Index (CPI) matches 1.8% QoQ forecasts, versus 2.1% prior whereas the YoY release eased below 6.2% expectations to 6.1%. On the other hand, US Durable Goods Orders rose by 1.9% MoM versus expectations of -0.4% and the revised prior of 0.8%. Further, the Nondefense Capital Goods Orders excluding Aircraft also increased by 0.5% compared to 0.2% market consensus and 0.6% prior. Additionally, the US Pending Home Sales dropped by 8.6% MoM in June, compared to the market expectation for a decrease of 2% and following May's growth of 0.4%.

Amid these plays, the Wall Street benchmarks rallied post-Fed and closed with gains while the US Treasury yields eased. However, the S&P 500 Futures print mild losses by the press time.

Moving on, Australia’s Q2 Import Price Index and Retail Sales for June may offer immediate directions ahead of the initial readings of the US Q2 Gross Domestic Product (GDP).

Read: US Gross Domestic Product Preview: Would the US avoid a technical recession?

Technical analysis

AUD/USD lands on a bull’s table on marking a successful break of an downward sloping trend line from April 05, near 0.6935 now. Also acting as a short-term key support is the 50-DMA level surrounding 0.6975. With this, the buyers are on their way to the mid-June high near 0.7070 wherein the 0.7000 psychological magnet acts as the immediate hurdle.

• GBP/JPY advanced sharply as the US Fed tilted dovish on its monetary policy statement.
• Sentiment is positive once the US central bank conceded that the US economy is softening.
• GBP/JPY Price Analysis: Upward biased and might test 167.00 soon.

The GBP/JPY rallies towards the 166.00 figure amidst a risk-on impulse due to the US Federal Reserve hiking 75 bps the Federal funds rate (FFR) while also acknowledging that the US economy is slowing and conceding that they are in neutral territory. At the time of writing, the GBP/JPY is trading at 165.96.

GBP/JPY Price Analysis: Technical outlook

The GBP/JPY daily chart is upward biased. On Wednesday, unexpectedly, the pair jumped 133 pips and reclaimed the 166.00 mark, courtesy of the GBP/USD bounce after the Fed decision. That said, the GBP/JPY broke a two-month-old downslope trendline, which helped sellers to spot fresh entries in the pair, but once cleared, that would pave the way for further gains.

Therefore, the GBP/JPY's first resistance would be the June 28 daily high at 166.94, followed by the June 22 swing high at 167.85.

GBP/JPY 1-hour chart

The GBP/JPY hourly chart also depicts the pair as upward biased. Nevertheless, GBP/JPY buyers should know that the exchange rate is facing a solid resistance of around 166.00. If the GBP/JPY breaks decisively above the previously mentioned, the next resistance would be the R1 daily pivot at 166.65. Once cleared, the next ceiling will be the R2 pivot at 167.37, followed by the June 22 high at 167.85.

GBP/JPY Key Technical Levels

“The US government bond market is sending a fresh batch of signals that investors are increasingly convinced the Federal Reserve's aggressive actions to tame inflation will result in recession,” per Reuters analysis published early Thursday morning in Asia.

Key quotes

FX reaction

The analysis questions the market’s risk-on mood after the Fed’s 0.75% rate hike, which in turn weighs on the S&P 500 Futures despite the upbeat performance of the Wall Street benchmarks.

• EUR/USD is expected to deliver more gains after overstepping the immediate hurdle of 1.0220.
• Fed’s mild hawkish guidance and concerns for softening retail demand have dragged the DXY.
• A vulnerable Eurozone GDP figure may weaken the shared currency bulls.

The EUR/USD pair is spinning around the critical figure of 1.0200 after picking offers around 1.0220 in the late New York Session. The pair has turned sideways after a sheer upside and is likely to extend its gains if the asset oversteps Wednesday’s high at 1.0220.

Well, it’s not the fundamentals of shared currency which has driven the asset higher but the plummeting US dollar index (DXY), which is responsible for the upside auction. The DXY witnessed a steep fall after the Federal Reserve (Fed) escalated its interest rates to 2.25-2.50%.

The option of a 1% rate hike was not viable as retail demand has been softer last month and an extreme policy tightening measure could dampen the catalyst further.

As per the commentary from Fed chair Jerome Powell, the labor market is rock solid and the Fed is seeing interest rates near 3.5% by the end of CY2022. Therefore, room for more rate hikes is less and the market participants may see normalcy in interest rate hikes in September monetary policy meeting.

On the eurozone front, fears of an energy crisis have escalated after the commentary from the German gas regulator that energy prices could accelerate further dramatically. The gas supply cut off from the main pipeline from Russia has created havoc in eurozone as the Winter season is coming, which is known for higher gas demand.

This week, the eurozone will report the Gross Domestic Product (GDP) data on Friday, which will provide further guidance to investors. The economic data is seen lower at 3.4% than the prior release of 5.4% on an annual basis. A vulnerable GDP figure may weaken the shared currency bulls.

“Australia downgraded its economic growth outlook by a half-percentage point for this fiscal year and next due to accelerating inflation, higher interest rates and a slowing global economy,” reported Bloomberg early Thursday morning in Asia.

The news quotes excerpts of an economic statement to be delivered to parliament Thursday by Aussie Treasurer Jim Chalmers while mentioning, “The economy expanded 3.75% in the 12 months ended June 30, compared with the previous government’s estimate of 4.25% ahead of a May election.”

“The economy is forecast to decelerate further this fiscal year to 3% from a prior expectation of 3.5% and then 2% in fiscal 2024 from 2.5% seen before,” adds Bloomberg.

Additional quotes

The Australian economy is growing -- but so are the challenges. Some are home-grown, others come from around the world.

The headwinds our economy is facing -- higher inflation at the top of that list, along with slowing global growth -- are now reflected in the revised economic outcomes and forecasts.

AUD/USD grinds higher

The news fails to impress the AUD/USD buyers as the quote seesaws around a six-week high near 0.7000 of late. In doing so, the Aussie pair holds onto the post-Fed gains while waiting for Australia’s Retail Sales for June and the US preliminary Q2 GDP.

• Gold price is oscillating in a $1,733.12-1,736.00 range after facing feeble barricades at around $1,740.00.
• Fed’s mild hawkish commentary has resulted in an upbeat market mood.
• The DXY has shifted into negative territory after less hawkish guidance from the Fed.

Gold price (XAU/USD) has turned into a consolidating trajectory after a mild correction while attempting to surpass the critical hurdle of $1,740.00. Earlier, the precious metal displayed a juggernaut rally from a low of $1,720.00 after the Federal Reserve (Fed) announced an interest rate hike by a consecutive 75 basis points (bps).

Taking into consideration the soaring price pressures and softening retail demand, Fed chair Jerome Powell decided to maintain the status quo and elevated the interest rates to 2.25-2.50%. Apart from that, the guidance doesn’t seem extremely hawkish as Fed policymakers are seeing interest rates near 3.5% by the end of CY2022.

A mild hawkish commentary from the Fed has turned out to be music to the ears for the gold bulls. This has also underpinned the risk-on market mood as the market participants are joyful that Fed has at least a decent target for this year. Also, the Fed stated that the labor market is extremely solid and the unemployment rate is low, which has supported the Fed to announce rate hikes unhesitatingly.

Meanwhile, the US dollar index (DXY) has plunged below the cushion of 107.00 significantly. The DXY is expected to extend its losses after a downside move below 106.20.

Gold technical analysis

On an hourly scale, the gold price has given an upside break of a descending triangle pattern whose downward-sloping trendline is placed from July 22 high at $1,739.37. While the horizontal support is placed from July 22 low at $1,712.94.

A meaningful bull cross represented by the 20-and 50-period Exponential Moving Averages (EMAs) at $1,719.36, adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which advocates a sheer upside momentum ahead.

Gold hourly chart

• NZD/USD is ending the day on the bid following a dovish tilt at Fed.
• There is more data to come from the US that could tip the balance further. 

NZD/USD is some 0.6% higher on the day with the pair moving up from a low of 0.6191 to a high of 0.6277 on the day that the Federal Reserve confirmed the market's dovish sentiment. The event comes ahead of more key US data today and at the end of the week, so the Fed is not the be-all and end-all. However, the Fed has set a precedent for the day ahead which is a softer US dollar, risk-on, and a positive environment for the kiwi.

The FOMC raised the fed funds rate 75bp to a 2.25-2.5% target range, as widely expected. The decision was unanimous. During the press conference, Powell noted that further outsized hikes would be conditional on data, and that there will be less “clear guidance” on rate hikes from here, with slower hikes appropriate “at some point”.

Main takeaways from the Fed statement

• The Fed says recent indicators of spending and production have softened.
• Fed says job gains have been robust, the unemployment rate has remained low.
• Fed says inflation remains elevated, reflecting pandemic-related imbalances, higher food and energy prices, and broader price pressures.

The Fed funds rate futures forecast 3.4% in December after a 75 basis point hike. That leaves 107 basis points of tightening for the remainder of 2022 and thus, the market are pricing for a more dovish outcome for the September meeting as the Fed turns data-dependent.

Meanwhile, Jerome Powell, the Fed's chairman's presser concluded in recent trade and following a cautiously optimistic tone over the US economy. With the chair's warning of a softer labour market, the US dollar was down to the lows of the day at 106.279, losing 0.69% as per the DXY index into the close of the North American forex session ahead of the roll-over. 

Meanwhile, in the bigger picture, analysts at ANZ bank said that the USD steamroller continues, as highlighted by the Economist’s Big Mac Index, which suggests the NZD is 14% undervalued but has no shortage of company. 

More to come from the US calendar

Meanwhile, traders will now look to the US Gross Domestic Product data tomorrow and inflation readings on Friday. On the one hand, a positive reading for growth in Q2 following the -1.6% QoQ saar plunge in the first quarter could support the greenback as it might ''quash talk of recession, at least for the H1'', analysts at Rabobank argued. ''That said, speculation will remain as to the size and extent of any potential downturn in 2023.'' On the other hand, a negative outcome will be potentially bearish for the greenback. On Friday,  the Fed’s favoured PCE deflator numbers will also be key.

What you need to take care of on  Thursday, July 28:

The American dollar plunged on Wednesday following the US Federal Reserve monetary policy decision. The central bank delivered as expected and hiked the main benchmark rate by 75 bps.

Financial markets reacted to chief Jerome Powell's words, as he shed quite some light on the future of monetary policy. Firstly, he said that rates had reached neutrality, so there won't be any more forward guidance. Rates will be decided meeting by meeting.

For most of the press conference, Powell tried to cool down recession fears, and he clearly succeeded. He noted that nothing works without price stability, somehow saying that keeping inflation under control is more relevant than any potential economic bump in the road.

Wall Street soared. The DJIA added 1.43%, while the S&P500 added 2.91%. The Nasdaq Composite was the best performer, soaring 4.12%.

The US Treasury yield curve shrank a bit, with the 10-year note now yielding 2.80% and the 2-year note 3%. A bit of progress there, reflecting temporarily easing recession concerns.

The EUR/USD pair jumped above 1.0200. Market temporarily put aside EU turmoil, which may soon make it back to the headlines. GBP/USD trades at 1.2160 at the end of the day, while commodity-linked currencies were the best performers. AUD/USD trades around the 0.7000 threshold, while USD/CAD fell towards 1.2800.

Safe-haven assets also beat the dollar. USD/CHF is down to 0.9590, while USD/JPY slid to trade at 136.50.

Spot gold is up, now trading at $1,733 a troy ounce, while crude oil prices also benefited from the risk-on sentiment. WTI trades around $98.05 a barrel.

The US will release the preliminary estimate of its Q2 Gross Domestic Product on Thursday, another volatile event that would bring action to financial markets.

• GBP/USD rises after the Fed “dovish” 75 bps rate hike.
• Fed Powell opened the door for “another exceptionally” rate hike in following meetings.
• GBP/USD rallied more than 160 pips and hit a daily high at 1.2185 before easing to current price levels.

The British pound extended its gains on Wednesday, post-Fed back-to-back 75 bps rate hike, which lifted the Federal funds rate (FFR) to 2.50%. The central bank conceded that production and spending slowed down, perceived by investors as a slightly “dovish” tilt, without mentioning the “recession” word. At the time of writing, the GBP/USD is trading at 1.2166, up by 1.12%.

Some remarks from Fed Chair Powell's press conference

At his press conference, Fed Chair Jerome Powell said that although commodity prices have eased, there is still upward inflation pressure. He added that “another exceptionally” rate hike may be appropriate while saying that “we are looking for compelling evidence for inflation falling” in the following months.

Jerome Powell added that the central bank would decide monetary policy “meeting by meeting basis” and would not provide forward guidance as before. Powell said that the FOMC sees rate increases in 2023 while adding that the board has not decided when to slow rate hikes.

Summary of the FOMC monetary policy statement

In its monetary policy statement, Fed officials mentioned that spending and production have “softened” but simultaneously said that the labor market is robust. The US central bank noted that inflation remains elevated and has broadened further, emphasizing that the Fed is “strongly committed to returning inflation to its 2 percent objective.”

Meanwhile, policymakers anticipated that additional rate hikes would be “appropriate” and added that the balance sheet reduction would continue as planned in the Plans for Reducing the Size of the Fed’s Balance Sheet, issued in May.

GBP/USD Market’s reaction

The GBP/USD seesawed around 1.2029-88 but rallied once Federal Reserve Chief Jerome Powell took the stand. The GBP/USD rallied from 1.2029 to 1.2185 for a 160 pip upward move of the major, which it is approaching the 50-day EMA around 1.2232.

GBP/USD Key Technical Levels

• AUD/USD bulls move in on a dovish tilt at the Fed. 
• The bulls have broken a key daily resistance level and eye space in the 0.7000s ahead of the RBA.

AUD/USD is moving through a critical level on the daily chart (see below) and has reached a high of 0.7000 following a dovish outcome at the Federal Reserve. AUD/USD has climbed by over 0.8% on the day so far from a low of 0.6911 to a high of 0.7000. 

The US dollar has come under pressure along with US yields which have given a lifeline to the commodities sector and US stocks following a dovish tilt at the Federal Reserve that raised rates by the expected 75bps, but lower than the 100 bps that in part had been anticipated in the face of rising inflation. However, the Fed's acknowledgement of the risks to the US economy and a moderation in the labour market going forward has put the breaks on big interest rate hike expectations among investors. 

Main takeaways from the Fed statement

• The Fed says recent indicators of spending and production have softened.
• Fed says job gains have been robust, the unemployment rate has remained low.
• Fed says inflation remains elevated, reflecting pandemic-related imbalances, higher food and energy prices, and broader price pressures.

The Fed funds rate futures forecast 3.4% in December after a 75 basis point hike. That leaves 107 basis points of tightening for the remainder of 2022. 

Traders are pricing for a more dovish outcome for the September meeting as the Fed turns data-dependent. The Fed's chairman's presser concluded in recent trade and following a cautiously optimistic tone over the US economy, with Jerome Powell warning of a softer labour market, the US dollar is down to the lows of the day at 106.279, losing 0.86% as per the DXY index. 

Fed Powell key takeaways, 

• Powell speech: We want to get to 3% to 3.5% by end-2022

• Powell speech: Time to go to a meeting-by-meeting basis

• Powell speech: Another unusually large increase could be appropriate at next meeting

• Powell speech: Labor market is extremely tight

• Powell speech: Growth in consumer spending has slowed significantly

• Powell speech: Another unusually large increase could be appropriate at next meeting

• Powell speech: Time to go to a meeting-by-meeting basis

• Powell speech: We want to get to 3% to 3.5% by end-2022

• Powell speech: Want to see demand running below potential for sustained period

• Powell speech: Balance sheet reduction will be picking up steam
• Powell speech: Households are in very strong shape

More to come from the US calendar

Meanwhile, traders will now look to the US growth data tomorrow and inflation readings on Friday. A positive reading for growth in Q2 following the -1.6% QoQ saar plunge in the first quarter could support the greenback as it might ''quash talk of recession, at least for the H1'', analysts at Rabobank argued. ''That said, speculation will remain as to the size and extent of any potential downturn in 2023.'' On Friday,  the Fed’s favoured PCE deflator numbers will also be key.

RBA in focus

Domestically, AUD was choppy ahead of the Fed following the inflation data in the Asian session and in anticipation of an interest rate hike at next week's Reserve Bank of Australia meeting. ''We had forecast a 75bps RBA hike at next week's meeting. We now expect the Bank to hike 50bps at the meeting,'' analysts at TD Securities argued following the inflation data.

''With Q2 Aus Headline inflation underwhelming ours and street forecasts and the Fed unlikely to deliver a 100bps hike tomorrow, a 75bps RBA hike is difficult to justify. Headline inflation above 6% YoY and trimmed mean inflation at 4.9% YoY, the highest since 2003, keeps 50bps RBA hikes on the map.''

The analysis said that aside from amending their Augustcall, their rate hike path remains unchanged in 2022 - Sep +50bps, with 25bps hikes in Oct, Nov, Dec taking the year-end cash rate at 3.10%. ''Our terminal rate forecast remains unchanged at 3.35%, but is now reached in Feb'23, not Dec'22, as per our prior forecast.''

AUD/USD technical analysis

As per the prior analysis, AUD/USD Price Analysis: Bulls eye a break of 0.6980 or face a move lower, the bulls have indeed moved through the resistance and now can target higher.

AUD/USD, daily chart, prior analysis:

From a 4-hour perspective, below, the price has almost completely mitigated the price imbalance between 0.7003 and 0.7013 which now leaves the scope for a bearish correction in the immediate future, prior to the next bullish impulse. 

FOMC Chairman Jerome Powell is commenting on the policy outlook following the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 2.25-2.5%.

Key quotes

"Going forward, we have seen a slowing in spending, beginnings of perhaps slight lessening in tightness of labor market."

"We understand goal of soft landing is very challenging, has become more so in recent months."

"I am gratified that markets have been orderly."

"From financial stability perspective, we have a well-capitalized banking system."

"Households are in very strong shape."

"So from that standpoint on financial stability, you have a decent picture."

"That's not to say, lower income households are not suffering."

"We're seeing real declines in food consumption."

"It is our job, unconditionally, to provide price stabilty."

"There will likely be some softening in labor market conditions ahead."

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell is commenting on the policy outlook following the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 2.25-2.5%.

Key quotes

"No one can be sure on whether we can achieve a soft landing."

"Balance sheet reduction is working fine, markets have accepted it, and should be able to absorb it."

"Balance sheet reduction will be picking up steam."

"Getting down to new balance sheet equilibrium could take 2 - 2.5 years."

"Markets seem to have confidence in the Fed's commitment to 2% inflation."

"Broader financial conditions have tightened a good bit."

"We're going to get our policy rate to level where we are confident inflation will come down to 2%."

"We'll be watching financial conditions to see they are appropriately tight."

About Jerome Powell (via Federalreserve.gov)

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

• USD/CAD is under pressure on the back of a dovish tilt at the Fed. 
• The Fed's chairman, Powell, is taking questions over the economy which has weighed on yields and the US dollar. 

USD/CAD is under pressure over the Federal Reserve event. The greenback has been sold off and commodities are rising as risk appetite flows through the markets. US stocks and oil have rallied as the Fed is expected to slow its pace of tightening in anticipation of slower jobs creation and softening in labour market conditions. At the time of writing, USD/CAD is trading at 1.2832, down some 0.4% on the day falling from a high of 1.2911 to a low of 1.2829 so far. 

Main takeaways from the statement

• The Fed says recent indicators of spending and production have softened.
• Fed says job gains have been robust, the unemployment rate has remained low.
• Fed says inflation remains elevated, reflecting pandemic-related imbalances, higher food and energy prices, and broader price pressures.

The Fed funds rate futures forecast 3.4% in December after a 75 basis point hike. That leaves 107 basis points of tightening for the remainder of 2022. 

Traders are pricing for a more dovish outcome for the September meeting as the Fed turns data-dependent. Investors are monitoring the Fed's chairman's presser who is coming across as cautiously optimistic for the US economy but is warning of a softer labour market. He sees a slowing in demand going forward in the economy.

Fed Powell key takeaways, so far

• Powell speech: We want to get to 3% to 3.5% by end-2022

• Powell speech: Time to go to a meeting-by-meeting basis

• Powell speech: Another unusually large increase could be appropriate at next meeting

• Powell speech: Labor market is extremely tight

• Powell speech: Growth in consumer spending has slowed significantly

• Powell speech: Another unusually large increase could be appropriate at next meeting

• Powell speech: Time to go to a meeting-by-meeting basis

• Powell speech: We want to get to 3% to 3.5% by end-2022

• Powell speech: Want to see demand running below potential for sustained period

The week has just got going

This all comes ahead of tomorrow's second quarter Gross Domestic Product which could turn the screw on the US dollar is it comes in lower than expected. ''We look for US output to have contracted for a second consecutive quarter following Q1's 1.6% AR retreat,'' analysts at TD Securities. ''We expect Q2 growth to be particularly impacted by a large drag from the inventories component. Despite likely registering a second consecutive decline, we don't think the US economy is in a recession. We also look for the ECI to post a 1.1% QoQ gain, a tad lower from Q1.''

On the other hand, a positive reading for growth in Q2 following the -1.6% QoQ saar plunge in Q1 would quash talk of recession, at least for the H1, analysts at Rabobank argued. ''That said, speculation will remain as to the size and extent of any potential downturn in 2023.''

On Friday,  the Fed’s favoured PCE deflator numbers will also be key.

FOMC Chairman Jerome Powell is commenting on the policy outlook following the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 2.25-2.5%.

Key quotes

"We will watch both CPI and PCE, but we think PCE is the best measure of inflation."

"There is a slowing in demand in Q2."

"At same time, there is a tight labor market."

"We think demand is moderating, but not sure yet by how much."

"Money still on household balance sheets, labor market still robust."

"We want to see demand running below potential for a sustained period."

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell is commenting on the policy outlook following the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 2.25-2.5%.

Key quotes

"Our thinking is that we want to get to a moderately restrictive level by end of this year."

"That means 3% to 3.5%."

"Last inflation report was worse than expected."

"My view of terminal rate, as for all participants, has evolved."

"By September, we'll have more inflation data in hand."

"Very hard to say with any confidence what the economy will be like in 6-12 months."

"So, can't predict monetary policy rate range for next year."

"There is significantly more uncertainty now than usual."

About Jerome Powell (via Federalreserve.gov)

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

• The US Federal Reserve hiked rates by 75 bps.
• The central bank acknowledged that spending and production “softened.”
• USD/JPY: Tumbled to 136.80s as a reaction to the headline, but remains volatile, just below the 20-day EMA.

The USD/JPY slumped during the North American session after the Federal Reserve increased the Federal funds rate (FFR) by 75 bps in line with expectations. The Fed slightly tilted dovish as Powell and Co. acknowledged that spending and production softened while opening the door for further tightening. At the time of writing, the USD/JPY trades volatile in the 136.50-137.30 range.

Summary of the FOMC monetary policy statement

In the FOMC statement, policymakers conceded that production and spending had softened while the labor market remained tight. The statement’s first paragraph was perceived as dovish, as the USD/JPY slightly moved upwards while US bond yields edged lower.

Concerning inflation, Fed officials noted that inflation remains high and broadened further. The central bank expressed that the Russia-Ukraine war created further upward pressures on the already high inflation, while the central bank “strongly committed” to returning inflation to its 2 percent objective.

In the meantime, the Fed will continue reducing its balance, as planned in the Plans for Reducing the Size of the Fed’s Balance Sheet, issued in May.

USD/JPY Market’s reaction

The USD/JPY dipped below 137.00, and hit 136.83 before rallying towards 137.46. However, since then, the USD/JPY has been tumbling towards 136.60s as Fed Chair Jerome Powell has begun the Q&A session so traders might prepare for volatile swings until the end of the press conference.

Press conference here: Fed Press Conference: Chairman Jerome Powell speech live stream – July 27

USD/JPY Key Technical Levels

FOMC Chairman Jerome Powell is commenting on the policy outlook following the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 2.25-2.5%.

Key quotes

"75 bps was right call in light of the data."

"But we wouldn't hesitate to make a larger move if appropriate."

"Very broad support for move at this meeting."

"Inflation has continued to disappoint."

"We've moved expeditiously to get to neutral."

"Our focus is going to continue to be on getting supply and demand in better balance."

"We will be looking at incoming data, including are we seeing a slowdown in economic activity we think we need."

"Some evidence we are seeing that now."

"We will be looking closely at inflation."

"Our mandate is for headline inflation, but we look at core as a better read."

"Will be asking if stance of policy is sufficiently restrictive to bring inflation back down to target."

"Likely full effect of rate increases has not been felt yet."

"Committee broadly feels we need to get to a moderately restrictive level."

"For September, will make decision based on data."

"Time to go to a meeting by meeting basis, not provide clear guide as before."

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell is commenting on the policy outlook following the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 2.25-2.5%.

Key quotes

"Reducing balance sheet plays important role."

"Over coming months looking for compelling evidence of inflation coming down."

"We are looking for compelling evidence inflation coming down over next few months."

"Pace of increases depends on incoming data, outlook for economy."

"Another unusually large increase could be appropriate at next meeting."

"We will communicate our thinking as clearly as possible."

"Likely will be appropriate to slow pace of increases as rates get more restrictive."

"Economy often evolves in unexpected ways."

"Further surprises could be in store."

"We will strive to avoid adding to uncertainty."

"We expect a period of below-trend economic growth."

"Such outcomes necessary to achieve price stability."

"Process is likely to involve period of lower growth, softening labor market

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell is commenting on the policy outlook following the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 2.25-2.5%.

Key quotes

"Fixed investment looks to have declined in Q2."

"Labor market is extremely tight."

"Wage growth is elevated."

"Job growth is slower, but still robust."

"Labor demand is very strong, supply remains subdued."

"Inflation well above the goal."

"Overall labor market suggests underlying aggregate demand remains solid."

"Price pressures are broad."

"Although prices for some commodities have eased, there is still additional upward pressure on inflation."

"Acutely aware of significant hardship of high inflation."

"We are highly attentive to risks of inflation."

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell is commenting on the policy outlook following the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 2.25-2.5%.

Key quotes

"We are moving expeditiously to bring inflation down."

"We have resolve to do it."

"Economy is resilient."

"Essential we bring inflation down."

"Labor market is extremely tight, inflation much too high."

"We are continuing process of significantly reducing our balance sheet."

"Growth in consumer spending has slowed significantly."

"Some of that reflects tighter financial conditions."

About Jerome Powell (via Federalreserve.gov)

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

• The US Federal Reserve hiked rates by 75 bps.
• The central bank acknowledged that spending and production “softened.”
• EUR/USD: Initially reacted to the downside but is seesawing around 1.0120-50.

The EUR/USD edges higher after the US Federal Reserve decided to hike rates by 75 bps, lifting the Federal funds rate (FFR) to the 2.25-2.50% range, as the US central bank acknowledged that production and spending “have softened.”  At the time of writing, the EUR/USD is seesawing around the 1.0120-50 range.

Summary of the FOMC monetary policy statement

Fed officials, in their statement, acknowledged that the labor market is robust. Nevertheless, they mentioned that production and spending had taken their toll due to higher rates, which was perceived as slightly dovish per traders’ reaction.

Regarding inflation, the central bank said that inflation remains elevated and had broadened further while blaming the Russia-Ukraine war created additional upward pressures on inflation. So in reaction to that, the Federal Reserve hiked rates and anticipated that “ongoing increases in the target range will be appropriate.” Additionally, the Fed reiterated that it is “strongly committed to returning inflation to its 2 percent objective.”

In the meantime, the Fed will continue reducing its balance, as planned in the Plans for Reducing the Size of the Fed’s Balance Sheet, issued in May.

EUR/USD Market’s reaction

The EUR/USD reacted downwards to 1.0120, before rallying towards 1.0150, before settling around current price levels as Chair’s Powell press conference is about to begin.

Press conference here: Fed Press Conference: Chairman Jerome Powell speech live stream – July 27

EUR/USD Key Technical Levels

• Gold price is on the bid following a slightly dovish tilt in the Fed's statement. 
• The Fed chairman's presser will likely cause greater volatility as investors seek clarity. 

The gold price has rallied on the back of the Federal Reserve's interest rate decision which has weighed on the greenback and has left US yields in limbo, slightly lower now after 20 minutes post the statement's release in the 2 and 10-year yields.

XAU/USD popped to a session high of $1,727.09 from a low of $1,711.56 as the central bank downgrades the economy but remains focussed on inflation risks, as per the statement, repeating that it is `highly attentive' to inflation risks.

Main takeaways from the statement

• The Fed says recent indicators of spending and production have softened.
• Fed says job gains have been robust, unemployment rate has remained low.
• Fed says inflation remains elevated, reflecting pandemic-related imbalances, higher food and energy prices, and broader price pressures.

The Fed funds rate futures forecast 3.4% in December after a 75 basis point hike. That leaves 107 basis points of tightening for the remainder of 2022. 

Overall, the outcome is somewhat dovish for the September meeting. The fact that the Fed is acknowledging risks to spending and production, the markets will be tuned in to the Fed's chairman's presser at the bottom of the hour for further insight and what the implications are for the labour sector.

If Powell confirms the market's lowering of rate hike expectations for later this year and early next year, that would likely cement the bearish sentiment around US yields and potentially weigh on the US dollar, lifting risk assets and commodities, including gold. With that being said, the US dollar can benefit from safe-haven flows as well in the face of a global slowdown. 

''Barring a dovish scenario, we expect participants to return their attention to the massive and complacent position held by prop traders, which still hold the title as the dominant speculative force in gold,'' analysts at TD Securities said with respect to today's Fed outcome.

'' We have yet to see capitulation in gold, suggesting the pain trade is still to the downside and that the recent rally will ultimately fade when faced with a wall of offers.''

Watch Fed Powell Live

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

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

Fed, looking forward

''In terms of the Fed policy outlook, we don't anticipate inflation will offer any respite in the short term, keeping the Fed in check regarding expectations for additional rate hikes this year,'' analysts at TD Securities argued.

''As Fed officials have repeatedly underscored, policymakers are looking for compelling evidence that inflation is abating before pausing its ongoing tightening process. If our forecast proves correct, this can happen at the end of Q4/beginning of 2023 at the earliest.''

Gold, technical analysis

From a weekly perspective, the bulls are hunting down a critical area of resistance as marked out below:

The greyed areas are price imbalances that will be mitigated at some stage while the Fibonaccis align with the prior pivots.

The US Federal Reserve on Wednesday announced that it had lifted the policy rate, federal funds rate, by 75 bps to the range of 2.25-2.5%. This decision came in line with the market expectation.

In its policy statement, the Fed noted that it anticipates that ongoing increases in the policy rate will be appropriate.

Market reaction

With the immediate reaction, the dollar came under modest pressure and the US Dollar Index fell below 107.00. 

Developing story...

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

Key takeaways from policy statement via Reuters

"Recent indicators of spending and production have softened."

"Job gains have been robust, the unemployment rate has remained low."

"Inflation remains elevated, reflecting pandemic-related imbalances, higher food and energy prices, broader price pressures."

"Balance sheet reduction will accelerate in sept as planned, with monthly caps on runoff rising to $35 bln for MBS and $60 bln for treasuries."

"War in Ukraine creating additional upward pressure on inflation, weighing on global economic activity."

"Highly attentive to inflation risks."

"Strongly committed to returning inflation to 2% goal."

"Prepared to adjust policy as appropriate."

"Fed vote in favor of policy was unanimous."

• AUD/USD remains heavy as Fed’s decision approaches, around 0.6920s.
• Sentiment remains positive, but volatility is expected, so caution is warranted.
• ANZ Analysts expect a 50 bps rate hike by the RBA at its next meeting.

The AUD/USD slumps ahead of the FOMC monetary policy decision after hitting a daily high at 0.6957, but solid resistance ahead, with the 50-day EMA and a four-month-old downslope trendline lurking around 0.6960-68 area, sent the major down, below the July 26 low at 0.6921. At the time of writing, the AUD/USD is trading at 0.6927.

AUD/USD is heavy as traders prepare for the Fed

Traders’ mood is still positive ahead of the FOMC’s decision. US equities are trading in the green, while the greenback begins to erase its early gains and is almost flat. The US Dollar Index is at 107.220, 0.03% up. Meanwhile, the short-end of the yield curve, namely the 2-year bond yields, trims its earlier gains and sits at 3.056%, higher than the 10-year bond coupon, which sits at 2.761%, a signal that implies recession.

Earlier in the North American session, US data was released and gave mixed signals. The Department of Commerce unveiled June’s Durable Good Orders, which rose more than estimated, while the Trade Balance showed that the deficit shrank, illustrating the resilience of the US economy. Nevertheless, housing data continues to show deterioration, as May’s Pending Home Sales tumbled the most since April 2020, shrinking by 20% YoY, vs. the 13.8 contraction in the previous month.

In the meantime, during the Asian session, Australia’s Q2 CPI rose below expectations, with headline numbers at 6.1% YoY and trimmed mean at 4.9% YoY. Expectations of a Reserve Bank of Australia (RBA) 75 bps rate hike were lowered, as most market participants have fully priced in a 50 bps increase.

In a note, analysts at ANZ bank wrote, “This doesn’t change our view on the RBA’s near-term meetings, where we expect 50bp hikes. The target cash rate is still well below the RBA’s estimates of neutral, and we expect the labor market to continue tightening. This will prompt the RBA to take the cash rate above the lower bound of what it deems the neutral range. As such, we maintain our 3.35% year-end forecast.”

AUD/USD Key Technical Levels

• GBP/USD sits tight ahead of the Federal Reserve interest rate decision. 
• Technically, the price is on a bullish path with a focus on the 1.22 area, but bears will be motivated by a break of 1.1963 lows. 

At 1.2053, GBP/USD is higher by 0.22% and has climbed from within a range of 1.2016 and 1.2087 on the day so far in the count down to the Federal Reserve interest rate decision.  

The US dollar has been [rushed and pulled this week in the build-up to the Fed outcome, juggled between the bears and bulls depending on risk sentiment. On Tuesday, it benefitted from gas woes in Europe and poor business sentiment from Germany on Monday as well as an overall gloomy outlook for world growth as forecasted by the International Monetary fund. 

However, it is all about the Fed today and DXY has been trading between a low of 106.781 and 107.436 the high so far. Analysts widely expect a further 75-basis-point increase in the federal funds rate which has been priced in by the markets. The focus will be on any forward guidance on the path of monetary policy going forward, particularly in the absence of an updated Summary of Economic Projections. Federal Reserve Chairman Jerome Powell speaks at 2:30 pm ET in the presser. 

Meanwhile, the bond market is already pricing in a looming recession, as seen in the inversion of two- and 10-year Treasury note yields. The short-end of the yield curve has been higher than the long end nearly all month, with the gap widening in the build-up to the Fed. Nevertheless, US stocks on Wall Street are firmer, being led by upbeat earnings and recovering from the negative sentiment surrounding profit warnings from Walmart the prior day. 

Domestically, there has been no UK data but investors are second-guessing the Bank of England's next move when it meets next on August 4. Markets are pricing got The Old Lady to continue its tightening cycle with the possibility of a larger 50-bp increase.

GBP/USD technical analysis

From a daily perspective, the bears will be seeking a break below 1.1963 while the bull's eye a continuation beyond 1.2090 to target the price imbalance between 1.2212 and 1.2238 which aligns with a 78.6% weekly retracement of the weekly bearish impulse:

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

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

About Jerome Powell (via Federalreserve.gov)

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

• EUR/GBP is losing in the week more than 1%.
• US equities are still rising, but the sentiment will turn cautious as the FOMC decision looms.
• EUR/GBP Price Analysis: In the long and near term, shifted downward biased.

The EUR/GBP tumbles for four straight days and, on its way south, breaks below the 100 and 200-day EMAs, shifting the pair bias downwards as it tests the July 13 swing low at 0.8403 amidst a positive market mood. At the time of writing, the EUR/GBP is trading at 0.8403.

Market players’ mood still hangs positive ahead of the US FOMC decision. Despite a gloomy scenario with high inflation, recession fears, although calmed but still lingering around traders’ minds, and slower economic growth, US equities are rising. In the case of the EUR/GBP, a worsening EU energy crisis has propelled the pound.

EUR/GBP Price Analysis: Technical outlook

From a daily chart perspective, the EUR/GBP pair shifted downward biased once it tumbled below the 50 and 200-day EMAs. Additionally, the Relative Strength Index (RSI) plunging within bearish territory motivated sellers to increase their positions, which piled around the weekly highs at 0.8500, sending the cross sliding 100 pips. Unless EUR/GBP buyers reclaim the 200-day EMA at 0.8439, sellers are in charge. Therefore, the EUR/GBP first support would be the 0.8400 figure. Once cleared, the cross might tumble towards the May 17 low at 0.8394, followed by May 2 daily low at 0.8367.

EUR/GBP 1-hour chart

The EUR/GBP 1-hour chart illustrates that the pair consolidates around the 0.8400-20 range, but the bias is downwards. Further reinforcing the trend is that the exchange rate is below the hourly EMAs, alongside the Relative Strength Index (RSI) below its 7-period SMA, so sellers are in control. Hence, the EUR/GBP first support would be the 0.8400 figure. Break below will expose the May 17 low at 0.8394, followed by the S1 daily pivot at 0.8378, followed by the May 2 swing low at 0.8367.

EUR/GBP Key Technical Levels

• USD/CAD extends its weekly rally to two-straight days of gains, but it is below July’s 26 high at 1.2901.
• An upbeat market mood put a lid on the USD/CAD rise as Investors prepare for the FOMC’s decision.
• US Durable Good Orders and a narrower Trade Balance, to boost the US Q2 GDP Advance on Thursday.

The USD/CAD is almost flat during Wednesday’s North American session as investors prepare for the Federal Reserve Open Market Committee (FOMC) decision. The US central bank is expected to hike rates by 75 bps, fully reflected by the rise in US 2-year Treasury yield at 3.075%. Even though a tailwind for the Loonie, the Canadian dollar stays firm due to high crude oil prices. At the time of writing, the USD/CAD is trading at 1.2886.

USD/CAD trimmed its losses despite upbeat sentiment, lifted by positive US growth-linked data

Global equities are trading with gains, reflecting an upbeat sentiment. US corporate earnings cheered by investors keep stocks higher, but as the Fed decision time looms, the mood could turn sour as traders prepare for the Fed decision. in the meantime, the greenback is firm, gaining 0.12%, as shown by the US Dollar Index at 107.320.

US economic data revealed that the Q2 Advance GDP figure might save from printing a contractionary reading. The US Commerce Department reported that Durable Good Orders for June rose more than estimations, while the Trade Balance deficit narrowed for the third straight month. It is also worth noting that inventories are keeping pace despite increasing concerns of a recession.

However, not everything was positive, with June’s Pending Home Sales tumbling by 20%, vs. -13.8% YoY, resulting from higher interest rates. Fed officials already expressed that they were expecting the housing market to slow down, as mortgage rates have doubled since the beginning of 2022, as the Fed started its tightening cycle.

On Wednesday, the USD/CAD began trading around the daily highs at 1.2884 but tumbled as oil prices increased. However, as the Fed’s decision time approaches, USD/CAD traders have begun to reduce their exposure and prepare to assess the US central bank decision.

What to watch

The Canadian economic docket is empty. Meanwhile, on the US front, the Fed’s monetary policy decision will be unveiled around 18:00 GMT, followed by Fed Chair Jerome Powell’s press conference. On Thursday, the Q2 Advance GDP will confirm if the US entered a technical recession, though market players expect a jump from Q1 -1.5% figure to 0.5% expansion.

USD/CAD Key Technical Levels

• US dollar prints fresh highs across the board before the Fed.
• FOMC expected to raise rates by 75 basis points.
• US yields await steady, near the recent lows.

A stronger US dollar on Wednesday, ahead of the critical Fed decision, boosted the USD/JPY to 137.36, the highest level since Friday. The dollar holds a positive momentum, but the next move depends on Powell and his friends.

The current bullish short-term bias will be challenged in a few minutes with the FOMC statement that will trigger volatility across financial markets. If USD/JPY remains above 137.00, it would be positive for the dollar, while below, a test of 136.20 seems granted. More losses should open the doors to a stepper correction of the long rally to test 135.55 (July 22 low).

Eyes on the Fed

The Federal Reserve is expected to hike its key interest rate by 75 basis points to 2.50% on Wednesday amid high inflation. The statement (due at 18:00 GMT), particularly hints about the next steps, will be critical for market reaction. Jerome Powell’s press conference will begin at 18:30 GMT.

US economic data released on Wednesday showed ongoing signs of economic slowdown. On Thursday is due the first estimate of Q2 GDP, that could should the second consecutive contraction.

Treasury yields await the outcome of the meeting near the recent lows. The US 10-year yield stands at 2.77%, far from the 3.07% peak of last week. If the demand for bonds strengthens after the FOMC, the USD/JPY will likely suffer. On the contrary, a rebound in yields would add fuel to the rally.

Technical levels

Data released on Wednesday included the preliminary June Durable Goods Orders report. Analsyts at Wells Fargo point out data suggest manufacturing continues to defy expectations for a slowdown in activity, “But stripping away defense orders and adjusting for inflation suggests activity is cooling.” According to them, “an ugly end to the quarter for core capital goods shipments positions a weaker Q2 for equipment spending than we anticipated, but advanced data on inventories should offset some of that weakness in tomorrow's Q2 GDP report.”

Key Quotes: 

“Durable goods data continue to defy expectations for signs of a slowdown in manufacturing. That's true at least at first glance. Fresh orders for durable goods rose 1.9% in June, marking the fastest monthly change in six months. That was despite the consensus expectation for a 0.4% decline.”

“But the details on orders suggest strength can largely be tied to defense aircraft orders, which tend to be pretty volatile. Defense aircraft orders rose 80.6% during the month. Stripping that away and zooming in on private-sector activity, nondefense capital goods orders excluding aircraft were up a more muted 0.5%. Inflation chips away at that even further—a back of the hand adjustment for the 0.7% increase in producer prices for private capital equipment last month suggests the real gain in core capital goods orders was modestly negative.”

“We're becoming a bit more cautious in terms of the medium-to-long-term outlook for capex spending. We've long held the view that a more sustainable growth trajectory for manufacturing may be warranted today as producers chip away at record amounts of backlog. But the recent downward revisions to manufacturing data make that a tougher story to tell, as does the slowdown in core order backlogs.”
 

According to the Federal Reserve Bank of Atlanta's GDPNow model, the US economy is expected to contract by 1.2% in the second quarter, up from the July 19 forecast of -1.6%.

"After recent releases from the US Census Bureau and the National Association of Realtors, the nowcast of the contribution of inventory investment to second-quarter real GDP growth increased from -2.50 percentage points to -2.30 percentage points, while the the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth increased from 0.18 percentage points to 0.59 percentage points," Atlanta Fed explained in its publication.

Market reaction

The US Dollar Index stays flat on the day near 107.20 after this report.

• US Dollar recovers strength during the American session, remains in recent range.
• FOMC to announce its decision at 18:00 GMT.
• NZD/USD near key support of 0.6185/90.

The NZD/USD broke below 0.6220 and slide to 0.6196, hitting a six-day low. The pair holds a negative bias ahead of the FOMC statement and as the dollar strengthens.

Next move depends on Powell and his mates

The Federal Reserve is expected to hike its key interest rate by three-quarters of a percentage point to 2.50% on Wednesday amid high inflation and signs of an economic slowdown. The statement (due at 18:00 GMT), particularly hints about the next steps, will be key for market reaction. Jerome Powell’s press conference will begin at 18:30 GMT.

The US dollar awaits the outcome of the meeting trading around the top of the two-week range across the board. The NZD/USD is hovering around 0.6200, falling for the second day in a row, still above the critical support seen at the 20-day Simple Moving Average at 0.6185/90. On the upside, a consolidation above 0.6250 would point to an extension of the recovery.  

The kiwi is among the worst performers on Wednesday hit by a rally in AUD/NZD and the caution across financial markets. The cross broke a critical resistance area at 1.1100 and jumped to test the four-year high at 1.1165/70.

Technical levels

• Gold price is barely up but stays trapped in the $1700-20 range for the third consecutive day.
• A mildly risk-on sentiment put a lid on the yellow metal prices, alongside a buoyant US dollar.
• Gold Price Forecast (XAUUSD): Range-bound awaiting a fresh catalyst.

Gold price snaps two days of losses and barely gains as traders brace for the US Federal Reserve monetary policy decision amidst a mildly risk-on mood, spurred by US companies earnings beating estimations, though investors remain cautious. At the time of writing, the XAUUSD is trading at $1719 a troy ounce.

Gold is almost flat on cautious risk-on impulse, ahead of the Fed

US equities are rising due to company earnings. Upbeat US economic data, with Durable Goods Orders surprisingly gaining more than expected, alongside the Trade Balance deficit narrowing for the third consecutive month in June, alleviate some concerns about a negative print in the Q2 Advance GDP report on Thursday.

Digging into the data, orders rose by 1.9% MoM, higher than the 0.5% contraction expected by analysts and double the previous month’s figure, while inventories maintained their pace.

The US docket unveiled additional housing data on Wednesday. Pending Home Sales plummeted, contracting 20%, more than May’s 13.8% plunge, as a consequence of the Federal Reserve’s path. Raising rates was immediately felt in the housing market. Although the Fed’s job is to tame inflation, it indirectly is cooling the housing market.

Elsewhere, the US Dollar Index, a gauge of the buck’s value against its peers, rises 0.14% and sits at 107.30, while the US 10-year Treasury note coupon slumps one and a half bps and yields 2.772%. Even though lower yields would imply high gold prices, the yellow metal remains downward pressured by the steeper appreciation of the US dollar.

What to watch

The US economic docket will feature the Federal Reserve Open Market Committee (FOMC) decision around 18:00 GMT. The US Federal Reserve is expected to hike rates by 75 bps to the Federal funds rate (FFR) to 2.50%. The CME FedWatch tool illustrates that Fed odds of hiking 100 bps lie at 23.7%, while a 75 bps increase is fully priced in.

Gold Price Forecast (XAUUSD) Key Technical Levels

Gold price is downward biased. However, after hitting a YTD low at $1681, the yellow metal stabilized around the $1700-20 area, awaiting a fresh catalyst that could give XAUUSD traders a trend. During the FOMC meeting, gold traders must be aware of the following price levels.

XAUUSD buyers need to focus on the 20-day EMA at $1736.70, the July 8 high at $1752.46, and May 16 low at $1787.03. Contrarily, XAUUSD sellers need to focus on the $1700 figure, followed by the YTD low at $1681 and the 2021 low at $1676.91.

Analysts at Wells Fargo continue to forecast a stronger US dollar against most foreign currencies through early 2023. They look for a weaker euro than previously, with the region's economy now expected to fall into recession. They forecast the EUR/USD pair will reach 0.96 by the first quarter of next year and move back above parity by the fourth quarter of 2023. 

Key Quotes: 

“In the months and quarters ahead we will be watching closely for further signs that “peak inflation and peak interest rates are closer at hand. Central bank policy rates and changes to interest rate expectations are important factors we consider when we construct our view on the U.S. dollar. In the short term, we believe market conditions are still conducive to a stronger greenback, and we maintain our view for moderate dollar strength through the end of this year.”

“Should inflation show more concrete signs of peaking and Fed rate hike expectations scale back even further, we believe the dollar could top out earlier than we currently forecast. As of now, we believe the trade-weighted U.S. dollar is likely to peak in Q1-2023 and trend lower over the course of next year as the Federal Reserve entertains, signals, and eventually lowers interest rates.”

“We have become less constructive on the euro's prospects. With the Eurozone now expected to fall into recession and a relatively limited monetary tightening cycle likely from the European Central Bank (ECB), we expect the EUR/USD exchange rate to fall to $0.9600 or lower.”

• Pending Home Sales in the US fell sharply in June.
• US Dollar Index holds steady at around 107.00.

The monthly data published by the National Association of Realtors showed on Wednesday that Pending Home Sales declined by 8.6% on a monthly basis in June following May's growth of 0.4%. This print came in much worse than the market expectation for a decrease of 2%. 

On a yearly basis, Pending Home Sales were down by 20%, compared to analysts' estimate of -7.3%.

Market reaction

Ahead of the Federal Reserve's policy announcements, these data failed to trigger a noticeable market reaction. As of writing, the US Dollar Index was posting modest daily losses at 107.05.

“We look for the BoC to lift the overnight rate by 75bps at its September meeting, and again by 25bps in October,” writes Andrew Kelvin, Chief Canada Strategist at TD Securities (TDS).

Additional Quotes:

“The combination of very strong inflation and extremely tight labour market metrics both support aggressive tightening from the BoC. A 75bp move would also be consistent with the Governor's prepared remarks from the MPR press conference, in which he argued that rates should move quickly to the top-end, or slightly above, the neutral range.”

“We look for a terminal rate of 3.50% this cycle, with rate cuts starting in 2022Q3. However, we caution that the balance of risks around the terminal rate skews decisively towards a higher end point for the BoC.”

• USD/CHF witnessed some selling on Wednesday amid modest USD weakness.
• The upbeat US economic data fails to impress the USD bulls or lend support.
• The downside seems cushioned ahead of the much-awaited FOMC decision.

The USD/CHF pair edges lower during the early North American session and is now flirting with the daily low, around the 0.9600 round-figure mark, or a multi-week low set on Monday.

The US dollar creeps lower on Wednesday amid some repositioning trade ahead of the highly-anticipated FOMC monetary policy decision. This is turning out to be a key factor exerting some pressure on the USD/CHF pair for the second successive day. The intraday downtick seems unaffected by better-than-expected US macro data.

The US Census Bureau reported that headline Durable Goods Orders increased by 1.9%, surpassing expectations for a 0.4% decline by a big margin. Orders excluding transportation items also came in higher than consensus estimates and rose 0.3% during the reported month. The data, however, did little to impress the USD bulls.

That said, a combination of factors might offer some support to the USD/CHF pair and help limit the downside, at least for the time being. A goodish recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - could undermine the safe-haven Swiss franc and act as a tailwind for spot prices.

Investors also seem reluctant and are preferring to wait for the outcome of a two-day FOMC policy meeting, scheduled to be announced later during the US session. The Fed is expected to raise rates by at least 75 bps and leave the door open for further tightening, though the markets remain divided over the need for more aggressive hikes.

Hence, the market focus would remain glued to the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference. Investors would look for fresh clues about the Fed's near-term policy outlook, which, in turn, would influence the USD and determine the near-term trajectory for the USD/CHF pair.

Technical levels to watch

• EUR/USD sticks to the positive territory well north of 1.0100.
• German GfK Consumer Confidence tumbled to record lows.
• Investors’ attention stays on the Fed and Powell’s press conference.

The single currency maintains the bid bias unchanged and prompts EUR/USD to navigate in the 1.0150 zone ahead of the FOMC gathering due later in the NA session.

EUR/USD now looks to the Fed

EUR/USD met some decent support near the 1.0100 region on Tuesday, sparking a subsequent bounce to the 1.0170/75 band on Wednesday ahead of the key FOMC gathering.

On this, all the bets keep leaning towards a 75 bps hike, although market participants are expected to scrutinize Powell’s press conference, where the battle around inflation and the next steps regarding the fed’s normalization process are predicted to be in the centre of the discussion.

Earlier in the euro calendar, Germany’s Consumer Confidence dropped to record low in August (-30.6), as concerns around the energy crunch remain on the rise. Similar path followed the readings in France and Italy for the current month.

Results across the ocean saw MBA Mortgage Applications contract 1.8% in the week to July 22, Durable Goods Orders expand 1.9% MoM in June and the trade deficit shrink to $98.18B also in June. Later in the session, Pending Home Sales and the EIA report on US crude oil supplies will close the calendar.

What to look for around EUR

EUR/USD regains the smile somewhat following Tuesday’s deep drop to the boundaries of the 1.0100 region.

The pair extends its range bound stance, as market participants continue to gauge the latest ECB announcements and appear cautious ahead of the upcoming FOMC event later on Wednesday.

In the meantime, the price action around the European currency closely follows increasing speculation of a probable recession in the euro area, dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

Key events in the euro area this week: Germany GfK Consumer Confidence (Wednesday) – EMU Final Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Thursday) – Germany Unemployment Change, Unemployment Rate, Flash Q2 GDP, EMU Flash Inflation Rate, Advanced Q2 GDP (Friday).

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 monetary conditions. Performance of the economic recovery post-pandemic in the region. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is gaining 0.31% at 1.0146 and a breakout of 1.0278 (weekly high July 21) would target 1.0438 (55-day SMA) en route to 1.0615 (weekly high June 27). On the other hand, initial contention emerges at 1.0107 (weekly low July 26) seconded by 1.0000 (psychological level) and finally 0.9952 (2022 low July 14).

"Currently, only one gas processing unit is working at the Portovaya compressor station at the Nord Stream 1 gas pipeline," Gazprom Deputy Chief Executive Vitaly Markelov said on Wednesday, as reported by Reuters.

"Other units require maintenance or servicing by Siemens," Markelov said and noted that they haven't received the engine from Siemens.

"There are sanctions risks for engines," he further added. "Siemens is not working to solve problems."

Market reaction

These comments don't seem to be having a significant impact on risk sentiment with Germany's DAX rising 0.6% on a daily basis. 

• GBP/USD caught fresh bids on Wednesday amid the emergence of some USD selling.
• The risk-on impulse is turning out to be a key factor undermining the safe-haven USD.
• Upbeat US Durable Goods Orders could do little to provide any meaningful impetus.
• The focus remains glued to the FOMC policy decision, due later during the US session.

The GBP/USD pair maintains its bid tone through the early North American session and moves little in reaction to the US macro data. The pair, however, has retreated a few pips from the daily high and is now seen trading just above mid-1.2000s.

A goodish recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - is undermining the safe-haven US dollar and offering support to the GBP/USD pair. The USD bulls, meanwhile, seemed rather unimpressed and largely shrugged off better-than-expected US economic data.

The monthly data published by the US Census Bureau showed that Durable Goods Orders in the US increased by 1.9% in July, beating expectations pointing to a 0.4% decline by a big margin. Orders excluding transportation items were also higher than consensus estimates and came in to show a 0.3% growth during the reported month.

The data eased concerns about an economic downturn, though could do little to provide any meaningful impetus to the USD or the GBP/USD pair. Traders seem reluctant and prefer to wait on the sidelines ahead of the highly anticipated FOMC monetary policy decision, scheduled to be announced later during the US session.

The US central bank is widely expected to raise interest rates by 75 bps to tame red-hot inflation. Market participants, however, are divided over the need for a more aggressive policy tightening. Hence, the focus will remain on the policy statement and Fed Chair Jerome Powell's comments during the post-meeting press conference.

Technical levels to watch

• Durable Goods Orders in the US rose sharply in June.
• US Dollar Index stays near 107.00 ahead of FOMC policy announcements.

Durable Goods Orders in the US increased by 1.9%, or by $5 billion, on a monthly basis in June to $272.6 billion, the monthly data published by the US Census Bureau revealed on Wednesday. This reading came in much better than the market expectation for a decrease of 0.4%.

"Excluding transportation, new orders increased 0.3%," the publication further read. "Excluding defense, new orders increased 0.4%. Transportation equipment, up three consecutive months, led the increase, $4.5 billion or 5.1% to $92.7 billion."

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen losing 0.25% on the day at 106.94.

• USD/TRY gathers further upside traction and approaches 18.00.
• The pair trades in levels last seen in December 2021.
• The FOMC is expected to hike rates by 75 bps later on Wednesday.

The Turkish lira remains well on the defensive and lifts USD/TRY to fresh YTD peaks in the area just shy of the 18.00 mark on Wednesday.

USD/TRY focuses on Fed, CPI

The upside bias in USD/TRY remains everything but abated on Wednesday and already trades at shouting distance from the 18.00 mark, ana area last visited in late December 2021.

Indeed, the pair has closed with gains uninterruptedly since July 18 and in every month so far this year. Furthermore, the lira already shed more than 35% vs. the greenback since the beginning of the year vs. 44% in the whole of 2021.

The lira remains under almost permanent pressure following the energy crunch emerging from the war in Ukraine, while the elevated inflation maintains households’ sentiment depressed amidst the omnipresent inaction of the Turkish central bank (CBRT).

Next on the domestic docket will be the Economic Sentiment Index due on Thursday. Later on Wednesday, the FOMC event will take centre stage, while the Fed is seen raising rates by 75 bps to 2.25%-2.50%, which should be another factor putting the EM FX under extra pressure in the short-term horizon.

What to look for around TRY

The upside bias in USD/TRY remains unchanged and stays on course to revisit the key 18.00 zone.

In the meantime, the lira’s price action is expected to keep gyrating around the performance of energy prices, which appear directly correlated to developments from the war in Ukraine, the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent. In addition, there seems to be no Plan B to attract foreign currency in a context where the country’s FX reserves dwindle by the day.

Key events in Türkiye this week: Economic Confidence Index (Thursday) – Trade Balance (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.37% at 17.9097 and faces the immediate target at 17.9266 (2022 high July 27) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a breach of 17.1903 (weekly low July 15) would pave the way for 16.8419 (55-day SMA) and finally 16.0365 (monthly low June 27).

“The dollar tends to weaken on FOMC decision days. DXY has fallen the past 3 meetings and 6 of the past 7,” explains Win Thin, Global Head of Currency Strategy at BBH.

Additional Quotes:

“We are not yet ready to change our strong dollar call, especially if the Fed delivers a hawkish message as we expect.  Yes, the U.S. economic data have been weakening but we do not think a recession is imminent.  When all is said and done, we believe the U.S. economy remains the most resilient.  However, we expect a period of consolidation ahead for the dollar until the U.S. economic outlook becomes clearer.”

“The two-day FOMC ends today and the Fed is widely expected to hike rates 75 bp to 2.50%.  WIRP suggests only 10% odds of a 100 bp move.  Updated macro forecasts and Dot Plots won’t come until the September meeting.  Another 75 bp hike September 21 is only about 45% priced in, with a 50 bp move favored then. A 25 bp hike is priced in for November 2 but after that, one last 25 bp hike is only partially priced in.”

“The swaps market paints a similar picture, with 175 of tightening priced in over the next 6 months that would see the policy rate peak near 3.5%.  Then, an easing cycle is priced in for the subsequent 6 months. This pricing is now more dovish than the June Dot Plots, which sees the Fed Funds rate rising to 3.75% in 2023 before falling to 3.375% in 2024.”

• AUD/USD attracted some dip-buying on Wednesday amid modest USD weakness.
• Bulls need to wait for a sustained move beyond the descending trend-line/50-DMA.
• Weakness back below the 0.6800 mark would negate any near-term positive bias.

The AUD/USD pair has managed to reverse an intraday dip to the 0.6915-0.6910 area and is now trading near the daily top. A goodish recovery in the global risk sentiment is undermining the safe-haven US dollar. This, to a larger extent, offsets Wednesday's rather unimpressive Australian consumer inflation figures and is offering some support to the risk-sensitive aussie.

From a technical perspective, spot prices, so far, have struggled to break through a descending trend-line resistance extending from the YTD peak in April. The said barrier coincides with the 50-day SMA and should act as a pivotal point. A sustained strength beyond would be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move.

The AUD/USD pair might then aim to surpass the 0.7000 psychological mark and test the next relevant hurdle near the 0.7060 region. The positive momentum could further get extended towards reclaiming the 0.7100 mark. Bulls could eventually lift spot prices to the 100-day SMA resistance, currently near the 0.7125 area, en-route the very important 200-day SMA, around the 0.7175 zone.

On the flip side, the 0.6900 mark now seems to protect the immediate downside ahead of the weekly low, around the 0.6880-0.6875 region touched on Monday. This is followed by support near the 0.6850 zone and the 0.6800 round-figure mark. A convincing break below would negate prospects for any further gains and shift the bias back in favour of bearish traders.

The AUD/USD pair would then turn vulnerable to accelerate the slide towards the 0.6730 area before eventually dropping to the 0.6700 mark. Some follow-through selling below the YTD low, around the 0.6680 region set earlier this month, would mark a fresh bearish breakdown and set the stage for the resumption of the prior/well-established downtrend.

AUD/USD 4-hour chart

Key levels to watch

US durable goods orders overview

Wednesday's US economic docket highlights the release of Durable Goods Orders data for June. The US Census Bureau will publish the monthly report at 12:30 GMT and is expected to show that headline orders declined by 0.4% during the reported month as compared to the 0.8% rise in May. Orders excluding transportation items, which tend to have a broader impact, are anticipated to have increased by 0.2% in May, down from a 0.7% growth reported previously.

How could it affect EUR/USD?

Weaker-than-expected readings would further fuel concerns about an economic downturn and further cool expectations for more aggressive Fed rate hikes. This would be enough to exert some downward pressure on the US dollar and provide a goodish lift to the EUR/USD pair. Conversely, upbeat figures are more likely to be overshadowed by a goodish recovery in the global risk sentiment, which might continue undermining the safe-haven greenback. That said, any immediate market reaction is likely to be short-lived as the focus remains glued to the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session.

Eren Sengezer, Editor at FXStreet, meanwhile, offered a brief technical outlook for the EUR/USD pair: “The Relative Strength Index (RSI) indicator on the four-hour chart dropped below 50, pointing to a bearish tilt in the short-term outlook. Additionally, EUR/USD now stays below the 100-period SMA on the same chart, confirming the view that buyers stay on the sidelines.”

Eren also outlined important technical levels to trade the EUR/USD pair: “On the downside, 1.0100 (psychological level) aligns as key support. In case this level fails on a hawkish Fed tone, additional losses toward 1.0000 and 0.9950 (July 14 low) could be witnessed.”

“Strong resistance seems to have formed at 1.0150, where the Fibonacci 23.6% retracement level of the latest downtrend and the 100-period SMA is located. If that level turns into support, buyers could target 1.0200 (psychological level, 50-period SMA) and 1.0230 (Fibonacci 38.2% retracement),” Eren added further.

Key Notes

 •  EUR/USD Forecast: Euro looks vulnerable ahead of Fed rate decision

 •  EUR/USD bounces off lows near 1.0100, FOMC in sight

 •  Daily technical and trading outlook – EUR/USD

About US durable goods orders

The Durable Goods Orders, released by the US Census Bureau, measures the cost of orders received by manufacturers for durable goods, which means goods planned to last for three years or more, such as motor vehicles and appliances. As those durable products often involve large investments they are sensitive to the US economic situation. The final figure shows the state of US production activity. Generally speaking, a high reading is bullish for the USD.

• EUR/USD regains some poise and bounces off the 1.0100 region.
• Extra gains need to clear weekly tops around 1.0280 near term.

EUR/USD manages to rebound from Tuesday’s lows in the vicinity of 1.0100 and retakes the 1.0170 area on Wednesday.

Further recovery should motivate the pair to challenge recent highs around 1.0280 to allow for extra gains to, initially, the interim hurdle at the 55-day SMA at 1.0438.

In the meantime, the pair is expected to remain under downside pressure while below the 5-month support line around 1.0480.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0976.

EUR/USD daily chart

JP Morgan said on Wednesday that it now expects the European Central Bank to deliver 50 basis points (bps) or rate hikes by the end of the year, down from 75 bps in the previous report, as reported by Reuters.

JP Morgan also noted that it expects the eurozone economy to tip into a mil recession due to Gross Domestic Product contraction in the fourth quarter of 2022 and in the first quarter of 2023.

Market reaction

The EUR/USD pair showed no immediate reaction to this headline and was last seen rising 0.4% on the day near 1.0150.

• DXY comes under some pressure following Tuesday’s strong gains.
• The breach of the 106.00 zone exposes extra losses.

DXY gives away part of the weekly advance and returns to the sub-107.00 area on Wednesday.

There seems to be strong contention in the 106.00 neighbourhood for the time being, while the next barrier on the upside is not seen before the 2022 top near 109.40 (July 14). Bouts of further weakness in the dollar carries the potential to drag the index to the post-FOMC peak at 105.78 (June 15).

Despite the ongoing downside, the near-term outlook for DXY is seen constructive while above the 5-month support line near 103.80.

In addition, the broader bullish view remains in place while above the 200-day SMA at 99.31.

DXY daily chart

• EUR/JPY keeps the choppy trade well and sound so far this week.
• A deeper pullback could visit the July low at 136.85.

EUR/JPY partially reverses Tuesday’s drop amidst the improvement in the risk-associated universe midweek.

The cross remains under pressure and is vulnerable to further decline while below the 4-month resistance line near 141.90. Against that, the 100-day SMA should offer temporary contention at 137.44 ahead of the July low at 136.85 (July 8).

In the longer run, the constructive stance in the cross remains well underpinned by the 200-day SMA at 133.62.

EUR/JPY daily chart

Kit Juckes, Macro Strategist at Société Générale, explains why EUR/JPY is a better short than EUR/USD.

Key Quotes:

“Nordstream 1 flows are expected to halve to 20% of capacity, down from the 40% they were at yesterday. Economists are scrambling to update estimates of the economic impact, but two things are clear, one bad and one slightly more encouraging. The first is that growth is going to be substantially slower than expected. The second is that the response has been significant in terms of building capacity to import LNG from the US, reduce demand, and find other sources of energy (Germany is even talking about restarting nuclear power plants).”

“When asked in early June where the euro could fall to if gas flows to the Eurozone were stopped, we estimated that a fall to 0.9-0.95 was feasible. The amount of work that has already been done to help soften the economic blow makes that look a little too pessimistic, even if a period in a 0.90-0.95 range still seems likely over the next month or two.”

“Given positioning (very long USD, and short the European currency bloc), I don't think EUR/USD shorts are that attractive right now. The market fully expects a 75bp hike from the FOMC this evening, and the market's torn 50/50 as to whether we get 50bp or 75bp in September. It isn't obvious that the FOMC meeting should have a major impact on risk sentiment or provide much support for the dollar. So, EUR bears would still do better to look at EUR/JPY, which has only risen in 6 of the 22 Augusts since 1999.”

• USD/CAD is turning lower again on Wednesday amid the emergence of fresh USD selling.
• The risk-on impulse turned out to be a key factor that weighed on the safe-haven USD.
• Subdued crude oil prices could undermine the loonie and limit losses ahead of the FOMC.

The USD/CAD pair meets with a fresh supply on Wednesday and continues losing ground through the first half of the European session. Spot prices fell to a fresh daily low, around the 1.2850-1.2845 region in the last hour, reversing a major part of the overnight recovery gains from the lowest level since June 13.

A goodish recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - is seen weighing on the safe-haven US dollar. This turns out to be a key factor acting as a headwind for the USD/CAD pair, though subdued crude oil prices could undermine the commodity-linked loonie and help limit losses.

The black liquid, so far, has struggled to gain any meaningful traction amid concern about a weaker demand outlook and a looming interest rate hike by the Federal Reserve. That said, the overnight report of lower inventories in the United States largely offset the negative factors and offered some support to the commodity, at least for the time being.

Investors, meanwhile, also seem to refrain from placing aggressive bets and might prefer to wait for the outcome of a two-day FOMC monetary policy meeting. The Fed will announce its decision later during the US session and is expected to raise interest rates by 75 bps. Investors, however, remain divided over the need for more aggressive policy tightening.

Hence, the market focus would be on the accompanying monetary policy statement. Apart from this, Fed Chair Jerome Powell's comments at the post-meeting press conference could provide fresh clues about the near-term policy outlook. This will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the USD/CAD pair.

Hence, it would be prudent to wait for strong follow-through selling before traders start positioning for a further near-term depreciating move. Heading into the key central bank event risk, the US Durable Goods Orders data and the sentiment surrounding crude oil prices could assist traders to grab short-term opportunities around the USD/CAD pair.

Technical levels to watch

Analysts at TD Securities (TDS) change their call on the Reserve Bank of Australia’s (RBA) rate hike decision for its August meeting.

Key quotes

“We had forecast a 75bps RBA hike at next week's meeting. We now expect the Bank to hike 50bps at the meeting.”

“With Q2 Aus Headline inflation underwhelming ours and street forecasts and the Fed unlikely to deliver a 100bps hike tomorrow, a 75bps RBA hike is difficult to justify.”

“Headline inflation above 6% y/y and trimmed mean inflation at 4.9% y/y, the highest since 2003, keeps 50bps RBA hikes on the map.”

“Aside from amending our Aug call, our rate hike path remains unchanged in 2022 - Sep +50bps, with 25bps hikes in Oct, Nov, Dec taking the year-end cash rate at 3.10%.”

“Our terminal rate forecast remains unchanged at 3.35%, but is now reached in Feb'23, not Dec'22, as per our prior forecast.”

• Gold price comes up for fresh air ahead of the all-important Fed decision.
• The US dollar and Treasury yields soften amid investors’ repositioning.
• Battles lines are well defined for XAU/USD, with Powell’s powerplay in focus.

The Fed is widely expected to hike the key rates by 75 bps in the July meeting, the second consecutive super-sized lift-off. Fed Chair Jerome Powell remains committed to taming inflation, despite growing recession risks. But the US dollar and the Treasury yields fail to capitalize on the potentially hawkish narrative, as investors resort to repositioning ahead of the main event risk of this week. This has provided the much-needed reprieve to gold price, allowing the metal to stage a decent comeback so far this Wednesday. Although bulls remain unnerved amid wider caution, as US tech earnings and the European gas crisis will be also closely followed.

Also read: Gold Price Forecast: Bearish momentum building up on Fed day?

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price appears to gather pace to take out the $1,727 supply zone.

That level is the convergence of the Fibonacci 23.6% one-week and pivot point one-day R1.

The previous day’s high at $1,729 will come to the immediate rescue of sellers. A firm break above the latter will call for a test of the pivot point one-day R2 at $1,734.

Further upside will threaten a dense cluster of resistance levels stacked up around $1,740, where the previous week’s high, pivot point one-day R3 and the Fibonacci 161.8% one-day merge.

Alternatively, Fibonacci 38.2% one-day $1,720 is the next significant cushion for XAU buyers, below which the $1,717 demand area could be challenged.

At that point, the Fibonacci 38.2% one-week, 23.6% one-day and SMA5 one-day coincide.

The previous day’s low and the SMA50 four-hour intersect at $1,714, which will be a tough nut to crack for bears.

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.

“Over the past weeks many analysts discussed whether the FOMC will hike its key rate (the target range for the Fed funds rate) by 75bp or 100bp. 100bp are likely to be off the agenda. So, it’s likely to be 75,” Ulrich Leuchtmann, Head of FX and Commodity Research noted in the Daily Currency Briefing published on Wednesday.

Additional Quotes:

“The decisive question is: how will the Fed behave once its rapid rate hikes put a brake on the real economy and possibly even cause a recession?”

“The hawkish interpretation assumes that the Fed is very much conscious of the fact that this high rate hike speed increases the real economic slow-down, but that it is prepared to accept that in view of the urgency of the inflation issue.”

“The dovish interpretation considers the high speed to be the expression of the erroneous assumption that parts of the US administration and US public seem to follow: that the Fed will be able to eliminate the issue of inflation with sufficiently rapid rate hikes almost painlessly. That is why the Fed is much applauded for rapid rate steps.”

“Based on the dovish interpretation, the Fed is far too concerned about its own image and not sufficiently about the optimum monetary policy. If that is the case it would end the rate cycle again very quickly once public opinion changes – possibly too early.”

Having found buyers just above the $94 threshold, WTI prices are rebounding firmly amid a moderately positive risk sentiment and reports that Saudi Arabia is mulling hiking oil price to record.

The world’s top crude exporter Saudi Arabia is considering raising the price of its flagship crude to Asia at a record differential for September despite weak physical demand.

According to the Bloomberg survey, “Saudi is expected to price its Arab Light crude to Asia at a $10.80-a-barrel premium to the region’s benchmark for September-loading cargoes.”

 Saudi Aramco is set to release its official selling prices for September next week. The oil price hike under consideration could suggest a potential turning point for the market.

Despite the latest upswing in the black gold, the further upside appears elusive heading into the expected Fed 75 bps rate hike decision. Additionally, looming recession fears, courtesy of the worsening European gas crisis, China’s covid lockdown and global central banks’ tightening spree, also limit the bullish attempts in the US oil.

At the time of writing, WTI is trading at $95.50, retreating from daily highs of $95.88, still up 0.75% on the day.

WTI: Technical levels to consider

• USD/JPY edges higher for the third straight day on Wednesday and climbs to a fresh weekly high.
• The emergence of fresh USD selling holds back bulls from placing fresh bets and caps the upside.
• Investors now await the outcome of a two-day FOMC meeting before placing fresh directional bets.

The USD/JPY pair has managed to hold on to its mild positive bias through the early part of the European session. Spot prices were last seen hovering around the 137.00 mark, just a few pips below the weekly high touched earlier this Wednesday.

A goodish recovery in the global risk sentiment - as depicted by a strong intraday rally in the equity markets - is undermining the safe-haven Japanese yen and acting as a tailwind for the USD/JPY pair. The risk-on flow, meanwhile, is allowing the US Treasury bond yields to capitalize on the overnight bounce from their lowest levels since late May. This further widens the US-Japan rate differential, which is seen as another factor weighing on the JPY and extending some support to spot prices.

The US dollar, however, is seen struggling to gain any meaningful traction amid some nervousness ahead of the highly anticipated FOMC monetary policy decision. This, in turn, is holding back traders from placing aggressive bullish bets around the USD/JPY pair and capping the upside. Hence, the market focus remains on the outcome of a two-day FOMC monetary policy meeting, which would play a key role in influencing the USD and provide a fresh directional impetus to the major.

The Fed is scheduled to announce its policy decision later during the US session and is widely expected to raise interest rates by another 75 bps to tame red-hot inflation. Market participants, however, seem divided over the need for more aggressive rate hikes amid growing recession fears, suggesting that the focus will be on Fed Chair Jerome Powell's post-meeting press conference.

Investors will look for clues about the Fed's near-term policy outlook, which, in turn, could drive near-term USD demand. Nevertheless, a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks could continue undermining the JPY. This suggests that the path of least resistance for the USD/JPY pair is to the upside.

Technical levels to watch

• EUR/USD partially reclaims ground lost following Tuesday’s pullback.
• Germany GfK Consumer Confidence worsened to -30.6 in August.
• Investors expect the Fed to hike rates by 75 bps at its meeting on Wednesday.

Following Tuesday’s strong pullback, EUR/USD manages to regain composure and advance to the 1.0160 region on Wednesday.

EUR/USD appears supported around 1.0100

After bottoming out in the vicinity of the 1.0100 zone in the first half of the week, fresh buying interest seems to have re-emerged in EUR/USD amidst a corrective downside in the greenback.

The pair is seen under pressure in the next hours ahead of the key FOMC gathering due later in the NA session, where the Fed is predicted to keep normalizing its monetary conditions via a 75 bps rate hike.

In the domestic data space, Germany Consumer Confidence tracked by GfK deteriorated to -30.6 for the month of August. The Consumer Confidence in France followed suit after deflating to 80 in July (from 82).

Later in the session, Italy’s Consumer Confidence is due followed by releases in the US docket: MBA Mortgage Applications, flash Goods Trade Balance results, Durable Goods Orders and Pending Home Sales.

What to look for around EUR

EUR/USD regains the smile somewhat following Tuesday’s deep drop to the boundaries of the 1.0100 region.

The pair extends its range bound stance, as market participants continue to gauge the latest ECB announcements and appear cautious ahead of the upcoming FOMC event later on Wednesday.

In the meantime, the price action around the European currency closely follows increasing speculation of a probable recession in the euro area, dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

Key events in the euro area this week: Germany GfK Consumer Confidence (Wednesday) – EMU Final Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Thursday) – Germany Unemployment Change, Unemployment Rate, Flash Q2 GDP, EMU Flash Inflation Rate, Advanced Q2 GDP (Friday).

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 monetary conditions. Performance of the economic recovery post-pandemic in the region. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is gaining 0.27% at 1.0142 and a breakout of 1.0278 (weekly high July 21) would target 1.0438 (55-day SMA) en route to 1.0615 (weekly high June 27). On the other hand, initial contention emerges at 1.0107 (weekly low July 26) seconded by 1.0000 (psychological level) and finally 0.9952 (2022 low July 14).

• Silver lacked any firm direction and oscillated in a range on Wednesday.
• The technical set-up remains firmly tilted in favour of bearish traders.
• A sustained move beyond $19.50 is needed to negate the negative bias.

Silver is seen struggling to capitalize on the previous day's positive move and oscillated in a narrow trading band on Wednesday. The white metal seesawed between tepid gains/minor losses through the early European session, though has managed to hold steady above mid-$18.00s.

Looking at the broader picture, the XAG/USD has been trading in a familiar range over the past one-and-a-half week or so. Given the recent fall from mid-$22.00s or the June monthly high, the rangebound price moves could now be categorized as a bearish consolidation phase.

Furthermore, repeated failures near the $19.00 round figure suggest that the near-term selling bias might still be far from being over. The negative outlook is reinforced by the fact that technical indicators on the daily chart are holding deep in bearish territory.

Hence, any subsequent move up might still be seen as a selling opportunity near the $19.00 mark. Some follow-through buying has the potential to lift the XAG/USD further, though the momentum runs the risk of fizzling out rather quickly near the $19.40-$19.50 heavy supply zone.

On the flip side, the YTD low, around the $18.20-$18.15 region, now seems to act as immediate strong support. This is followed by the $18.00 round figure, which if broken decisively would mark a fresh bearish breakdown and set the stage for a further near-term depreciating move.

The XAG/USD could then accelerate the downfall towards the $17.45-$17.40 intermediate support en-route to the $17.00 mark. The downward trajectory could further get extended and spot prices could eventually drop to test the next relevant support near the $16.70-$16.60 region.

Silver 4-hour chart

Key levels to watch

• The index comes under some selling pressure near 107.00.
• US yields look to regain some traction ahead of the Fed meeting.
• The Federal Reserve is expected to hike rates by 75 bps later on Wednesday.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, comes under some mild downside pressure and challenges the 107.00 region on Wednesday.

US Dollar Index now looks to the Fed

The index now gives away part of the Tuesday’s strong advance and hovers around the 107.00 neighbourhood, all amidst a cautious note ahead of the FOMC event due later in the NA session.

The Fed, in the meantime, is largely anticipated to raise the Fed Funds Target Range by 75 bps to 2.25%-2.50%, although investors will closely follow the subsequent press conference by Chief Powell looking for further details regarding further move on rates in the next months.

Other than the Fed gathering, Durable Goods Orders, MAB Mortgage Applications and advanced Goods Trade Balance figures are also due in the NA session.

What to look for around USD

The index came under downside pressure following nearly 20-year highs north of the 109.00 mark in mid-July, although it seems to have met some decent support near 106.00 for the time being.

So far, the dollar remains underpinned by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors.

On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: MBA. Mortgage Applications, Durable Goods Orders, Advanced Goods Trade Balance, Pending Home Sales, Fed Interest Rate Decision, Powell Press Conference (Wednesday) – Flash Q2 GDP, Initial Claims (Thursday) – PCE Price Index, Personal Income, Personal Spending, Final Michigan Consumer Sentiment (Friday).

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. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is down 0.20% at 106.98 and faces initial support at 106.11 (weekly low July 22) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 109.29 (2022 high July 15) would expose 109.77 (monthly high September 2002) and then 110.00 (round level).

• EUR/JPY is looking for a cushion as odds of soaring energy prices have resulted in a mild correction.
• The consensus for Eurozone GDP is lower at 3.4% vs. 5.4% recorded earlier.
• BOJ’s ultra-loose monetary policy will keep poking the yen bulls.

The EUR/JPY pair is attempting a cushion around 138.70 after a mild correction from above 139.00. The asset failed to sustain above the critical hurdle of 139.00 as the energy crisis escalated in Germany. The major has surrendered half of its intraday gains after the comments from Klaus Mueller, head of the Bundesnetzagentur regulator, a German gas regulator warned on Wednesday that consumers must prepare for more energy price increases.

The energy crisis has accelerated in the core member economy of the European Union (EU), Germany after Russia cut off the energy supply to the eurozone from its main supply line. The unwarranted reasons by the Russian administration for gas supply cuts have created havoc for the energy market in the bloc.

It is worth noting that Germany has a significant dependency on Russian energy imports and a lower supply of energy in times when the winter season is on the door could trigger recession fears. Lower oil and gas stockpiles may accelerate the jobless rate. The EU is actively looking for alternative candidates who will address the bumper energy demand in Europe. However, the execution demands plenty of time.

Apart from that, a lower consensus for eurozone GDP numbers will keep poking the shared currency bulls. The economic data is seen lower at 3.4% than the prior release of 5.4% on an annual basis.

Meanwhile, the Japanese yen is facing the headwinds of ultra-loose monetary policy, which is operated by the Bank of Japan (BOJ) for a prolonged period. The BOJ is committed to keeping the inflation rate above 2% and it demands a higher wage price index as a combination of the same will spurt the overall demand in the economy.

Here is what you need to know on Wednesday, July 27:

The US Dollar Index (DXY) seems to have gone into a consolidation phase following Tuesday's decisive rebound. The DXY fluctuates in a tight range near 107.00 in the European morning after having gained 0.7% on Tuesday. Investors stay on the sidelines while waiting for the Federal Reserve to announce its policy decisions. US stock index futures trade in positive territory in the early European session, pointing to an improving market mood. The US economic docket will also feature June Durable Goods Orders, Pending Home Sales and Goods Trade Balance data. 

Fed Preview: Powell to reignite dollar rally with promise to crush inflation, whatever the cost.

The risk-averse market environment provided a boost to the dollar on Tuesday. The Kremlin said on Tuesday that Nord Stream's gas supply capacity to Europe would be reduced to 20% from Wednesday because one of the gas turbines had not yet arrived after maintenance in Canada and another one was showing defects. Meanwhile, the city of Wuhan shut public transportation and ordered businesses to close to curb the spread of the coronavirus. City officials also decided to ban large gatherings in Wuhan's Jiangxia district also, where nearly 1 million people reside.

The Fed is expected to hike its policy rate by 75 basis points (bps) later in the day. Investors will look for fresh clues regarding the September rate decision. As it currently stands, the CME Group Fed's Watch Tool shows that markets are pricing in a 50% chance the Fed will opt for a 50 bps hike in September. 

Fed Preview: Dollar’s fate hinges on Powell’s policy guidance.

EUR/USD lost more than 100 pips and retreated toward 1.0100 on Tuesday. The pair stays relatively quiet and clings to modest recovery gains near 1.0130 early Wednesday. The European Central Bank will release Private Loans data for June during the European session.

GBP/USD continues to move sideways above 1.2000. The British pound manages to stay resilient against the greenback with market participants pricing in a 50 bps Bank of England rate hike in August.

AUD/USD declined toward 0.6900 during the Asian trading hours on Wednesday. The data from Australia showed that the Consumer Price Index (CPI) jumped to 6.1% on a yearly basis in the second quarter from 5.1% in the first quarter. This reading, however, came in slightly below the market expectation of 6.2%.

After having suffered heavy losses in the second half of the previous week, USD/JPY closed the first two trading days of the week in positive territory and recovered above 137.00. 

Gold is having a difficult time making a decisive move in either direction and moving up and down in a tight channel around $1,720. The benchmark 10-year US Treasury bond yield stays calm at around 2.8%, failing to provide a directional clue to XAU/USD.

Bitcoin posts small daily losses but manages to stay afloat above $21,000 early Wednesday. Ethereum trades flat on the day near $1,500.

• GBP/USD regained positive traction on Wednesday amid modest USD weakness.
• The risk-on impulse was seen as a key factor that undermined the safe-haven buck.
• Traders seem non-committed and might prefer to wait for the key FOMC decision.

The GBP/USD pair caught fresh bids on Wednesday and built on the previous day's modest rebound from the 1.1965-1.1960 support zone. The pair, however, retreated a few pips from the daily high and was seen trading around the mid-1.2000s during the early European session, still up over 0.20% for the day.

Expectations that an economic downturn would force the Fed to slow the pace of its policy tightening failed to assist the US dollar to capitalize on the overnight strong move up. Apart from this, a goodish recovery in the equity markets undermined the safe-haven greenback, which, in turn, offered some support to the GBP/USD pair.

The British pound drew additional support from rising bets for a 50 bps rate hike move by the Bank of England at its upcoming policy meeting in August. That said, the UK politics and Brexit woes could act as a headwind for the GBP/USD pair. Investors might also prefer to wait for the outcome of a two-day FOMC monetary policy meeting.

The US central bank is scheduled to announce its decision later during the US session and is widely expected to raise interest rates by 75 bps to tame red-hot inflation. Market participants, however, remain divided over the need for more aggressive rate hikes amid the worsening economic outlook and growing recession fears.

Hence, investors would closely scrutinize Fed Chair Jerome Powell's comments at the post-meeting press conference for fresh clues about the near-term policy outlook. This, in turn, would play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the GBP/USD pair.

Heading into the key central bank event risk, traders would be looking upon the US economic docket - featuring the release of US Durable Goods Orders later during the early North American session. This, along with the broader market risk sentiment, could drive the USD demand and produce short-term opportunities around the GBP/USD pair.

Technical levels to watch

• Platinum remains pressured inside a bearish chart pattern.
• Bullish MACD signals, 21-DMA challenges further downside moves.
• Monthly resistance line guards recovery moves ahead of 50-DMA.

Platinum price (XPT/USD) struggles for clear directions, pressured of late around $876.00 amid the initial European session on Wednesday.

In doing so, the precious metal stays inside a bearish flag pattern while also keeping the previous day’s downside bias.

However, a convergence of the 21-DMA joins the stated flag’s lower line to highlight the $870.00 as the key level for XPT/USD bears entry.

It should be noted that the bullish MACD signals are against the pair sellers, but the recovery needs validation from the monthly resistance line, near $890.00 by the press time.

Even if the platinum price rallied beyond $890.00, the flag’s upper line and the 50-DMA, respectively around $916.00 and $918.00 in that order, could challenge the bulls. Also acting as an upside hurdle is the $900 threshold.

In a case where Platinum prices rally beyond $918.00, the late June high of $9400.00 should lure the buyers.

Overall, XPT/USD remains on the bear’s radar but a strong downside trigger is needed to conquer the $870.00 support confluence.

Platinum: Daily chart

Trend: Further weakness expected

• USD/CHF is hoping for a rebound at around 0.9610 on expectations of an interest rate hike by the Fed.
• Expectations for higher job additions in the US economy have trimmed dramatically.
• Real Retail Sales in the Swiss economy are expected to soar amid costly fossil fuels.

The USD/CHF pair has attracted some bids around 0.9610 after slipping minutely below Tuesday’s low. The less-reactive asset is displaying topsy-turvy moves as the US dollar index (DXY) is misbehaving with the ultra-short-term investors ahead of the Federal Reserve (Fed) monetary policy meeting.

It is worth noting that the DXY has not displayed a sheer upside move before the interest rate policy like the prior three monetary policy announcements. The DXY was gaining like there is no tomorrow, however, this time a downward estimate from a 1% rate hike to 75 basis points (bps) has weakened the DXY bulls.

Accelerating odds of a recession in the US economy are responsible for the subdued performance of the DXY. Expectations for higher job additions have trimmed dramatically as big tech boys are halting their recruitment process and are also pursuing a lay-off program this year. Adding to that, higher price pressures won’t get offset led by lower Nonfarm Payrolls (NFP) and wage rates.

Apart from the Fed policy, investors will also keep an eye on US Durable Goods Orders data. A preliminary estimate for the economic data is -0.4%, significantly lower than the prior release of 0.8%. Investors should be aware of the fact that the US Retail Sales were upbeat and the other economic data is expecting a slippage. There is no denying the fact that Retail Sales were majorly driven by soaring price pressures.

On the Swiss franc front, Friday’s Real Retail Sales will hog the limelight. Earlier, the economic data landed at -1.6%. The economic catalyst is expected to remain higher as soaring energy bills and prices of food products will elevate Real Retail Sales. However, a slippage in the economic data will indicate a major slump in the overall demand. This may weaken the Swiss franc bulls ahead.

• USD/CAD drops back towards six-week low flashed the previous day.
• Oil prices recover on headlines concerning US-China, Europe favors risk appetite.
• US dollar braces for Fed’s 0.75% rate hike with eyes on Powell.

USD/CAD reverses the previous day’s corrective pullback from the 1.5-month low heading into Wednesday’s European session. In doing so, the Loonie pair takes clues from the softer US dollar, as well as justifies the recent improvement in the prices of Canada’s key export item WTI crude oil.

That said, WTI crude oil stays firmer around $95.00, after reversing from the weekly top the previous day. The black gold’s latest gains could be linked to the softer US dollar, as well as the cautious optimism.

The US Dollar Index (DXY) marks the biggest daily loss in 12 days, down 0.30% intraday around 106.90 by the press time. It’s should be noted that the risk appetite improves amid chatters surrounding the US-China ties and the European energy crisis.

Hopes from the US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, appear to have favored the market’s risk-on mood of late. On the same line could be the headlines raising hopes that the region’s policymakers are also in talks with Iran and Nigeria to acquire energy resources. Recently, Germany’s Gas Regulator's Chief said, per Reuters, that the next phase of a gas emergency may not need to be triggered in the coming days and weeks as long as we can still add gas to storage.

Amid these plays, the S&P 500 Futures rise 0.85% intraday whereas the US 10-year Treasury yields rise 2.0 basis points (bps) to 2.80% at the latest.

It’s worth noting that the downbeat US data and fears of economic slowdown, mainly backed by the International Monetary Fund (IMF) and the global rating agency Moody’s appeared to have propelled the US dollar’s safe-haven demand previous day.

Looking forward, USD/CAD traders should pay attention to the risk catalysts, as well as the US Durable Goods Orders for June, expected -0.4% versus 0.8% prior, for fresh impulse. Also important will be how Fed Chairman Jerome Powell manages to tame inflation and reject recession fears, as well as the concerns surrounding the European energy crisis.

Technical analysis

USD/CAD remains on the seller’s radar unless crossing the 1.2925-30 resistance confluence, including the 200-HMA and the upper line of the stated triangle. That said, the 1.2822-16 horizontal area comprising the weekly descending triangle’s support line and the recent trough lure the bears.

FX option expiries for July 27 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1000 1.5b
• 1.0125 464m
• 1.0150 398m
• 1.0200 1.2b
• 1.0250 2b
• 1.0270 533m
• 1.0300 1.1b

- GBP/USD: GBP amounts        

• 1.2200 404m
• 1.2350 658m

- USD/JPY: USD amounts                     

• 134.50 265m
• 135.01 238m
• 136.25 536m
• 137.50 413m

- USD/CHF: USD amounts        

• 0.9595 270m
• 0.9800 270m

- AUD/USD: AUD amounts  

• 0.6950 332m
• 0.7050 687m

- USD/CAD: USD amounts       

• 1.2750 600m
• 1.2850 790m
• 1.2910 468m
• 1.3000 392m

Considering advanced figures from CME Group for natural gas futures markets, open interest increased for the third straight session on Tuesday, now by around 6.1K contracts. Volume followed suit and went up sharply by nearly 134K contracts after three consecutive daily drops.

Natural Gas retreats from cycle peaks

Prices of the natural gas climbed to new highs in the $9.75 region per MMBtu on Tuesday, an area last visited in July 2008, although they trimmed part of that advance later in the session. The move was on the back of increasing open interest and volume and opens the door to further correction in the very near term. Next on the upside, in the meantime, comes at the key $10.00 mark per MMBtu.

• Gold price bounces off intraday low, snaps two-day downtrend as traders await FOMC.
• US dollar retreat amid headlines concerning US-China ties, European energy crisis.
• Fears that Fed’s Powell will take harsh measures to tame inflation keep XAU/USD bulls in check.

Gold price (XAU/USD) recovers from intraday low as traders consolidate recent losses during Wednesday’s sluggish morning in Europe. That said, the yellow metal picks up bids to $1,719 amid cautious optimism, as well as the US dollar’s pullback, ahead of the US Federal Reserve’s (Fed) monetary policy meeting.

That said, the US Dollar Index (DXY) marks the biggest daily loss in 12 days, down 0.30% intraday around 106.90 by the press time, as risk appetite improves amid chatters surrounding the US-China ties and the European energy crisis.

While portraying the mood, the S&P 500 Futures rise 0.85% intraday whereas the US 10-year Treasury yields rise 2.0 basis points (bps) to 2.80% at the latest.

The absence of pre-Fed risk-aversion and firmer US stock futures, not to forget cautious optimism surrounding the US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, appear to have favored the market’s risk-on mood of late. On the same line could be the headlines raising hopes that the region’s policymakers are also in talks with Iran and Nigeria to acquire energy resources. Recently, Germany’s Gas Regulator's Chief said, per Reuters, that the next phase of a gas emergency may not need to be triggered in the coming days and weeks as long as we can still add gas to storage.

Moving on, risk catalysts and the US Durable Goods Orders for June, expected -0.4% versus 0.8% prior, could entertain gold traders ahead of the Federal Open Market Committee (FOMC) meeting. It should be observed that the market has already priced in the Fed’s 75 basis points (bps) rate hike and hence Fed Chair Powell needs to do more to lure the XAU/USD bears.

Technical analysis

Although 50-SMA restricts the immediate downside of the gold price to around $1,713, bearish MACD signals and the 100-SMA challenge the XAU/USD buyers unless crossing the $1,727 hurdle.

Even so, 50% and 61.8% Fibonacci retracements of July 04-21 fall, around $1,748 and $1,764 in that order, challenges the metal buyers before giving them control.

On the contrary, a clear downside of the 50-SMA support near $1,713 isn’t an open invitation to the gold sellers as a two-week-old horizontal support zone around $1,697-98 probes the metal’s additional south-run before directing the bears to the yearly low of $1,680.

It should be noted, however, that the metal’s weakness past $1,680 could make it vulnerable to test the 61.8% Fibonacci Expansion (FE) of July 04-22 moves, near $1,655.

Gold: Four-hour chart

Trend: Limited upside expected

Analysts at Rabobank lean bearish on the NZD/USD pair in the short to medium term, predicting the US dollar to continue drawing safe-haven demand.

Key quotes

“FX volatility has been heightened in recent months and we expect this to continue. “

“We expect the USD to remain well bid on the back of safe haven demand despite speculation that the market may have over-estimated the extent of Fed policy tightening in the coming months.”

“In our view, USD strength is likely to push NZD/USD back towards its recent lows in the 0.61 area on a 1-to-3-month view.”

“We expect USD strength to turn around on a 6-month view allowing NZD/USD to recover to the 0.64 region.”

“We see scope for AUD/NZD to trend higher to 1.12 in the coming months.”

• NZD/USD has attempted to overstep the immediate hurdle of 0.6240 as DXY weakens further.
• The tedious job of Fed policymakers has triggered slowdown signals vigorously.
• The kiwi buyers will focus on ANZ Business Confidence this week.

The NZD/USD pair has turned sideways after a modest recovery from the intraday low at around 0.6230. The asset has defended Tuesday’s low at 0.6224 and is likely to extend its recovery as the US dollar index (DXY) is looking downside for an establishment.

The DXY is auctioning below the critical support of 107.00 as the market participants have already discounted the rate hike announcement by Federal Reserve (Fed) chair Jerome Powell.

The Fed has no other option than to step up the interest rates further as price pressures are soaring and are hurting the paychecks of the households. The laborious job of Fed policymakers to trim demand by elevating interest rates and elevate supply for restoration of modest prices without dragging the economy into recession is getting heated now.

Retail demand has taken the bullet as the US Consumer Confidence has dropped to the lowest since February 2021 to 95.7 and giant retail-chain operator Walmart has reported weak earnings. One could extract the fact from the lower earnings of Walmart and the upbeat US Retail Sales that the economic data was strongly driven by a higher inflation rate rather than the buying quantities by the individuals.

On the kiwi front, the Reserve Bank of New Zealand (RBNZ) will monitor the performance of policy tightening to understand whether the central bank is in the right direction towards containing price pressures. On the economic data front, investors will focus on the release of the ANZ Business Confidence, which is due on Thursday. The economic data may improve to -55 vs. the prior release of -62.6.

According to preliminary readings from CME Group for crude oil futures markets, traders scaled back their open interest positions by just 81 contracts on Tuesday, reversing at the same time four daily builds in a row. On the other hand, volume rose by around 13.5K contracts for the first time after four consecutive daily drops.

WTI looks supported by the 200-day SMA

Prices of the WTI kept the familiar range on Tuesday and closed with modest losses just above the 200-day SMA, today at $94.87. The downtick was accompanied by a small drop in open interest, which could leave prospects for further consolidation well in place for the time being.

CME Group’s flash data for gold futures markets noted open interest shrank for the fourth consecutive session on Tuesday, this time by around 16.2K contracts. Volume, on the other hand, went up by around 1.4K contracts after two daily drops in a row.

Gold faces extra consolidation very near term

Gold prices extended its weekly correction on Tuesday, although the downtick was on the back of shrinking open interest. That said, while extra losses appear somewhat not favoured in the very near term, much of the short-term direction hinges on the Fed’s decision on rates later on Wednesday. So far, the $1,680 area is expected to hold the downside for the time being.

Klaus Mueller, head of the Bundesnetzagentur regulator, warned on Wednesday that consumers must prepare for more energy price increases.

Mueller said that the emergency phase may not need to be triggered so long as they can add gas to storage. 

Earlier this week, the chief of Germany’s gas regulator said that the country is on the path of decent gas injection levels but is unlikely to reach its gas storage target for November 1.

Market reaction

At the time of writing, EUR/USD is holding onto the recovery gains at around 1.0150, up 0.35% on the day. The Fed decision is likely to be the main event risk this Wednesday.

• EUR/GBP holds lower ground near two-week low as bears take a breather.
• Fears of Eurozone recession weigh on the Euro while GBP cheers political optimism during UK PM race.
• Survey showing deteriorating confidence among British employers weighs on Pound.
• Euro braces for more oil updates, Fed moves  amid a light calendar at home.

EUR/GBP licks its wounds as markets await the Fed’s verdict during early Wednesday in Europe. In doing so, the cross-currency pair snaps a three-day downtrend around 0.8420, bouncing off a fortnight low after posting the biggest daily loss since July 07.

The quote’s corrective pullback could be linked to the regional currency’s preparations for today’s Fed meeting, as well as hopes that the bloc’s policymakers will be able to secure an energy deal from Iran. That said, the old continent laid out plans to cut energy consumption over the next six months as Russia hints at the total blackout of gas supplies via the Nord Stream 1 pipeline. The region’s policymakers are also in talks with Iran and Nigeria to acquire energy resources.

Recently, Germany’s Gas Regulator's Chief said, per Reuters, that the next phase of a gas emergency may not need to be triggered in coming days and weeks as long as we can still add gas to storage.

On the other hand, a survey from the UK’s Recruitment & Employment Confederation showed that British employers are their most pessimistic about hiring and investment since the depths of the coronavirus pandemic crisis due to surging inflation and an acute shortage of workers to fill jobs.

Previously hopes that both the candidates for UK Prime Minister’s post, namely Lizz Truss and Rushi Sunak, are more serious joined the hopes of the Bank of England’s (BOE) aggressive rate hikes to propel the British pound (GBP).

It’s should be noted that a lack of major data/events also allows the EUR/GBP prices to consolidate recent losses ahead of the key Federal Open Market Committee (FOMC) meeting.

Technical analysis

Although a 10-week-old support line restricts immediate EUR/GBP downside near 0.8405, the pair buyers remain cautious unless witnessing a clear upside break of the 200-DMA hurdle, near 0.8445 by the press time.

• Copper prices are advancing towards $3.40 as DXY has extended losses ahead of Fed policy.
• Dismal Walmart earnings have joined hands with lower US Consumer Confidence to weaken the DXY.
• A halt in production and expectations of a revival in demand has supported the base metal.

Copper price, as per the COMEX Futures, is witnessing a firmer rebound after defending the critical support of $3.36 in the Asian session. On a broader note, the base metal has remained firmer and is likely to recapture its three-week high at $3.46. The base metal market has displayed signs of recovery as the US dollar index (DXY) has displayed a subdued performance in the recent trading sessions.

In the Asian session, the DXY has given a downside break of the inventory distribution formed in a narrow range of 107.00-107.10 as investors have discounted the likely interest rate elevation by the Federal Reserve (Fed). Apart from that, renewed slowdown concerns in the US economy have trimmed the appeal for the DXY and have supported the risk-sensitive assets. The US Consumer Confidence has dropped below 96 and dismal Walmart earnings are indicating a slowdown in retail demand.

A real trigger that has supported the copper prices is the suspended copper production by Chinese miner MMG Ltd due to a long protest at its Las Bambas mine in Peru, as reported by Reuters. At times, when monsoon seems over in the major provinces of China and other nations in Asia, a halt in copper production has triggered copper prices. Lower supply will cater to the higher demand only at premium prices.

Also, the growth rate of Covid-19 in China is stable now, which has trimmed the odds of a severe lockdown. Stagnancy in the growth rate of Covid-19 indicates that the pandemic will be at its peak sooner and there is will no restrictions on economic activities.

• USD/CNH consolidates the biggest daily gains in a week.
• Weekly resistance line guards immediate upside, MACD hints at further weakness.
• 200-HMA, 38.2% Fibonacci retracement limits immediate downside.

USD/CNH extends pullback from intraday high as it drops to 6.7660 heading into Wednesday’s European session. In doing so, the offshore Chinese yuan (CNH) pair reverses from a one-week-old resistance line.

Given the bearish MACD signals and the pair’s reversal from the weekly hurdle, the latest pullback is likely to extend towards a convergence of the 200-HMA and 38.2% Fibonacci retracement (Fibo.) of July 13-14 upside, near 6.7600.

It’s worth noting that a downside break of 6.7600 could quickly drag the USD/CNH towards 50% Fibo. level near 6.7510.

However, an upward sloping support line from July 18, at 6.7475 by the press time, precedes the 61.8% Fibonacci retracement level of 6.7410 to restrict the short-term downside of the pair.

Meanwhile, recovery moves need to provide a clear upside break of the aforementioned weekly resistance line close to 6.7700, to lure the USD/CNH buyers.

Following that, the pair could rise towards 6.7880 and 6.7920 levels before directing the bulls to the yearly high surrounding 6.8385.

Overall, USD/CNH is likely to extend the recent weakness but the downside appears limited.

USD/CNH: Hourly chart

Trend: Further weakness expected

Responding to a sharp jump in Australia’s inflation to a new 21-year high in the 2021/22 financial year, the country’s Treasurer Jim Chalmers said that he recognizes the cost-of-living burden on households.

Chalmers is due to deliver a "confronting" economic statement to the nation on Thursday and has promised Australians the government is on the case to tame inflation.

Market reaction

At the time of writing, AUD/USD is attempting a bounce to near 0.6930, having dropped to 0.6913 lows after the Australian CPI data doused hopes for a 75 bps RBA rate hike in August. The spot is down 0.08% on the day.

• RBA seen hiking rates by 50 bps in August after headline inflation miss – Goldman Sachs

Economists at Goldman Sachs revise their call for the Reserve Bank of Australia (RBA) August rate hike after the Australian headline inflation data missed expectations.

Key quotes

“Compositionally, inflation remained fairly broad-based across the basket, with ongoing sharp rises in food, transport and housing costs. Underlying measures of inflation remained elevated but were broadly in with expectations, with the trimmed mean CPI increasing 1.46% Q/Q and the weighted median CPI increasing 1.41% Q/Q."

"Looking forward, while inflation clearly remains elevated, the downside miss headlining CPI inflation reduces the urgency for the RBA to accelerate the pace of rate hikes in our view. As a result, we now expect the RBA to hike by +50bp to 1.85% in August (previously +75bp to 2.10%), although we continue to view it as a close call."

"Further ahead, we continue to expect the RBA to take rates to 3.35% by end 2022 alongside a further acceleration of inflation over H222. Beyond the August meeting, we expect the RBA to achieve this by hiking +50bp in September, +50bp in October (prev. +25bp) and +25bp in both November and December."

• AUD/USD has attempted a reversal around 0.6920 as a hangover of higher Aussie inflation vanished.
• The overall Aussie inflation rate for Q2CY22 has climbed to 6.1% vs. 5.1% recorded earlier.
• Investors are likely to dump DXY as a rate hike announcement by the Fed has been discounted.

The AUD/USD pair has picked bids around 0.6920 after plummeting from near 0.6960 in the Asian session. The asset is regaining strength as investors have digested the volatility produced after the release of the Australian inflation data.

The Australian Bureau of Statistics has reported the overall inflation rate at 6.1%, minutely lower than the estimates of 6.2% but remained extremely higher than the prior release of 5.1%. Also, the trimmed CPI has increased to 4.9%, higher than the expectations and the prior release of 4.7% and 3.7% respectively.

As the inflation rate for the second quarter of CY2022 has almost met expectations, the odds of a consecutive 50 basis points (bps) rate hike by the Reserve Bank of Australia (RBA) have advanced. Price pressures have soared in this particular period significantly and the RBA needs to show up with more rate hikes unhesitatingly.

Meanwhile, the US dollar index (DXY) has given a downside break of the inventory distribution formed in a narrow range of 107.00-107.10. A downside break in the DXY indicates that the market participants have already discounted the rate hike expectations by the Federal Reserve (Fed). As per the market consensus, the Fed will hike the interest rates by 75 basis points (bps) as growing odds for a slowdown in the US economy will force Fed chair Jerome Powell to drop the option of a 1% rate hike announcement.

• Asian equities trade mixed, mostly pressured, as US stock futures fail to impress bulls.
• Xi-Biden talks, pre-Fed consolidation defend bulls even as recession woes weigh on sentiment.
• Wall Street closed in the red as key companies propelled slowdown fears, yields rebound.
• US data, risk catalysts may entertain investors ahead of FOMC.

Market sentiment in the Asia-Pacific region fades the US session pessimism as traders remain divided over the Fed’s next move amid recession fears. Also contributing to the investors’ indecision could be the lack of major data/events, except for Australia's inflation numbers.

While portraying the mood, the MSCI’s index of Asia-Pacific shares outside Japan drops 0.80% intraday whereas Japan’s Nikkei 225 adds 0.40% intraday to 27,745 by the press time.

It’s worth noting that Australia’s ASX 200 prints mild gains as Aussie Q2 Consumer Price Index (CPI) missed hawkish market expectations. New Zealand’s NZX 50 adds 0.30% gains on a day amid the absence of risk-aversion and firmer US stock futures, not to forget cautious optimism surrounding the US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping. Even so, Chinese equities remain depressed while tracking the Wall Street benchmarks. It’s worth noting that firmer prints of China’s Industrial Profits in June also couldn’t impress equity bulls in China.

Elsewhere, South Korea’s KOSPI and Indonesia’s IDX Composite fail to pare recent losses, struggling for fresh clues of late. On the other hand, India’s BSE Sensex snaps a two-day downtrend as traders brace for the Federal Open Market Committee (FOMC) meeting.

On a broader front, Wall Street closed in the red and the US Treasury yields remained mostly pressured while portraying the biggest difference between the 2-year and the 10-year bond coupons since the year 2000, which in turn highlighted the rush towards risk-safety. It should be noted that the S&P 500 Futures rise 0.8% intraday while the US 10-year Treasury yields rise 2.0 basis points (bps) to 2.80% at the latest.

Looking forward, headlines surrounding the US and China talks will join the Durable Goods Orders for June, expected -0.4% compared to 0.8% prior, to entertain traders. However, major attention will be given to Fed’s verdict and Chairman Jerome Powell’s press conference.

Also read: S&P 500 Futures, yields rebound as hints of Biden-Xi talks trigger cautious optimism ahead of Fed

Analysts at Australia and New Zealand (ANZ) banking group said in the latest research report that the Australian Q2 inflation data doesn’t change their call for a 50 bps rate hike by the Reserve Bank of Australia (RBA) in August.

Key quotes

“Australia's Q2 CPI came in below our expectations, with headline inflation at 6.1% y/y and trimmed mean at 4.9% y/y. It looks like we’re moving past the peak in quarterly inflation, but it’s a high peak to come down from, with the quarterly result annualizing at 7.4% for headline and 6.1% for trimmed mean.”

“This doesn’t change our view on the RBA’s near-term meetings, where we expect 50bp hikes. The target cash rate is still well below the RBA’s estimates of neutral, and we expect the labor market to continue tightening. This will prompt the RBA to take the cash rate above the lower bound of what it deems the neutral range. As such, we maintain our 3.35% year-end forecast.”

• USD/JPY retreats from intraday high during three-day uptrend.
• Bearish candlestick, failure to cross the key SMA tease sellers.
• 200-SMA offers strong support, bulls have a bumpy road to the north.

USD/JPY justifies the recent bearish Doji as it pares intraday gains around 136.95 during early Wednesday morning in Europe. In doing so, the yen pair retreats from the 100-SMA amid a three-day rebound.

As the latest Doji and the 100-SMA challenge USD/JPY bulls, any upside momentum hinges on the quote’s ability to cross the 137.15 SMA hurdle. Even so, a two-week-old horizontal area near 137.90 could test the quote’s further advances.

It’s worth noting that a downward sloping resistance line from mid-July, at 138.50 by the press time, appears the last defense of the USD/JPY bears, a break of which could quickly propel the pair towards the recent multi-year high near 139.40.

Alternatively, pullback moves may aim for the 50% and the 61.8% Fibonacci retracements of June 23 to July 14 upside, respectively near 136.80 and 136.20.

Even if the quote drops past 136.20, the 200-SMA level of 136.15, could challenge the USD/JPY bears.

If the yen pair drops below 136.15, the previous weekly low near 135.55 should return to the charts.

USD/JPY: Four-hour chart

Trend: Pullback expected

• USD/INR defends the previous day’s rebound from a fortnight low.
• Indian government cites multiple reasons to justify rupee’s fall.
• Pre-Fed anxiety joins global recession risk, downbeat signals from Wall Street to favor pair buyers.
• FOMC all set for a 0.75% rate hike but Powell’s speech will be crucial.

USD/INR picks up bids to 79.86 as buyers defend the previous day’s rebound during Wednesday’s Asian session. In doing so, the Indian rupee (INR) pair ignores the recent pullback of the US dollar amid fears of economic slowdown, as well cautious mood ahead of the Federal Open Market Committee (FOMC) meeting.

Earlier in the day, India’s Minister of State Finance Pankaj Chaudhary conveyed various reasons ranging from the covid to the Fed’s rate hike while trying to justify the recent fall in the INR to the various political representatives in the Rajya Sabha.

Even so, fears of impending global economic slowdown, mainly due to the energy crisis in Europe and the Fed’s aggression, appear to keep the USD/INR bulls hopeful. It’s worth noting that downbeat earnings from the Wall Street stars, like Walmart, Alphabet and Microsoft, also justify the market’s risk-aversion wave, which in turn weighs on the Indian currency. That said, the International Monetary Fund (IMF) and the global rating giant Moody’s raised concerns over the recession on Tuesday.

Alternatively, softer WTI crude oil prices, down 0.50% intraday near $94.50 by the press time, should have favored the USD/INR to pare the latest gains but could not. On the same line is the market’s cautious optimism concerning the US-China ties on US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping.

Amid these plays, S&P 500 Futures print 0.80% intraday gains as it rebounds from the weekly low. Additionally, the US 10-year Treasury yields also add 1.8 basis points (bps) to 2.80% as traders brace for the Fed’s showdown.

Moving on, the US Durable Goods Orders for June, expected -0.4% forecast compared to 0.8% prior, could try to entertain traders, together with the chatters surrounding the US-China talks. However, major attention will be given to the Fed’s verdict and Chairman Jerome Powell’s press conference. It should be noted that the US central bank is expected to announce 75 basis points (bps) of a rate hike but some of the traders also highlight the case for the 100 bps move, making the event more interesting amid recession fears.

Technical analysis

10-day EMA restricts immediate USD/INR pullback around 79.75 but bulls seek successful trading above 80.00. That said, RSI hints at the buyer’s dominance but the MACD signals tease sellers, suggesting a notable pullback if the quote breaks 79.75 support.

• EUR/USD is aiming to extend recovery above 1.0150 as DXY is displaying a subdued performance.
• Expectations of a slowdown in retail demand and employment generation have restricted DXY’s upside.
• The energy crisis in Eurozone may escalate as Winter is coming.

The EUR/USD pair is advancing strongly in the Asian session as the US dollar index (DXY) is displaying a subdued performance ahead of the interest rate decision by the Federal Reserve (Fed). The asset has displayed a bullish open-drive move on Wednesday as the pair is driving higher right from the first tick of the trading session. The shared currency bulls are likely to expand gains if the asset manages to surpass the immediate hurdle of 1.0150.

Usually, the DXY remains extremely bullish ahead of the Fed monetary policy meeting as an interest rate hike has remained imminent this year to contain a higher inflation rate. No doubt, a rate hike announcement, most probably by 75 basis points (bps) is in the limelight. However, the DXY is displaying a weak performance.

The rationale behind the weak performance of the DXY is the soaring odds of a recession in the US economy. Employment generation is under threat as many big tech companies are planning a lay-off this year and the retail demand has trimmed significantly, which could be calculated after observing dismal Walmart earnings and a steep fall in US Consumer Confidence.

On the eurozone front, escalating energy supply worries after Russia closed the main pipeline for exporting energy to Europe has spooked the investing community. The core member Germany which has a significant dependence on oil and energy from Russia will face the heat. Also, the upcoming Winter season may highlight the energy crisis. In spite of that, the shared currency bulls are performing well against the greenback.

• Gold price is displaying back and forth moves in a $4 range as investors await Fed policy.
• A slowdown in US economic indicators states that the option of a 1% rate hike by the Fed is not viable.
• S&P500 futures have rebounded after displaying losses on Tuesday and may underpin the risk-on again.

Gold price (XAU/USD) has marked its territory and is respecting the levels as investors are awaiting the announcement of the interest rate decision by the Federal Reserve (Fed) for initiating an informed decision. The precious metal is auctioning in a $1,716.00-1,720.00 range and is likely to remain on the sidelines.

Also, the US dollar index (DXY) is replicating an inventory distribution structure after a mild correction at the open. The DXY witnessed a sheer upside move on Tuesday as investors turned cautious ahead of the commentary from Fed chair Jerome Powell on interest rates and further guidance.

Well, the threatened option of 100 basis points (bps) is out of the picture as the US economic indicators are not empowering the Fed to go all in unhesitatingly. However, the option of a 75 bps rate hike is still on its toes and is likely to be dictated. This may elevate the interest rates to 2.25-2.50%.

Meanwhile, S&P500 futures have rebounded overnight after displaying losses on Tuesday. This may support the risk-perceived assets and the DXY may display a downside break.

Gold technical analysis

On an hourly scale, the gold price is auctioning in a descending triangle pattern. The downward-sloping trendline of the volatility contraction pattern is placed from July 22 high at $1,739.37. While the horizontal support is placed from July 22 low at $1,712.94. The gold prices are overlapping with the 20-period Exponential Moving Average (EMA) at $1,718.70, which signals a consolidation ahead.

Also, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range, which signals that the asset is awaiting potential a trigger for a decisive move.

Gold hourly chart

• GBP/USD retreats from intraday high, stays mildly bid around monthly peak.
• 200-SMA, six-week-old resistance line guards immediate upside.
• Bears need validation from 1.1980 to retake control.

GBP/USD bulls take a breather around 1.2050 inside a fortnight-old rising bearish chart pattern during early Wednesday. That said, recently firmer RSI backs the Cable pair’s corrective pullback from the yearly low.

However, a convergence of the 200-SMA and a downward sloping resistance line from mid-June, around 1.2080, guards the quote’s immediate upside.

Even if the GBP/USD buyers manage to cross the 1.2080 hurdle, the upper line of the stated wedge, near 1.2100, will be crucial for the pair traders.

In a case where the prices remain firmer past 1.2100, the odds of witnessing a run-up towards the monthly high near 1.2165 can’t be ruled out.

Alternatively, pullback moves become interesting on breaking the support line of the bearish chart formation, around 1.1995 by the press time.

Even so, multiple levels marked around 1.1980 during the last fortnight appears as the additional downside filter before welcoming the GBP/USD bears.

To sum up, GBP/USD buyers should remain cautious unless witnessing a successful break of 1.2100.

GBP/USD: Four-hour chart

Trend: Pullback expected

US President Joe Biden and his Chinese counterpart Xi Jinping are scheduled to have a call on Thursday, their first conversation in four months, Associated Press (AP) reports, citing a US official.

The planned talks come ahead of a visit to Taiwan by House Speaker Nancy Pelosi in August, which has reignited tensions between Washington and Beijing over Taiwan.

“The talks between Biden and Xi could also include discussion of North Korea's nuclear program, differences between Beijing and Washington over Russia's war in Ukraine, efforts by the Biden administration to revive the Iran nuclear deal and the status of the US administration's review of tough tariffs imposed on China by the Trump administration,” AP reported.

John Kirby, a national security spokesperson for the White House, said Tuesday. "There are issues of tension in this relationship. But there are also issues where we believe cooperation is not only possible, but mandatory, for instance on climate change, which affects us greatly."

Market reaction

Risk sentiment remains tepid, despite the uptick in the S&P 500 futures, as anxiety ahead of the Xi-Biden meeting and the Fed decision dominate.

At the time of writing, AUD/USD is trading under heavy selling pressure around 0.6920, as aggressive RBA tightening bets ease after the Australian Q2 inflation data fail to impress.

• Steel price struggles to extend latest recovery amid pre-Fed caution.
• Hopes of more demand from China, supply crunch keep buyers hopeful.
• World Crude Steel output slumped in H1 2022, softer inventories in China add to the bullish bias.

Steel price retreat from intraday high as market sentiment dwindles ahead of the Federal Open Market Committee (FOMC) meeting in early Wednesday. Also challenging the metal buyers are concerns about the Chinese steel mills’ re-start, as well as fears of recession. However, a notable decline in the metal’s global output during the first half of 2022 (H1 2022), as well as an end of monsoon in China, keeps the bulls hopeful.

That said, prices of the steel rebar’s most active futures on the Shanghai Futures Exchange (SFE) extend pull back from the daily open of 3,895 yuan per metric tonne (MT) to 3,820 yuan per MT.

World Steel Association reported a 5.5% fall in the global crude steel production during H1 2022 to 949.4 million tonnes. The report cited a slump in the output of the key producers in Asia and Oceania as a major catalyst for the fall in steel output.

It’s worth noting that the end of China’s monsoon season and chatters that the inventories at the largest metal consumer, backed by Reuters, also underpinned the previous buying of the metal. On the same line, hopes of an easing in the US-China tension and a rebound in the auto demand added strength to the quote’s recovery moves.

US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, on Thursday, appears to have recently underpinned the market’s cautious optimism.

Elsewhere, Goldman Sachs (GS) warns about the risk to the iron ore prices emanating from China’s property market, which in turn could drown the steel price due to being the major ingredient.

“The crisis engulfing China’s property sector will help swing the iron ore market to a significant surplus over the second half of the year and push prices sharply lower,” mentioned GS.

Looking forward, chatters surrounding the Xi-Biden talks and China’s recovery, as well as steel producers’ ability to stock more, could entertain the metal traders. Also important will be Fed Chair Jerome Powell’s capacity to tame inflation and still keep the growth prospects intact.

Economists at Morgan Stanley Research offer their outlook on the US dollar heading into Wednesday’s FOMC July policy announcement.

Key quotes

"Our colleagues in economics research expect the FOMC to hike rates by 7513p - in line with the 78bp implied by swap pricing. However, with the equivalent of fewer than six 25bp hikes priced in over the coming year, we think the risk is that the market moves to price more Fed tightening over the coming quarters.”

"The Federal Reserve may frame its July hike in relatively hawkish terms, softening the prices of risk assets and boosting USD broadly. Conversely, we think the global outlook supports maintaining long USD positions. Sell-side forecasts for 2022 US growth have fallen substantially - to levels around our own expectations. However, growth expectations in the rest of the world may have further to decline.”

• USD/CAD fades bounce off six-week low, remains pressured around intraday bottom.
• 200-HMA adds strength to the 1.2925-30 hurdle, MACD favors bears aiming for 1.2800.
• Recovery remains elusive unless crossing 1.3090 resistance level.

USD/CAD holds lower ground near the daily low of 1.2862 during early Wednesday. In doing so, the Loonie pair fades the previous day’s corrective pullback from the lowest levels in six weeks.

That said, the bearish MACD signals also favor the sellers keeping reins by the press time.

With this, the quote is likely to revisit the 1.2822-16 horizontal area comprising the weekly descending triangle’s support line and the recent trough.

It’s worth noting that the USD/CAD pair’s weakness past 1.2816 hinges on the seller’s capacity to keep the quote below the 1.2800 round figure.

On the flip side, recovery moves seem unimpressive below 1.2925-30 resistance confluence, including the 200-HMA and the upper line of the stated triangle.

The USD/CAD run-up beyond 1.2930 enables the buyers to aim for the 1.3000 psychological magnet. However, the mid-July swing low near 1.3090 will be crucial for them to keep reins.

Overall, USD/CAD remains pressured towards refreshing the multi-day low. However, the downside has limited room unless breaking the 1.2800 threshold.

USD/CAD: Hourly chart

Trend: Further weakness expected

US Treasury Secretary Janet Yellen and UK Finance Minister Nadhim Zahawi had a telephonic call early Wednesday.

Both top diplomats reportedly discussed the proposed cap on the Russian oil price, and other sanctions-related matters.

Market reaction

WTI was last seen trading lower by 0.63% on the day at $94.20. Recession fears continue to dent the demand for higher-yielding oil.

• Market sentiment improves amid hopes of positive solution from Thursday’s talks between Biden and Xi.
• S&P 500 Futures bounce off weekly low, US 10-year Treasury yields snap two-day downtrend.
• US Durable Goods Order, FOMC will be crucial for clear directions.

Risk profile improves during early Wednesday as traders brace for the Federal Open Market Committee (FOMC) meeting. Also allowing market consolidation is the US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, on Thursday.

While portraying the mood, S&P 500 Futures bounced off the one-week low to 3,950, up 0.65% intraday, whereas the US 10-year Treasury yields rise 1.6 basis points (bps) to 2.80% at the latest.

Fears of recession, however, join the pre-Fed anxiety to exert downside pressure on the risk appetite. That said, the Fed is up for a 75 bps rate hike during today’s FOMC. That said, the markets also chatter around 100 bps move amid heavy inflation. However, the recession fears challenge Fed Chair Jerome Powell’s capacity to tame inflation and still keep the growth prospects intact.

It should be noted that fears of economic slowdown intensified after the International Monetary Fund (IMF) cut its global growth forecast (once again) this year, to 2.9% from 3.6% forecasted in April. The Washington-based organization also raised concerns over more economic hardships amid a full cut-off of Russian gas to Europe and a 30% drop in Russian oil exports, both of which are looming. It should be noted that the disappointing results from the global retailer Walmart also contributed to the recession fears.

Talking about the data, the US CB Consumer Confidence fell for a third consecutive month in July, to 95.7 from 98.4 prior. Further, the US New Home Sales dropped to 0.59M for June versus 0.66M expected and 0.642M previous readout. On the same line, Richmond Fed Manufacturing Index rose to the highest level since April, to 0 from -13 expected and -9 prior (revised up from -11).

Looking forward, the US Durable Goods Orders for June, -a 0.4% forecast compared to 0.8% prior, could try to entertain traders, together with the chatters surrounding the US-China talks. However, major attention will be given to the Fed’s verdict and Chairman Jerome Powell’s press conference.

• AUD/NZD is under pressure following CPI that disappointed the bulls.
• The price is correcting lower and bears eye the 61.8% Fibo. 

Australia's second quarter Consumer Price Index data was released as a letdown for the Aussie bulls. 

The data has arrived as follows:

1.8% QoQ (expected 1.8%), Trimmed mean 1.5% (expected 1.5%) QoQ.

This has dented the progress that AUD/NZD had been making as follows:

AUD/NZD weekly chart

The W-formation is a pattern that usually sees the price retest the neckline which in the case above worked out. The price subsequently moved higher from there as bulls committed and eyed the highs of 1.1163. 

The price has dropped following the data and on the daily chart and the bears can target the 61.8% retracement near 1.1080. 

• AUD/JPY has surrendered the cushion of 95.00 after upbeat Australian CPI data.
• The overall inflation rate has landed at 6.1%, and the RBA trimmed mean CPI is been recorded at 4.9%.
• This week, Australian Retail Sales and Japan’s employment data will be of utmost importance.

The AUD/JPY pair has surrendered the majority of its intraday gains and has slipped sharply below 95.00 after the release of the Australian Consumer Price index (CPI) data for the second quarter of CY2022. The overall inflation rate has landed at 6.1%, minutely lower than the estimates of 6.2% but remained extremely higher than the prior release of 5.1%. Also, the trimmed CPI has increased to 4.9%, higher than the expectations and the prior release of 4.7% and 3.7% respectively.

This has accelerated the odds of a consecutive 50 basis points (bps) interest rate hike by the Reserve Bank of Australia (RBA). The RBA has stepped up its Official Cash Rate (OCR) to 1.35% in its previous three monetary policy meetings. A back-to-back OCR hike by 50 bps has failed to drag the inflation rate. In the first week of August, odds are higher that RBA Governor will dictate one more rate hike to contain price pressures.

Going forward, the Aussie Retail Sales data will remain in focus. A preliminary estimate for the economic data is 0.5%, lower than the prior release of 0.9%. In times, when higher energy bills and costly food products are driving Retail Sales in major economies, a slippage in the economic data may have vulnerable consequences. Retail Sales should be higher led by soaring price pressures, however, the downbeat retail sales indicate a sheer fall in the overall demand. This may drag the economy into recession.

On the Tokyo front, investors are awaiting the release of the employment data, which is due on Friday. The jobless rate may trim to 2.5% vs. the prior release of 2.6%. Also, the Jobs/Applicants ratio may increase to 1.25 from the former figure of 1.24. An occurrence of the same will strengthen the yen bulls.

• AUD/USD takes offers to renew intraday low as Aussie Q2 inflation data fails to offer positive surprise.
• Cautious optimism prevails ahead of Biden-Xi talks, FOMC even as recession fears dominate.
• Fed is expected to announce 0.75% rate hike, Powell’s speech will be crucial amid economic slowdown concerns.
• US Durable Goods Orders, risk catalysts will be important as well.

AUD/USD marked a 25 pip slump on the Aussie inflation release during early Wednesday. With this, the Aussie pair reverses the early-day rebound while refreshing the intraday low around 0.6930 at the latest.

That said, Australia’s headline Consumer Price Index (CPI) matches 1.8% QoQ forecasts, versus 2.1% prior whereas the YoY release eased below 6.2% expectations to 6.1%. Further, the RBA Trimmed Mean CPI also matched the 1.5% QoQ market consensus but rose past 4.7% forecasts to 4.9% on YoY.

Also read: Breaking: Aussie CPI comes in line with expectations, a disappointment to the AUD bulls

Contrary to the Australia CPI data, the recent improvement in the market’s risk appetite favored the AUD/USD prices earlier.

That said, US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, on Thursday, appears to have recently underpinned the market’s cautious optimism. The risk-on mood could be witnessed in the 0.80% intraday gains of the S&P 500 Futures, as well as the US 10-year Treasury yields’ rebound, up 2.5 basis points (bps) to 2.81% by the press time.

It should, however, be noted that prominent institutes like the International Monetary Fund (IMF) and the global rating giant Moody’s have already raised concerns over the recession, which in turn probes AUD/USD bulls. Further, fears of the Fed’s aggression also weigh on the quote. The same drowned Wall Street the previous day while keeping the US Treasury yields mostly pressured. It’s worth noting that the difference between the 2-year and the 10-year bond coupons widens the most since the year 2000, which in turn highlighted the rush towards risk-safety.

Having witnessed the initial reaction to Australia’s key inflation gauge, AUD/USD traders may keep their eyes on the chatters surrounding the Xi-Biden talks and European recession for fresh impulse. Following that, the US Durable Goods Orders for June, expected -0.4% versus 0.8% prior, may offer intermediate directions ahead of the Fed-led market volatility.

Technical analysis

Considering the AUD/USD pair’s successful trading above the 21-DMA level surrounding 0.6850, buyers can aim for a downward sloping resistance line from mid-April, near 0.6950. However, any further upside will be challenged by the monthly peak of 0.6983. That said, the MACD and RSI (14) hint at the quote’s further advances.

Australia's second quarter Consumer Price Index data has been released and markets are focused on the outcome in anticipation of the Reserve Bank of Australia's next move. 

The data has arrived as follows:

1.8% QoQ (expected 1.8%), Trimmed mean 1.5% (expected 1.5%) QoQ.

• Australia CPI QoQ Q2: 1.8% (est 1.9%, prev 2.1%).
• CPI YoY Q2: 6.1% (est 6.3%, prev 5.1%).
• CPI Trimmed Mean YoY Q2: 4.9%  (est 4.7%, prev 3.7%).
• CPI Trimmed Mean Q0Q Q2: 1.5% (est 1.5%, prev 1.4%).

Traders were looking for a significant beat given ongoing upside inflation surprises globally that could see the RBA move 75bp in August. However, this will cement the sentiment of just a 50bps hike and for that, the Aussie is offered. 

AUD/USD update

Prior to the data, AUD/USD had formed a W-formation on the daily chart which is a reversion pattern and the price was yet to restest the neckline near 0.6850:

The data will potentially result in a lower AUD over the course of the week and the support will be in focus. 

About Aussie CPI

The Consumer Price Index released by the RBA and republished by the Australian Bureau of Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of AUD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or Bearish).

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.7731 vs. the last close of 6.7649. 

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.

• WTI retreats from intraday high as it tries to pare the previous day’s losses.
• Convergence of six-week-old resistance line, 23.6% Fibonacci retracement guards immediate upside.
• 200-DMA, horizontal area from mid-March challenges bears targeting the yearly low.

WTI crude oil prices take a U-turn from the daily top around $95.00 as buyers struggle to retake control after the bear's multiple failures to break the 200-DMA. In doing so, the black gold reverses the previous day’s pullback from a six-week-old descending trend line during Wednesday’s Asian session.

Considering downbeat RSI (14) and the commodity’s failure to cross the aforementioned resistance line, the quote is likely to drop back towards the 200-DMA support of $93.85.

Should the WTI bears manage to conquer the $93.85 DMA support, a horizontal area comprising multiple levels marked since mid-March, around $92.40-60, will be important to watch.

In a case where the commodity prices stay bearish past $92.40, the yearly low of $88.34 should gain the seller’s attention.

Alternatively, recovery remains elusive until the quote stays below the $97.50 resistance confluence including the 23.6% Fibonacci retracement level of the March-July downturn and a descending trend line from June 14.

Even so, the monthly horizontal resistance area near $103.00 will be a tough nut to crack for the WTI bulls.

WTI: Daily chart

Trend: Bearish

• GBP/JPY has refreshed its two-day high at 165.15 amid broader weakness in yen.
• The BOJ is committed to an ultra-dovish policy and unlimited JGBs buying to spurt the growth rate.
• A moderate hawkish commentary is expected from the BOE to avoid recession in the UK.

The GBP/JPY pair has displayed a stellar performance in the Asian session. The cross is advancing promptly without any significant corrective moves and has registered an intraday high of 165.00. The pair has picked bids amid broader weakness in the Japanese yen.

The Bank of Japan (BOJ) is dedicated to bringing the pre-pandemic growth levels in its fragile economy and is focusing on keeping the inflation rate above 2%. However, the Japanese yen is falling like a house of cards for a prolonged period led by the ultra-loose interest rates by the BOJ and unlimited buying of Japan Government Bonds (JGB) to keep yields lower. BOJ Governor Haruhiko Kuroda is continuously emphasizing the demand for wage rate hikes to keep the inflation rate above the desired levels.

Meanwhile, the households in the UK economy are facing the headwinds of lower Average Hourly Earnings and a higher inflation rate. In times, when individuals need higher paychecks to cooperate with the higher price pressures, lower earnings have dampened their sentiment.

Apart from that, lower Retail Sales data will keep the pound bulls on the tenterhooks. The economic data landed at -5.8%, lower than the expectations of -5.3% and the prior release of -4.7% on an annual basis. Investors should be aware of the fact that higher price pressures are driving Retail Sales for now. And, a release of lower Retail Sales indicates that the overall demand is extremely weak. A slippage in the overall demand and lower earnings may restrict the Bank of England (BOE) to go all in and pass a bumper rate hike this time.

• Gold price picks up bids to consolidate the weekly losses, stays mildly bid during the first positive day in three.
• Markets brace for the Fed’s 75 bps rate hike as yields, S&P 500 Futures recover amid sluggish session.
• US President Biden’s readiness to talk to China’s Xi adds to the pre-Fed optimism.
• XAU/USD could rise further if recession woes stop the Fed from surprising markets.

Gold Price (XAU/USD) refresh intraday high around $1,720 as the metal braces for the Federal Open Market Committee (FOMC) meeting on early Wednesday. In addition to the pre-Fed consolidation, the market’s cautious optimism also helps the bullion to snap the two-day downtrend.

US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, on Thursday, appears to have recently underpinned the market’s cautious optimism. The risk-on mood could be witnessed in the 0.80% intraday gains of the S&P 500 Futures, as well as the US 10-year Treasury yields’ rebound, up 2.5 basis points (bps) to 2.81% by the press time.

It’s worth noting, however, that the recession fears join the likely hawkish expectations from the Fed to keep XAU/USD prices under pressure. The fears of economic slowdown intensified after the International Monetary Fund (IMF) cut its global growth forecast (once again) this year, to 2.9% from 3.6% forecasted in April. The Washington-based organization also raised concerns over more economic hardships amid a full cut-off of Russian gas to Europe and a 30% drop in Russian oil exports, both of which are looming. It should be noted that the disappointing results from the global retailer Walmart also contributed to the recession fears.

Elsewhere, the US CB Consumer Confidence fell for a third consecutive month in July, to 95.7 from 98.4 prior. Further, the US New Home Sales dropped to 0.59M for June versus 0.66M expected and 0.642M previous readout. On the same line, Richmond Fed Manufacturing Index rose to the highest level since April, to 0 from -13 expected and -9 prior (revised up from -11).

On Tuesday, Wall Street closed in the red and the US Treasury yields remain mostly pressured while portraying the biggest difference between the 2-year and the 10-year bond coupons since the year 2000, which in turn highlighted the rush towards risk-safety.

While the Fed’s ability to tame inflation and still keep the growth prospects intact will be important for gold traders, US Durable Goods Orders for June, -0.4% forecast compared to 0.8% prior, could also entertain traders.

Also read: Gold Price Forecast: Pressure mounts as headaches arise

Technical analysis

Gold’s rebound approaches the $1,720 hurdle, comprising the 61.8% Fibonacci retracement of the July 13-21 downside and the weekly resistance line. The recovery moves, however, lacks courage as shown by the RSI and the MACD.

Even so, an upside break of the $1,720 resistance confluence could direct XAU/USD towards a two-week-old resistance line near $1,735 before convincing the bulls.

On the contrary, the 200-HMA and 50% Fibonacci retracement level restrict the precious metal’s short-term downside to around $1,713.

Following that, a horizontal area from July 14, around $1,700-1697, could probe gold sellers before directing them to the yearly low surrounding $1,680.

Overall, gold prices remain pressured despite the recently easing bearish bias.

Gold: Hourly chart

Trend: Further weakness expected

“The global economy is in the grips of a serious slowdown, with some key economies at high risk of recession and only sparse meaningful cooling in inflation over the next year,” per to Reuters polls of more than 500 forecasters around the world.

Key findings

Also read: Forex Today: Eyes on Fed’s decision and EU energy crisis

• GBP/USD is indicating a bullish open test-drive session as DXY has tumbled at open.
• The DXY has picked offers as retail demand is displaying downside signals.
• Lower Average Hourly Earnings and a slump in retail sales may restrict BOE to turn extremely hawkish.

The GBP/USD pair has printed a fresh intraday high at 1.2053 as the US dollar index (DXY) has witnessed a steep fall at open. The cable is marching sharply higher and has displayed a bullish open test-drive structure. The aforementioned structure indicates a firmer bullish trading session for the whole day as pound bulls have defended the opening downside pressure and are scaling higher strongly.

The DXY has witnessed a steep fall as retail demand has hit hard in the US economy. The US Consumer Confidence has trimmed to 95.7 vs. the June figure of 98.4. Also, the economic data has dropped lowest to February 2021. Apart from that, US giant retail chain operator Walmart reported downbeat earnings.

The underperformance of Consumer Confidence and softer earnings by retail giant indicate that retail demand has been hit dramatically by soaring price pressures. The investing community should be aware of the fact that the US Retail Sales data remained upbeat after landing at 1%, higher than the expectations of 0.8% but they were contaminated by higher energy bills and costly food products. This may compel the Federal Reserve (Fed) to trim the extent of hawkish guidance as a rate hike by 75 basis points (bps) is imminent.

Meanwhile, the UK economy is already going through a tough phase as the inflation rate has climbed to a high of 9.4% and the Bank of England (BOE) is not finding strength from the UK economic indicators to accelerate interest rates unhesitatingly.  The BOE has no other choice than to scale its interest rates higher but slippage in overall demand and lower wage growth will trigger recession fears vigorously.

• EUR/USD renews intraday high as it consolidates the biggest daily loss in a fortnight.
• Clear downside break of a two-week-old ascending trend line, absence of oversold RSI favor sellers.
• Bulls remain cautious until witnessing a clear break of 1.0365.

EUR/USD picks up bids to refresh intraday high near 1.0140 during Wednesday’s mid-Asian session. In doing so, the major currency pair consolidates the previous day’s losses, the biggest since July 11.

However, the quote’s sustained reversal from a three-week-old horizontal area, as well as a clear downside break of the previous support line stretched from July 14, keeps the EUR/USD sellers hopeful. Also suggesting the quote’s further downside is the downbeat RSI (14), not oversold.

That said, the quote’s latest rebound could aim to regain the 1.0200 threshold before challenging the support-turned-resistance line, around 1.0215 by the press time.

Even so, a horizontal area comprising multiple tops marked since early July, around 1.0270-80, could challenge the EUR/USD bulls. Also acting as the upside filter is the 200-SMA and downward sloping resistance line from June 09, respectively near 1.0325 and 1.0335.

It’s worth noting that the pair buyers remain cautious until witnessing a successful break of the horizontal resistance area established in early May, near 1.0350-65.

Meanwhile, fresh selling could direct EUR/USD bears towards the 1.0100 round figure before the 13-day-old horizontal support area could challenge the further downside around 1.0075.

In a case where the quote drops below 1.0075, the parity level and the recent low, near the 61.8% Fibonacci Expansion (FE) of March-May 2022 moves close to 0.9950, will be in focus.

EUR/USD: Four-hour chart

Trend: Further downside expected

• EUR/GBP is expected to deliver more losses amid the energy crunch in Eurozone.
• The arrival of winter in Europe escalates the demand for natural gas.
• Lower consensus for GDP is added to the headwinds for shared currency bulls.

The EUR/GBP pair is advancing gradually in early Tokyo after displaying a vertical downside move on Tuesday. The cross is oscillating below 0.8520 and is getting prepared for a fresh downside impulsive wave as Germany hit an energy crunch after Russia cut-off gas supply and the market participants are expecting a significant drop in Eurozone Gross Domestic Product (GDP) numbers, which are due on Friday.

‘When the winter arrives the lone wolf dies but the pack survives. No doubt, the core member of the European Union (EU), Germany is withstanding the decision of reducing dependency on Russian energy imports. However, a sudden halt in natural gas supply to Europe by Russia from its main pipeline after featuring some unwarranted reasons has created havoc for the energy market in the bloc.

It is worth noting that Germany carries a significant dependency on Russian energy imports and a lower supply of energy in times when winter is on the door could trigger recession fears due to high jobless rates. The EU is actively looking for alternative candidates who will address the bumper energy demand in Europe. However, the execution demand plenty of time.

Apart from that, a lower consensus for eurozone GDP numbers is also weakening the shared currency bulls. The economic data is seen lower at 3.4% than the prior release of 5.4% on an annual basis.

On the UK front, soaring price pressures are elevating the hopes of more rate hike announcements by the Bank of England (BOE). The overall UK Consumer Price Index (CPI) has climbed to 9.4% vs. 9.1% recorded in June.

Australian CPI overview

Early on Wednesday, at 01:30 GMT, markets will see the 2022’s second quarter (Q2) inflation data for the Australian economy.

The headline Consumer Price Index (CPI) QoQ is likely to ease to 1.8% QoQ from 2.1% prior but may improve to 6.2% on YoY versus 5.1% in previous readings.

On the contrary, the Reserve Bank of Australia's (RBA) trimmed-mean CPI is expected to remain mostly unchanged on the QoQ basis at 1.5% but may rise to 4.7% versus 3.7% prior.

Given the recently strong Aussie jobs report and RBA’s hawkish comments, AUD/USD bulls will pay close attention to the key inflation report for backing their bias toward the Reserve Bank of Australia’s (RBA) aggressive rate hike.

Ahead of the release, FXStreet’s Yohay Elam states,

On the same line were comments from Westpac stating,

How could it affect the AUD/USD?

AUD/USD struggles for clear directions as it seesaws near 0.6950 ahead of the key inflation data. The pair’s latest inaction could also be linked to the market’s cautious mood before the Federal Open Market Committee (FOMC) meeting and Thursday’s likely virtual meeting between US President Joe Biden and his Chinese counterpart Xi Jinping.

Given the inflation fears joining the hawkish RBA commentary, today’s Aussie inflation data may help the AUD/USD prices to consolidate recent losses. However, the existence of the Fed’s monetary policy on Wednesday might restrict the data’s capacity to move the pair.

Technically, sustained trading below the 21-DMA level surrounding 0.6850 appears necessary for the AUD/USD bears to retake control. Alternatively, a downward sloping resistance line from mid-April, near 0.6950, precedes the monthly peak of 0.6983 to restrict short-term advances of the pair. That said, MACD and RSI (14) hint at the pair’s further upside.

Key Notes

Australian CPI Preview: Why inflation is set to exceed estimates, and where AUD/USD could go 

AUD/USD retreats towards 0.6900 on recession woes, Aussie inflation, Fed in focus

About the Australian CPI

The Consumer Price Index released by the RBA and republished by the Australian Bureau of Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of AUD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or Bearish).

• AUD/USD bulls need to break 0.6890 for bullish prospects ahead.
• There is scope for a meanwhile bearish correction ahead of and around key events.

AUD/USD is on the from foot put there are prospects of a bearish correction as we head into the key data events for the day ahead that include Aussie inflation and the Federal Reserve. With that being said, if the bulls commit at this juncture, and break 0.6880/90, then the 0.7050/70s will come into focus. The following illustrates the price structure across a number of time frames. 

AUD/USD monthly chart

The monthly chart is showing the price is making its way into an extreme of the lower end of the broadening formation. This leaves scope for upside for the weeks and months ahead. 0.6990 will be important in that respect as the prior swing lows and structure point looking left. 

AUD/USD weekly chart

The price has already made a move higher but it has left a W-formation on the weekly chart and this leaves prospects of a meanwhile correction on the cards for the days and week ahead. The bulls could well engage from the neckline between 0.6850 and 0.6880. 

AUD/USD daily chart

The price is forming a rounding formation on the daily chart with a lack of bullish momentum which exposes the aforementioned levels to the downside for the days ahead. 

With that being said, if the bulls commit at this juncture, and break 0.6880/90, then the 0.7050/70s will come into focus.