Tin tức thì trường

• Investors should brace for a volatility contraction on Falling Wedge formation.
• The kiwi bulls have defended the weekly lows at 0.6146 for the second time.
• The antipodean is struggling to surpass the 20-period EMA at 0.6253.

The NZD/USD pair is oscillating in a narrow range of 0.6139-0.6158 in the Asian session. The kiwi bulls have defended the weekly lows at 0.6146 for the second time on Wednesday. Broadly, the asset has turned sideways and may display a volatility expansion on the availability of a potential trigger.

On an hourly scale, the formation of the Falling Wedge is indicating a lackluster performance by the major going forward. The upper portion of the chart pattern is placed from June 16 high at 0.6396 while the lower portion is plotted from June 14 low at 0.6196. Usually, the above-mentioned chart pattern leads to a bullish reversal after the upside break of the upper portion of the former.

The downward-sloping trendline placed from Monday’s high at 0.6253 will act as a major hurdle for the counter.

The antipodean is struggling to surpass the 20-period Exponential Moving Average (EMA) at 0.6156, which signals that the short-term trend is still not lucrative for the kiwi bulls.

Meanwhile, the Relative Strength Index (RSI) (14) is focusing surviving the attacks and holding the 40.00 mark to keep bulls alive.

A decisive move above Wednesday’s high at 0.6176 will drive the asset towards the round-level resistance at 0.6200, followed by June 22 low at 0.6244.

On the flip side, the greenback bulls could regain control if the major drop below Tuesday’s low at 0.6124. An occurrence of the same will drag the asset towards 25 May 2020 low at 0.6084. A violation of 0.6084 will expose the asset to more downside potential towards the psychological support of 0.6000.

NZD/USD hourly chart    

“The Bank of Canada (BOC) is set to raise its overnight rate by a hefty 75 basis points (bps) this month and by another 50 in September, front-loading a campaign to take monetary policy to where it will restrain the economy,” according to a Reuters poll of 29 economists.

Key findings

Also read: USD/CAD retreats towards 1.3000 as oil recovers, focus on US ADP Employment

• GBP/JPY grinds higher after bouncing off the lowest levels in three weeks.
• Bullish candlestick, rebound from 100-DMA favor buyers amid steady RSI.
• 50-DMA guards immediate upside amid bearish MACD signals.

GBP/JPY defends the previous day’s rebound from the 100-DMA as it picks up bids around 162.15 during Thursday‘s Asian session. In doing so, the cross-currency pair also justifies the ‘Dragonfly Doji’ candlestick marked on Wednesday.

Given the RSI (14) favoring the recent rebound from a three-week low, backed by bullish candlestick formation and a U-turn from the 100-DMA, GBP/JPY is likely approaching the 50-DMA hurdle surrounding 162.80.

However, a convergence of the 21-DMA and a downward sloping resistance line from June 22, near 164.80, appears the key resistance level to watch.

Should the GBP/JPY prices rally beyond 164.80, the odds of witnessing a north-run towards the previous monthly peak of 168.73 can’t be ruled out.

On the contrary, pullback moves remain unimportant beyond the 100-DMA support level of 160.90.

Following that, an upward sloping trend line from early March, near 159.50, will be crucial to watch for the GBP/JPY bears.

In a case where the quote provides a daily closing below 159.50, a slump towards May’s low of 155.59 becomes imminent.

GBP/JPY: Daily chart

Trend: Limited upside expected

• USD/CAD extends pullback from multi-year high, pressured of late.
• Oil prices print corrective pullback despite recession fears, API inventory build.
• Softer US data probes USD bulls ahead of key data/events, FOMC Minutes favored greenback buyers.
• US ADP Employment Change, Canada trade and Ivey PMI data to decorate calendar.

USD/CAD remains pressured around 1.3030, extending the previous day’s pullback from the highest levels since late 2020, as traders pare USD gains amid a quiet Asian session on Thursday. It’s worth noting that the bounce in the prices of Canada’s main export item, WTI crude oil also weighs on the Loonie pair.

USD/CAD printed mild gains on Wednesday, despite the broad US dollar strength and the weakness in the oil prices, as it retreated from the key resistance line around the multi-day high marked on Tuesday.

Also favoring the pullback could be the softer US data. That said, US ISM Services PMI for June dropped to 55.3 versus 55.9 in May. The actual figure, however, came in better than the market expectation of 54.5. It’s worth noting that the US JOLTS Job Opening for May declined to 11.25 million versus 11.00 million expected and 11.68 million prior.

While the softer US data initially allowed the bears to take a breather, the Federal Open Market Committee (FOMC) Minutes favored the pessimism as the Fed policymakers appear determined to announce another 75 basis points (bps) of a rate hike. That said, the latest Fed Minutes highlighted the need for the “restrictive stance of policy” while also saying, “even more restrictive stance could be appropriate if elevated inflation pressures were to persist”.

It should be noted that the WTI crude oil prices eyes to regain the $100.00 level, around $95.80 by the press time while bouncing off a three-month low of $93.20. In doing so, the black gold ignores the market’s fears of economic slowdown and a build in the US inventories, as per the weekly oil stockpile data from the American Petroleum Institute.

Against this backdrop, the US 10-year Treasury yields bounced off a three-week low to 2.93% but the higher print of the 2-year bond coupon, around 2.99%, hints at the global recession fears. The Wall Street benchmarks, however, closed with mild gains.

Given the market’s indecision, traders will pay attention to the monthly readings of Canada trade numbers and the Ivey Purchasing Managers Index for fresh impulse. However, major attention will be given to the US ADP Employment Change for June, expected 200K versus 128K prior, for clear directions.

Also read: ADP Net Employment Change June Preview: Can employment stave off a recession?

Technical analysis

Considering the USD/CAD pair’s sustained pullback from the two-month-old resistance line, around 1.3080 by the press time, the quote is likely to revisit the 10-DMA support of 1.2927.

• AUD/USD is facing volatility contraction as the DXY has turned sideways.
• The aussie bulls have failed to capitalize on the 50 bps rate hike announcement by the RBA.
• This week, the US employment data will be the major trigger for the FX domain.

The AUD/USD pair is juggling minutely above 0.6780 in the early Tokyo session. It looks like the pair is following the footprints of the lackluster US dollar index (DXY) and is witnessing volatility contraction. There is severe pessimism in the FX domain and risk-perceived currencies are falling like a house of cards. However, the aussie bulls have defended their weekly lows of 0.6764 for the second time on Wednesday.

The antipodean has failed to capitalize on the elevation of the interest rate by the Reserve Bank of Australia (RBA). On Tuesday, RBA Governor Philip Lowe hiked its Official Cash Rate (OCR) by 50 basis points (bps). Now, the RBA’s OCR stands at 1.35% after a consecutive half-a-percent rate hike. The RBA is very much focused to bring price stability to its economy as the inflation rate has reached 5.1%, recorded in the first quarter of CY2022.

Meanwhile, the US dollar index (DXY) is displaying back and forth moves above 107.00. The DXY has renewed its 19-year high at 107.26 after the release of the hawkish minutes. Only one Federal Open Market Committee (FOMC) member voted against the rate hike announcement by 75 bps.

Now, investors are shifting their focus entirely to the US employment data, which is due on Friday. As per the market consensus, the US economy added 270k jobs in June, higher than the former release of 390k. However, the Unemployment Rate may remain stable at 3.6%.

• Gold prices are likely to witness more downside on a firmer DXY.
• Hawkish FOMC minutes have brought an intense sell-off in gold prices.
• The US NFP is seen lower at 270k in relation to the prior release.

Gold price (XAU/USD) has turned into a consolidation phase after displaying a sheer downside move to near $1,732.00 in the New York session. On a broader note, the precious metal is in the grip of bears and possesses the downside potential if it violates the crucial support of $1,730.00.

The precious metal is attracting offers as the release of the Federal Open Market Committee (FOMC) minutes on Wednesday infused fresh blood into the US dollar index (DXY). The minutes were extremely hawkish as only one FOMC member was not in support of 75 basis points (bps) interest rate hike. Also, the Federal Reserve (Fed) is ‘unintentionally committed’ to bringing price stability and will elevate interest rates further to the same extent if high inflation persists further.

The DXY has refreshed its 19-year high at 107.26 and more gains are on the way ahead of the US Nonfarm Payrolls (NFP). A preliminary estimate for the economic data is 270k, lower than the prior print of 390k. In today’s session, the spotlight will remain on the Automatic Data Processing (ADP) Employment Change, which may improve to 200k, higher than the prior print of 128k.

Gold technical analysis                              

On the daily scale, the gold prices are declining towards the horizontal support placed on the 8 March 2021 low at $1,676.87. The 50- and 200-period Exponential Moving Averages (EMAs) have displayed a death cross at $1,850.00, which adds to the downside filters. Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bearish range of 20.00-40.00, which signals more downside ahead.

Gold daily chart

• GBP/USD refrains from portraying the political crisis at home by posting mild losses at two-year low.
• Over 30 UK diplomats have resigned, 1922 Committee of backbench Tory MPs eye second no-confidence vote.
• Recession fears, hawkish Fed bets exert downside pressure but softer US data probed bears.
• US ADP Employment Change to decorate calendar, UK politics, Brexit drama more important for clear directions.

GBP/USD holds onto the late Wednesday’s bounce-off two-year low around 1.1925 as traders seek fresh clues during Thursday’s initial Asian session. The Cable pair dropped to the lowest levels since March 2020 the previous day as the UK’s political crisis joined Brexit woes and broad recession fears. However, the market’s anxiety ahead of today’s key data/events, as well as softer US statistics, appears to have probed the bears of late.

With over 30 resignations of the British diplomats, including the Chancellor, Health Minister and Tory Party Vice-Chairman, UK Prime Minister Boris Johnson is under immense pressure to step down, even if he rejects such push by some of the remaining Conservatives.

Recently, Michael Gove, one of the most senior ministers in the British government, earlier told Prime Minister Boris Johnson he must quit. 

Elsewhere, EU Commissioner for Interinstitutional Relations and Foresight Maroš Šefčovič said on Wednesday that the UK bill on altering the Northern Ireland Protocol is unacceptable.

On a broader front, the US 10-year Treasury yields bounced off a three-week low to 2.93% but the higher print of the 2-year bond coupon, around 2.99%, which in turn hints at the global recession fears. International Monetary Fund (IMF) Managing Director Kristalina Georgieva also said, per Reuters, “Global economic outlook has 'darkened significantly' since last economic update.” the IMF chief also added, “Cannot rule out the possible global recession in 2023.”

It should be noted that US ISM Services PMI for June dropped to 55.3 versus 55.9 in May. The actual figure, however, came in better than the market expectation of 54.5. It’s worth noting that the US JOLTS Job Opening for May declined to 11.25 million versus 11.00 million expected and 11.68 million prior.

The Federal Open Market Committee (FOMC) Minutes also favored the market pessimism as the Fed policymakers appear determined to announce another 75 basis points (bps) of a rate hike. That said, the latest Fed Minutes highlighted the need for the “restrictive stance of policy” while also saying, “even more restrictive stance could be appropriate if elevated inflation pressures were to persist”.

Looking forward, qualitative catalysts are likely to entertain GBP/USD traders ahead of the US ADP Employment Change for June, expected 200K versus 128K prior.

Also read: ADP Net Employment Change June Preview: Can employment stave off a recession?

Technical analysis

A two-month-old support line near 1.1765 seems to restrict short-term GBP/USD downside amid oversold RSI conditions. The corrective pullback, however, needs to cross the monthly resistance line, near 1.2090 by the press time, to recall the buyers.

• EUR/USD remains sidelined after declining to the lowest levels since December 2002.
• Fears of economic slowdown at home amid energy crisis, geopolitical tussles favor bears.
• Softer US data couldn’t help as FOMC Minutes appear hawkish.
• ECB Monetary Policy Meeting Accounts, US ADP Employment Change for June will be crucial to track.

EUR/USD turned out to be the weakest among the G10 currency pairs on Wednesday before bears took a breather around the nearly 20-year low of 1.0161 during the initial hour of Thursday’s Asian session. Apart from the broad pessimism surrounding economic growth and central bankers’ aggression, the energy crisis in the bloc exerted additional downside pressure on the quote ahead of the key data/events.

Germany and Italy have already signaled early signs of economic slowdown and the bloc’s Retail Sales also dropped to 0.2% in May versus 4.0% recorded in April and 5.4% estimated. Also on the negative side were chatters that the European Central Bank’s (ECB) crisis-fighting scheme risks being tied up in legal and political knots, per the Financial Times (FT) also weighing on the EUR/USD prices.

On the other hand, US ISM Services PMI for June dropped to 55.3 versus 55.9 in May. The actual figure, however, came in better than the market expectation of 54.5. It’s worth noting that the US JOLTS Job Opening for May declined to 11.25 million versus 11.00 million expected and 11.68 million prior.

While the softer US data initially allowed the bears to take a breather, the Federal Open Market Committee (FOMC) Minutes favored the pessimism as the Fed policymakers appear determined to announce another 75 basis points (bps) of a rate hike. That said, the latest Fed Minutes highlighted the need for the “restrictive stance of policy” while also saying, “even more restrictive stance could be appropriate if elevated inflation pressures were to persist”.

Elsewhere, International Monetary Fund (IMF) Managing Director Kristalina Georgieva said, per Reuters, “Global economic outlook has 'darkened significantly' since last economic update.” the IMF chief also added, “Cannot rule out the possible global recession in 2023.”

Amid these plays, the US 10-year Treasury yields bounced off a three-week low to 2.93% but the higher print of the 2-year bond coupon, around 2.99%, hints at the global recession fears.

Moving on, risk catalysts are likely to entertain EUR/USD traders ahead of the ECB Monetary Policy Meeting Accounts (mostly known as ECB Minutes), as well as the US ADP Employment Change for June, expected 200K versus 128K prior.

Also read: ADP Net Employment Change June Preview: Can employment stave off a recession?

Technical analysis

Having dropped below the key 1.0360-50 support zone comprising multiple lows marked since May, EUR/USD appears vulnerable to witness further downside towards the 78.6% Fibonacci Expansion (FE) of late March-May downside, near 1.0130. However, any further declines won’t hesitate to recall the 1.0000 psychological magnet back to the chart.

• WTI attempts to recover from the bottom of the barrel.
• The supply remains tight but the uncoiling process could come underway. 

West Texas Intermediate (WTI) crude oil was lower again overnight as recession worries continue to weigh on the black gold. At the time of writing, WTI is trading at $98.11 after recovering from the lows of $95.09.

The bears moved in overnight when investors took to the sidelines in anticipation of the Federal reserve minutes and presumed hawkishness from the central bank. The pessimists are expecting that higher rates will lead to a global recession. The consensus is forcing a bid into the bond markets and sending the greenback to fresh 20-year highs.

''The minutes of the US Fed’s June meeting (where they hiked 75bps) reveal a central bank laser focussed on defending its inflation target,'' analysts at ANZ Bank explained.

''There is clearly a concern amongst the FOMC about inflation expectations becoming unanchored,'' the analysts added. ''They noted “that a significant risk… was that elevated inflation could become entrenched if the public began to question the resolve of the Committee to adjust the stance of policy as warranted”. The Fed is understandably eager to reinforce to the public that they’ve got this, and hiking 75bps (and signalling many more hikes to come) certainly reinforces the message.''

Meanwhile, for related updates in the oil market, the analysts noted that ''Kazakhstan is the latest producer to be running into issues. The Caspian Pipeline Consortium, which exports Kazakh crude from a key terminal on the Black Sea, was ordered to halt loadings for 30 days due to a violation of a spill-prevention plan''.

Supply remains tight and little progress has been made toward solving structural supply challenges. Analysts at TD Securities argued that ''even a slow rate of demand growth can endanger energy supply. In this context, Brent crude and distillates prices are also exhibiting strong asymmetry towards upside moves in demand, which could point to an uncoiling process should commodity demand rebound.''

• USD/CHF is juggling around 0.9700 as investors await employment data.
• The Swiss Unemployment data is seen as stable at 2.2%.
• Hawkish Fed minutes have supported the DXY and may display more upside further.

The USD/CHF pair is likely to remain in a consolidation as investors are awaiting the release of the Swiss jobless rate. The asset has turned sideways after failing to cross the critical hurdle of 0.9740. The major is attempting a balance in a tad wider range of 0.9690-0.9740 ahead.

A preliminary estimate for the Swiss Unemployment Rate on a monthly basis is 2.2%, similar to the former release. The Swiss National Bank (SNB) is expected to be delighted with the economic data as it will facilitate a rate hike decision by the central bank. It is worth noting that the SNB is on the path of elevating interest rates now. SNB Governor Thomas J. Jordan announced a rate hike by 50 basis points (bps) in its June monetary policy meeting.

Meanwhile, the US dollar index (DXY) is holding itself comfortably above 107.00. The DXY has turned sideways after the release of the hawkish Federal Open Market Committee (FOMC) minutes on Wednesday. Only one FOMC member was not in support of dictating a 75 bps rate hike. The guidance will also remain highly restrictive if price pressures persist for longer.

In today’s session, the release of the Automatic Data Processing (ADP) Employment Change will remain in focus. As per the market consensus, the job additions in the labor market may improve to 200k, higher than the prior print of 128k. However, the Initial Jobless Claims will remain almost flat at 230k, against the former release of 231k.

• The EUR/JPY is tumbling in the week by some 1.88%.
• Selling pressure trips down the EUR/JPY to fresh weekly lows, below 138.00.
• The EUR/JPY might achieve a mean reversion move towards 139.00 before aiming towards the 100-day EMA at 136.00

The EUR/JPY is almost flat as the Asian Pacific session takes over, up 0.04%, after plunging 0.78% on Wednesday. All that courtesy of a mixed market mood painting a dark economic outlook due to the energy crisis that has the Euro area at the brink of a recession, as Russia squeezes energy supplies to “unfriendly” countries. At the time of writing, the EUR/JPY at 138.40.

Selling pressure trips down the EUR/JPY to fresh weekly lows

US equities finished in the New York session on a higher note. Asian stocks are set to open in negative territory, as illustrated by futures in Asia trading with losses, while safe-haven currencies in the FX market are recording gains.

The EUR/JPY, Wednesday’s open, was near Tuesday’s lows and seesawed through most of the Asian session. However, once the European session took over, EUR/JPY’s sellers stepped in and sent the pair plunging towards a fresh weekly low at around 137.26.

EUR/JPY Daily chart

The EUR/JPY is neutral-upward biased, but the break of the 20 and 50-day EMAs opened the door for sellers, which piled around the 142.50 mark, and at 138.40, July 6 high, spurring EUR/JPY’s losses of 400 pips. A continuation to the downside looms, but a corrective leg towards 139.00 is on the cards.

If that scenario plays out, the EUR/JPY’s first support would be the 138.00 figure. Once cleared, the next support would be the July 6 low at 137.26, followed by the 100-day EMA at 135.92.

EUR/JPY Key Technical Levels

• The USD/JPY rises bolstered by higher US Treasury yields, with the 10-year benchmark note up at 2.932%.
• A mixed market mood, keep safe-haven currencies bid, in the USD/JPY, the greenback.
• A USD/JPY rising wedge in the daily chart might open the door for a pullback towards 132.50 before challenging the YTD high around 137.00.

The USD/JPY steadily advanced on Wednesday and is up 0.50% amidst a mixed market mood session as equities rise while recessionary fears bolster safe-haven currencies. At the time of writing, the USD/JPY is trading at 135.91, shy of weekly highs around 137.00.

The sentiment is mixed as Wall Street closed. US equities rose, except for the Russell 2000, while in the meantime, in the FX market, a risk-off impulse keeps the safe-haven currencies in the driver’s seat.

Regarding the USD/JPY, the greenback got boosted by climbing US Treasury yields. The US 10-year yield erased Tuesday’s losses, rising twelve basis points at 2.932%, a tailwind for the USD/JPY.

USD/JPY Daily chart

The USD/JPY daily chart illustrates the pair as neutral-upward biased. Nevertheless, the major broke a rising wedge, though it remains to trade in the 134.90-136.90 area, signaling that “some” buying pressure lies ahead. However, risks of an intervention by Japanese authorities keep USD/JPY traders uncommitted to lift prices higher, which could open the door for a test of August’s 1998 highs around 147.67.

USD/JPY traders should be aware that a rising wedge was broken to the downside, meaning that prices at a certain time might fall towards 132.50 (the rising wedge profit target). After that, a re-test of the YTD highs around 137.00 is on the cards.

USD/JPY Key Technical Levels

• AUD/USD is in the hands of the bears on the long-term charts.
• Nearereterm, there are prospects of a bullish meanwhile correction. 

AUD/USD is pressured mid-week and has been testing below 0.6800 again but has so far failed to break cleanly away despite making a fresh low for the week. Instead, the bulls moved in to take the price back to test the bear's commitments near the figure and failed to break through them. The following illustrates the prospects of both a move higher and lower in a multi-timeframe analysis:

AUD/USD H4 charts

The M-formations are drawing in the price towards the necklines. The grey area is a price imbalance that would be expected to be filled in due course. 

AUD/USD daily chart

The daily chart, however, shows that there is a resistance that would guard against a move higher than the mitigation window. 

AUD/USD weekly chart

The price is on the verge of moving lower to attenuate the price imbalance below. A correction to restest the neckline of the M-formation could fuel further supply to 0.6616 prior highs. 

Michael Gove, one of the most senior ministers in the British government, earlier told Prime Minister Boris Johnson he must quit. As a consequence, the PM has firmed him as he seeks to reshuffle out those that oppose his leadership from within his cabinet. 

Resignations began on Tuesday after Downing Street admitted the PM had known about allegations of inappropriate behaviour by disgraced MP Chris Pincher in 2019 before hiring him as deputy chief whip in February.

Mr Pincher resigned from the role last week after further allegations that he groped two men at a private club in London, and he was later suspended from the Conservative Party.

What you need to take care of on Thursday, July 7:

The dollar remained strong on Wednesday, with EUR/USD reaching a fresh 20-year low of 1.0160. The shared currency is among the weakest amid fears of a local recession and the looming energy crisis.

GBP/USD trades around 1.1930, under pressure as the UK Government crisis deepened. Over 30 officials resigned, while many others asked Prime Minister Boris Johnson to leave. The 1922 Committee of backbench Tory MPs is looking to change rules protecting PM Johnson from a second no-confidence vote.

The FOMC released the Minutes of its latest meeting. The document showed that Federal Reserve officials agreed high inflation warranted restrictive interest rates and are open to being even more restrictive if inflation persists. Also, the majority of participants saw a downside risk to growth, while judging there was a “significant risk” higher inflation could become entrenched. Somehow, the US Federal Reserve left the doors open for another 75 bps hike.

Wall Street spent the day struggling to post gains, but major indexes closed the day up. Despite hawkish FOMC Minutes, policymakers refrained from mentioning a 100 bps rate hike, despite pledging to do whatever was needed to tame inflation. Policymakers also refrained from speaking about recession.

The US Treasury yield curve remains inverted. The 10-year note currently yields 2.93%, while the 2-year note currently yields 2.97%. An inverted curve is usually seen as an early sign of recession.

Commodity-linked currencies were little changed against the greenback. AUD/USD trades around 0.6780 while USD/CAD hovers around 1.3040.

The USD/CHF reached a fresh monthly high of 0.9743, while the USD/JPY pair settled at 135.85.

Gold fell to a fresh 2022 low of $1,732.19 a troy ounce, trading nearby at the end of the day. Crude oil prices edged lower, with the barrel of WTI now at $98.40. 

• During the week, the New Zealand dollar is down 0.82%.
• The market sentiment is mixed as US equities rally alongside safe-haven currencies.
• The Fed to hike 75 bps in the July meeting, as shown by June’s FOMC minutes.

The New Zealand dollar drops for the second straight day but trades within the boundaries of Tuesday’s price action, just above the weekly low at around 0.6150s, following the release of the US Federal Reserve June meeting minutes. At 0.6152, the NZD/USD portrays a risk-off mood in the FX space, though US equities are rising.

NZD/USD drops due to risk-off mood and a strong US dollar

The kiwi has been under downward pressure as well as most G8 currencies. A buoyant greenback courtesy of worldwide recession fears, another China coronavirus outbreak, and elevated inflation spurred safe-haven flows since Tuesday. The US Dollar Index, a gauge of the greenback’s performance vs. six currencies, rose above the 107.000 mark for the first time since December 2002, reaching a 20-year high at 107.264.

Concerning the awaited US Federal Reserve’s minutes, FOMC pledged to its hawkish posture, and policymakers agreed that a 75 bps rate hike is warranted. Fed officials noted that even a “more restrictive stance” could be appropriate if inflation prevails while acknowledging that economic growth risks are skewed to the downside.

In the meantime, the US 2s-10s yield curve has remained inverted since Tuesday late in the North American session. Analysts at ING commented, “Inverted yield curves are typically bad news for pro-growth currencies (commodity exporters + Europe & Asia ex-Japan) and typically good news for the dollar and the Japanese yen and Swiss franc. This environment looks set to continue over the summer months as the Fed continues to push ahead with tightening.”

Elsewhere, an absent New Zealand economic docket left NZD/USD traders adrift to US economic data and market sentiment.

Earlier during the New York session, the US docket featured S&P Global and US ISM Services and Composite PMIs, with figures beating expectations but trailing previous readings. That illustrates a gloomy scenario as the US economic growth slows down.

The week ahead, the US economic docket will feature ADP Employment Change, Initial Jobless Claims, and Fed speakers on Thursday.

NZD/USD Key Technical Levels

• Gold has extended its downside into fresh bear cycle lows as the US dollar soars.
• Meanwhile, the price is reaching a key area on the daily chart where bulls will likely emerge.

At $1,739.31, the gold price is underwater by some 1.4% in the North American afternoon session and after the release of the Federal Open Committee Minutes which underpinned the prospects of a 50 or a 75 basis point interest rate hike at this month's meeting. 

The minutes failed to energise what has turned out to be a relatively quiet session on Wednesday although stocks on Wall Street have risen with the S&P 500 now over 0.6% higher for the day. US stocks gyrated ahead of the minutes but have moved higher given that there was little in the detail that ensures an uber hawkish path in the latter half of the year.

Additionally, the minutes did not necessarily cement another sure 75 basis points as soon as July, leaving just a 50bp rate hike on the table still as well. While the minutes don't mention the word "recession," there was an acknowledgement that the interest rate hikes could have a bigger than anticipated dampening effect on the economy. Another hike this month was flagged but the Fed's chairman, Jerome Powell, would not commit to another 75 bp move in the presser at the June meeting. 

However, according to CME Fed watch, the markets now see a 90.3% probability of another interest rate hike of at least 75 basis points at the conclusion of this month's two-day meeting, the last such meeting on the date book until the fall. This has supported the greenback which rose to fresh 20-year highs on Wednesday, sinking the euro that has tumbled to a new two-decade low. The dollar index (DXY), which tracks the greenback versus a basket of six currencies, burst through 107 the figure, sending the euro below 1.0200 vs the greenback for the first time since December 2002. 

Fed bets tailing off?

Looking forward, the US dollar could struggle to extend gains in the Fed expectations alone, for which 50 bp hikes at the subsequent meetings November 2 and December 14 are moving towards 25 bp. Analysts at Brown Brothers Harriman explained that WIRP shows the beginning of an easing cycle by Q1 23. ''This is a much earlier timeframe for easing and one that we think is very, very premature since it would imply a recession hitting near the end of this year or early next year.  The swaps market is now pricing in 175 bp of tightening over the next 6 months that would see the policy rate peak between 3.25-3.50%.''

Nevertheless, as analysts at TD Securities explained, ''gold is being weighed down by substantial CTA trend followers.'' The analysts explained that ''the massive amount of speculative length from proprietary traders in the yellow metal also appears complacent, given that this length was accumulated as early as 2020. In turn, they said, this ''suggests the bias remains to the downside in gold.''

Gold price analysis

Gold is trading below the rising supporting trendline on the monthly time frame but the critical fractal lows are located at $1,676.

Meanwhile, however, the price is reaching a key area on the daily chart where bulls will likely emerge. A correction to mitigate the imbalance of bids in this sell-off could see the yellow metal correct with a 50% mean reversion on the cards. 

• Silver erases some earlier losses and advances more than 0.10% on Wednesday.
• The FOMC minutes showed the commitment of the Fed to tackle inflation, even if the economy slows down.
• The Fed might even get to a “more restrictive stance” if inflation persists.
• Fed policymakers reiterated that a 75 bps hike in July might be appropriate.

Silver (XAGUSD) bounced off the weekly lows around $18.92 and edged barely up during the North American session after the release of the US Federal Reserve June’s meeting minutes, showing that policymakers debated that a 50 or 75 bps would be appropriate at the July meeting. At the time of writing, XAGUSD is trading at $19.23.

Summary of the FOMC minutes

The Federal Open Market Committee’s tone was in line with expectations: hawkish. Policymakers stated that a 75 bps rate hike is warranted and noted that even a “more restrictive stance” could be appropriate if inflation prevails. Concerning economic growth, policymakers stated that risks to the economic outlook are skewed to the downside and also judged that uncertainty about economic growth over the next couple of years was elevated.

Silver’s reacted to the downside after the Fed released its minutes but made a U-turn and is trading in green territory. The US central bank’s commitment to bring inflation down would not deter them from hiking rates above neutral. Due to the tight labor market, they have room to spare before causing a jump in the Unemployment Rate, one of the consequences of a recession.

In the meantime, XAGUSD prices would remain downward pressured in the near term. The greenback remains buoyant in the session as portrayed by the US Dollar Index, up by 0.54%, above the 107.000 mark. US Treasury yields jumped on the release of the minutes, though the 2s-10s yield curve remains inverted, signaling that a recession could be around the corner.

Data-wise, the US calendar featured Services and Composite PMIs, unveiled by S&P Global and the US ISM. Figures exceeded expectations but trailed previous readings, signaling that the US economy is slowing down.

The week ahead, the US economic docket will feature ADP Employment Change, Initial Jobless Claims and Fed speakers on Thursday.

Silver (XAGUSD) Key Technical Levels

Reuters reports on an interview with IMF's Georgieva who says a global recession in 2023 cannot be ruled out. 

''The head of the International Monetary Fund (IMF) on Wednesday said the outlook for the global economy had "darkened significantly" since April and she could not rule out a possible global recession next year given the elevated risks.

IMF Managing Director Kristalina Georgieva told Reuters the fund would downgrade in coming weeks its 2022 forecast for 3.6% global economic growth for the third time this year, adding that IMF economists were still finalizing the new numbers.

The IMF is expected to release its updated forecast for 2022 and 2023 in late July, after slashing its forecast by nearly a full percentage point in April. The global economy expanded by 6.1% in 2021.''

• IMF managing director Georgieva says can't rule out possible global recession in 2023.
• IMF's Georgieva says global economic outlook has 'darkened significantly' since last economic update in April.
• IMF's Georgieva says IMF will downgrade previous forecast for 3.6% growth in global economy in 2022 and 2023.

Market implications

The US dollar has been in demand this week as concerns mount about the global economy. DXY, a measure of the US dollar vs a basket of rival major currencies has rallied to a fresh cycle bull high:

(DXY monthly chart)

The Federal Open Market Committee has released a hawkish set of minutes of the June policy meeting.

Markets have nearly fully priced in another 75 basis points rate hike in July with which the minutes align with. Investors are paying closer attention to discussions around the September rate decision, however.

• See 50 or 75bps at the next meeting, July, as likely.
• Even more restrictive policy is possible in time.
• Fed's George was the only official not to back 75 basis points in June.
• 'Many' participants judged there was a 'significant risk' higher inflation could become entrenched if the public questions Fed's resolve.
• Participants 'concurred' that high inflation warranted 'restrictive' interest rates, with the possibility of a 'more restrictive stance' if inflation persists.
• The Fed expects inflation to remain above 2% for some time.

The US dollar is little changed after the minutes, trading at 107.00 and 0.48% higher on the day.

(5-min chart, DXY)

About the minutes

FOMC stands for The Federal Open Market Committee organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.

• The US dollar reached a 20-year high, around 107.264, weighing on the EUR/USD.
• Europe’s energy crisis takes center stage as prices soar, as countries like Germany and France scramble to ease the burden.
• The German Economy Minister Rober Harbeck said that current conditions could result in a recession.

The shared currency continued its collapse against the greenback, courtesy of recession fears in the Euro area, amidst an energy crisis that, if it aggravates, might cause a long-lasting economic contraction, as Russia threatens to halt natural gas flows to the bloc. At the time of writing, the EUR/USD s trading at fresh 20-year lows at 1.0175.

Negative mood and a strong US dollar, a headwind for the EUR/USD

A risk-off impulse favors safe-haven flows, meaning global equities are down and a stronger greenback. Recession fears appear to dissipate as traders brace for the release of the FOMC minutes. Softer US data revealed earlier showed that the US economy is slowing down, as illustrated by S&P Global and ISM Non-Manufacturing PMIs.

Alongside the previously mentioned factors weighing on the EUR/USD, China’s authorities reported that Shanghai recorded more than 100 positive cases, re-igniting fears of additional lockdowns. In the meantime, the European energy crisis aggravates as power prices skyrocket, courtesy of Russia’s tightening squeeze on energy supplies.

Germany Economy Minister Robert Habeck said that the current situation in Germany could result in a recession, according to Reuters. Meanwhile, the German government proposed an emergency law allowing the government to acquire shares of energy firms if they needed to be bailed out.

All the above-mentioned took their toll on the euro. EUR/USD Wednesday’s price action shows the major opening near the daily highs around 1.0264 and seesawed throughout the Asian session. When European traders arrived at their desks, the pair began nosediving and reached a fresh 20-year low at 1.0161.

In the week ahead, the EU economic docket will feature the German Industrial Production and ECB speaking led by ECB’s Philip Lane and Enria. Across the pond, the US calendar will unveil Initial Jobless Claims, ADP Employment Change, and Fed speakers, with Christopher Waller and St. Louis Fed President James Bullard crossing newswires.

EUR/USD Key Technical Levels

• GBP/USD holds near the lows of the week due to political turmoil.
• The BoE bets are being placed and weighed against Borish Johnson's survival rate and Brexit woes.

At 1.1928, GBP/USD is under water slightly, bleeding by 0.11% at the time of writing after sliding from a high of 1.1989 to a low of 1.1875 on the day so far and in the aftermath of yesterday's resignations of members of the Conservative party.

 Health Minister Javid and Finance Minister Sunak resigned almost simultaneously out of dissatisfaction with UK PM, Boris Johnson's leadership. ''Replacements were immediately appointed in the persons of Barclay and Zahawi, but given the ongoing unrest, the question is how long they can enjoy their new office,'' analysts at Rabobank said. ''It could mean that the government will come up with popular measures, such as another tax cut, in an effort to regain the confidence of voters and party members.''

Sterling bears were hesitant to mark down the currency initially as the US dollar was drifting away from the fresh bull cycle highs made in the prior hours and earlier in the day. However, the currency fell to a fresh cycle low in London and again at the start of the New York session. Cable is now down nearly 12% against the dollar since the start of this year.

 Nomura said on Wednesday it now expects sterling will slide in the coming months to its lowest level against the US dollar since 1985."We remain short GBP/USD in spot and now target 1.15 by end-July, towards 1.10 by end-September. With the U. becoming a key energy export partner for Europe this is leading to significant terms of trade shock to the benefit of USD."  The analysts at Nomura also argue that the Bank of England also looked likely to disappoint investors betting on a 50-basis-point interest rate hike in August.

Casting minds back over the monetary policy path to date at The Old Lady, since December, the BoE has lifted the Bank Rate five times already. The market is pricing in 130bps of hikes over the next three meetings (August, September, and November), implying at least two meetings with 50bps hikes.

In other politics, an escalating row over Northern Ireland's status following Brexit could upend British trade ties with the European Union is also a weight on the currency.  ''Uncertainties regarding red tape associated with Brexit and fear of a trade war with the EU over the Northern Ireland protocol are likely to be clouding the investment outlook,'' analysts at Rabobank said. 

• The Loonie weakens in the week, weighed by a solid buck and falling energy prices.
• Global equities dropped, illustrating a dampened market mood, courtesy of recession fears and China’s Covid-19 outbreak.
• USD/CAD traders braces for FOMC June’s monetary policy minutes.

The USD/CAD rises for the second consecutive day, extending its weekly gains to almost 1.50%, courtesy of a buoyant greenback and falling crude oil prices. At the time of writing, the USD/CAD is trading at 1.3066, albeit in positive territory, shy of the YTD high around 1.3083.

USD/CAD falls on a risk-off mood, a solid buck, and falling oil prices

Sentiment stays negative as USD/CAD traders prepare to digest June’s Federal Reserve Open Market Committee (FOMC) minutes. During the New York Session, US Services and Composite-related PMIs, released by S&P Global and the Institute for Supply Management (ISM), beat expectations but trailed May’s reading, illustrating that the US economy is slowing down. Additionally, fears of a global recession, and China’s new coronavirus crisis, keep global equities under pressure, US Treasury yields climbing, and the US Dollar bid.

The US Dollar Index is gaining 0.66%, up at 107.194, underpinned by high US Treasury yields. Contrarily, the US crude oil benchmark,  WTI, plunges 2.74% in the day, exchanging hands at $96.62 per barrel, a tailwind for the major.

All that said, investors’ eyes are focused on the Fed. Although it is usually an overvalued event, any hints that the US central bank could provide regarding forwarding guidance would be greatly appreciated by investors.

Meanwhile, money market futures began to show that traders expect the Fed to slash rates in the middle of 2023. Investors forecast a 75 bps rate hike for the July meeting, and the STIRs markets depict that the Federal funds rate (FFR) will peak at 3.25% before easing to 3.04% by June 2023.

In the week ahead, the Canadian docket will feature May’s Balance of Trade, Exports, and Imports. On the US front, the economic calendar will unveil Fed speakers – Christopher Waller and James Bullard –, US Initial Jobless Claims, and Nonfarm Payrolls.

USD/CAD Key Technical Levels

Citing three Conservative lawmakers, Reuters reported on Monday that the Conservative Party's 1922 Committee will hold an internal election of a new executive next Monday.

The new executive will decide whether to change the rules surrounding the grace period following the no-confidence vote.

Market reaction

The British pound is having a difficult time staging a recovery amid political jitters. The GBP/USD pair, which touched its lowest level since March 2020 at 1.1876 earlier in the day, was last seen losing 0.45% on the day at 1.1905.

British Prime Minister Boris Johnson said on Wednesday that he is not going to step down from his position and argued that the last thing the UK needs is an election, per Reuters.

Meanwhile, several news outlets are reporting that the Conservative Party's 1022 Committee have altered the rules around party leadership. This development suggests that Johnson could face another no-confidence vote regardless of the grace period.

Market reaction

These comments don't seem to be having a noticeable impact on the British pound's performance against its rivals. As of writing, the GBP/USD pair was down 0.45% on the day at 1.1902.

• JOLTS Job Openings declined by 427,000 in May.
• US Dollar Index clings to strong daily gains above 107.00.

The number of job openings decreased to 11.254 million in May from 11.681 million in April, the monthly Job Openings and Labor Turnover Summary (JOLTS) published by the US Bureau of Labor Statistics showed on Wednesday. 

"Hires and total separations were little changed at 6.5 million and 6.0 million, respectively," the publication further read. "Within separations, quits (4.3 million) and layoffs and discharges (1.4 million) were little changed."

Market reaction

The US Dollar Index remains on track to post its highest daily close in nearly two decades above 107.00. Meanwhile, the S&P 500 Index was last seen losing 0.4% on the day.

German Economy Minister Robert Habeck said on Wednesday that the current situation in Germany could result in a recession, as reported by Reuters.

"The credit crunch could threaten the country's economic power," Habeck added. "What we're now doing is pretty close to an expropriation of companies."

On Tuesday, the German government proposed an emergency law that would allow the government to acquire shares of energy firms if they need to be bailed out.

Market reaction

The shared currency remains under constant bearish pressure on Wednesday and the EUR/USD pair was last seen losing 0.9% on the day at 1.0175.

• The non-yielding metal slips further as US bond yields recover from Tuesday’s session.
• US Global and ISM Services PMIs beat expectations but slowed compared to May’s readings.
• Gold Price Forecast (XAUUSD): Sellers stepped in and broke the $1750 price level, eyeing the next swing low at around $1720.

Gold price tumbles to fresh multi-month lows below $1752.51, amidst concerns of a global economic recession, but also driven down by a solid greenback, which remains to record new two-year highs as shown by the US Dollar Index, underpinned by rising US Treasury yields. At the time of writing, XAUUSD is trading at $1740.15 a troy ounce.

US Services PMIs beat expectations, but show signs of slowing down

A string of US economic data crossed newswires. The US ISM Non-Manufacturing PMI tripped to 55.3 in June from 55.9 in the previous reading, showing that growth eased but beat expectations of 54.3. in the same tone, the S&P Global Services and Composite PMIs exceeded expectations and trailed May’s figures.

According to Chris Williamson, Chief Business Economist at S&P Global, demand for goods and services shows signs of moderation blamed on high inflation. He added that “tighter financial conditions are starting to hit” and that the services index slowdown was led by a drop in financial services activity.

Meanwhile, US equities fluctuate as well as European ones. The US Dollar Index, a measurement of the greenback’s value vs. a basket of peers, clings above the 107.000 mark, gaining close to 0.60%, while the US 10-year Treasury yield trims Tuesday’s losses up at 2.878%, climbs seven bps.

Those abovementioned factors and rising US Real yields, as shown by US 10-year TIPS, yielding 0.608%, are a headwind for XAUUSD’s price. Gold’s Wednesday price action witnessed the yellow metal opening near the $1765 area and edged towards the daily high around $1772 before plunging toward $1749.

The US economic calendar will unveil the FOMC June minutes will be revealed, which will shed some forward guidance regarding future monetary policy decisions.

Gold Price Forecast (XAUUSD): Technical outlook

From a technical perspective, XAUUSD is still downward biased. Once the December 15 swing low at around $1752.35 was breached, the yellow metal sellers are eyeing a re-test of the September 29, 2021 low at $1721.52. Gold traders should note that oscillators are in oversold territory but showing no signs of turning the corner, as illustrated by the Relative Strength Index (RSI).

• ISM Services PMI edged lower in June, came in better than market expectation.
• US Dollar Index trades at its highest level in nearly two decades above 107.00.

The ISM Services PMI in June declined to 55.3 from 55.9 in May, showing that the business activity in the service sector expanded at a slightly softer pace. This print, however, came in better than the market expectation of 54.5.

The New Orders component of the survey fell to 55.6 from 57.6 and the Employment component slumped to 47.4, pointing to a contraction in service sector employment.

Assessing the findings of the survey, "the slight slowdown in services sector growth was due to a decline in new orders and employment," noted Anthony Nieves, Chair of the Institute for Supply Management Services Business Survey Committee. "Logistical challenges, a restricted labor pool, material shortages, inflation, the coronavirus pandemic and the war in Ukraine continue to negatively impact the services sector."

Market reaction

The US Dollar Index regained its traction after this report and was last seen rising 0.67% on the day at 107.20.

• EUR/GBP extends the weekly downside to 0.8540.
• Intense EUR sell-off weighs on the cross midweek.
• UK (still) PM B.Johnson could face another no-confidence vote.

Further weakness in the European currency now drags EUR/GBP to new 3-week lows in the 0.8540 region on Wednesday.

EUR/GBP looks to UK politics, EUR selling

EUR/GBP sheds ground for the third session in a row midweek, heavily influenced by the intense decline in the single currency in response to recession fears in the broader Euroland in combination with noticeable ECB inaction.

On the other side of the Channel, the sterling is expected to remain under scrutiny against the backdrop of mounting political effervescence, particularly exacerbated in response to several resignations from ministers of the government in the last hours and a most likely no-confidence vote against Boris Johnson as soon as tonight.

EUR/GBP key levels

The cross is losing 0.43% at 0.8547 and a breach of 0.8511 (low June 16) would expose 0.8485 (low June 9) and finally 0.8441 (200-day SMA). On the other hand, the next up barrier emerges at 0.8678 (monthly high July 1) followed by 0.8721 (2022 high June 15) and then 0.9085 (2021 high January 6).

• The AUD/USD is almost flat during the day, but risks are skewed to the downside.
• Concerns about a global economic recession prevailed; the greenback rose to a 52-week high, as the DXY broke above 107.000.
• Credit Suisse analysts see potential that the major could slip towards 0.6460s once it clears the 0.6757.

AUD/USD recovers from YTD lows reached on Tuesday, trimming some losses, but it remains at the lower end of the weekly range as the North American session begins. At 0.6800, the AUD/USD is barely flat.

Risk aversion emerges as Wall Street opens, and the greenback stays strong

Given the backdrop that concerns of a global economic slowdown persist, the US Dollar remains strong, putting a lid on the major. Talks between US and China policymakers earlier in the week appear to ease tensions between both countries. In fact, US President Joe Biden is assessing lifting some tariffs on Chinese goods and services imposed by the Trump administration.

Concerning China’s coronavirus crisis, during the Asian session, Shanghai reported more than 100 cases, and authorities ordered massive testing. That re-ignited fears of another lockdown in China’s second-largest city.

Those factors mentioned above, alongside tumbling Iron Ore prices, might keep the AUD/USD under pressure. In the meantime, the US Dollar Index, a gauge of the greenback’s value against a basket of peers, rises 0.44% to 106.969, a headwind for the AUD/SD. Further downward action is expected unless AUD/USD traders reclaim the 0.6900 figure.

At the time of writing, the US docket features the US S&P Global PMIs for June in Services and Composite, which beat expectations. The AUD/USD reacted downwards, from around the daily highs at 0.6826, towards 0.6804, putting the 0.6800 figure in sight.

Analysts at Credit Suisse see potential that the AUD/USD might reach 0.6461 once sellers clear 0.6757. “Support stays at the 50% retracement of the 2020/21 rise at 0.6757, a break below which is needed to enable a further downside to 0.6643 and 0.6609/00, with potential to reach the next key support at the 61.8% retracement at 0.6461 in due course.”

At 14:00 GMG, the US economic docket will feature the US ISM Non-Manufacturing PMIs, which would shed additional light on the status of the US economy. Later in the day, the FOMC minutes will be revealed, alongside the JOLTs Job Openings report.

AUD/USD Key Technical Levels

• USD/JPY edged lower on Wednesday, though lacked any follow-through selling.
• The USD surged to a fresh 20-year high and extended some support to the pair.
• A positive risk tone undermined the safe-haven JPY and also helped limit losses.
• Traders keenly await the FOMC meeting minutes before placing directional bets.

The USD/JPY pair struggled to capitalize on its modest gains recorded over the past two sessions and witnessed some selling on Wednesday. The pair maintained its offered tone through the early North American session and was last seen trading near the daily low, around the 135.00 psychological mark.

The recent sharp decline in the US Treasury bond yields resulted in the narrowing of the US-Japan rate differential. This, along with growing recession fears, offered support to the safe-haven Japanese yen 
and exerted some downward pressure on the USD/JPY pair. The downtick could further be attributed to some repositioning trade ahead of the crucial FOMC meeting minutes, due later during the US session.

Fed Chair Jerome Powell reiterated last week that the US central bank remains focused on getting inflation under control and said the US economy is well-positioned to handle tighter policy. This, in turn, lifted bets for more aggressive rate hikes and continued lending support to the US dollar. Hence, investors will look for clues about the Fed's policy tightening path before placing fresh bets.

In the meantime, an extension of the recent strong USD bullish run to a fresh two-decade high should act as a tailwind for the USD/JPY pair amid signs of stability in the financial markets. Apart from this, a big divergence in the policy stance adopted by the Fed and the Bank of Japan supports prospects for the emergence of some dip-buying. This, in turn, warrants caution for bearish traders.

Technical levels to watch

• S&P Global Services PMI in the US fell modestly in June.
• US Dollar Index clings to strong daily gains near 107.00.

Business activity in the US service sector expanded at a softer pace in June than in May with the S&P Global Services PMI falling to 52.7 (final) from 53.4 in May. This print came in better than the flash estimate of 51.6.

Commenting on the data, "June saw signs of a broad-based weakening of the economy with demand now falling in both the manufacturing and service sectors," noted Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

"While the survey data point to a stalling of GDP at the end of the second quarter, a downshifting in the forward-looking new orders index and drop in companies' future output expectations hints at falling economic activity as we head through the summer," Williamson added.

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen rising 0.45% on the day at 106.98.

Reuters reported that six further junior ministers, Kemi Badenoch, Neil O'Brien, Alex Burghart, Lee Rowley, Julia Lopez and Mims Davies, resigned from British Prime Minister Boris Johnson's government.

Meanwhile, several news outlets report that the 1922 Committee could change the rules as soon as this afternoon and trigger a no-confidence vote against PM Johnson before the end of the day.

Market reaction

GBP/USD managed to stage a recovery in the last hour but continues to trade in negative territory. As of writing, the pair was down 0.25% on a daily basis at 1.1927.

EUR/GBP is edging lower over the past few sessions, breaking the uptrend from April. Nonetheless, economists at Credit Suisse look for an eventual rise to the “neckline” to the 2020 top at 0.8861/76.

First support moves to 0.8524/11

“We stay biased higher over the next 2-4 weeks, with key resistance remaining at the recent and April 2021 high at 0.8722, with the 50% retracement of the fall from September 2020 at 0.8747. Beyond here in due course should then add weight to our view that a broader basing process is underway, with resistance seen next at the ‘neckline’ to the 2020 top and 61.8% retracement at 0.8861/76.”

“Next key support moves to 0.8524/11, which coincides with the rising 55-day average, which we would look to hold if reached to maintain our 2-4 week positive outlook.”

AUD/USD is still holding Credit Suisse’s prior technical objective at 0.6757. However, their analysts stay short-term bearish and see the potential to reach 0.6461 in due course.

Aussie is still attempting to break below 0.6757

“Support stays at the the 50% retracement of the 2020/21 rise at 0.6757, a break below which is needed to enable a further downside to 0.6643 and 0.6609/00, with potential to reach the next key support at the 61.8% retracement at 0.6461 in due course.” 

“We look for near-term strength to ideally remain capped below the recent price highs at 0.6964/95. Above here would see scope to reach next resistance at the 55-day moving average at 0.7038.”

EUR/USD broke aggressively below key support at 1.0350/41 on Tuesday. This breakdown suggests a quick move over the next 2-4 weeks to 1.00/00.99, where analysts at Credit Suisse look for another phase of consolidation.

Opening up a move to parity

“EUR/USD has broken below key price support from the YTD and 2017 lows at 1.0350/41, which we view as a very important breakdown, suggesting further weakness over the next 2-4 weeks towardsh parity/0.99. Thereafter, our bias would be for another consolidation phase to emerge, similar to the one we saw in May/June. “

“The market should now ideally remain capped below 1.0341/66 in the short-term. Next resistance above here is seen at 1.0489, above which would point to a false breakdown and further ranging, which is not our base case in the short-term.”

US ISM Services PMI Overview

The Institute of Supply Management (ISM) will release the Non-Manufacturing Purchasing Managers' Index (PMI) - also known as the ISM Services PMI – at 14:00 GMT this Wednesday. The gauge is expected to edge lower to 54.5 in June from 55.9 in the previous month. Given that the Fed looks more at inflation than growth, investors will keep a close eye on the Prices Paid sub-component, which is expected to rise to 83.9 from 82.1 in May.

How Could it Affect EUR/USD?

Ahead of the key release, the US dollar built on the previous day's blowout rally and surged to a fresh two-decade high on Wednesday amid hawkish Fed expectations. Apart from this, the worsening global economic outlook underpinned the safe-haven buck and dragged the EUR/USD pair below the 1.0200 mark for the first time since December 2002.

Stronger-than-expected US macro data would reaffirm bets for more aggressive Fed rate hikes and push the US bond yields higher, along with the USD. Conversely, a softer reading is more likely to be overshadowed by concerns that a big jump in natural gas prices could drag the Eurozone economy faster and deeper into recession. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside.

Valeria Bednarik, Chief Analyst at FXStreet, offered a brief technical outlook and explained: “The EUR/USD pair is sharply down for a second consecutive day, and there are no technical signs of bearish exhaustion. In the daily chart, technical indicators are heading south pretty much vertically, entering oversold territory and reflecting persistent selling interest. The 20 SMA, in the meantime, accelerated south, currently at around 1.0470.”

“The near-term picture is bearish, as, in the 4-hour chart, technical indicators keep heading lower despite being at extreme oversold levels. At the same time, the pair is developing well below its moving averages, with the 20 SMA accelerating its decline and developing over 200 pips above the current level,” Valeria added further.

Key Notes

  •  EUR/USD Forecast: No rest for bears as panic persists

  •  EUR/USD Price Analysis: Parity at the end of the tunnel?

  •  EUR/USD Forecast: Sellers to retain control with a drop below 1.0200

About the US ISM manufacturing PMI

The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector. It is a significant indicator of the overall economic condition in the US. A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish).

• EUR/USD clinches new lows in the sub-1.0200 area.
• The pair enters oversold territory and could spark a bounce.

EUR/USD loses further ground and drops to nearly 2-decade lows in the 1.0170 region on Monday.

The sell-off in the pair stays everything but abated midweek amidst an increasing negative outlook. Against that, there is a minor support level at 1.0060 (low December 11 2002). The breakdown of the latter should herald a visit to the key parity area.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.1085.

EUR/USD daily chart

• Gold Price turned lower for the third straight day and refreshed YTD low on Wednesday.
• The USD gained strong follow-through traction and continued weighing on the commodity.
• Recession fears failed to lend support, though losses remain limited ahead of FOMC minutes.

Gold Price met with a fresh supply near the $1,773 region on Wednesday and drifted in negative territory for the third successive day. The intraday decline dragged the XAUUSD to a fresh YTD low, around the $1,760-$1,759 area during the early North American session and was sponsored by strong follow-through US dollar buying. In fact, the USD Index built on the previous day's blowout rally and surged to a fresh two-decade high amid aggressive Fed rate hike bets, which, in turn, undermined the dollar-denominated commodity. Bulls, so far, have failed to gain any respite from the prevalent risk-off environment, which tends to benefit the safe-haven precious metal. This, in turn, suggests that the path of least resistance for the yellow metal is to the downside.

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the next relevant support for Gold Price is pegged near the $1,754-$1,753 region - Pivot Point One Month S2. This is closely followed by support near the $1,750 area - Pivot Point One Day S1. Failure to defend the said support levels would be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move.

On the flip side, the $1,765 region - the convergence of Previous Low One Day, Bollinger Band 15 Minutes Middle and SMA 5 One Hour - now seems to act as immediate resistance. Sustained strength beyond could trigger a short-covering move and lift Gold Price to the $1,780-$1,783 region - Pivot Point One Month S1, Bollinger Band One Day Lower and the Fibonacci 38.2% One Day.

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.

Alvin Liew, Senior Economist at UOB Group, comments on the recently published PMI results in Singapore.

Key Takeaways

“Singapore’s manufacturing Purchasing Managers’ Index (PMI) edged slightly lower by 0.1 point to 50.3 in Jun, the 24th straight month where PMI stayed above the 50.0 mark, indicating an overall expansion in activity. The electronics sector PMI registered a surprise increase of 0.3 point to post a faster rate of expansion at 50.8, the highest level since Jan 2022.”

“Both the headline PMI and electronics PMI recorded faster expansion rates for new orders, new exports, factory output and imports index. It was also noted that their respective input prices index remained on a persistent upward trend while their employment index continued to expand but at a slower pace.”

“We continue to stay positive in our outlook for Singapore’s manufacturing sector (in particular, electronics) as it remains a key economic support pillar for the overall economy and for job creation. That said, we are mindful of the external risks due to the on-going Russia-Ukraine conflict and COVID-19 related supply chain disruptions. We are also keenly monitoring higher commodity prices (especially energy) which have persistently lifted the input prices index, which in turn would further add to inflation risks for the overall economy. In all, while we are cognizant of the attendant external risks and price pressures, the latest PMI outcome does not change our outlook for Singapore’s manufacturing which we expect to grow by an average of 4.5% in 2022.”

• DXY trades in cycle peaks north of the 107.00 mark.
• Extra gains look likely and target the 107.30 region.

DXY adds to the ongoing sharp uptick and leaves behind the 107.00 yardstick on Wednesday, or new YTD highs.

Further upside in the dollar remains in store in the short-term horizon. Against that, the index could now look to revisit the December 2002 top at 107.31 ahead of the October 2002 high at 108.74.

As long as the 4-month line near 102.60 holds the downside, the near-term outlook for the index should remain constructive.

The broader bullish view remains in place while above the 200-day SMA at 32.

Of note, however, is that the index trades in the overbought territory and thus could attempt a technical correction in the not-so-distant future.

DXY daily chart

Parliamentary Private Secretary Selaine Saxby announced her resignation via Twitter. 

Private Parliamentary Secretary Claire Coutinho and Private Parliamentary Secretary David Johnston also stepped down from their positions, as reported by Reuters.

Meanwhile, when asked about the possibility of British Prime Minister Boris Johnson facing another no-confidence vote, the PM's spokesperson said that Johnson was confident that he still had the support of his backbench MPs. "There will be further appointments over the coming days," she added.

Market reaction

The GBP/USD pair stays under heavy bearish pressure on Wednesday and was last seen losing 0.6% on the day at 1.1885.

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest inflation figures release in the Philippines.

Key Takeaways

“Headline inflation recorded a big jump to 6.1% y/y in Jun (from 5.4% in May), surpassing our estimate and Bloomberg consensus of a 6.0% gain. It also marked the highest inflation rate since Nov 2018, largely driven by costlier food, transportation and electricity amid a steep depreciation in Peso (PHP).”

“Inflation will remain elevated and above Bangko Sentral ng Pilipinas (BSP)’s medium-term target range of 2.0%-4.0% for the rest of the year and into 1H23. This is mainly due to higher global oil and non-oil prices, the continued shortage in domestic fish supply, pronounced second round effects on prices of domestic goods and services, as well as adverse weather. We maintain our full-year inflation forecasts at 5.0% for 2022 (BSP est: 5.0%, 2021: 3.9%) and 4.0% for 2023 (BSP est: 4.2%), with upward revision risks.”

“The higher-than-expected inflation outturn in Jun and persistent currency weakness have bolstered the case for a 50bps hike in the BSP rate next month (Aug). This follows new BSP Governor Felipe Medalla’s comments last Wed (29 Jun) that BSP opened the door to bigger rate hikes should the PHP overshoot and stoke imported inflation. Hence, the movement of the PHP in the next one and half months together with the next release of the nation’s CPI data (on 5 Aug) and 2Q22 GDP numbers (on 9 Aug), as well as FOMC’s rate decision on 27 Jul will be primary factors justifying the need for a more aggressive BSP rate hike at the upcoming Monetary Board meeting on 18 Aug, in which we keep our call for a 25bps hike to 2.75% at this juncture.”

"It is with sadness that I am resigning as Housing Minister," Conservative MP for Pudsey Stuart Andrew announced via Twitter on Wednesday.

Meanwhile, Sajid Javid, former British Health Minister who quit in protest at Prime Minister Boris Johnson on Tuesday, told Parliament that it had become increasingly difficult to be in PM's team.

 "It's not fair on conservative voters who expect better standards," Javid added. "At some point, we have to conclude that enough is enough. That point is now."

Market reaction

GBP/USD stays under heavy bearish pressure on Wednesday and was last seen trading at its weakest level since March 2020 at 1.1877, losing 0.67% on a daily basis.

• GBP/USD met with a fresh supply on Wednesday and dropped to its lowest level since March 2020.
• The UK political drama, Brexit woes, expectations of a less hawkish BoE weighed on the British pound.
• Strong follow-through USD buying further contributed to the selling bias ahead of the FOMC minutes.

The GBP/USD pair struggled to capitalize on its early modest gains and attracted fresh selling in the vicinity of the 1.2000 psychological mark on Wednesday. The intraday decline dragged spot prices back below the 1.1900 mark, to the lowest level since March 2020 and was sponsored by a combination of factors.

The British pound was undermined by the UK political crisis, where British Prime Minister Boris Johnson faces mounting pressure to step down following the resignations of key Tory MPs. This comes amid worries that the UK government's controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union. Apart from this, expectations that the Bank of England would adopt a gradual approach towards raising interest rates amid growing recession fears further weighed on sterling.

On the other hand, the US dollar built on the previous day's blowout and surged to a fresh two-decade high amid growing acceptance that the Fed would hike interest rates at a faster pace. In fact, Fed Chair Jerome Powell reiterated last week that the US central bank remains focused on getting inflation under control and that the US economy is well-positioned to handle tighter policy. This was seen as another factor that exerted downward pressure on the GBP/USD pair, though the downtick lacked strong follow-through selling.

Traders now seem to have moved to the sidelines and prefer to wait for the FOMC meeting minutes, due later during the US session. Market participants will look for fresh clues about the Fed's policy tightening path, which will influence the USD price dynamics and provide some impetus to the GBP/USD pair. In the meantime, traders will take cues from the US economic docket - featuring JOLTS Job Openings and ISM Services PMI.

Technical levels to watch

• EUR/JPY adds to the weekly leg lower and breaches 138.00.
• Further losses could retest the June low at 137.83.

EUR/JPY remains on the defensive and faces a deeper pullback in the short-term horizon.

The cross now faces prospects for extra decline if it breaks below the 4-month support line around 139.40 in a convincing fashion. Against that, the immediate contention appears at the June low at 137.83 (June 16) followed by the 100-day SMA, today at 135.84.

In the longer run, the constructive stance in the cross remains well propped up by the 200-day SMA at 132.98.

EUR/JPY daily chart

Prime Minister's Questions (PMQs) is underway at the House of Commons. British Prime Minister Boris Johnson faces mounting pressure to step down from his position following the resignations of key Tory MPs.

Key takeaways

"Government should not walk away in a crisis."

"We have a plan and we're getting on with it."

"We will continue to deliver on our mandate."

"My job is to keep going."

"Would resign if I felt impossible for the government to go on."

Market reaction

GBP/USD stays under bearish pressure and was last seen losing 0.4% on the day at 1.1906.

Prime Minister's Questions (PMQs) is underway at the House of Commons. British Prime Minister Boris Johnson faces mounting pressure to step down from his position following the resignations of key Tory MPs.

Related Articles

Downing Street Resignations: UK Economic Secretary to the Treasury John Glen quits.

UK Finance Minister Zahawi: We need to be really careful about public sector pay and fuelling inflation.

Vice chair of UK Conservative Party resigns, calls for Boris Johnson to stand down.

UK PM Johnson says he will stay and appoint new cabinet ministers.

Following a brief consolidation phase, EUR/USD came under strong bearish pressure during the European trading hours and dropped below 1.0200 for the first time since December 2002.

The pair is already down nearly 3% since the beginning of July. Investors grow increasingly concerned over the energy crisis causing the European economy to tip into recession before the end of the year. Earlier in the day, the data published by Eurostat revealed that Retail Sales in May rose by 0.2% on a monthly basis, missing the market expectation for an increase of 0.4%. 

Although risk flows seem to have returned on Wednesday with Norway's government intervening to stop the strikes in the energy sector, the shared currency is having a difficult time finding demand. 

Later in the day, the ISM Services PMI report from the US will be looked upon for fresh impetus. Later in the day, the US Federal Reserve will release the minutes of the FOMC's June policy meeting.

EUR/USD four-hour chart

EU Commissioner for Interinstitutional Relations and Foresight Maroš Šefčovič said on Wednesday that no alternative solution for the Northern Ireland Protocol is founded or needed, as reported by Reuters.

"The UK bill on altering the Northern Ireland  Protocol is unacceptable," Šefčovič reiterated and said that it was legally inconceivable that the UK government would decide on the protocol by itself.

Market reaction

These comments don't seem to be having an impact on market mood and the UK's FTSE 100 Index was last seen rising 1.75% on a daily basis. 

Economist at UOB Group Ho Woei Chen, CFA, comments on the release of the inflation figures in South Korea.

Key Takeaways

“South Korea’s headline inflation soared to its highest since Nov 1998, at 6.0% y/y in Jun (Bloomberg est: 5.9%, May: 5.4%) and core inflation rose to 4.4% y/y (Bloomberg est: 4.2%, May: 4.1%).”

“Given the steeper trajectory in price increases, we now expect the headline CPI to stay close to 6.0% in 3Q22 before edging below 5.0% in the last two months of the year. This will bring the full-year inflation to an average of around 5.0% (vs. our previous forecast of 4.3%). We are maintaining our forecast for South Korea’s inflation to moderate to 2.5% in 2023.”

“Considering also a more hawkish Fed, we now expect the Bank of Korea (BOK) to hike the base rate by 50bps to 2.25% at the upcoming monetary policy meeting on 14 Jul, larger than our earlier forecast of a 25bps increase. This would have been the first time the BOK hike by a 50bps quantum.”

“Thereafter, the BOK is likely to revert to 25bps hike for the remaining meetings this year in Aug, Oct and Nov to bring the benchmark base rate to 3.00% by year-end (vs. our earlier forecast of 2.50%).”

• A combination of factors pushed USD/CHF higher for the fifth successive day on Wednesday.
• The risk-on impulse undermined the safe-haven CHF and extended some support to the pair.
• The underlying USD bullish provided an additional lift ahead of the FOMC meeting minutes.

The USD/CHF pair gained some positive traction for the fifth successive day on Wednesday and climbed to a two-and-half-week high during the first half of the European session. The uptick lifted spot prices back above the 0.9700 mark and was sponsored by a combination of factors.

The risk-on impulse - as depicted by a strong recovery in the global equity markets - undermined demand for the safe-haven Swiss franc. This, along with the prevalent bullish sentiment surrounding the US dollar, acted as a tailwind for the USD/CHF pair and remained supportive.

In fact, the USD stood tall near a two-decade peak and continued drawing support from expectations that the Fed would hike interest rates at a faster pace to combat stubbornly high inflation. The bets were reaffirmed by last week's hawkish remarks by Fed Chair Jerome Powell.

Speaking at the ECB Forum in Sintra, Powell said that the Fed remains focused on getting inflation under control and that the US economy is well-positioned to handle tighter policy. Hence, the market focus will remain glued to the release of the minutes from the latest FOMC meeting.

Investors will look for fresh clues about the Fed's policy tightening path. The focus would then shift to the closely-watched US monthly jobs report (NFP) on Friday. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/CHF pair.

Technical levels to watch

John Glen, City Minister and Economic Secretary to the Treasury, announced his resignation on Wednesday. 

"The country deserves better and I must return to the backbenches to dedicate myself to the service of the people of Salisbury and South Wiltshire," Glen tweeted out.

Additionally, Felicity Buchan, the Tory MP for Kensington and parliamentary private secretary to the Secretary of State for Business, Energy and Industrial Strategy, has resigned from her role, calling the current situation "untenable."

Market reaction

The market mood remains upbeat despite political jitters and the UK's FTSE 100 Index was last seen rising 1.65% on a daily basis. Meanwhile, GBP/USD is down 0.1% on the day at 1.1945.

• USD/CAD managed to hold above the 1.3000 mark through the first half of the European session.
• Bearish oil prices weighed on the loonie, though a consolidative USD price move capped the upside.
• Investors also seemed reluctant to place aggressive bets ahead of the key FOMC meeting minutes.

The USD/CAD pair struggle to make it through the 1.3075-1.3085 strong horizontal barrier and finally settled over 50 pips off its highest level since November 2020 touched on Tuesday. The subsequent pullback, however, stalled near the 1.3000 psychological mark on Wednesday, which should now act as a pivotal point for intraday traders.

Against the backdrop of growing fears of a global recession, fresh COVID-19 lockdowns in China could stall fuel demand recovery. This, in turn, failed to assist crude oil prices to register any meaningful recovery from over a two-month low, which continued undermining the commodity-linked loonie and acted as a tailwind for the USD/CAD pair.

On the other hand, the US dollar was seen consolidating its recent strong gains to a fresh two-decade high touched on Tuesday. Traders seemed reluctant to place aggressive bets and preferred to wait on the sidelines ahead of the FOMC meeting minutes, due later during the US session. This, in turn, capped the upside for the USD/CAD pair, at least for now.

From a technical perspective, the 1.3075-1.3085 area might continue to act as an immediate strong barrier ahead of the 1.3100 mark, which if cleared would be seen as a fresh trigger for bulls. This should allow the USD/CAD pair to climb further towards the 1.3155-1.3160 intermediate hurdle, en-route the 1.3200 mark and the 1.3270 resistance zone.

On the flip side, the 1.3010-1.3000 region might continue to protect the immediate downside. Some follow-through selling could drag spot prices further towards the 1.2945-1.2940 region. Any further decline could be seen as a buying opportunity and remain limited near the 1.2900 mark, which should act as a strong base for the USD/CAD pair.

USD/CAD daily chart

Key levels to watch

Alvin Liew, Senior Economist at UOB Group, reviews the latest results from the retail sector in Singapore.

Key Takeaways

“Singapore’s retail sales improved further with a better-than-expected 17.8% y/y expansion in May (from 12.1% in Apr). Retail sales excluding motor vehicles rose even higher by 22.6% y/y (from 17.4% in Apr). On a sequential seasonally adjusted basis, retail sales rose by 1.8% m/m, following the slightly revised print of 1.1% in Apr, the 3rd consecutive month of m/m increase. Excluding motor vehicle sales, the m/m increase was higher at 2.7%, (from 1.6% in Apr).”

“While the robust May retail sales growth added to a solid foundation for domestic demand in 2Q22, it should be noted that the y/y increase was distorted by the low base effect of May 2021 when COVID-19 restriction measures were in place, such as international travel restrictions.  Nevertheless, the decent m/m rise continued to signal an improving domestic retail and F&B environment in tandem with a tighter labour market and more importantly, a return of tourist demand.”

“Year-to-date, retail sales grew by 9.6%. Barring the re-emergence of fresh COVID-19-related risks in Singapore and around the region (leading to re-imposition of social and travel restrictions, which is not our base case), we now expect retail sales to expand by 9.0% in 2022 (from previous forecast of 6%) as base effects are likely to continue to uplift retail sales growth prints in the coming months.”

• EUR/USD remains well under pressure near 1.0230.
• The greenback flirts with recent cycle peaks.
• Germany Factory Orders expanded 0.1% MoM in May.

The selling bias around the single currency remains unabated and now drags EUR/USD to fresh lows near 1.0230, an area last seen back in December 2002.\

EUR/USD weighed down by recession talks, USD-buying

EUR/USD retreats for the fourth consecutive session so far on Wednesday amidst increasing downside pressure, all against the backdrop of unabated market chatter around a probable recession in the euro area and the US in the next months.

In addition, the uncertainty around the ECB’s de-fragmentation tool remains on the rise, as the central bank has so far failed to provide markets with any concrete hint other than wishful thinking from policymakers.

Another downtick in German 10y Bund yields accompanies so far the daily pullback in spot, this time dropping to multi-week lows near 1.15%.

In the German calendar, Factory Orders expanded at a monthly 0.1% in May and the Construction PMI improved a little to 45.9 (from 45.4) in June. In the broader Euroland, Retail Sales expanded 0.2% in the year to May.

Across the ocean, the ISM Non-Manufacturing will be in the limelight later in the NA session followed by the release of the FOMC Minutes of the June 15 gathering.

What to look for around EUR

Bears maintain the EUR/USD under heavy pressure and the acceleration of the downside opens the door to a probable visit to the 1.0200 neighbourhood sooner rather than later.

Indeed, the pair’s price action remains depressed and keeps closely following rising speculation around a probable recession in the region, dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

Key events in the euro area this week: Germany Factory Orders, Construction PMI, EMU Retail Sales (Wednesday) – ECB Accounts (Thursday) – ECB Lagarde (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is retreating 0.30% at 1.0234 and faces the next support at 1.0225 (2022 low July 6) seconded by 1.0200 (round level) and finally 1.0060 (low December 11 2002). On the other hand, a breakout of 1.0563 (55-day SMA) would target 1.0615 (weekly high June 27) en route to 1.0773 (monthly high June 9).

EUR/USD has plunged to its weakest level in nearly two decades. As FXStreet’s Eren Sengezer notes, additional losses could be witnessed if 1.02 support fails.

Sellers to retain control with a drop below 1.02

“The US Federal Reserve will release the minutes of its June monetary policy meeting. The CME Group FedWatch Tool shows that markets are pricing in an 88% probability of a 75 basis points Fed rate hike in July. If the Fed's publication lowers that chance, EUR/USD could stage a rebound on renewed dollar weakness.”

“On the upside, 1.0260 (static level, former support) aligns as initial resistance ahead of 1.0300 (psychological level). Only a daily close above the latter could discourage sellers and open the door for an extended rebound toward 1.0370 (20-period SMA).”

“1.0200 (psychological level) forms the next line of defense. In case this level fails, 1.0130 (static level from November 2002, former resistance) could be seen as the next bearish target.”

• EUR/GBP edged lower for the third successive day, albeit lacked follow-through selling.
• A further rise in gas prices fueled recession fears and continued weighing on the euro.
• The UK political jitters acted as a headwind for sterling and should limit the downside.

The EUR/GBP cross struggled to capitalize on the previous day's modest rebound from over a two-week low and attracted fresh selling near the 0.8600 mark on Wednesday. The cross maintained its offed tone and was last seen trading around the 0.8565-0.8570 region during the early European session.

The shared currency's relative underperformance comes amid the risk of gas shortages that could disrupt industrial activity across the region if Russia cuts off supplies. Furthermore, concerns that a big jump in natural gas prices could drag the Eurozone economy faster and deeper into recession forced investors to trim ECB tightening bets. This, in turn, was seen as a key factor that dragged the EUR/GBP cross lower for the third successive day.

That said, the UK political jitters held back traders from placing bullish bets around the British pound and helped limit any deeper losses for the EUR/GBP cross, at least for the time being. In the latest developments, one of the vice-chairs of the UK's ruling Conservative party, Bim Afolami, along with Chancellor Sunak and Health Minister Javid, announced their resignations. British Prime Minister Boris Johnson, however, reportedly has no plans to step down.

Apart from this, expectations that the Bank of England would adopt a gradual approach towards raising interest rates amid growing recession fears might continue to act as a headwind for sterling. This, in turn, supports prospects for the emergence of some dip-buying around the EUR/GBP cross, warranting some caution for aggressive bearish traders. Hence, it will be prudent to wait for strong follow-through selling before positioning for a further depreciating move.

Technical levels to watch

Bank of England (BOE) Chief Economist Huw Pill said on Wednesday, “we won't be deflected from monetary policy objectives with fiscal concerns.”

Additional quotes

• WTI price remains vulnerable amid fears of an inevitable global recession.
• China’s lockdown concerns will keep any rebound in oil short-lived.
• Impending bear cross keeps sellers hopeful, with eyes on 200 DMA.

WTI (NYMEX futures) is gyrating around $99 after its recovery ran into resistance above the $100 mark earlier in the Asian session. The spot is consolidating the 9.5% sell-off witnessed on Tuesday, as bears gather strength for the next push lower.

Global recession fears mounted, as liquidity returned after a three-day holiday break in the US, battering the higher-yielding assets such as oil. Raging inflation, surging energy prices and major central banks’ rate hike stance intensified economic slowdown worries.

Despite demand growth concerns for oil and its products, the black gold continued to ride higher on the risk-aversion wave. At the time of writing, a minor relief rally in the European stocks is allowing the US oil some breathing space. Although the downside remains more compelling, as a fresh lockdown looms, with China’s Shanghai announcing two new rounds of mass testing after new infections were detected in the country’s financial hub.

Apart from the discouraging fundamental factors, WTI’s daily technical setup also points to the additional downside.

The bearish 21-Daily Moving Average (DMA) is set to cut the 50 DMA from above, which if occurs will confirm a bear cross. The black gold may witness a fresh downslide to retest over two-month lows near $95.75.

A break below the latter will put the ascending 200 DMA at $92.51 under threat.

WTI: Daily chart

The 14-day Relative Strength Index (RSI) has turned flat just above the oversold region, still lurking deep in the negative zone. This suggests that any recovery in oil price is likely to remain short-lived.

On the flip side, acceptance above $100 is critical to initiating any meaningful recovery towards the horizontal 100 DMA at $105.75. Further up, doors will reopen towards the $110 round figure.

WTI: Additional levels to watch

• Eurozone Retail Sales rose by 0.2% MoM in May vs. 0.4% expected.
• Retail Sales in the bloc arrived at 0.2% YoY in May vs. 5.4% expected.

Eurozone’s Retail Sales increased by 0.2% MoM in May versus 0.4% expected and -1.4% last, the official figures released by Eurostat showed on Wednesday.

On an annualized basis, the bloc’s Retail Sales came in at 0.2% in May versus 4.0% recorded in April and 5.4% estimated.

FX implications

The euro is fading the recovery following a big miss on the Eurozone Retail Sales data.

At the time of writing, the major is trading at 1.0240, lower by 0.26% on the day.

About Eurozone Retail Sales

The Retail Sales released by Eurostat are a measure of changes in sales of the Eurozone retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. Usually, the positive economic growth anticipates "Bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

Extra strength in USD/CNH carries the potential to break above the 6.7400 level in the next weeks, commented FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we expected USD to ‘consolidate between 6.6800 and 6.7100’. Instead of consolidating, USD popped to a high of 6.7243 before pulling back. Despite the pullback, the underlying tone is positive and we see room for USD to rise to 6.7270. The major resistance at 6.7400 is unlikely to come into the picture. Support is at 6.7060 followed by 6.7000.”

Next 1-3 weeks: “We have expected USD to trade between 6.6600 and 6.7400 for more than 2 weeks now. While there is no change in our view, shorter-term upward momentum is beginning to build and the risk of a break of 6.7400 has increased. The upside risk would remain intact as long as USD does not move below the ‘strong support’ level, currently at 6.6850. Looking ahead, the next resistance above 6.7400 is at 6.7600.”

• Gold Price struggled to capitalize on its modest intraday bounce from the YTD low.
• The USD consolidated near a 20-year high and offered some support to the XAUUSD.
• The risk-on impulse, aggressive Fed rate hike bets capped the upside for the metal.

Gold Price staged a modest recovery from the $1,763 area, or a fresh YTD low touched earlier this Wednesday, though struggled to capitalize on the move. The XAUUSD surrendered its modest intraday gains and was last seen trading around the $1,766-$1,767 region, or nearly unchanged for the day.

Following the recent strong bullish run to a fresh two-decade high touched on Tuesday, the US dollar witnessed modest profit-taking amid some repositioning trade ahead of the FOMC meeting minutes. This, in turn, was seen as a key factor that offered some support to the dollar-denominated gold, though the uptick lacked bullish conviction and runs the risk of fizzling out rather quickly.

Fed Chair Jerome Powell reiterated last week that the US central bank is focused on getting inflation under control and added that the US economy is well-positioned to handle tighter policy. This lifted bets for more aggressive rate hikes by the Fed, which should act as a tailwind for the USD. Apart from this, the risk-on impulse kept a lid on any meaningful gains for the safe-haven gold.

Investors might also refrain from placing aggressive bets and prefer to wait for fresh clues about the Fed's policy tightening path. Hence, the FOMC minutes should provide some impetus to the non-yielding yellow metal. Apart from this, the US NPF report on Friday will influence the near-term USD price dynamics and help determine the next leg of a directional move for gold price.

Technical levels to watch

"Much remains to be resolved before we vote on our august policy decision,"  Bank of England Chief Economist Huw Pill said on Wednesday, as reported by Reuters.

Additional takeaways

"'act forcefully' line reflects the willingness to act faster while emphasising conditionality."

"We are talking about rate hikes, not cuts."

"Line on 'scale, pace, timing' reflects a flexible approach."

"Unanimity about the short-term interest rate outlook no longer exists on MPC."

"Case for maintaining forward guidance to a smooth transition to tightening cycle much diminished."

"Likely inflation shock will translate into second-round effects."

"This threatens to create more persistent inflation dynamics in the UK."

"MPC weighing up immediate inflationary impact against medium-term disinflationary impact."

"MPC's framework defines a difficult narrow path."

Market reaction

The GBP/USD pair edged slightly higher after these comments and was last seen rising 0.2% on the day at 1.1980.

• GBP/USD attracted some buying near the 1.1900 mark on Wednesday, though lacked follow-through.
• A positive risk tone prompted some profit-taking around the safe-haven USD and extended support.
• The UK political jitters acted as a headwind for sterling and capped gains ahead of the FOMC minutes.

The GBP/USD pair reversed an early European session dip to the 1.1900 neighbourhood and shot to a fresh daily high in the last hour. The pair has now recovered a part of the overnight slump to its lowest level since March 2020 and was last seen trading near the 1.1970-1.1965 area, up less than 0.10% for the day.

A goodish recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - dragged the safe-haven US dollar away from a fresh two-decade high touched on Tuesday. This, in turn, was seen as a key factor that prompted some intraday short-covering around the GBP/USD pair, though any meaningful recovery still seems elusive.

Growing worries about a possible global recession should keep a lid on any optimistic move in the markets. Apart from this, the prospects for more aggressive Fed rate hikes should act as a tailwind for the greenback. Hence, the market focus will remain glued to the FOMC monetary policy meeting minutes, due for release later during the US session on Wednesday.

In the meantime, the UK political jitters should hold back traders from placing bullish bets around the British pound. In the latest developments, the UK Conservative Party, Bim Afolami, Chancellor Sunak and UK Health Minister Javid announced their resignations. British Prime Minister Boris Johnson, however, reportedly has no plans to step down.

This comes on the back of expectations that the Bank of England would adopt a gradual approach towards raising interest rates amid the worsening economic outlook, which might cap sterling. Hence, it will be prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has formed a near-term base near the 1.1900 round-figure mark.

Technical levels to watch

• DXY trades without a clear direction in the mid-106.00s.
• US ISM Non-Manufacturing next of tap in the US docket.
• Investors’ attention remains on the release of the FOMC Minutes.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main rival currencies, exchanges gains with losses around 106.50 on Wednesday.

US Dollar Index focuses on data, recession talks

Following three consecutive daily advances, including new cycle tops near 106.80 on July 5, the upside momentum in the index now looks dubitative and gyrates around the 106.50 zone following the opening bell in Euroland.

Indeed, speculation of a global slowdown accelerated on Tuesday and weighed on the risk complex, which in turn morphed into extra legs to the dollar amidst declining yields, lower stock prices and a deep retracement in crude oil.

So far, US yields attempt a lacklustre rebound against the backdrop of a broad downtrend in place since mid-June and amidst persistent market chatter surrounding a potential global recession.

In the NA session, the ISM Non-Manufacturing will grab initial attention followed by weekly Mortgage Applications and the S&P Global Services PMI, all ahead of the publication of the FOMC Minutes of the June meeting, where the Committee could unveil further details regarding the debate around a potential 75 bps rate hike later this month.

What to look for around USD

The index rose to nearly 2-decade peaks near 106.80 amidst the sharp contraction in the risk-associated universe on turnaround Tuesday.

Further support for the dollar is expected to come from 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, chatter of US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: MBA Mortgage Applications, Final Services PMI, ISM Non-Manufacturing, FOMC Minutes (Wednesday) – ADP Report, Initial Claims, Balance of Trade (Thursday) – Non-farm Payrolls, Unemployment Rate, Wholesale Inventories, Consumer Credit Change (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 0.01% at 106.47 and faces the next support at 103.67 (weekly low June 27) seconded by 103.41 (weekly low June 16) and finally 101.29 (monthly low May 30). On the other hand, a break above 106.79 (2022 high July 5) would expose 107.00 (round level) and then 107.31 (monthly high December 2002).

Here is what you need to know on Wednesday, July 6:

The US Dollar Index surged to its strongest level in nearly two decades on Tuesday and ended up gaining more than 1% on a daily basis boosted by safe-haven flows. The 2-10 year US Treasury bond yield curve inverted, suggesting markets are positioning themselves for recession. The dollar stays in a consolidation phase early Wednesday as investors await the ISM Services PMI data from the US. Later in the day, the Federal Reserve will release the minutes of the June policy meeting as well. During the European session, the European Commission will release the Economic Growth Forecasts and Eurostat will report Retail Sales figures for May.

Following Tuesday's volatile action, markets remain risk-averse mid-week with US stock index futures losing between 0.3% and 0.4%. Reports of Chinese authorities launching another round of mass testing in Shanghai and the city of Xi entering a seven-day period of 'temporary control measures' seem to be weighing on sentiment as well.

Meanwhile, crude oil prices suffered heavy losses amid the worsening demand outlook. The barrel of West Texas Intermediate (WTI) lost nearly 10% on Tuesday and plunged below $100 for the first time since early May. Late Tuesday, the Secretary-General of the Organisation of Petroleum Exporting Countries, Muhammad Barkindo, has died at the age of 63.

EUR/USD lost nearly 150 pips on Tuesday and touched its lowest level since December 2002 at 1.0235. The pair seems to have gone into a consolidation phase above 1.0250 on Wednesday.

GBP/USD posts modest daily gains in the European morning but continues to trade below 1.2000. Bank of England (BOE) Deputy Governor Jon Cunliffe reassured that they will not let high inflation get embedded but added that they were seeing signs that the UK economy was already slowing down. Meanwhile, British Finance Minister Rishi Sunak and Health Secretary Sajid Javid both handed their resignations late Tuesday, arguing that Prime Minister Boris Johnson has lost his ability to run the government properly and competently.

Falling crude oil prices weighed heavily on the commodity-sensitive loonie on Tuesday and USD/CAD jumped above 1.3000. 

USD/JPY continues to trade in a relatively narrow range above 135.00 as the JPY manages to hold its ground as a safe haven.

Gold broke below $1,800 and extended its slide to a fresh 2022-low near $1,763. XAU/USD posts small recovery gains and trades near $1,770 on Wednesday.

Bitcoin is having a tough time finding direction and trading in a tight range slightly above $20,000. Ethereum holds above $1,100 after having closed flat on Tuesday.

EUR/USD broke to a new cycle low. Economists at ING expect the world’s most popular currency pair to reach parity in July.

Parity beckons

“German Bundesbank estimated that the German economy could take a hit of 5% of GDP in the case of gas being rationed. It feels like we are now not far away from such a scenario.”

“EUR/USD looks likely to drift towards parity this month. The trade-weighted euro is a whisker away from the lows of the year and an ECB response to threaten more aggressive rate hikes may prove counter-productive for a pro-cyclical currency such as the euro.”

See – Euro: Forecasts from eight major banks, on parity watch over the coming months

GBP/USD hit its lowest level since March 2020 under 1.19 on Tuesday. Economists at ING highlight that cable could fall as low as 1.15/14. 

EUR/GBP can continue to trade near 0.86

“EUR/GBP can continue to trade near 0.8600, but a 2% dollar advance puts cable down near the 1.17 area.”

“A tough summer for equities suggests cable remains vulnerable to the 1.14/15 area.” 

• USD/JPY edged lower on Wednesday, though the downtick lacked follow-through selling.
• The Fed-BoJ policy divergence undermined the JPY and acted as a tailwind for the major.
• Traders also seemed reluctant and wait for the FOMC meeting minutes for a fresh impetus.

The USD/JPY pair extended the previous day's modest pullback from a multi-day high, around the 136.35 region and witnessed some selling on Wednesday. Spot prices, however, managed to find support near the 135.00 psychological mark and quickly recovered a few pips from the daily low touched in the last hour.

The recent sharp decline in the US Treasury bond yields resulted in the narrowing of the US-Japan rate differential, which, in turn, offered some support to the Japanese yen. On the other hand, the US dollar was seen consolidating the overnight blowout rally to a fresh two-decade high. This, in turn, exerted some downward pressure on the USD/JPY pair, though a combination of factors helped limit any deeper corrective pullback.

Signs of stability in the equity markets capped any meaningful gains for the safe-haven JPY. Apart from this, a big divergence in the monetary policy stance adopted by the Bank of Japan and the Federal Reserve acted as a tailwind for the USD/JPY pair. It is worth recalling that the BoJ has repeatedly signalled that it would stick to its ultra-accommodative policy and pledged to keep borrowing costs at "present or lower" levels.

In contrast, Fed Chair Jerome Powell last week reaffirmed bets for more aggressive rate hikes and said that the US economy is well-positioned to handle tighter policy. Hence, the market focus will remain glued to the FOMC meeting minutes, due later this Wednesday. Investors will closely scrutinize the minutes for fresh clues about the Fed's policy tightening path, which, in turn, should provide a fresh impetus to the USD/JPY pair.

Apart from this, Friday's release of the closely-watched US monthly jobs report (NFP) will play a key role in influencing the near-term USD price dynamics. This, in turn, should help determine the next leg of a directional move for the USD/JPY pair. In the meantime, traders might prefer to wait on the sidelines and refrain from placing aggressive bets.

Technical levels to watch

Recessionary fears have pushed the dollar to the highest levels since 2002. For today, economists at ING expect the dollar to consolidate near the highs in advance of tonight's release of FOMC minutes

Slowdown fears keep the dollar bid

“Continued Fed tightening amidst a global slowdown remains a very positive environment for the dollar.”

“Tonight sees the release of the June FOMC minutes where the Fed hiked 75 bps. Expect these minutes to sound hawkish and to emphasise that the Fed is not for turning.”

“DXY should stay bid and probably edge higher towards 109 through July – that puts EUR/USD at parity.”

The US dollar has continued to trade at stronger levels after it regained upward momentum on Tuesday. Global growth fears are driving FX market, therefore, the US dollar, Swiss franc and yen appear set to continue to outperform in the near-term.

Intensifying global growth fears trigger renewed upward momentum

“Price action is being increasingly driven by safe-haven demand as fears over a sharper slowdown/recession for the global economy continue to intensify. In the current circumstances, the traditional safe-haven currencies of the US dollar, Swiss franc and yen appear set to continue to outperform in the near-term.”

“Market participants will remain concerned over energy supply constraints in Europe given significantly restricted flows from Russia at present. It is keeping downward pressure on the euro and other European currencies.”

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, USD/JPY is now seen navigating within the 134.75-137.00 range in the next weeks.

Key Quotes

24-hour view: “Our expectations for USD to edge higher did not materialize as it traded between 135.51 and 136.36. The underlying tone has weakened somewhat and USD is likely to drift lower from here. However, any decline is likely limited to a test of 135.10. The major support at 134.75 is unlikely to come under threat. Resistance is at 135.90 followed by 136.20.”

Next 1-3 weeks: “We continue to hold the same view as yesterday (05 Jul, spot at 135.95). As highlighted, the current movement appears to be part of a broad consolidation phase and USD is likely to trade between 134.75 and 137.00 for now.”

Despite news of potential tariff reductions, economists at Credit Suisse still think that upside to Chinese exports and the yuan is limited. They target 6.95 in USD/CNH. 

Continued upward USD momentum against EUR and JPY points to higher USD/CNH

“Although a tariff reduction runs counter to our initial scepticism, we still think that upside to Chinese exports and the yuan is limited. Tariff reduction will do little to change the rotation of US / European spending away from Asian-made goods and towards services.”

“We think that the scope for further trade-weighted yuan appreciation is limited. As USD looks set to continue to gain against EUR and JPY, USD/CNH will continue to rise even as the PBoC targets CFETS RMB Index stability.”

“We stay long USD/CNH, targeting 6.95.”

USD/JPY has continued to trade above the 135 handle over the past few sessions. The pair could reach the 140 level on a break past 137, economists at OCBC Bank report.

Bias for USD/JPY is neutral to upward beyond the near-term

“While the yen may benefit from some safe-haven flows on and off as the risk sentiment swings, bias for USD/JPY is neutral to upward beyond the near-term.”

“Any break above the recent high of 137.00 may open up for a further upside toward the 140 level. Risk to this view is a removal of the YCC although this is not our near-term core scenario.”

The Reserve Bank of Australia (RBA) raised the Official Cash Rate (OCR) by 50 basis points (bps) from 0.85% to 1.35%, as widely expected. AUD/USD fell, and market pared back rate hikes expectation. Economists at OCBC expect the pair to extend its fall towards next support at 0.6762.

RBA to under-deliver 

“The RBA hiked its OCR by 50 bps as widely expected, but there was a lack of a hawkish tilt at the MPC statement. The monetary policy outlook paragraph is almost the same as before.”

“We have viewed the AUD market pricing of rate hikes as the most overly hawkish among major markets; the current pricing of additional hikes of 173 bps still looks a bit too hawkish compared to the RBA’s inflation assessment.” 

“With the RBA likely under-delivering and the global recession fears, AUD/USD shall face a downward pressure and the next support is not far away at 0.6762.”

• EUR/JPY bounces off three-week low on firmer German data, rebound in yields.
• German Factory Orders unexpectedly improved in May, yields recovery from five-week low.
• 50-DMA challenges sellers but bearish oscillators, break of key support hints at further downside.

EUR/JPY picks up bids to regain 139.00 after German Factory Orders recalled the pair buyers during the initial hours of the European session on Wednesday.

That said, Germany’s Factory Orders for May improved to -3.1% YoY versus -6.2% prior. The monthly print also crosses -0.6% forecast to 0.1%.

Also keeping the EUR/JPY buyers hopeful is the recent rebound in the US Treasury yields. The benchmark US 10-year Treasury yields slumped to the lowest levels in three weeks the previous day before bouncing off 2.80%, up two basis points near 2.82% by the press time.

The recovery in yields could be linked to the market’s consolidation ahead of the key European Central Bank (ECB) Economic Forecasts and the Federal Open Market Committee (FOMC) Minutes, not to forget the US ISM Services PMI for June, expected 54.5 versus 55.9 prior.

It’s worth noting, however, that the recently flashed all-time high inflation data of the Eurozone joins economic fears due to the energy crisis in the bloc to push the ECB towards worrisome predictions, which in turn could weigh on the EUR/JPY prices. It should be noted that the fears of the ECB’s crisis-fighting scheme risks being tied up in legal and political knots, per the Financial Times (FT) also weigh on the EUR/JPY prices.

Technical analysis

EUR/JPY jostles with the 50-DMA level surrounding 139.00 as reverses from the lowest levels since mid-June.

Even so, bearish MACD signals and downbeat RSI joins the pair’s sustained break of an upward sloping trend line from April, near 139.40 by the press time, to keep sellers hopeful.

That said, the pair’s further downside needs validation from 139.00 to visit multiple tops marked during late May around 137.40-30. Following that, May’s low of 132.66 will be in focus.

On the contrary, recovery beyond 139.40 could aim for the 21-DMA level of 141.76. However, the weekly descending trend line and monthly horizontal hurdle, respectively near, 142.00 and 144.25-30, will be crucial resistances for the EUR/JPY pair traders to watch past 21-DMA breakout.

EUR/JPY: Daily chart

Trend: Further weakness expected

USD/TRY rose again above the 17.00 mark on Tuesday. Economists at Credit Suisse continue to see scope for a break above the 18.00 level.

USD/TRY looks set to rally again

“Our base case for USD/TRY remains one of a steady but relatively orderly increase in the foreseeable future as the central bank is forced to adjust the exchange rate while real rates remain extremely negative.”

“We see scope for a break above the 18.00 level in USD/TRY in coming weeks.” 

“Ultimately, the main candidate to reverse the upward trend in USD/TRY is an announcement that general elections will be brought forward. This is not our base case for Q3 but it is a scenario that cannot be ruled out completely.”

• AUD/USD consolidated its recent losses and languished near a two-year low set on Tuesday.
• Recession fears, weaker commodity prices acted as a headwind for the risk-sensitive aussie.
• Aggressive Fed rate hike bets continued underpinning the USD and contributed to capping.

The AUD/USD pair struggled to capitalize on the previous day's late rebound from over a two-year low and attracted some selling near the 0.6820 area on Wednesday. The pair remained on the defensive through the early European session and was last seen trading around the 0.6800 mark, nearly unchanged for the day.

Despite the Reserve Bank of Australia's anticipated move to hike interest rates by 50 bps on Tuesday, the worsening global economic outlook acted as a headwind for the risk-sensitive aussie. In fact, a more aggressive move by major central banks to curb soaring inflation, the ongoing Russia-Ukraine war and the latest COVID-19 outbreak in China have been fueling recession fears. Apart from this, the recent slump in commodity prices weighed on the resources-linked Australian dollar.

On the other hand, the US dollar stood tall near a two-decade high and continued drawing support from expectations that the Fed would retain its faster monetary policy tightening path. This was seen as another factor that contribute to capping the upside for the AUD/USD pair. The downside, however, seems cushioned, at least for the time being, as traders might prefer to move on the sidelines ahead of the FOMC monetary policy meeting minutes, due for release later during the US session.

Market participants will look for fresh clues about the Fed's policy outlook. Apart from this, the closely-watched US monthly jobs report, due on Friday, will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair. In the meantime, the broader market risk sentiment could allow traders to grab short-term opportunities around the major. Nevertheless, the fundamental backdrop supports prospects for further near-term losses.

Technical levels to watch

The expectation of a recession in the US is no longer a disadvantage for the dollar if Europe were also to slide into a recession. Economists at Commerzbank still expect the greenback to outperform in the new scenario.

Recession on both sides of the Atlantic to weaken EM currencies

“A recession in Europe caused by a gas crisis is likely to be deeper and longer because it cannot ‘simply’ be ended by an adjustment of monetary policy. It is therefore only logical that the US dollar is going to be the winner in the new situation.”

“If it becomes more likely that for different reasons the US and Europe will slide into a recession that is not a good sign for global commodity demand. That is why the Canadian dollar is more seriously affected than Canada's position in the global trade network would suggest.”

“The prospect of a recession on both sides of the Atlantic is of course weakening the EM currencies. First of all due to increased risk aversion and secondly as the EM are likely to struggle to decouple from developments in the developed economies under these circumstances.”

In the absence of further sizable policy rate hikes, EUR/HUF remains exposed on the upside. Analysts at Credit Suisse drop their EUR/HUF target of 385.

More rate hikes are needed

“The break in EUR/HUF well above the 400 mark leads us to drop our short-term target of 385.” 

“We still see scope for some short-term retracement (e.g. to the 395 area) after a sizable rally. But in the absence of further sizable policy rate hikes EUR/HUF remains exposed on the upside.”

“Further increases to the 420 area later in Q3 now look on the cards.”

Bank of England (BOE) Deputy Governor Jon Cunliffe is back on the wires now, via Reuters, expressing his view on surging inflation.

Key quotes

Market reaction

With risk tone still tepid and UK pollical uncertainty rife, GBP/USD is recovering some ground to trade at 1.1950, as of writing,

Is the gas crisis coming? Although Commerzbank’s analysts cannot tell you whether the gas crisis is coming, the risk of a gas crisis in Europe is real.

Russia will continue to reduce its gas exports to Europe

“There are good reasons to assume that Russia will continue to reduce its gas exports to Europe. Whether the imminent servicing of the Nordstream pipeline will be the occasion to do so, is impossible to tell.”

“If the Russian leadership is good at something, then that is to surprise with the timing of its decisions. But the general conclusion remains: the risk of a gas crisis in Europe is real.”

New dovish signals from the Riksbank and a deteriorating risk sentiment backdrop lead analysts at Credit Suisse to expect further EUR/SEK upside. A test of test of decade highs at 11.20 is on the cards.

More SEK weakness ahead

“We think the last two weeks have represented a deterioration to both the local and the global backdrop, and as such we now see scope for EUR/SEK to break above our 10.87 target set mid-June), and test 11.20 multi-decade highs.”

“A key motivation for our more SEK-bearish target is what we perceive to be a surprisingly dovish Riksbank.”

As we enter the second half of the year, some analysts have updated their euro forecasts. Here you can find the expectations of eight major banks regarding the common currency’s outlook for the coming months.

TDS

“The EUR's near-term outlook remains challenging, reflecting, in part, the sluggish backdrop for risk sentiment. The wall of worry around European and global growth risks remains elevated, while China is only starting to emerge from its growth slumber. Oil prices are another key factor to watch in the months ahead, where lower oil would benefit EUR. We expect EUR/USD to hold the 1.03/1.07 range before pushing higher in H2.”

CIBC

“As the ECB looks to tighten policy, fragmentation risk, namely yields in peripheral markets blowing out, risking debt sustainability, remain a concern. Avoidance of another round of debt concerns, allied to avoidance of fragmentation risks, will help limit near-term EUR downside against a USD which currently remains risk and rate supported. Over the medium-run, expect diversification interest to sustain support EUR valuations.”

MUFG

“We have lowered our Q3 EUR/USD forecast notably (from 1.0600) and consider a breach of parity this quarter as now a very plausible risk. Assuming risk conditions slowly turn more favourable and inflation risks recede, EUR/USD has greater scope to move higher beyond Q3/Q4.”

Credit Suisse

“Despite ongoing EUR problems, EUR/USD downside may lose momentum in Q3 specifically. The possibility of a) an anti-fragmentation plan at the 21 Jul ECB and b) a 50 bps rate hike at the 4 Sep ECB allow room for markets to anticipate supportive developments. The summer months are likely to see ongoing post-pandemic re-opening momentum too. But we look to take advantage of phases of EUR/USD strength towards 1.08 to establish strategic shorts, looking for a new test of 1.0340, and then parity. By Q4, the market will be looking ahead to risks such as winter energy shortages, Italian ‘23 elections and weaker growth/rising fragmentation risks.”

Commerzbank

“At the moment, the euro is being burdened by a number of special factors: The security of energy supplies in Europe is at risk because Russia can no longer be regarded as a reliable supplier. This results in recession risks. The expected ECB interest rate hikes increase "fragmentation" risks. While the ECB has announced instruments that address this risk, it is not yet clear whether instruments will be found that do not at the same time complicate the fight against inflation. In our central scenario, these risks do not materialize. At the same time, we expect recession risks in the USA to increase visibly. We, therefore, expect EUR/USD to recover slightly by the end of the year. In the coming year the US recession, the Fed's interest rate cuts, the relatively robust euro area economy, and the fact that the ECB is probably not going to follow the Fed’s easing cycle, should contribute to EUR/USD strength.”

Nordea

“Expectations on the ECB have risen but we still have our doubts on how much the ECB will be able to raise rates considering the energy risks and the more vulnerable economic backdrop in the southern countries. The latest shift from most other G10 central banks to a more aggressive policy will likely keep markets volatile and support our view that EUR/USD will move down to parity sometime in the second half of this year.”

ING

“Now that expected volatility is higher after recent developments, we can say that the FX options market reasonably expects EUR/USD to trade in a 1.00-1.12 range over the next six months. In other words, EUR/USD is now a one standard deviation proposition and should not be a shock. What seems clear to us is that FX volatility will still stay high this summer and the 1.05-1.10 EUR/USD range we had foreseen perhaps now becomes a 1.00-1.10 range.”

Danske Bank

“The large negative terms-of-trade shock to Europe vs US, a further cyclical weakening among trading partners, the coordinated tightening of global financial conditions, broadening USD strength and downside risk to the euro area makes us keep our focus on EUR/USD moving still lower (targeting 1.00) – a view not shared by the consensus.”

Economists at Credit Suisse continue to target 10.70 in EUR/NOK as exposure to the recessionary risks likely outweigh the benefits of NOK’s energy exporter status.

New headwinds emerge

“NOK price action through the local oil and gas strike gyrations highlight a key weakness for the currency: exposure to the recessionary risks in the EU now likely outweigh the benefits of NOK’s energy exporter status.”

“We continue to target 10.70 in EUR/NOK.”

FX option expiries for July 6 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0230 570m
• 1.0250 471m
• 1.0300-10 374m
• 1.0400-10 350m

- GBP/USD: GBP amounts        

• 1.2250 204m

- USD/JPY: USD amounts                     

• 133.97-00 682m
• 134.50-60 710m
• 135.00 615m
• 136.00 506m

- AUD/USD: AUD amounts  

• 0.6675-85 487m

- USD/CAD: USD amounts       

• 1.2830 566m
• 1.3000 380m
• 1.3050-60 270m

- NZD/USD: NZD amounts

• 0.6200 392m
• 0.6410 1.18b

- AUD/JPY: AUD amounts

• 89.30 1.1b
• 93.49 773m

• USD/CAD extends the previous day’s run-up towards a short-term key resistance line.
• Sustained break of important DMAs, firmer oscillators favor bulls.
• Bears need validation from three-month-long support line, buyers can aim for 61.8% FE.

USD/CAD regains upside momentum, after previously easing from the highest levels since November 2020. In doing so, the Loonie pair again prepares to overcome a two-month-old resistance line while picking up bids near 1.3050 heading into Wednesday’s European session.

Given the USD/CAD pair’s successful break of 10-DMA, not forgetting the rebound from the 50-DMA, the quote is likely to overcome the immediate resistance line around 1.3080. Also keeping the pair buyers hopeful is the firmer RSI (14), not oversold, as well as the bullish MACD signals.

That said, the quote’s sustained break of 1.3080 hurdle will aim for the 61.8% Fibonacci Expansion (FE) of June 08-28 moves, near 1.3165.

In a case where USD/CAD remains firmer past 1.3165, the October 2020 high near 1.3370 will gain the buyer’s attention.

Alternatively, pullback moves need to break the 10-DMA level surrounding 1.2925 to convince intraday sellers of the pair.

Following that, the 50-DMA support of 1.2840 will gain the bear’s attention. However, an upward sloping trend line from April, near 1.2590, will be watched carefully to confirm the bearish trend, if any.

USD/CAD: Daily chart

Trend: Further upside expected

NZD/USD is lower. The greenback is set to continue to find favour amid global recession fears, economists at ANZ Bank report.

Kiwi's collapse looks ominous

“Once again it was global recession fears at work, with the consequent safe-haven demand favouring the USD as oil prices and bond yields both retreated lower.”

“Looking ahead, it is difficult to see FX markets shifting from current USD-centric perspectives ahead of yet more key US data between now and Saturday morning.” 

“Technically, the kiwi's collapse looks ominous; some caution is required.”

“Support 0.5940/0.6100 Resistance 0.6395/0.6575”

Open interest in natural gas futures markets shrank for the third straight session on Tuesday, this time by around 7.1K contracts according to preliminary readings from CME Group. Volume, instead, went up by just 266 contracts.

Natural Gas looks side-lined around the 200-day SMA

Tuesday’s downtick in prices of natural gas was against the backdrop of diminishing open interest, indicative that further pullbacks are not favoured for the time being. In the meantime, natural gas prices appear consolidative around the 200-day SMA, today around the $5.60 region per MMBtu.

The newly appointed UK finance minister Nadhim Zahawi said on Wednesday that “we need to be really careful about public sector pay and fuelling inflation,” when asked about inflation and wage growth.

Key quotes

Asked about the corporation tax cut, he said, “I will look at everything to make sure we continue to be on the side of people.”

“Wrong to indulge in infighting.”

“We need to be fiscally responsible.”

“Nothing is off the table.”

“We have to work with BOE to make sure monetary policy is right.”

On energy prices, “We have to make sure we have an energy strategy that allows us to invest in nuclear.”

“On fuel duty: “I will look at everything.”

“Tax cuts amongst most important things to do.”

“I've got to make sure I deliver for those who are hard-pressed, and bring inflation under control.”

Market reaction

GBP/USD remains under pressure at around 1.1925, unfazed by the above comments. The pair is losing 0.26% on the day.

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, AUD/USD risks a drop to 0.6730 in the near term.

Key Quotes

24-hour view: “We highlighted yesterday that AUD ‘could advance but is unlikely to challenge the strong resistance at 0.6920’. However, AUD plummeted to 0.6762 before rebounding. The rapid decline appears to be running ahead of itself and AUD is unlikely to weaken much further. For today, AUD is more likely to trade between 0.6760 and 0.6850.”

Next 1-3 weeks: “We turned negative AUD last Thursday (30 Jun, spot at 0.6880). After AUD dropped to 0.6764 and rebounded strongly, we highlighted yesterday (05 Jul, spot at 0.6875) that there is room for further AUD weakness but the probability for AUD to move below 0.6764 is not high. AUD subsequently dropped to a low of 0.6762 during NY session before rebounding. Despite the decline, downward momentum has not improved by much. That said, the risk is still on the downside as long as 0.6890 (‘strong resistance’ level was at 0.6920 yesterday) is not breached. Looking ahead, a clear break of 0.6760 would shift the focus to 0.6730.”

CME Group’s flash data for gold futures markets noted traders added around 4.3K contracts to their open interest positions on Tuesday, reversing two consecutive daily pullbacks. Volume followed suit and rose by the fourth session in a row, this time by around 70.1K contracts.

Gold: Next on the downside comes $1,753

The sharp pullback in gold prices recorded on Tuesday was amidst rising open interest and volume and opens the door to further retracements in the very near term. Against that, the next support of note emerges at the December 2021 low at $1,753 per ounce troy (December 15).

• Gold Price remains pressured around seven-month low on recession fears.
• Hawkish Fed bets, China-linked concerns exert additional downside pressure on XAU/USD.
• FOMC Minutes, US ISM Services PMI for June may entertain traders but economic fears keep sellers hopeful.

Gold Price (XAU/USD) takes offers to renew the yearly low around $1,763 heading into Wednesday’s European session.

The metal slumped the most in three weeks the previous day while visiting the lowest levels since December 2021. However, bears took a breather around multi-day bottom during the sluggish Asian session before extending the south-run of late.

XAU/USD’s latest weakness could be linked to the headlines suggesting further hawkish moves from the Bank of England (BOE) and the European Central Bank (ECB), not to forget China’s readiness to strengthen strategic coordination with Russia. On the same line could be the market’s cautious mood ahead of the Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June, expected 54.5 versus 55.9 prior.

Previously, pessimism surrounding the global supply chain amid the escalation in the Russia-Ukraine tussles joins fears of fresh covid-led lockdowns in China to amplify recession risks, which in turn weigh on the gold prices. The macro pessimism intensified on Tuesday after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook.

It should be noted that the recently firmer US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings, also exert downside pressure on the Gold Price, via increasing hawkish bets on the Fed’s next moves.

With this, the US Dollar Index (DXY) remains firmer around the highest levels since 2002 while yields fade initial rebound and the stock futures remain pressured of late.

To sum up, Gold Price bears the burden of economic pessimism and the firmer US dollar heading into the week’s key data/events.

Technical analysis

Gold’s corrective pullback fades below the previous key support around $1,780-85, which in turn joins a bearish MACD signal to hint at the metal’s further downside towards the late 2020 lows near $1,753.

However, oversold RSI (14) and traders’ anxiety ahead of the key US data/events might test the XAU/USD bears afterward, if not then the downward trajectory could aim for lows marked in September and August 2021, respectively near $1,721 and $1,677.

Meanwhile, recovery moves past beyond the support-turned-resistance area surrounding $1,785 needs validation from a two-month-old hurdle close to $1,810 and a downward sloping resistance line from April 18, near $1,818 by the press time.

Should gold prices remain firmer past $1,818, the odds of witnessing a run-up towards the 61.8% Fibonacci retracement of December 2021 to March 2022 upside, near $1,875, can’t be ruled out.

Gold: Daily chart

Trend: Bearish

• German Factory Orders rose 0.1% MoM in May vs. -2.7% last.
• German Retail Sales arrived at -3.1% YoY in May vs. -6.2% previous.
• EUR/USD keeps range below 1.0250 on the German data.

The German Factory Orders rebounded in May, suggesting that the manufacturing sector downturn in Europe’s economic powerhouse is flattening.

Contracts for goods ‘Made in Germany’ jumped by 0.1% on the month vs. -0.6% expected and -2.7% last, the latest data published by the Federal Statistics Office showed on Wednesday.

On an annualized basis, Germany’s Industrial Orders arrived at -3.1% in the reported month vs. -6.2% previous.

FX implications

The shared currency remains unfazed by the upbeat German factory data.

 At the time of writing, EUR/USD is down 0.21% on the day, trading at 1.0242.

• GBP/USD is expecting more downside below 1.1900 on UK’s political jitters and BOE’s gloomy outlook.
• Volatile oil and raw-material prices may bring economic shocks in the future.
• The DXY has rebounded after a mild correction ahead of FOMC minutes.

The GBP/USD pair has failed to extend its modest rebound and has sensed barricades around 1.1970. The cable has tumbled below 1.1950 and is likely to display more losses after violating Tuesday’s low at 1.1898. Soaring recession fears after the warning signal from the Bank of England (BOE) have brought a sell-off in the risk-perceived currencies.

On Tuesday, the BOE dictated a gloomy outlook for the entire economy on the growth front. As per the statement from the BOE, volatility in the oil and raw-material prices will bring economic shocks in the future. A pessimist statement from the BOE is sufficient to activate risk-off in the global markets and to weaken the pound bulls.

Apart from that, market participants are punishing the sterling bulls on signs of political instability in their economy. The vice-chair of the UK Conservative Party, Bim Afolami, resigned and calls for PM Boris Johnson to stand down. The event has added severe volatility to the asset.

On the dollar front, the US dollar index (DXY) has rebounded after hitting a low of 106.40 in the Asian session. The DXY is likely to overstep its fresh 19-year high at 106.80 as investors are awaiting the release of the Federal Open Market Committee (FOMC) minutes. The investing community is aware of the fact that the Federal Reserve (Fed) announced a 75 basis point (bps) interest rate hike in June. The announcement of a 75 bps rate hike was the highest in the past 28 years. Therefore, reading the ideology behind the bumper rate hike announcement by Fed chair Jerome Powell is principal.

Gold Price attempts a rebound on Wednesday but is not out of the woods yet. Fed Minutes could open floors towards $1,722 for XAUUSD, FXStreet’s Dhwani Mehta reports.

More downside in the offing

“The US dollar is likely to regain its upside traction, as the FOMC June meeting’s minutes will support the Fed’s stance to move ‘expeditiously’ in order to control inflation. Should the Fed minutes reinforce expectations of a 75 bps July rate hike while leaving doors open for a 50 bps rise in September, then it would trigger another wave of risk-aversion, bolstering the haven bids for the buck.”

“Selling resurgence below the $1,750 key support will prompt bears to take on the rising channel measured target at $1,722.”  

“Any meaningful recovery will need acceptance above the $1,785 support-turned-resistance. Further up, $1,800 the figure will be put to test. Daily closing above the channel support now resistance at $1,817 is critical to sustaining the renewed upside in the bright metal.”  

• Copper Price takes offers to renew multi-day bottom around late 2020 levels.
• Fears of economic slowdown joins chatters surrounding fresh lockdown in China to weigh on prices.
• Fears of higher production, anxiety ahead of the key data/event also exert downside pressure.

Copper Price remains on the back foot for the fifth consecutive day as bears cheer macro pessimism surrounding recession, as well as concerns over China’s covid conditions. That said, the red metal drops to the lowest levels since November 2020 as it takes offers around $3.34 heading into Wednesday’s European session.

Being the industrial metal, the latest fears surrounding global economic slowdown negatively affect the forecasts of the metal as the growth plans halt. On the same line were fears that the latest mass testing in China could recall lockdowns in top consumers.

Additionally, comments from Chinese Vice Foreign Minister Ma Zhaoxu, suggesting that China is willing to strengthen strategic coordination with Russia, also weighed on the Copper Price due to the metal’s risk barometer status. The reason could be linked to the fears that Beijing’s support to Moscow could only escalate the Russia-Ukraine crisis and exert more downside pressure on the global supply chain, which in turn intensified the recession woes.

Amid these plays, the three-month copper futures on the London Metal Exchange (LME) drops 2.5% to $7,483 a tonne, the lowest since November 27, 2020, whereas the most-traded August copper contract in Shanghai slumps 5.5% to 57,550 yuan ($8,582.76) a tonne by the midday break said Reuters.

“In 2022, supply-side may exceed the demand side in base metal complex. Investors are refraining to take a large position in this market as recession fears mount, said Vandana Bharti, assistant vice-president of commodity research at SMC Comtrade,” mentioned Reuters.

Additionally, hawkish bets on the major central banks’ next moves and upbeat US data also propel the risk-off mood, which in turn underpin the US dollar’s safe-haven demand and weigh on the copper prices. On Tuesday, the US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings.

That said, the red metal is likely to remain pressured towards the late 2020 levels. However, today’s Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June, expected 54.5 versus 55.9 prior, will offer additional directions.

Technical analysis

Copper prices are vulnerable to testing November 2020 peak near 3.20 as it broke a horizontal area comprising levels marked during late 2020 to early 2021, around $3.50.

• Steel prices are expected to display more losses on expectations of a lockdown in China.
• Back-to-back lockdown announcements in China will dampen the sentiment of the market participants.
• The confluence of recession fears, lockdown worries, and monsoon arrival will keep steel prices on tenterhooks.

Steel prices have been declining for the past few weeks after the steel mill owners halted the production of steel due to a major slump in the overall demand. The already lower demand market is expected to see more vulnerability amid renewed fears of lockdown restrictions in China.

Major Chinese cities: Shanghai and Beijing were facing the headwinds of the resurgence in Covid-19. Manufacturing activities were halted and the PMIs data was declining firmly. The pandemic fears have grown again on rising Covid-19 cases in China and the administration is likely to announce lockdown curbs to contain the same. This will lead to further loss in the steel demand in China.

Earlier, the steel prices saw a sigh of relief after China announced a state infrastructure investment fund that would be worth the Chinese Yuan (CNY) 500 billion ($74.69 billion) to boost infrastructure spending and to bring a revival in the flagging economy, as per Reuters. The usage of steel in infrastructure building remains extremely high and higher infrastructure development in the Chinese economy will spurt the demand of steel.

Now, the escalating lockdown fears and the arrival of monsoon in 14 provinces of China and other parts of Asia will deepen the demand worries. Also, the growing recession fears in the global economy will have an adverse impact on the steel demand. Soaring price pressures will spurt the real income shock further and the real estate sector will take the hit.

Further downside in GBP/USD is expected to meet the next support at 1.1850, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected GBP to ‘consolidate and trade between 1.2080 and 1.2175’ yesterday. We did not expect the sharp sell-off as GBP plunged to 1.1899 before rebounding. While downward momentum has waned somewhat, the weakness in GBP could extend to 1.1880 before stabilization is likely. Resistance is at 1.1990 followed by 1.2020.”

Next 1-3 weeks: “We turned negative GBP in the middle of last week. After GBP dropped to 1.1976 and rebounded, we highlighted yesterday (05 Jul, spot at 1.2115) that downward momentum has waned and the chance for GBP to move below 1.1976 is not high. We did not expect the subsequent sudden and rapid downward acceleration as GBP plunged to 1.1899 during NY session before closing at 1.1959 (-1.19%). The boost in downward momentum is likely to lead to further GBP weakness. The next support is at 1.1850. On the upside, a break of 1.2075 (‘strong resistance’ level was at a much higher level of 1.2205 yesterday) would indicate that the weak phase has come to an end.”

Analysts at Goldman Sachs remain bullish on the euro over the next six-12 months, expecting a structural change in the ECB monetary policy.

Key quotes

"A key component of our medium-term bullish outlook is that a structural change in monetary policy will help attract private sector investors again, which would help reverse the EUR 3tn in fixed income outflows since the start of the negative rate era. But if the ECB moves slowly over fears of creating stress in sovereign bond markets, risk-free rates may remain moderate for a longer period.”

"We still think the ECB's relatively cautious approach is more likely to delay rather than derail the Euro's recovery, but it is worth keeping in mind that we do need a monetary policy to step back a bit for our thesis to play out.”

Considering advanced prints from CME Group for crude oil futures markets, open interest rose sharply by around 14.2K contracts on Tuesday. In the same line, volume reversed the previous pullback and went up by around 736.8K contracts, the largest single-day build since March 1.

WTI: Next on the downside comes the 200-day SMA

Prices of the barrel of the WTI shed nearly 9% in response to recession fears on Tuesday. The intense sell-off was in tandem with increasing open interest and volume and this is supportive of the continuation of the downtrend, at least in the very near term. That said, the next support of note emerges at the 200-day SMA, today at $93.37.

• EUR/USD remains pressured around the lowest levels since late 2002.
• Oversold RSI, rectangle formation limit the pair’s immediate moves.
• 20-HMA guards immediate rebound, previous support, 100-HMA challenge intraday bulls.

EUR/USD bears take a breather around almost 20 years even if traders flirt with the 1.0250 heading into Wednesday’s European session. It’s worth noting that the quote slumped the most since March 2020 the previous day after breaking a two-week-old support line.

That said, the major currency pair stays inside an immediate rectangle formation between 1.0275 and 1.0230.

The oversold RSI (14) and the market’s anxiety ahead of today’s Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June, expected 54.5 versus 55.9 prior, also restrict immediate EUR/USD moves.

Hence, a corrective pullback is on the cards even if the 20-HMA level surrounding 1.0265 restricts the pair’s nearby upside.

It’s worth noting that the EUR/USD run-up beyond 1.0275, comprising the stated rectangle’s resistance line, needs validation from the previous support line from June 22 and the 100-HMA, respectively near 1.0330 and 1.0400.

Meanwhile, a downside break of the 1.0230 could aim for the July 2002 high near 1.0200.

Following that the 1.0100 level might act as an intermediate halt during the slump targeting the 1.0000 psychological magnet.

EUR/USD: Hourly chart

Trend: Limited downside expected

Bank of England (BOE) will see to it that the recent surge in inflation does not get entrenched in the economy, the central bank Deputy Governor Jon Cunliffe said in an interview with BBC radio on Wednesday.

Key quotes

"It's our job to make sure that as this inflationary shock passes through the economy we don't find that leaves with inflation being the new normal, the sort of embedded psychology.”

"We will act to make sure that doesn't happen."

“We can see signs that the economy is already slowing.”

Market reaction

Amidst intensifying UK political tensions, GBP/USD has resumed its downtrend towards 1.1900. The spot is currently trading at 1.1924, down 0.26% on the day.

• USD/TRY grinds higher around seven-day top after rising the most in a month the previous day.
• Record inflation in Turkiye joins macro fears of global economic slowdown to propel the pair.
• FOMC Minutes, US ISM Services PMI for June will be important for the day.

USD/TRY remains on the front foot around the intraday high of 17.03 as buyers keep reins amid inflation/recession fears ahead of Wednesday’s European session.

The Turkish lira (TRY) pair jumped the most in a month the previous day after fears of economic slowdown joined Turkiye’s hot inflation. Turkiye released another bumper inflation number on Monday as the headline Consumer Price Index (CPI) rose to 78.62% for June, versus 78.35% expected and 73.5% prior.

It’s worth noting that the Turkish Treasury undertook multiple actions linked to monetary market operations to defend the TRY, but failed.

On a broader front, pessimism surrounding the global supply chain amid the escalation in the Russia-Ukraine tussles joins fears of fresh covid-led lockdowns in China to amplify recession risks. The risk-off mood intensified after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook.

Elsewhere, comments from Chinese Vice Foreign Minister Ma Zhaoxu, suggesting that China is willing to strengthen strategic coordination with Russia, also weighed on the AUD/USD prices due to the pair’s risk barometer status. The reason could be linked to the fears that Beijing’s support to Moscow could only escalate the Russia-Ukraine crisis and exert more downside pressure on the global supply chain, which in turn intensified the recession woes.

Furthermore, hawkish bets on the major central banks’ next moves and upbeat US data also propel the risk-off mood, which in turn underpin the US dollar’s safe-haven demand and propel the USD/TRY prices. On Tuesday, the US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings.

Moving on, today’s Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June, expected 54.5 versus 55.9 prior, will offer additional directions.

Technical analysis

USD/TRY rebound approaches the previous support line from May, at 17.30 by the press time. It’s worth noting that an ascending trend line from December 2021, around 16.75, appears a tough nut to crack for the bears.

• Oil prices have turned sideways, downside remains favored on trendline violation.
• The black gold is expected to kiss the 200-period EMA sooner.
• An establishment of the RSI (14) in a bearish range of 20.00-40.00 adds to the downside filters.

West Texas Intermediate (WTI), futures on NYMEX, is hovering near $98.00 in the early European session. The black gold witnessed a juggernaut fall on Tuesday, after surrendering the critical support of the June 22 low at $101.17. The asset renewed the two-month low at $95.75.

On a daily scale, the breakdown of the upward sloping trendline dragged the oil prices swiftly. The above-mentioned trendline is placed from April 11 low at $92.65, adjoining April 25 low at $95.07 and May 11 low at $97.21 respectively.

The oil prices are declining towards the 200-period Exponential Moving Average (EMA) at $94.90. While the 50-EMA at $108.02 is much higher than the oil prices, which indicates that the short-term term is bearish.

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

For further downside, the oil prices need to violate Tuesday’s low at $95.75. This will dag the asset towards April 11 low at $92.65, followed by the critical support placed at $85.00.

On the flip side, bulls could regain strength if the asset oversteps June 22 low at $101.17, which will send the oil prices towards the round-level resistance of $105.00. A breach of the latter will advance the oil bulls towards Tuesday’s high at $109.54.

WTI daily chart

In light of the recent price action, EUR/USD could now edge lower and retest the 1.0200/1.0100 levels in the next weeks, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Our view for USD to consolidate yesterday was incorrect as it lurched lower, cracked the critical support at 1.0350 and nose-dived to 1.0233 before closing lower by a whopping 1.49% (NY close of 1.0266). The decline of 1.49% is the largest 1-day drop since Mar 2020. While deeply oversold, the weakness has not stabilized. Only a break of 1.0340 (minor resistance is at 1.0300) would indicate that the weakness has stabilized. Until then, there is scope for EUR to weaken further to 1.0200 (minor support is at 1.0235).”.

Next 1-3 weeks: “We turned negative in EUR last Thursday (30 Jun, spot at 1.0445). After EUR dropped to 1.0365 and rebounded, we highlighted yesterday (05 Jul, spot at 1.0435) that ‘downward momentum has slowed somewhat and the odds for EUR to move to 1.0350 have diminished’. We did not quite expect the sudden lurch lower as EUR plunged and cracked 1.0350. The break of the critical support sent EUR nose-diving to 1.0233. The break of the critical support at 1.0350 amidst solid downward momentum is likely to lead to further EUR weakness. The levels to focus on are the round-number supports of 1.0200 and 1.0100. Further decline to parity (1.0000) is not ruled out but this level may be out of reach this time round. Overall, only a break of 1.0380 (‘strong resistance’ level was at 1.0500) yesterday would indicate the current downward pressure has eased.”

• EUR/GBP portrays three-day downtrend inside an eight-day-old descending triangle.
• Bearish MACD signals keep sellers hopeful, 200-SMA offers intermediate halt.
• Recovery remains elusive below 0.8600, 61.8% golden ratio restricts immediate downside.

EUR/GBP fades bounce off 61.8% Fibonacci retracement of June 09-15 upside heading into Wednesday’s European session. That said, the quote remains pressured around 0.8580 during the three-day downtrend by the press time.

The cross-currency pair portrays a bullish chart pattern, called descending triangle, on the four-hour chart. However, bearish MACD signals and failures to rebound from the key SMA, as well as the 61.8% Fibonacci retracement (Fibo), also keep sellers hopeful.

It’s worth noting that the quote’s weakness past 61.8% Fibo. level surrounding 0.8575 could drag the quote towards the 200-SMA level near 0.8565.

Following that, the aforementioned triangle’s support line, close to 0.8540, will be in focus.

Alternatively, an upside break of the stated triangle’s resistance line, at 0.8595 by the press time, will confirm the bullish chart formation.

Following that, a run-up towards the monthly high near 0.8680 and June’s peak of 0.8721 will gain the market’s attention.

Overall, EUR/GBP remains pressured while consolidating the pair’s up-moves since mid-April.

EUR/GBP: Four-hour chart

Trend: Further weakness expected

• Asian equities are experiencing significant offers amid lockdown worries in China.
• Escalating recession fears have brought a dream rally in the DXY.
• Oil prices may display more losses as recession fears will stay for longer.

Markets in the Asian domain are displaying a vulnerable performance following the weakness in the risk-perceived currencies as recession fears deepen. The gloomy outlook from the Bank of England (BOE) on the global economy escalated recession fears. The statement from the BOE that the volatile oil and raw-material prices may bring economic shocks in the future brought an intense sell-off in the risk-sensitive assets.

At the press time, Japan Nikkei225 tumbled 1.17%, China A50 surrendered 1.50%, and Hang Seng dived 1.60%. However, Nifty50 is almost flat as optimism over the upcoming earnings season has supported the Indian equities.

No doubt, the households in the UK economy are facing their toughest phase of life as the economy has recorded the highest inflation rate at 9.1% in comparison to its G7 peers. Also, the political jitters in the UK economy amid resignations by top delegates have deepened recession concerns. The odds of a recession in the pound have accelerated significantly.

Chinese equities are facing intense selling pressure amid renewed lockdown fears. Back-to-back resurgence in the Covid-19 is impacting the sentiment of the market participants. There is no denying the fact that the Chinese economy is failing to combat the pandemic and other nations are facing its multiplier effects.

On the oil front, oil prices have plunged below the magical figure of $100.00. Soaring price pressures may result in lower demand for oil as the rise in wage prices is lacking the responsiveness of increment in the former. The black gold is displaying more downside potential and may find an establishment below $95 a barrel.

• AUD/USD fails to extend the rebound from 25-month low.
• Australia’s CBA, ANZ pass on full 50-bp home loan variable rate hike to defend home buyers.
• Economic slowdown fears underpin US dollar’s safe-haven demand, markets turn dicey ahead of the key data/events.
• RBA couldn’t impress bulls but Fed Minutes, US ISM Services PMI for June may favor bears.

AUD/USD retreats from intraday high as market players reassess the early Asian session’s corrective pullback amid the impending economic slowdown, as well as anxiety ahead of the key data/events. That said, the Aussie pair takes offers around 0.6795 while extending the pullback from an intraday high of 0.6820.

The Aussie pair’s latest weakness could be linked to the news from Australia suggesting the weakness in the housing market as top-tier bankers passed on the Reserve Bank of Australia’s (RBA) 50 basis points (bps) rate hike. That said, Commonwealth Bank of Australia and Australia and New Zealand Banking Group, Australia's No. 1 and No. 4 banks respectively, raised their home loan variable interest rates by 0.5% per annum from July 15, per Reuters.

The news also mentioned, “Australian lenders so far have been in lockstep with the central bank in passing the full rate hike to their customers, expecting to reap benefits at a time when the country's property market is showing signs of cooling after a bumper 22% price surge last year.”

Elsewhere, comments from Chinese Vice Foreign Minister Ma Zhaoxu, suggesting that China is willing to strengthen strategic coordination with Russia, also weighed on the AUD/USD prices due to the pair’s risk barometer status. The reason could be linked to the fears that Beijing’s support to Moscow could only escalate the Russia-Ukraine crisis and exert more downside pressure on the global supply chain, which in turn intensified the recession woes.

Additionally, hawkish bets on the major central banks’ next moves and upbeat US data also propel the risk-off mood, which in turn underpin the US dollar’s safe-haven demand and weigh on the AUD/USD prices. On Tuesday, the US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings.

It should be noted that the US Treasury yields rebound from a five-week low marked the previous day, up by two basis points (bps) to 2.82% at the latest, whereas the S&P 500 Futures struggle for directions around 3,830 by the press time.

Given the recession fears and the RBA’s failure to please AUD/USD buyers, the quote is likely to remain pressured. However, today’s Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June will offer additional directions.

Technical analysis

Unless crossing the two-month-old previous support line, now resistance around 0.6865, AUD/USD stays on the way to the late 2019 lows around 0.6670.

Japanese Deputy Chief Cabinet Secretary Seiji Kihara said in a statement on Wednesday, the “actual price cap figure for Russian oil will be discussed as necessary among G7 members.”

“G7 agreed to discuss the price cap, and PM Kishida's comments were based on that agreement,” he added.

Market reaction

WTI was last seen trading flat at $98.05, having faced rejection above the $100 mark.

• GBP/USD struggles to gain traction as it consolidates the biggest daily loss in three weeks.
• UK’s three key diplomats resigned after PM Johnson defended former Tory Party whip Chris Pincher.
• Labour Party’s five-point EU plan gains little acceptance over Brexit issue.
• Recession fears exert downside pressure ahead of FOMC Minutes, US ISM Services PMI.

GBP/USD grinds higher as it pares the biggest daily fall in nearly a month around the lowest levels since March 2020. That said, the Cable pair remains sidelined by portraying the gradual rebound to 1.1965, up 0.16% intraday during early Wednesday morning in Europe.

The quote’s latest moves could be linked to the market’s consolidation ahead of the key data/events, as well as UK PM Boris Johnson’s rejection to vacate the place and build a new cabinet. Also favouring the pair could be the Labour Party’s failure to please the British voters with its five-point EU plan.

Nadhim Zahawi becomes UK Chancellor and Steve Barclay is appointed as Health Secretary after the previous occupants, respectively Rishi Sunak and Sajid Javid resigned. Vice-Chair of Conservative Party Bim Afolami also left British politics. In addition to the partygate scandal, UK PM Johnson’s decision to keep ex-Conservative party whip Chris Pincher, despite sexual misconduct allegations against him, triggered the latest round of political drama in Downing Street. 

Elsewhere, the UK Express conveyed Brexit woes for the Labour Party by saying, “Brexit-backing campaigners have slammed Sir Keir Starmer over his five-point plan to keep the United Kingdom out of the European Union just days after the Labour leader announced he would not drag Britain back into Brussels' single market and customs union.”

On a different page, pessimism surrounding the global supply chain amid the escalation in the Russia-Ukraine tussles joins fears of fresh covid-led lockdowns in China to amplify recession risks. The pessimism intensified after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook.

Furthermore, hawkish bets on the major central banks’ next moves and upbeat US data also propel the risk-off mood, which in turn underpin the US dollar’s safe-haven demand and weigh on the GBP/USD prices. On Tuesday, the US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings.

Looking forward, final readings of the UK S&P Global Construction PMI for June may offer immediate direction but major attention will be given to British politics and the Federal Open Market Committee (FOMC) Minutes for clear directions. Also important will be the US ISM Services PMI for June, expected 54.5 versus 55.9 prior.

Also read: FOMC June Minutes Preview: Opportunity for dollar correction?

Technical analysis

A short-term falling wedge bullish chart pattern marks the GBP/USD pair’s rebound interesting. However, the cable pair needs to cross the 1.2200 hurdle to regain the buyer’s confidence. Meanwhile, the latest bottom surrounding 1.1900 stays on the bear’s radar.

• Gold prices are facing barricades around $1,770.00 ahead of the FOMC minutes.
• The DXY is displaying a time correction on expectations of lower US ISM Services PMI data.
• Declining 20-and 50-period EMAs are signaling more downside ahead.

Gold price (XAU/USD) has shifted into a consolidative phase as the market participants are on the sidelines ahead of the release of the Federal Open Market Committee (FOMC) minutes. The precious metal is displaying topsy-turvy moves in a $1,768.38-1,772.90 range in the Tokyo session.

On Tuesday, the gold prices witnessed a sheer downside fall after the escalating recession fears underpinned the greenback. The bright metal plunged around 2% after surrendering the psychological support of $1,800.00.

Meanwhile, the US dollar index (DXY) is displaying a time correction after a fresh impulsive wave. The DXY refreshed its 19-year high at 106.78 ahead of the FOMC minutes. Investors are aware of the fact that the Federal Reserve (Fed) announced a 75 basis point (bps) interest rate hike in June. The announcement of a 75 bps rate hike was the highest in the past 28 years. Therefore, reading the ideology behind the bumper rate hike announcement by Fed chair Jerome Powell is principal.

In addition to the Fed minutes, investors will also focus on the US ISM Services PMI. A preliminary estimate for the economic data is 54.5, lower than the prior release of 55.9.

Gold technical analysis

On an hourly scale, the gold prices will face the critical hurdle at $1,784.55, which is July 1 low. The 50- and 200-period Exponential Moving Averages (EMAs) at $1,790.00 and $1,810.00 respectively are vertically down, which signals the strength of the gold bears. Also, the Relative Strength Index (RSI) 14 has shifted into the bearish range of 20.00-40.00, which signals more downside ahead.

Gold hourly chart

“China is willing to deepen cooperation with Russia within multilateral frameworks including the G20,” said Chinese Vice Foreign Minister Ma Zhaoxu to Russian Ambassador to China, Andrey Denisov, per Reuters.

The news published during early Wednesday morning in Europe also mentioned that China is also willing to strengthen strategic coordination with Russia and expand practical cooperation in various fields, Ma told Denisov in a meeting on Tuesday, according to a statement from the Chinese foreign ministry on Wednesday.

Market reaction

Global markets paid a little heed to the news as traders await Fed Minutes, while also licking the recession-led wounds. It’s worth noting, however, that the S&P 500 Futures remain mildly offers around 3,830 amid market’s indecision.

Also read: S&P 500 Futures stay pressured, yields bounce off five-week low amid recession risk

• USD/INR consolidates recent rally around all-time high, pressured near intraday low of late.
• Oil prices slumped as global economic slowdown joins supply woes.
• Market fears underpin USD’s safe-haven demand but anxiety ahead of key data/events trigger corrective pullback.
• FOMC Minutes, US ISM Services PMI to decorate calendar, risk catalysts are the key.

USD/INR takes offers to pare recent gains as global markets consolidate the previous day’s risk-off mood ahead of the Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June. That said, downbeat prices of oil also favor the pair’s pullback towards 79.10 during Wednesday’s mid-Asian session.

WTI crude oil remains pressured around a three-month low, down 0.05% intraday near $97.70 by the press time, as energy traders keep fearing a slump in the demand amid recession woes. That said, the black gold marked the biggest daily loss since March, also refreshed a three-month low, while falling around 9.0% the previous day.

No optimism towards supply-chain improvement amid the escalation in the Russia-Ukraine tussles joins fears of fresh covid-led lockdowns in China to amplify recession risks. The pessimism intensified after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook.

Also read: Coronavirus Update: Shanghai lockdown fears linger as Xi goes under control measures

Additionally, hawkish bets on the major central banks’ next moves and upbeat US data also propel the risk-off mood, which in turn underpin the US dollar’s safe-haven demand. On Tuesday, the US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings.

It should be noted that the recently downbeat oil prices also help the USD/INR traders to expect relief from the record trade deficit as India is a net importer of its energy demand. With this in mind, Nomura cites, “weakening India BoP dynamics, aggressive Fed hikes and rising US recession risks,” to aim for the 82.00 level for the USD/INR.

Also read: FOMC June Minutes Preview: Opportunity for dollar correction?

Technical analysis

USD/INR pullback remains elusive until the quote remains beyond the previous weekly range, between 79.10 and 78.85. That said, the 80.00 threshold lures the bulls.

• EUR/USD is juggling in a 1.2055-1.2071 range as investors await Fed minutes and eurozone Retail Sales.
• The elevation of rates by 75 bps in June by the Fed makes Wednesday’s Fed minutes more crucial.
• An outperformance is expected from the eurozone Retail Sales.

The EUR/USD pair is displaying back and forth moves in a narrow range of 1.2055-1.0271 in the Asian session. The asset is witnessing range-bound moves as investors are awaiting the release of the Federal Open Market Committee (FOMC) minutes and the eurozone Retail Sales.

On Tuesday, the shared currency bulls witnessed a perpendicular fall after violating the crucial support of 1.0365. Accelerating recession fears underpinned the greenback and the risk-perceived currencies went south swiftly. Going forward, the eurozone Retail Sales will remain in focus. A preliminary estimate for the economic data is 5.4% on an annual basis vs. 3.9% reported earlier. Also, the quarterly data is seen higher at 0.4% against the former release of -1.3%.

In today’s session, the FOMC minutes are critical to watch.  As usual, the Fed minutes will display the ideology behind the interest rate decision taken in prior monetary policy meeting. While this time the Fed minutes hold more importance. Fed chair Jerome Powell elevated its interest rate by 75 basis points (bps) for the first time in the past 28 years which states the most hawkish tone and reveals that the inflation ghost is for real. Also, it may provide meaningful guidance for the July meeting.

Apart from that, the US ISM Services PMI data will be of key importance. As per the market consensus, the economic data will slip to 54.5 from the prior release of 55.9.

Xi, China’s city of 13 million entered a seven-day period of ‘temporary control measures’ after 18 coronavirus cases were found in the city and in accordance with the country’s 'zero' policy.

City official Zhang Xuedong said that Xi’an would implement “seven-day temporary control measures”, which include:

Public entertainment venues including pubs, internet cafes and karaoke bars will shut from midnight on Wednesday.

Restaurants will not be allowed to serve diners indoors but may continue to offer takeaway services.

Schools are to start the summer holiday early and universities will seal off their campuses.

Meanwhile, fears of a probable lockdown in Shanghai city amplified after the authorities launched mass testing in nine districts, where covid cases were detected in the past two days.

The nine districts, as well as some areas in another three districts, will conduct two rounds of Covid mass testing between Tuesday and Thursday in order to “identify and prevent outbreak risks as early as possible,” the city government said in a statement published on its official WeChat account.

A Shanghai city official said that they “will suspend operations of KTV karaoke venues in the city, other entertainment venues can remain open.”

However, he said that the “gradual reopening of cinemas and concert venues from July 8 will still go ahead.”

Shanghai reported fresh two covid infections of quarantine, as of Wednesday.

Market reaction

Risk sentiment has taken a fresh hit on China's covid lockdown concerns, as the S&P 500 futures shaved-off early gains to now trade 0.28% on the day. USD/CNY, however, is falling 0.22% on the day to 6.7043, as of writing.

• USD/JPY has slipped sharply to near 135.10 as the DXY has displayed a subdued performance.
• Accelerating odds of a higher inflation rate in Japan is bolstering the yen bulls.
• In today’s session, FOMC minutes and US ISM Services data will remain in focus.

The USD/JPY pair has witnessed a steep fall after surrendering the crucial support of 135.53 in the Asian session. The asset has tumbled to near 135.14 as the US dollar index (DXY) has extended its correction after violating 106.46.

A bumpy ride is expected in the asset as the DXY may correct further ahead of the Federal Open Market Committee (FOMC) minutes on Wednesday. The minutes of the June monetary policy meeting will unfold the ideology behind announcing a 75 basis point (bps) rate hike by the Federal Reserve (Fed). In addition to that, the minutes will display the situation of the macroeconomic indicators, which will portray the current condition of the US economy.

Apart from the FOMC minutes, investors will keep an eye on the US ISM Services data. A mixed performance is expected from the market participants as preliminary estimates for Services Price Paid and New Orders Index are high while for Services PMI and Employment Index are low. The crucial Services PMI is seen at 54.5, lower than the former release of 55.9.

On the Tokyo front, yen bulls have strengthened on rising expectations for higher price pressures. Seisaku Kameda, a former chief economist at the Bank of Japan (BOJ) said that the sharp decline in yen on a broader note will lift the inflation outlook. The inflation rate may remain well above 2% this year.

• Market sentiment remains divided as traders take a breather after a volatile day.
• Fears of global slowdown, central bank aggression and China’s covid woes offered a trifecta impact to drown sentiment.
• Anxiety ahead of the Fed Minutes, US ISM Services PMI appears to weigh on risk appetite of late.

Risk profile remains weak, despite the recent consolidation in the market, as traders remain worried over recession fears during Wednesday’s Asian session.

Even so, the US 10-year Treasury yields rebound from a five-week low marked the previous day, up by two basis points (bps) to 2.82% at the latest. That said, the S&P 500 Futures struggle for directions around 3,830 by the press time.

Increased doubts over supply-chain improvement and the escalation in the Russia-Ukraine tussles escalated the fears of global recession on Tuesday. The risk-off mood also took clues from the speculations that China may recall covid-led lockdowns, after it announced mass covid testing. The pessimism intensified after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook.

It should be noted that the firmer prints of the US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings, also underpinned the risk-off mood by way of increasing the hawkish Fed bets.

Furthermore, the inverted curve between the 2-year and 10-year Treasury yields also portrayed the risk of a global economic slowdown.

Looking forward, updates on the economic health and China’s covid conditions are the key for traders while the Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June will offer additional directions.

Also read: Dollar rallies on risk-averse usd buying

The Commonwealth Bank of Australia (CBA) announced new interest rates, noting that they will pass on the Reserve Bank of Australia’s (RBA) official rate increase to customers in full.

Key details

Related reads

• AUD/USD Price Analysis: Bulls step on the gas and eye 0.6850
• RBA hikes OCR by 50 bps to 1.35%, as expected

China's consumer price index likely rose 2.4% in June from May's 2.1% amid rapidly higher pork prices, as breeding companies are reluctant to sell when the prices are seen as bullish, the Securities Dailly reported citing analysts.

Key takeaways

“The average wholesale price of pork nationwide is CNY26.69 per on Wednesday, which has increased by about 26% from June 1, the newspaper said citing data by the Ministry of Agriculture and Rural Affairs.”

“The National Development and Reform Commission is releasing pork reserves and meeting with major breeding companies to safeguard supply and stabilise prices this week.“

This comes ahead of China’s latest CPI data due for release on Saturday.

USD/CHF retreats from a 12-day high, snapping a three-day uptrend, as markets consolidate the previous day’s heavy volatility amid the recession fears. That said, the quote eases from the previous day’s multi-day high of 0.9704 to 0.9680 during Wednesday’s Asian session.

In doing so, the Swiss currency (CHF) pair fails to justify the options market’s bullish bias as traders await but the Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June will be important to watch for fresh impulse.

One-month risk reversal (RR) of the USD/CHF rose the most since early May the previous day, to 0.2000 on a daily basis. It’s worth noting that the RR is a spread between the call options and the put options, conveying the difference between bullish and bearish market bets.

That said, the growing fears of global recession joined speculations that China may recall covid-led lockdowns to weigh on the USD/CHF prices on Tuesday. The pessimism intensified after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook.

Also read: USD/CHF Price Analysis: Retreats from 21-DMA below 0.9700, snaps three-day uptrend

• GBP/JPY extends downside break of two-month-old trend line, takes offers to refresh daily low.
• Key British diplomats including Health Secretary Sajid Javid, Finance Minister Rishi Sunak and Conservative Party Vice-Chair Bim Afolami resigned.
• 100-DMA, ascending support line from March lure sellers amid bearish MACD signals.

GBP/JPY takes offers to refresh intraday low around 161.70, down for the second consecutive day, during Wednesday’s Asian session. The cross-currency pair dropped the most in three weeks the previous day amid the UK’s political drama. Also weighing on the pair could be the broad risk-off mood on recession fears.

UK PM Boris Johnson had a tough Tuesday as senior members of his cabinet, as well as the Tory Party, resigned after he decided to keep former Conservative party whip Chris Pincher in his post after sexual misconduct allegations were made against him. The British Leader, however, regretted his decision and took steps but it was too late. Even so, UK PM Johnson remained determined to keep his post and form the new cabinet.

Among the key resignations were British Health Secretary Sajid Javid, Finance Minister Rishi Sunak and Vice-Chair of Conservative Party Bim Afolami. It’s worth noting that multiple politicians are standing in the line to leave the boat as it appears sinking.

It’s worth noting that Germany’s energy crisis, Italy’s drought and the Bank of England’s grim economic outlook are the key catalysts that drowned the GBP/JPY prices earlier, before the latest corrective pullback. On the same line could be hopes of an end to the British pessimism after the dissolution of the current cabinet, which is more likely soon.

Moving on, GBP/JPY traders should pay attention to the risk catalysts for fresh directions.

Technical analysis

GBP/JPY pair justifies the previous day’s pullback from the 165.00 resistance confluence, including the 21-DMA and a fortnight-old descending trend line.

Also keeping sellers hopeful is the pair’s successful break of the previous key support line from May 12, now resistance around 162.45.

Additionally, the bearish MACD signals and the absence of the oversold RSI conditions also keep GBP/JPY sellers hopeful of breaking the 100-DMA support, close to 160.85.

With this, the pair could aim for the four-month-old ascending support line, at 159.30 by the press time.

Should the quote remains bearish past 159.30, the odds of witnessing a slump to May’s low of 155.59 can’t be ruled out.

Alternatively, recovery moves may initially aim for the previous support line from May, near 162.45.

However, the GBP/JPY bulls remain pressured until they cross the aforementioned 165.00 key hurdle.

Following that, the quote could quickly rush towards the yearly peak of 168.73, marked in June.

GBP/JPY: Daily chart

Trend: Further downside expected

• AUD/USD bulls have moved in for the kill to pierce the 0.68 figure. 
• There are prospects of a run towards 0.6850 for the day ahead. 

AUD/USD is attempting to break higher as the US dollar struggles to drive forward following a sizeable move overnight. The price is accumulating at around 0.6800 having corrected to a 38.2% Fibonacci retracement of the prior bullish impulse in the hourly time frame.

AUD/USD H1 chart

There has been a surge to the upside during the first two hours of the Tokyo session which may indicate that a low is in place and the bias is to the upside for the day ahead. If this is the case, then there is a large price imbalance between 0.6820 and a touch above 0.6850 that could be mitigated in the coming mid-week sessions. 

• USD/CAD steps back from two-month-old resistance after rising to the highest levels since November 2020.
• Markets remain mixed after a wild day that propelled US dollar amid recession woes.
• ISM Services PMI, risk catalysts will join the FOMC Minutes to direct immediate moves.

USD/CAD bulls take a breather at the highest levels in 20 months, retreating towards 1.3000 during Wednesday’s Asian session, as markets consolidate the latest moves ahead of the key data/events.

The Loonie pair refreshed a multi-day high while rising the most since August 2021 as recession woes underpinned the US dollar’s rally to a two-decade high. Also fueling the USD/CAD prices was a downbeat performance of Canada’s biggest export item, namely WTI crude oil.

That said, the US Dollar Index (DXY) rallied to the highest levels in 20 years as the US traders returned from the long weekend, which in turn drowned the Gold Price. In addition to the rush for risk safety, the DXY also benefited from the better-than-forecast US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings.

On the other hand, WTI crude oil picks up bids to $99.20 as it pares the biggest daily loss since March, around a three-month low.

Growing fears of global recession joined speculations that China may recall covid-led lockdowns to weigh on the gold prices the previous day. The pessimism intensified after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook.

While portraying the mood, Wall Street closed mixed and the S&P 500 Futures print mild gains while the US Treasury yields remain pressured near a one-month low.

To sum up, USD/CAD remains on the front foot amid recession fears but the Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June will be important to watch for fresh impulse.

Technical analysis

A clear upside break of an ascending resistance line from May, near 1.3085, appears necessary for the USD/CAD bulls to keep reins. Until then, overbought RSI conditions, on the daily chart, hint at the pair’s pullback towards revisiting the 50-DMA support around 1.2840

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.7246 vs. the previous fix of 6.6986 and the prior close of 6.7190.

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.

• Gold Price portrays a corrective pullback near the lowest levels in seven months.
• Fears of economic slowdown join firmer US dollar to weigh on prices, market’s inaction triggered mild bounce.
• Fed Minutes need to confirm hawkish for favoring bears, US ISM Services PMI appears important too.
• Inverted cup-and-handle formation hints at the metal’s further downside.

Gold Price (XAU/USD) consolidates the biggest daily fall in three weeks around $1,770, refreshing intraday high to $1,772 during Wednesday’s Asian session. Even so, the precious metal remains below the key support-turned-resistance after confirming the bearish inverted cup-and-handle formation the previous day.

Growing fears of global recession joined speculations that China may recall covid-led lockdowns to weigh on the gold prices the previous day. The pessimism intensified after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook.

On the same line was China’s mass covid testing announcement. Additionally, strong prints of the US Factory Orders for May also propelled concerns about Fed's aggressive rate hikes and contributed to the market's pain.

That said, the US Dollar Index (DXY) rallied to the highest levels in 20 years as the US traders returned from the long weekend, which in turn drowned the Gold Price. In addition to the rush for risk safety, the DXY also benefited from the better-than-forecast US Factory Orders for May, to 1.6% MoM versus 0.5% expected and upwardly revised 0.7% previous readings.

Amid these plays, Wall Street closed mixed and the S&P 500 Futures print mild gains while the US Treasury yields remain pressured near a one-month low.

Moving on, recession updates are the key for gold traders while the Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June will offer additional directions.

Also read: FOMC June Minutes Preview: Opportunity for dollar correction?

Technical analysis

Gold Price licks its wounds after confirming the bearish chart pattern called inverted cup-and-handle, by a clear downside break of the $1,875 support.

Although oversold RSI favors the quote’s corrective pullback, the metal prices remain weak until crossing the $1,785 hurdle. Even so, the mid-June swing low and 100-EMA, respectively near $1,805 and $1,820, could test the XAU/USD bulls.

Also acting as an upside filter is a three-week-old descending resistance line near $1,823.

Meanwhile, gold’s fresh weakness needs validation from the latest multi-month low around $1,763.

Following that, the theoretical target of $1,690 could lure the XAU/USD bear’s attention.

Gold: Four-hour chart

Trend: Bearish

• The kiwi bulls are aiming to establish above the 20-EMA at 0.6168.
• A falling wedge formation is indicating volatility contraction ahead.
• The RSI (14) has shifted into a 40.00-60.00 which indicates a halt in the downside potential for a while.

The NZD/USD pair is juggling in a narrow range of 0.6162-0.6175 in the Asian session. The kiwi bulls have turned sideways after displaying a responsive buying action. The asset has defended its weekly lows at 0.6147 and a responsive buying action near weekly lows indicates some signs of reversal.

A falling wedge formation on an hourly scale is indicating a volatility contraction on a current note. Usually, a falling wedge dictates a bullish reversal after giving an upside break of the upper portion of the chart pattern. The upper portion of the chart pattern is placed from June 16 high at 0.6396 while the lower portion is plotted from June 14 low at 0.6196.

The antipodean is aiming to establish above the 20-period Exponential Moving Average (EMA) at 0.6168. While the 50-period EMA is still trading higher at 0.6187.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a 40.00-60.00 range, which signals that the kiwi bulls have defended the downside risks for a while.

A decisive move above Wednesday’s high at 0.6176 will drive the asset towards the round-level resistance at 0.6200, followed by June 22 low at 0.6244.

On the flip side, the greenback bulls could regain control if the major drop below Tuesday’s low at 0.6124. An occurrence of the same will drag the asset towards 25 May 2020 low at 0.6084. A violation of 0.6084 will expose the asset to more downside potential towards the psychological support of 0.6000.

NZD/USD hourly chart

• GBP/USD bulls are taking on the bears with eyes towards a 50% mean reversion. 
• The 38.2% Fibo comes in as the first upside target. 

The bears could be throwing in the towel here in Tokyo as the US dollar starts to fall away. However, it is early days in the equities session in Asia still and it is yet to be seen if a high is being cut out currently or if a low is in place.

Nevertheless, the following illustrates a bullish bias in the case of a break of resistance and a move in towards the price imbalances that have a confluence of the 38.2% and 50% ratio retracements of the bear's tracks from overnight. 

GBP/USD H1 chart

A move higher to mitigate the price imbalances could potentially lead to a test below the 1.2000 psychological level which could equate to a 25 pip run higher where bears could be lurking. If the bears were to commit to the course, then a downside extension could be on the cards for the forthcoming days. 

Even after witnessing the biggest daily fall in oil prices in four months, Goldman Sachs (GS) cites the unresolved global supply deficit and the previous rally of black gold in its latest report.

The US bank also mentioned that it is too soon for the oil price to drop on recession concerns.

It’s worth noting that Citibank expects the energy benchmark to drop to $65.00 on recession fears.

On the other hand, JP Morgan cited hopes of witnessing $380 as a price while saying that it's "inconceivable" that the US is already in recession “For a labor market that has generated close to 500k average monthly gains for the past six months".

Elsewhere, comments from Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC), Mohammad Barkindo, also couldn’t please the black gold buyers.

Also read: WTI pares biggest daily loss in four months around $99.00 amid recession fears

• EUR/USD fades bounces off 20-year low inside monthly falling channel.
• 61.8% FE, previous support from mid-May appear key hurdles for recovery.
• Oversold RSI may test bears around the channel’s support.

EUR/USD remains pressured around the lowest levels since December 2002, flashed the previous day, as bears flirt with 1.0260 during Wednesday’s Asian session.

The major currency pair slumped the most since March 2020 the previous day after breaking the horizontal area comprising the previous yearly low, around 1.0360-50. However, the quote’s rebound from 1.0235 portrayed a one-month-old bearish channel on the chart.

That said, the EUR/USD pair’s latest pullback marks the failure to cross the 61.8% Fibonacci Expansion (FE) of the March-May moves, around 1.0280.

Even if the pair manage to cross the 1.0280 level, it needs validation from the 1.0360 to convince buyers.

Even so, the 10-day EMA and upper line of the stated channel, respectively near 1.0415 and 1.0525, could challenge the EUR/USD buyers.

On the flip side, the aforementioned channel’s lower line, at 1.0225 by the press time, could join the oversold RSI conditions to limit the EUR/USD pair’s immediate declines.

Following that, the 78.6% FE level near 1.0130 could act as a buffer before directing the quote towards the 1.0000 psychological magnet.

EUR/USD: Daily chart

Trend: Limited downside expected

• USD/JPY bears are moving in during the bearish open in Tokyo equities. 
• Nikkei opens in a 0.8% gap to the downside ahead of the FOMC minutes on Wednesday. 

At 135.51, USD/JPY is some 0.25% at the equities open in Tokyo. The bears are lurking in a risk-off setting and lower US yields are supporting a bid in the yen. 

The yield on the US 10-year Treasury fell 6bps to 2.82% into the early Asian session although they are attempting to stabilise currently, at 2.818%. The Japanese yen outperformed all but the greenback overnight, with USD/JPY up just 20 pips to 135.85. Additionally, the US 10-year yield briefly dipped 1 bp below the two-year, the first inversion in about three weeks and one of several this year. Some observers argue that such an inversion is a timely signal that a recession is coming. The two-year to five-year yield spread turned negative Tuesday too.

It was a risk-off day on Tuesday with both global stocks and the commodity complex under pressure as recession fears intensified, supporting a bid in the US dollar and sending it to its highest level in two years. The fears were sparked by the Bank of England which said the outlook for the global economy has deteriorated materially and that volatility in the cost of energy and raw materials poses a significant risk of disruption that could amply economic shocks in the future, as noted by analysts at ANZ Bank in a note at the start of the Asian day. 

''Meanwhile, new rounds of COVID testing in Shanghai have increased fears of further lockdowns for China, which would then have a ripple effect on other markets,'' the analysts added.

Nevertheless, major US stock indexes turned around on Tuesday following a three-day holiday weekend after last Friday's sharp rally, as investors waited for economic data due later this week in Nonfarm Payrolls and ahead of today's Federal Open Market Committee minutes. For today, the Nikkei opened in a gap which leaves prospects for a rise in the yen also. 

As for the US calendar, US Nonfarm Payrolls is expected to show that Employment likely continued to advance firmly in June but at a more moderate pace after three consecutive job gains of around 400k in March-May, analysts at TD Securities said.

Minutes of the Federal Reserve's June meeting will also be eyed. ''Persistent high CPI inflation and nascent signs of de-anchoring inflation expectations forced the Fed to amp the pace of rate tightening. The meeting minutes are likely to offer further colour around the Fed's more hawkish reaction function,'' the analysts at TD Securities said. 

• The DXY has witnessed a mild correction to near 106.50 after hitting a fresh 19-year high at 106.50.
• BOE’s gloomy outlook on the global economy has strengthened the DXY’s appeal.
• The release of the FOMC minutes will be the key event for further guidance.

The US dollar index (DXY) is being offered mildly after printing a fresh 19-year high at 106.50 on Tuesday. The asset witnessed some decent gains after violating a three-week-old high at 105.79 as recession fears soar on the Bank of England (BOE)’s statement on the global outlook.

BOE’s gloomy outlook for the global economy

The BOE cornered the volatility from the fossil fuels and other raw materials prices that might be responsible for economic shocks in the future. No doubt, the soaring price pressures in the global economy have pushed the policymakers from Western central banks on their toes. The policymakers are finding it hard to combat the headwinds from the runaway inflation rate.

FOMC minutes

The forward release of the Federal Open Market Committee (FOMC) minutes is underpinning the DXY against the risk-perceived currencies. Investors are worried over the fact that the minutes of the June monetary policy meeting will unfold some hawkish concepts for further guidance. Although the guidance will remain biased towards more policy tightening measures as the inflation rate has not displayed any slowdown signals yet.

Nonfarm Payrolls

Later this week, the release of the US Nonfarm Payrolls (NFP) will be the key event. A preliminary estimate for the job additions done by the US economy is 270k, significantly lower than the prior release of 390k. The Unemployment Rate may remain stable at 3.6%.

Key data this week: S&P Global PMI, ISM Services PMI, JOLTs Job Openings, ADP Employment Change, Initial Jobless Claims, Nonfarm Payrolls (NFP), Unemployment Rate.

Major events this week: Federal Open Market Committee (FOMC) minutes.

• AUD/USD fades corrective pullback from the lowest levels since June 2020.
• Risk profile remains weak amid economic slowdown fears, China’s mass testing renew covid woes.
• Fed Minutes flash risk of consolidation as Powell has disappointed markets of late.
• US ISM Services PMI for June, risk catalysts are also important for clear directions.

AUD/USD remains pressured around the 25-month, fading bounce off 0.6761 near 0.6790 amid Wednesday’s Asian session.

The Aussie pair refreshed its multi-day low as the market’s fear of economic slowdown amplified the previous day. Adding strength to the bearish bias were calls for China’s another round of lockdowns. In doing so, the risk barometer pair failed to cheer the Reserve Bank of Australia’s (RBA) 0.50% rate hike, which was widely anticipated.

Growing fears of global recession joined speculations that China may recall covid-led lockdowns to drown the AUD/USD prices the previous day. The pessimism intensified after Germany and Italy flashed economic warnings while the Bank of England (BOE) also released a report conveying the grim economic outlook. On the same line was China’s mass covid testing announcement.

At home, the RBA matched wide market expectations of announcing 50 basis points (bps) rate hike but couldn’t please the AUD/USD bulls. The quote’s weakness could be linked to the RBA statement saying, “In Australia, inflation is high, but not as high as in many other countries.”

While portraying the mood, the US Dollar Index (DXY) jumped to the highest levels in two years while equities dropped, before a mild recovery, whereas the US Treasury yields refreshed one-month low while inverting the yield curve between the two-year and 10-year coupons. The S&P 500 Futures, however, struggle for clear directions of late.

Looking forward, the Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June will be crucial for short-term market directions.

Also read: FOMC June Minutes Preview: Opportunity for dollar correction?

Technical analysis

A clear downside break of the two-month-old support line, now resistance around 0.6865, directs AUD/USD bears towards the late 2019 lows around 0.6670.