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• EUR/USD defends the bounce off two-week low ahead of the key EU, US data/events.
• Economic fears surrounding Europe, China join mixed US data to challenge pair buyers.
• Firmer yields, equities challenge bears amid market’s indecision.
• FOMC Minutes will be eyed for clues of 0.75% rate hike in September.

EUR/USD treads water around 1.0175, keeping the previous day’s rebound in a choppy trading range during Wednesday’s Asian session, as traders await the week’s key catalysts. Also challenging the pair traders are the mixed concerns surrounding growth and central banks.

Fears of economic slowdown, mainly emanating from China and Europe, join firmer Treasury yields and positive equities to confuse the traders. It’s worth noting that the US dollar also retreated amid the market’s indecision.

With this, the US Dollar Index (DXY) refreshed its three-week high before reversing from 106.94. That said, the DXY previously benefited from the flight to safety as China’s readiness for multiple measures to tame recession woes joined Europe’s signals to renew the nuclear deal with Iran while pushing back plans for the closure of Germany’s last three nuclear power plants. On the same line was the Washington Post (WaPo) news that mentioned that Chinese authorities ordered factories to suspend production in several major manufacturing regions to preserve electricity, as the country face the worst heat wave in six decades.

Talking about the data, US Industrial Production grew 0.6% in July versus 0.3% expected and upwardly revised 0.0% prior whereas Building Permits also increased to 1.674M MoM during the stated month versus 1.656 market expectations and 1.696M previous readings. It should be noted that the Housing Starts dropped to 1.446M from 1.599M prior and 1.54M expected. Further, ZEW Sentiment data from Germany and Europe came in weaker for Economic Sentiment but improved a bit for Current Situation.

Amid these plays, Wall Street managed to close on a positive side, despite retreating by the end of the day. That said, the US 10-year Treasury yields snapped a two-day downtrend by regaining 2.80% at the latest. It should be noted that the US 10-year Treasury yields pause the previous day’s rebound while the S&P 500 Futures print mild losses at the latest.

Looking forward, EUR/USD traders will initially respond to the second readings of the Eurozone Gross Domestic Product (GDP), expected to confirm the 0.7% QoQ forecasts, ahead of preliminary readings of Eurozone Employment Change for the second quarter (Q2), expected 2.5% versus 2.9% prior.  Also crucial will be the US Retail Sales for July, expected 0.1% versus 1.0% prior. Above all, the Federal Open Market Committee (FOMC) meeting minutes appear as the key event of the day, as well as for the week.

It’s worth noting that the Minutes statement will be eyed to confirm another hawkish move in September despite the latest reduction in the inflation fears.

Technical analysis

EUR/USD bounces off 23.6% Fibonacci retracement of late May to mid-July downturn, around 1.0150, with the previous support from July, at 1.0245 now, likely to restrict immediate upside.

• AUD/NZD has corrected in a 50% mean reversion ahead of key data events.
• Bears are looking for a break of the trendline support and structure at 1.0952.

AUD/NZD is flat on the day so far ahead of the release of the Monetary Policy Statement from the Reserve Bank of New Zealand today that is expected to see another 50bp lift in the OCR to 3.0%. The cross has been stalling on the bid within familiar ranges. AUD/NZD has stuck to 1.1057 and 1.1069 on the day.

''We are expecting a hawkish tone today as the RBNZ tries to reiterate the battle to bring down surging inflation is far from over. Upside surprises in domestic inflation and wage growth, along with the recent falls in domestic mortgage rates given the Monetary Policy Committee little choice but to send a clear message,'' analysts at ANZ Bank explained. 

Meanwhile, the Aussie jobs data will be keenly monitored tomorrow whereby analysts at TD Securities said ''wages growth may accelerate in Q2 as firms face record labour constraints while workers may demand higher base wages with inflation at a 21-year high.'' The analysts added ''July is a seasonally strong month for job gains and we look for the unemployment rate to trend lower. Another strong labour print should give the RBA the assurance that the economy can withstand a cash rate of 3% by end-2022.''

AUD/NZD technical analysis

The price has corrected in a 50% mean reversion and should the bears now move in, then a break of the trendline support and structure at 1.0952 will be a significant development.

• GBP/USD keeps the previous day’s rebound, the consecutive third one from 50% Fibonacci retracement since late July.
• Steady RSI, impending bull cross on MACD teases buyers to overcome immediate hurdle.
• 100-SMA adds to the upside filters, multiple supports to challenge bears.

GBP/USD picks up bids to extend the previous day’s recovery to 1.2100 during Wednesday’s Asian session. In doing so, the Cable pair approaches a one-week-old resistance line while also portraying the third bounce off the 50% Fibonacci retracement level of July-August advances.

In addition to the sustained rebound from the key Fibonacci support, steady RSI and a looming bull cross of the MACD also keep the GBP/USD buyers hopeful of overcoming the 1.2110 immediate hurdle.

Even so, the 100-SMA level of 1.2130 acts as an extra filter to the north before giving control to the bulls.

Following that, the 1.2200 threshold may act as an intermediate halt during the run-up to the monthly high near 1.2295.

Alternatively, pullback moves may initially test the 200-SMA, around 1.2045 at the latest, before revisiting the 50% Fibonacci retracement level of 1.2030.

In a case where the GBP/USD bears keep reins past 1.2030 key support, the 61.8% Fibonacci retracement level and late July’s swing low, respectively around 1.1965 and 1.1890, will be in focus.

GBP/USD: Four-hour chart

Trend: Further upside expected

• EUR/JPY bounced off weekly lows and gained almost 1% on Tuesday.
• Albeit recovering from Monday’s losses, faltering of achieving a daily close above 137.00 left the EUR/JPY vulnerable to selling pressure.

The EUR/JPY reached a new weekly low at 134.94 on Tuesday but staged a comeback and hit a daily high at 136.92 before closing at 136.50, off the day’s high. At the time of writing, the EUR/JPY is trading at 136.56, slightly up 0.02% as Wednesday’s Asian Pacific session begins.

EUR/JPY Price Analysis: Technical outlook

EUR/JPY Tuesday’s price action witnessed a shared currency recovery but faltering to close above Monday’s open at 136.89, leaving the cross vulnerable to sellers. Until Wednesday’s price action shows that the EUR/JPY trading above 137.00, the cross-currency pair is neutral-to-downward biased. Nevertheless, if the previously-mentioned scenario plays out, a rally towards the 50-day EMA at 138.00 is on the cards.

Therefore, the EUR/JPY’s first resistance would be the 20-day EMA at 137.24. Once broken, the next supply zone would be the 100-day EMA at 138.09, followed by the 50-day EMA at 139.34.

On the other hand, failure at 137.00 would open the door for further losses. The EUR/JPY first support would be 136.00. Break below will expose the weekly low at 134.94, followed by the 200-day EMA at 133.98.

EUR/JPY Key Technical Levels

• NZD/USD stays defensive at one-week low ahead of the key events.
• New Zealand PPI grew more than forecast in Q2 but came in softer-than-prior.
• Economic fears surrounding China, concerns over Fed’s September rate hike exert downside pressure.
• RBNZ is likely to announce fourth consecutive 0.50% rate increase but bulls need more to retake control.

NZD/USD struggles to defend the latest bounce off the 100-DMA as it seesaws near 0.6350 heading into the key interest rate announcement by the Reserve Bank of New Zealand (RBNZ) early Wednesday in Asia. In doing so, the Kiwi pair justifies the market’s indecision as the Fed Minutes also highlight today as the key day in the calendar.

Recession woes join mixed data and anxiety ahead of September Federal Open Market Committee (FOMC) meeting weigh on the NZD/USD prices of late. However, firmer equities and the US dollar’s pullback ahead of the Fed Minutes seem to challenge the Kiwi pair sellers. On the same line could be New Zealand’s second quarter (Q2) Producer Price Index (PPI) data.

New Zealand’s PPI-Input rose past 2.2% expected to 3.1% in Q2 but stayed below 3.6% in previous readings. In the same way, the PPI-Output also crossed the 2.1% market forecasts with 2.4% QoQ figures while easing beneath the previous 2.6% prior.

On the other hand, China’s state planner announced multiple measures to fight back the recession woes after downbeat data and the failure of the People’s Bank of China’s (PBOC) rate cut in impressing traders. Also, Washington Post (WaPo) mentioned that Chinese authorities ordered factories to suspend production in several major manufacturing regions to preserve electricity, as the country face the worst heat wave in six decades.

It should be noted that the US Dollar Index (DXY) refreshed its three-week high before reversing from 106.94. The greenback’s gauge versus six major currencies previously benefited from the flight to safety before the firmer equities and consolidation ahead of FOMC Minutes joined mixed data to weigh on the quote.

That said, US Industrial Production grew 0.6% in July versus 0.3% expected and upwardly revised 0.0% prior whereas Building Permits also increased to 1.674M MoM during the stated month versus 1.656 market expectations and 1.696M previous readings. It should be noted that the Housing Starts dropped to 1.446M from 1.599M prior and 1.54M expected.

While portraying the mood, Wall Street managed to close on the positive side, despite retreating by the end of the day. That said, the US 10-year Treasury yields snapped a two-day downtrend by regaining 2.80% at the latest.

Looking forward, NZD/USD traders will pay attention to the RBNZ’s announcement as New Zealand’s central bank is up for the seventh back-to-back increase in its benchmark interest rate, from 2.5% to 3.0%, not to forget a fourth straight 50 basis points (bps) rate hike.  It’s worth noting that the 0.50% rate lift is discussed and priced in, which in turn signals the “need for more” by the pair buyers. Following that, the Fed Minutes will be eyed to confirm another hawkish move in September despite the latest reduction in the inflation fears.

Also read: Reserve Bank of New Zealand Preview: Growth fears could temper hawkish rhetoric

Technical analysis

NZD/USD recently bounced off the 100-DMA support around 0.6320 amid bullish RSI divergence. The recovery moves, however, need validation from a downward sloping resistance line from late April, close to 0.6460 by the press time

• AUD/USD fades bounce off one-week low, stays sidelined of late.
• Fears emanating from China, mixed message from RBA Minutes challenge buyers.
• US dollar pullback, firmer equities restrict immediate downside ahead of the key Aussie data.
• RBA emphasizes firmer wage growth, Fed Minutes eyed for stronger rate hikes.

AUD/USD portrays the market’s anxiety as it seesaws around 0.7020 ahead of the key Australia wage price data and the Federal Open Market Committee (FOMC) meeting minutes on early Wednesday in Asia. That said, the risk barometer pair dropped during the last two days amid recession and geopolitical fears before bouncing off a one-week low in late Tuesday.

Pessimism surrounding Australia’s major customer China and the Reserve Bank of Australia’s (RBA) cautious remarks over the next rate hike move appeared to have exerted major downside pressure on the AUD/USD prices of late.

On Tuesday, the RBA Minutes mentioned that the board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path, per Reuters. On the other hand, China’s state planner announced multiple measures to fight back the recession woes after downbeat data and the failure of the People’s Bank of China’s (PBOC) rate cut in impressing traders. Also, Washington Post (WaPo) mentioned that Chinese authorities ordered factories to suspend production in several major manufacturing regions to preserve electricity, as the country face the worst heat wave in six decades.

Talking about data, US Industrial Production grew 0.6% in July versus 0.3% expected and upwardly revised 0.0% prior whereas Building Permits also increased to 1.674M MoM during the stated month versus 1.656 market expectations and 1.696M previous readings. It should be noted that the Housing Starts dropped to 1.446M from 1.599M prior and 1.54M expected.

Against this backdrop, Wall Street managed to close on the positive side, despite retreating by the end of the day. That said, the US 10-year Treasury yields snapped a two-day downtrend by regaining 2.80% at the latest.

Moving on, Australia’s second quarter (Q2) Wage Price Index, expected at 0.8% QoQ versus 0.7% prior, will be important for immediate AUD/USD moves as RBA emphasizes more on the wage data and inflation. Following that, the Fed Minutes will be crucial for clear directions as traders doubt a 0.75% rate hike in September after the latest easing in inflation.

Technical analysis

A four-month-old previous resistance line restricts immediate AUD/USD downside to around 0.6990. The recovery moves, however, need validation from the 200-DMA hurdle surrounding 0.7120. That said, the RSI (14) favors the quote’s further upside as the oscillator backs the higher low on prices with a higher low on the histogram.

• Gold price holds lower ground near one-week low after two-day downtrend.
• Mixed sentiment, anxiety ahead of Fed Minutes kept XAU/USD on the back foot.
• Recession talks gained major attention, China, Europe in focus.
• FOMC Minutes will be eyed closely to confirm 75 bps rate hike in September.

Gold price (XAU/USD) prints a three-day downtrend as it grinds lower around $1,775 during the initial hours of Wednesday’s Asian session. In doing so, the precious metal fades the late Tuesday’s bounce off $1,772 as traders turn cautious ahead of today’s key Federal Open Market Committee (FOMC) meeting minutes.

That said, fears of economic slowdown, mainly emanating from China and Europe, join firmer Treasury yields and positive equities to confuse the traders. It’s worth noting that the US dollar also retreated amid the market’s indecision.

US Dollar Index (DXY) refreshed its three-week high before reversing from 106.94. The greenback’s gauge versus six major currencies previously benefited from the flight to safety as China’s readiness for multiple measures to tame recession woes joined Europe’s signals to renew the nuclear deal with Iran while pushing back plans for the closure of Germany’s last three nuclear power plants. On the same line was the Washington Post (WaPo) news that mentioned that Chinese authorities ordered factories to suspend production in several major manufacturing regions to preserve electricity, as the country face the worst heat wave in six decades.

Elsewhere, US Industrial Production grew 0.6% in July versus 0.3% expected and upwardly revised 0.0% prior whereas Building Permits also increased to 1.674M MoM during the stated month versus 1.656 market expectations and 1.696M previous readings. It should be noted that the Housing Starts dropped to 1.446M from 1.599M prior and 1.54M expected. On a different page, UK’s employment numbers failed to impress traders while Canada’s inflation matched consensus. Further, ZEW Sentiment data from Germany and Europe came in weaker for Economic Sentiment but improved a bit for Current Situation.

Amid these plays, Wall Street managed to close on a positive side, despite retreating by the end of the day. That said, the US 10-year Treasury yields snapped a two-day downtrend by regaining 2.80% at the latest.

Moving on, headlines surrounding China and inflation may entertain XAU/USD traders but major attention will be given to the Minute Statement wherein traders are more interested in the hints of a 75 basis point (bps) rate hike in September.

Also read: FOMC July Minutes Preview: Can it influence September Fed rate hike expectations?

Technical analysis

Gold defends the early week's downside break of the 50-day EMA amid steady RSI and receding bullish bias of the MACD, suggesting further weakness in XAU/USD prices.

That said, the 23.6% Fibonacci retracement of the April-July downtrend, near $1,755, is likely immediate support for the yellow metal.

Following that, multiple levels around $1,740 and $1,710 could entertain the commodity bears ahead of targeting the yearly low near $1,680.

Meanwhile, the 50-EMA level near $1,784 restricts the immediate upside of the gold price before the 38.2% Fibonacci retracement level near $1,803.

It’s worth noting, however, that a convergence of the 200-EMA, descending trend line from late April and a one-month-old upward sloping resistance line highlight $1,820-25 as the key hurdle for the bulls to cross to retake control.

Gold: Daily chart

Trend: Further weakness expected

• GBP/JPY eradicates Monday’s gains and gained more than 1% on Tuesday.
• The GBP/JPY is downward biased, but Tuesday’s price action opened the door for further upside, targeting the 50-DMA at 163.86.

The GBP/JPY pares Monday’s losses and some more, forming a bullish-engulfing candle pattern, meaning buyers overcome sellers, reciaiming the 162.00 figure on its way north. However, solid resistance lies ahead of the current exchange rate, with the 20 and 100-day EMAs hovering around the 162.80-163.00 area. At the time of writing, GBP/JPY is trading at 162.39.

GBP/JPY Price Analysis: Technical outlook

The cross-currency pair is exchanging hands below the 20, 100, and 50-day EMAs, suggesting that the GBP/JPY is downward biased. Nevertheless, Tuesday’s rally towards the 162.80-163.00 area, although rejected, it opened the door for further gains. So from a technical perspective, a break above the latter will put the 50-day EMA at 163.086 in play, ahead of the July 27 high at 166.33.

On the flip side, the GBP/JPY first support will be the 162.00 mark. Once cleared, the next support will be the figure at 161.00, ahead of the August 16 low at 160.08.

GBP/JPY Daily chart

GBP/JPY Key Technical Levels

• Western Texas Intermediate (WTI) drops almost 1%, extending its losing streak to three days.
• Mixed US data and weaker Industrial Production and Retail Sales from China keep producers uncertain of total oil requirements.
• The Iran nuclear deal agreement would free additional crude to the global market, a sign of lower energy prices.

US crude oil benchmark, known as WTI, drops to six-month lows on recession fears, alongside mounting speculation of an Iran deal, which would free more than 700K barrels per day to the battered oil market. In the meantime, Wester Texas Intermediate (WTI) exchanges hands at $87.15 PB, slightly down 0.80%.

Investors’ mood remains upbeat, with US equities posting recoveries, despite an ongoing deceleration in the US economy. Albeit US Industrial Production exceeded estimations to the upside, underpinned by motor vehicles and higher manufacturing output, US Building Permits and Housing Starts for August plunged into contractionary territory, courtesy of higher interest rate increases by the Federal Reserve.

Worth noting that the Atlanta Fed GDPNow for the third quarter (Q3) dropped from 2.5% to 1.8%, though slightly better than the Q2 advanced reading.

The factors abovementioned weighed in oil prices, with WTI further tumbling below the 200-DMA at $95.51. Additionally, Monday’s data from China revealed that Retail Sales and Industrial Production missed expectations, increasing uncertainty about oil’s demand.

Elsewhere, talks between Iran and the EU regarding the nuclear accord seem to be progressing. Sources cited by Bloomberg commented that the “potential for a deal is being priced in.” That said, volatility around the oil market should increase until a final announcement is made.

If Iran’s nuclear deal is approved, oil from Teheran would be seen as a relief to high energy prices, particularly consumers, which had been dealing with skyrocketing petrol and gasoline prices, with countries like the US battling inflation at 4-decade highs.

WTI Key Technical Levels

• EUR/USD was pressured overnight to below the trendline support.
• Bears seek a break of 1.0141 structure that would be expected to open up the downside. 

EUR/USD is trading at 1.0166 after a day where the US dollar was little changed against a basket of currencies with key data events ahead including the US Retail Sales and minutes from the Federal Reserve's July meeting on Wednesday.

On the day, there was mixed economic data from the US with better than expected earnings data that led to a rally on Wall Street. US July industrial production data for the US was much stronger than expected rising 0.6% MoM – twice the expected increase. Meanwhile, US housing starts dropped 9.6% in July to 1446k indicating a sharp retrenchment in residential construction.

Investors will now be looking to the release of Federal Reserve minutes following the meeting where the centralbank hiked rates by 75bp for a second consecutive meeting in July, "expeditiously" reaching the milestone of a neutral stance. ''With that under the belt, Chair Powell made clear that the Fed will now abstain from offering forward guidance to the extent they did on their way to "neutral". However, we expect the minutes to offer further colour around the Fed's near-term plans,'' analysts at TD Securities said. Fed funds futures traders are currently pricing in a 60% chance of a 50 basis points increase and a 40% probability of a 75 basis points hike.

The greenback has bounced from a six-week low last week as investors ramp up bets that the Fed will continue to hike rates aggressively as inflation remains persistently high. DXY made a high of 106.943. In other data, US Retail Sales today will also offer new insight into the state of the consumer. It is expected to show that sales rose by 0.1% in July compared with June.

EUR/USD daily chart

The price is being pressured below the counter trendline and a break of 1.0141 structure will be a significant development that would be expected to open up the downside. 

• USD/CAD bears seek a break of the 4H 61.8% ratio to the downside.
• Bulls eye an extension towards 1.3000.

As per the prior analysis, USD/CAD Price Analysis: Bulls could be about to clean up, and USD/CAD Price Analysis: Bulls seeking a break of 1.2790/00, whereby it stated that ''a resurgence in the greenback would be expected to see USD/CAD rally in due course, the price  indeed moved higher as follows:

The following is an update of the prior analysis:

As illustrated, the price has rallied as anticipated but the bulls broke the neckline of the M-formation which sets up a bullish bias on the chart as shown above. 

USD/CAD H4 chart

A break of the 61.8% ratio to the downside would be a significant move but while it holds, the bias is to the upside as per the chart above.

What you need to take care of on  Wednesday, August 17:

Caution prevailed on Tuesday, with the focus still on a potential global recession. The dollar maintained its dominance despite a short-lived knee-jerk at the beginning of the American session.

The EUR/USD pair extended its weekly decline to 1.0121, ending the day at around 1.0160. The European energy crisis remains in the eye of the storm as the Union aims to reach a nuclear deal with Iran. Meanwhile, Germany has plans to postpone the closure of the country’s last three nuclear power plants.

GBP/USD trades around 1.2090 following the release of unimpressive UK employment data. The ILO unemployment rate held steady at  3.8% in the three months to June,

The USD/CAD pair edged lower, ending the day at 1.2840. Bank of Canada Governor Macklem said inflation may have peaked after the country released the July Consumer Price Index, which rose by less than anticipated.

 AUD/USD finished the day unchanged at around 0.7020.

The greenback appreciated against safe-haven rivals, with USD/CHF trading at around 0.9500 and USD/JPY around  134.20.

Gold eased modestly, now changing hands at $1,777 a troy ounce. Crude oil prices were firmly down, and WTI trades at $86.30 a barrel.

Treasury yields advanced, and the yield curve remains inverted. The yield on the 10-year note currently stands at  2.81%.

Wall Street is mixed, with the DJIA posting substantial gains, the S&P 500 modestly up, and the Nasdaq Composite shedding some ground.

The macroeconomic calendar will turn more interesting on Wednesday, with Australian wages figures, EU GDP and US FOMC Meeting Minutes.

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• NZD/USD drops during the day by some 0.36% as investors prepare for the RBNZ.
• Mixed US economic data reignited recession fears in the US.
• The RBNZ is expected to hike the OCR by 50 bps to 3% on Wednesday.

The NZD/USD tumbles in the North American session, due to broad US dollar strength, despite a risk-on impulse in the financial markets, after US economic data came mixed, so recession fears reemerged. At the time of writing the NZD/USD is trading at 0.6341, down 0.35%.

US equities reflect investors’ upbeat mood, courtesy of positive US data. Industrial Production for July increased at a 0.6% MoM pace, exceeding estimations, underpinned by motor vehicle sales. Even though the news was positive, the Building Permits and Housing Starts missing estimations, recording negative prints, put a cap on higher US dollar prices.

Therefore, the NZD/USD trimmed some of its earlier losses after hitting a daily low at 0.6316. However, a monetary decision of the Reserve Bank of New Zealand (RBNZ) looming keeps NZD/USD buyers hopeful of higher prices, with expectations of a 50 bps hike fully priced in.

According to a Reuters poll, the RBNZ is expected to increase the Overnight Cash Rate (OCR) by 50 bps to 3.00%, which would be its most aggressive tightening since 1999.

Also read: RBNZ Preview: Forecasts from five major banks, all eyes on future policy path

In the meantime, five major banks, in their previews, expect that the RBNZ will hike rates by 50 bps on Wednesday, but there are some differences regarding the forward guidance the bank will use.

ANZ and Westpac expect a hawkish commentary, and the central bank would clearly communicate that the fight against inflation is well underway.

Bank of America estimates that guidance would remain hawkish, but they expect the bank to add “conditionality” on the scale of following rate hikes. Additionally, expect the bank to acknowledge that growth is softening.

TDS estimates the bank will emphasize that inflation risks are skewed to the upside and should dominate the RBNZ’s communication. Contrarily, ING estimates the bank would hike 50 bps but suggests the RBNZ “will have to revise its rate path projections lower.”

What to watch

On Wednesday, the Reserve Bank of New Zealand will unveil its monetary policy decision. On the US front, the docket will feature US Retail Sales, FOMC’s July minutes, and Fed speaking.

NZD/USD Key Technical Levels

• Gold is pressured below a key daily counter-trendline. 
• The US dollar is carving out a move to the upside as recent data has reignited global recession fears.

The gold price is under pressure by some 0.15%, sliding from a high of $1,783.19 to a low of $1,771.52 on Tuesday as the safe-haven US dollar hit a one-week high after weak global economic data, particularly in China. The data has reignited global recession fears.

Figures for Industrial Production, Retail Sales and fixed asset investments, as released by the National Bureau of Statistics, came in below expectations in July. Additionally, worries about a more pronounced cooling rose from a surprising rate cut by the Chinese central bank, PBoC. The unexpected decision to cut has given the impression that the PBoC is alarmed about the extent of economic weakening as it tries to revive credit demand to support the COVID-hit economy after a string of weak economic data releases for July.  

US Treasury yields rose due to the recession worries with the Federal Reserve expected to continue with steep rate hikes despite nascent signs of a slowdown in inflation. Several Fed policymakers have spoken of the need for continued rate hikes despite the lower-than-expected outcome of last week's Consumer Price Index. "Fed officials have no choice but to sound tough in the face of a very, very tight labour market and far too high inflation," Kit Juckes, the head of FX strategy at Societe Generale argued. "It's hard to build a compelling case to sell the dollar in that world."

''While Chair Powell catalyzed a Fed pivot narrative at the latest FOMC, particularly as the latest print in inflation pointed to cooling pressures, price action in Treasuries supported a rally across all assets,'' analysts at TD Securities said. The yield curve between 2-year and 10-year Treasury notes remained inverted at minus 38.60 basis points on Tuesday. This is viewed as an indicator of an impending recession. The DXY, an index that measures the greenback vs. a basket of currencies reached a peak of 106.94 in early European trading, recovering from the losses that were made on the back of lower-than-expected US inflation data. The index was last seen slightly in the green at 106.52.

Meanwhile, ''odds of a short squeeze in gold are notably declining,'' the analysts at TDS argued. ''However, our CTA positioning estimates suggest that a trend followers buying program contributed to lower rates over the past month, as algos were forced to cover shorts. While this supported higher prices in gold, the bar is razor thin for algorithmic trend followers to add to selling pressures in US10y Treasuries once more,'' the analysts said.

''This should further sap appetite to buy the yellow metal, while the bar for additional short covering rises further. Meanwhile, Shanghai traders are also likely to appear on the offer, particularly amid a weakening CNY. Gold prices are vulnerable, considering we see signs that gold sellers are lurking. Ultimately, prop traders are still holding a massive amount of complacent length, suggesting we have yet to see capitulation in gold, which argues that the pain trade remains to the downside.''

Gold technical analysis

The price of the US dollar is taking on a resistance level that guards a continuation higher on the daily chart above. Below, gold is carving out a bearish case below the counter trendline on the daily chart as follows:

• USD/JPY bounces off weekly lows around 132.50, underpinned by high US bond yields.
• The major faces solid resistance around 134.50-65; once cleared, a jump to 135.00 is on the cards.
• In the near term, a USD/JPY pullback towards the 133.50-60 area is on the cards before resuming upwards.

The USD/JPY jumps from around weekly lows to a crowded resistance area, with the 20-day EMA at 134.62, alongside a downslope resistance trendline, drawn from July tops (also the YTD highs), which passes near the 20-DMA. At the time of writing, the USD/JPY is trading at 134.27.

USD/JPY Price Analysis: Technical outlook

From a daily chart perspective, the major bias is neutral-upward biased, but a wall of resistance is emerging ahead of the 135.00 figure. However, the RSI crossing above its 7-day RSI SMA, also about to cross over the 50-midline, illustrates buying pressure is mounting on the pair. That, alongside higher US Treasury bond yields, can underpin the USD/JPY towards higher prices.

Therefore, the USD/JPY’s first resistance would be the 20-day EMA. Once broken, its next resistance would be the 135.00 figure, followed by a test of the August MTD high at 135.58.

Zooming into the one-hour scale, the USD/JPY is upward-biased, but in the last hours, the pair retraced due to RSI’s entering overbought conditions. Hence, the major might print a leg down before resuming the higher-time frame uptrend towards 135.00 and beyond.

Therefore, the USD/JPY first support would be the 50% Fibonacci retracement at 133.81. Break below will expose the confluence of the 50-day EMA and the 61.8% Fibonacci retracement at 133.50-60. After that, the USD/JPY might resume upwards, towards the August 9 daily high at 135.30.

USD/JPY Hourly chart

USD/JPY Key Technical Levels

• AUD/USD bulls move in to put the Aussie into the green for the day. 
• China and recession worries flared up a flight to the US dollar. 

AUD/USD has been pressured on Tuesday after weak global economic data, particularly in China, reignited global recession fears. The safe-haven US dollar has benefitted in the forex space and it hit a one-week high while risk-friendly currencies such as the Australian dollar have taken the brunt. At 0.7027, AUD/USD is in the green by some 0.01%, after falling from a high of 0.7040 to mark a low of 0.6991 before recovering in midday US trade. 

Fears of a significant slowdown of the Chinese economy put a dampener on the commodity markets and the Australian dollar took a knock on lower demand for iron ore and other assets from China. Figures for Industrial Production, Retail Sales and fixed asset investments, as released by the National Bureau of Statistics, came in below expectations in July. Additionally, worries about a more pronounced cooling rose from a surprising rate cut by the Chinese central bank PBoC. The unexpected move gave the impression that the PBoC is alarmed about the extent of economic weakening as it tries to revive credit demand to support the COVID-hit economy after a string of weak economic data releases for July.  Australia's close trade ties with China mean traders sometimes treat its currency as a liquid proxy for China's yuan.

In the US, Treasury yields rose due to the recession worries and along with the concerns that the Federal Reserve will continue its steep interest rate hikes despite nascent signs of a slowdown in inflation. Several Fed policymakers have spoken of the need for continued rate hikes despite the lower-than-expected outcome of last week's Consumer Price Index.

Additionally, the yield curve between 2-year and 10-year Treasury notes remained inverted at minus 38.60 basis points on Tuesday. This is viewed as an indicator of an impending recession. The dollar index DXY meanwhile hit a peak of 106.94 in early European trading, recovering from the losses that were made on the back of lower-than-expected US inflation data. The index was last seen flat at 106.46.

"Fed officials have no choice but to sound tough in the face of a very, very tight labour market and far too high inflation," Kit Juckes, the head of FX strategy at Societe Generale argued. "It's hard to build a compelling case to sell the dollar in that world."

Meanwhile, the minutes from the Reserve Bank of Australia’s (RBA) August policy meeting showed that the Board of the central bank expected further rate hikes given inflation was far above target and the labour market at its tightest in decades. There will be more from the labour market this week where analysts at TD Securities said ''wages growth may accelerate in Q2 as firms face record labour constraints while workers may demand higher base wages with inflation at a 21-year high.'' The analysts added ''July is a seasonally strong month for job gains and we look for the unemployment rate to trend lower. Another strong labour print should give the RBA the assurance that the economy can withstand a cash rate of 3% by end-2022.''

AUD/USD technical analysis

The hourly chart has left behind a W-formation that pulled the price into the neckline before the bulls moved in again. The price would be expected to move higher to mitigate inefficiencies on the lower time frames before reaching the resistance for a test of the 0.7030s.

On the 15-min time frame, there are a few imbalances of price to the downside that could be mitigated prior to a test towards the resistance area. The neckline of the W-formation aligns with a price imbalance near 0.7012. 

• USD/CHF extends its weekly gains and erases last week’s losses, up by 1%.
• The USD/CHF aims higher and could test the 20-day EMA; otherwise, further losses will extend towards 0.9400.

The USD/CHF climbs for the second straight day, widening the gap between the 200-day EMA and the exchange rate, courtesy of broad US dollar strength, underpinned by high US T-bond yields,  in the mid-North American session. At the time of writing, the USD/CHF is trading at 0.9501, up by 0.55%.

USD/CHF Price Analysis: Technical outlook

The USD/CHF is about to test the top-trendline of a descending channel. It’s worth noting that albeit a successive series of lower highs/lows confirm the pair is in a downtrend, sellers’ failure to capture the 200-day EMA at 0.9431 exposed the pair to buying pressure. Therefore, the USD/CHF edged higher, from around multi-month lows below 0.9400, towards current price levels.

If USD/CHF buyers would like to reclaim control, they need a break above the top trendline of the channel, which also intersects with the 20-day EMA at 0.9549. Once cleared, that would pave the way towards the 100-day EMA at 0.9631, followed by the 50-day EMA at 0.9651.

On the other hand, if the major tumbles and closes below 0.9500, that could pave the way for further losses. Hence, the USD/CHF first support would be the August 16 low at 0.8445, followed by the 200-day EMA at 0.9431 and the MTD low at 0.9370.

USD/CHF Daily chart

USD/CHF Key Technical Levels

• GBP/USD marches firmly towards the confluence of the 20/50-DMA around 1.2110.
• US Industrial Production surprises to the upside, while housing data continues to worsen.
• UK employment figures were better-than-expected, further cementing the case for a 50 bps BoE rate hike.

The GBP/USD snaps three days of losses and approaches the 1.2100 figure as the greenback begins to weaken, in the middle of the North American session, courtesy of resurfacing recession fears with US data showing signs of an economic slowdown.

The GBP/USD is trading at 1.2081, after hitting a daily low at 1.2007, during the European session, but bounced back on modest UK employment figures and reclaimed the 1.2050 area.

Data-wise, the US Federal Reserve reported that Industrial Production for July rose by 0.6% MoM, underpinned by motor vehicles, propelled by easing supply chain disruptions. Before Wall Street opened, July’s Building House Permits and Housing Starts plummeted, indicating the ongoing deterioration in the housing market, spurred by higher mortgage rates.

Alongside that, Monday’s New York Fed Empire State Manufacturing Index for August dropped to the contractionary territory at -31.1 headline, less than 5 estimated.

The GBP/USD reacted to that, pushing through the 20-day EMA, extending its gains, and hitting a daily high at 1.2117.

On the UK side, employment data was better than estimated, with Claimant Count Change, falling by 10K, better than the 32K estimated, while the Unemployment Rate stood at 3.8%. Even though data shows signs of a robust labor market, the Bank of England is expected to lift rates at their next meeting by 50 bps, regardless of projecting that the UK’s economy might tap into a recession late in the year.

Elsewhere, the political spectrum has not been a driver of the British pound. However, the upcoming election in September might increase volatility in the GBP/USD, and depending on who is elected as Prime Minister; we would likely see the pair’s first reaction to that.

What to watch

On Wednesday, the UK economic calendar will feature the Retail Price Index and inflation figures in consumer and producer side sources. The US docket will reveal Retail Sales for July, alongside the FOMC’s last meeting minutes and Fed speeches.

GBP/USD Key Technical Levels

According to the Federal Reserve Bank of Atlanta's GDPNow model, the US economy is expected to grow at an annualized rate of 1.8% in the third quarter, down from 2.5% in the previous estimate.

"After recent releases from the US Department of the Treasury's Bureau of the Fiscal Service, the US Bureau of Labor Statistics, the US Census Bureau, and the Federal Reserve Board of Governors, a decrease in the nowcast of third-quarter real gross private domestic investment growth from 0.2% to -3.6% was slightly offset by an increase in the nowcast of third-quarter real government spending growth from 1.7% to 2.0%," Atlanta Fed explained in its publication.

Market reaction

The US Dollar Index largely ignored this report and was last seen posting small daily gains at 106.58.

On Wednesday, inflation data is due in the United Kingdom. Analysts at Well Fargo, expect the CPI to show an increase of 0.4% in July in line with market consensus. According to them, the British economy has not yet experienced peak inflation and they believe CPI is likely to trend closer to 10%. 

Key Quotes: 

“U.K. inflation is currently the highest on record, with the June CPI hitting 9.4% year-over-year. While core inflation dipped slightly in June, the core CPI is running close to 6% year-over-year, a signal of broad price pressures across the entire economy. Around the world, we have gotten preliminary evidence that inflation may be peaking; however, those dynamics may not apply to U.K. CPI. Contrary to the U.S., we believe U.K. inflation rose in July and the British economy has not yet experienced peak inflation.”

“European energy prices continue to move higher as a result of limited exports from Russia and supply shortages across the continent. As inflation rockets higher, we believe the U.K. economy will be one of the first major economies to tip into recession by the end of this year. Q2 GDP data reveal the recession may be imminent as the economy contracted in the second quarter. Bank of England policymakers also forecast a recession lasting through 2023 due to energy shortages and more aggressive tightening.”

The annual inflation rate in Canada dropped from 8.1% to 7.6% as expected. Despite the slowdown analysts at CIBC consider the Bank of Canada (BoC) is probably keeping a close eye on inflation ex food/energy these days that showed an acceleration, “not good news for the Bank, which should still be on track for a 75bps increase in rates at its next meeting.” 

Key Quotes: 

“Canadian inflation has taken its foot off the gas, but other elements in July’s inflation story were not as reassuring. Headline CPI inflation decelerated to 7.6% year-over-year in July on a much smaller 0.1% month-over month increase, roughly in line with consensus expectations. As expected, gasoline prices were the main driver of the slowdown. In what is bad news for consumers, food prices resumed their climb in July after taking a pause in June.”

“CPI inflation excluding food and energy spelled further trouble with an increase of 0.5% on a seasonally adjusted basis. Prices for services impacted by the pandemic, such as hotels, air transportation and restaurants all increased.”

“While inflation seems to finally have started its long descent, the acceleration in inflation excluding food and energy will be a concern for the Bank of Canada. With gasoline prices set to decline further in August, so should headline CPI, but that is not what the Bank will be watching. The focus should be on shelter prices (outside of mortgage costs), which should decelerate with the cooling housing market, and overall service inflation. For now, the Bank of Canada remains on track for a 75 bps increase at its September rate decision.

Data released on Tuesday showed Industrial Production rose 0.6% in July in the US, surpassing expectations. Analysts at Wells Fargo point out that the jump in industrial production was due largely to a surge in auto production but also came with upward revisions that lessened the June decline in manufacturing output. They consider sustained production growth will require continued demand for durable goods and improvement in supply chains; “both look iffy at the moment”.

Key Quotes: 

“Industrial production notched a solid 0.6% increase in July. The non-manufacturing output measures more-or-less canceled one another out. Mining output rose 0.7% and utilities output sank 0.8%. So the headline gain is mostly a function of what happened in terms of factory output.”

“The auto industry has been particularly affected by these struggles and even as the economy cools, there is still pent-up demand for certain vehicle models.”

“Other manufacturing data point to slower activity ahead. The new orders component of the ISM manufacturing index slipped further into contraction territory in July, and this component tends to track industrial production relatively well.”

“We continue to expect manufacturing activity will hold up a bit better than other parts of the economy, but we see a slower pace of activity ahead. Thawing supply chains could help facilitate easier production, but a full normalization still looks a ways off. The dent to optimism from mounting recession fears, a pullback in consumers' demand for goods and tighter financial conditions will all also likely pressure businesses desire for capital outlays.”
 

Commenting on the Wall Street Journal report claiming that Germany was planning to postpone the closure of nuclear power plants, a spokesperson for the German economy ministry said that the media report was lacking a factual basis.

The German government will make a decision on whether to keep the last nuclear power plants running following the results of ongoing stress tests on electricity stability, the spokesperson further explained, as reported by Reuters.

Market reaction

These comments don't seem to be having a significant impact on the shared currency's performance against its rivals. As of writing, EUR/USD was up 0.1% on the day at 1.0170.

• US Dollar loses momentum during the American session amid risk appetite.
• EUR/USD turns positive after hitting the lowest level since August 3. 

The EUR/USD rose more than 50 pips from the weekly low it reached earlier at 1.0121. The euro printed a fresh daily high at 1.0194 and then pulled back modestly. The move higher was supported by a weaker dollar amid risk appetite.

The DXY is flat after erasing gains. The Index hit two-week highs near 107.00 and then dropped back toward 106.50. In Wall Street, the Dow Jones is up by 0.73% and the S&P 500 climbs 0.28%. US yields are modestly higher, keeping the dollar’s retreat limited. Economic data from the US came in mixed. Industrial Production rose above expectations in July (0.6% vs 0.3%) while Housing Starts tumbled 9.6%.

Technical outlook

The EUR/USD found support above 1.0120/25, like last week. While above losses seem limited for the euro. The bias in the short-term still points to the downside with price under key moving averages in four hours and daily chats. The critical support level continues to be 1.0100 with a consolidation below exposing the parity.

On the upside, immediate resistance is seen at 1.0200 followed by 1.0215 (20-day Simple Moving Average) followed by