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• USD/CHF has sensed selling pressure around 0.9650 as the US warns of involvement if China strikes Taiwan.
• The DXY is expected to display weakness below 109.46 as US growth prospects have trimmed.
• Swiss Trade Balance data is seen higher at 3,717M vs. the prior release of 3,585M.

The USD/CHF pair has sensed selling interest while attempting to cross the immediate hurdle of 0.9650 in the early Tokyo session. Earlier, the asset displayed a sheer reversal after hitting a low of 0.9560 but is now witnessing a momentum loss as investors have shifted to the sidelines ahead of the monetary policy meeting by the Federal Reserve (Fed).

As price pressures in the US economy have rebounded again after a deliberate decline, troubles for the Fed policymakers have accelerated. The already laborious job of Fed policymakers is expected to worsen further in dealing with the inflation chaos. The core inflation is not responding effectively to the current pace of hiking interest rates, therefore, the Fed is highly needed to come forward with constructive ideas or to hike interest rates faster than the current pace. This has opened room for a full percent rate hike to cool off the red-hot inflation.

Meanwhile, the risk profile in the market is expected to remain sour as US President Biden says the US military would defend Taiwan in the event of an invasion by China. Even an intention of a cold war between the world’s two largest economies is sufficient to trigger negative market sentiment.

The US dollar index (DXY) is expected to display weakness after dropping below the critical support of 109.46. Economists at Goldman Sachs have trimmed the US growth projections significantly. The US GDP rate for 2023 is seen lower at 1.1% against the prior forecasts of 1.5%. This is the outcome of higher interest rate projections to bring price stability.

On the Swiss franc front, Swiss Trade Balance data will hog the limelight. As per the consensus, the trade activities in the Swiss economy have improved to 3,717M vs. the prior release of 3,585M. This will improve bias for the Swiss franc bulls against the greenback.

• WTI remains sidelined around the eight-month low, recovers of late.
• News concerning hurricane Fiona, China and comments from US President Biden favored immediate rebound.
• Sluggish calendar, off in Japan, the UK restrict immediate moves.

WTI crude oil prices print mild gains around $85.30 during Monday’s Asian session, after declining for the last three consecutive weeks, as traders prepare for the Fed’s monetary policy outcome. Also keeping the black gold positive are the price-positive headlines from China, as well as concerning the US hurricane Fiona. Furthermore, comments from US President Joe Biden also seemed to have favored oil prices amid a sluggish session.

National Hurricane Center (NHC) recently updated that the center of hurricane Fiona will move near the Northern coast of the Dominican Republic tonight. The update shared by Reuters also mentioned, “Hurricane Fiona now moving just west of Puerto Rico and heading for the eastern Dominican Republic, causing catastrophic flooding.”

Elsewhere, news that Dalian, a city in China’s Liaoning province, will lift the citywide lockdown on Monday, also seemed to have favored the WTI rebound. On the same line are comments from US President Biden who said, “I'm more optimistic than I have been in a long time.” The national leader also stated that they are going to get control of inflation.

However, the hawkish bets on the Fed and economic fears emanating from China, as well as Europe, keep the oil bears hopeful. On Friday, the University of Michigan's preliminary readings of Consumer Sentiment for September came in at 59.5, up from 58.6 in the prior month while easing below 60.0 market forecasts. With the firmer US data, the odds of the Fed’s 75 basis points rate hike (bps) rose to nearly 80%, around 82% by the press time, while the market’s expectations of a full one percentage increase in the Fed rate rose to 18%.

Looking forward, demand fears are likely to keep exerting downside pressure on the energy front even if the lack of major data/events on Monday, as well as the hurricane updates, are likely to help the black gold in paring the latest losses.

Technical analysis

Any recovery below the 21-DMA hurdle surrounding $88.30 remains elusive. Alternatively, a two-month-old bearish channel’s support line, around $79.35 by the press time, restricts short-term declines of the black gold.

• AUD/USD pares recent losses at the lowest levels in two years.
• RBA’s Kearns stated Aussie home buyers could benefit from higher rates.
• Headlines from China, pre-Fed consolidation underpin the corrective bounce from multi-day low.
• Off in Japan, the UK may restrict market moves amid a light calendar.

AUD/USD picks up bids to refresh intraday high around 0.6770, consolidating the losses after dropping to the 28-month low the previous day. In doing so, the Aussie pair not only braces for Wednesday’s Fed meeting but also cheers recently upbeat headlines from China, as well as upbeat headlines from Reserve Bank of Australia (RBA) policymaker.

“Australians looking to buy a new home could actually benefit from rising interest rates as they lower the price of housing enough to ultimately result in lower mortgage payments than they would otherwise face,” stated RBA Assistant Governor and Head of Domestic Markets Jonathan Kearns. The policymaker also mentioned, “Overall we know that higher interest rates will tend to depress residential and commercial property prices but there is considerable uncertainty about the magnitude and even the timing.”

Elsewhere, news that Dalian, a city in China’s Liaoning province, will lift the citywide lockdown on Monday, also seemed to have favored the AUD/USD rebound. It should be noted that an increase in China’s US Treasury buying should also be cited as the distant reason for the pair’s recovery.

“China increased its holdings of Treasuries in July for the first time in eight months, while Japan reduced its U.S. government debt load, data from the US Treasury department showed on Friday,” reported Reuters.

Above all, the market’s preparations for Wednesday’s Federal Open Market Committee (FOMC) meeting seem to be the top reason for the Aussie pair’s corrective pullback.

Even so, the hawkish bets on the Fed and economic fears emanating from China, as well as Europe, keep the AUD/USD bears hopeful. On Friday, the University of Michigan's preliminary readings of Consumer Sentiment for September came in at 59.5, up from 58.6 in the prior month while easing below 60.0 market forecasts. With the firmer US data, the odds of the Fed’s 75 basis points rate hike (bps) rose to nearly 80%, around 82% by the press time, while the market’s expectations of a full one percentage increase in the Fed rate rose to 18%.

Looking forward, AUD/USD prices may extend the latest recovery moves while waiting for the Fed’s verdict. Also important will be the Fed’s dot-plot, economic projections and Chairman Jerome Powell’s speech.

Technical analysis

AUD/USD defends Friday’s bounce off a two-month-old support line, around 0.6700 by the press time, even if the recovery remains elusive below the 50-DMA hurdle surrounding 0.6890.

• USD/CAD is likely to display volatile moves as the focus shifts to Fed rate policy.
• Lower consensus for US GDP is weighing pressure on the DXY.
• Canada’s CPI is not displaying exhaustion signals despite the firmer pace of the rate hike by the BOC.

The USD/CAD pair is displaying back-and-forth moves in a narrow range of 1.3270-1.3300 from the past week. The asset has sensed barricades around the critical resistance of 1.3300 and a downside move is highly expected amid an upside momentum loss. But a power-pack volatility period is promised for the market participants as investors are awaiting the release of the interest rate decision by the Federal Reserve (Fed).

A decline in consensus for US Gross Domestic Product (GDP) along with the priority of bringing price stability is impacting the US dollar index (DXY). Fed chair Jerome Powell is bound to keep up the pace of hiking interest rates to tackle the accelerating price pressures. Room for a full percent rate hike is open as the recent reading of the core Consumer Price Index (DXY) at 6.3% has renewed the upside bias for the inflation rate.

What is impacting the DXY now is the decline in US growth projections. Economists at Goldman Sachs have trimmed the US GDP rate for 2023 to 1.1% against the prior forecasts of 1.5%. The ideology behind trimming the growth prospects is the continuation of a higher pace in hiking interest rates in addition to the already tight monetary policy.

On the loonie front, Canada’s inflation data will hog the limelight. Despite the continuation of the rate tightening cycle by the Bank of Canada (BOC), price pressures are not displaying signs of exhaustion. The headline Canada CPI is looking to enter into the 8% territory vs. the prior release of 7.6%. While the core CPI that excludes fossil fuels and food bills will trim to 6% against the former figure of 6.1%.

“British Prime Minister Liz Truss has agreed with her Irish counterpart Micheal Martin that an opportunity remains for a negotiated outcome to issues around the Northern Ireland protocol,” Reuters quotes Irish broadcaster RTE TV during the weekend.

The news also mentioned that an Irish government spokesperson declined to comment on what was discussed at the meeting between the two in London ahead of Queen Elizabeth's state funeral.

GBP/USD consolidates recent losses

The news seemed to have joined a lackluster start to the week and the UK’s holiday to help the GBP/USD pair pare its losses around the lowest levels since 1985, bouncing off a short-term support line to 1.1420 at the latest.

Also read: GBP/USD Price Analysis: Keeps bounce off four-month-old support above 1.1400

Goldman Sachs (GS) cut its forecast for 2023 US Gross Domestic Product (GDP) as it projects a more aggressive Federal Reserve tightening policy through the rest of this year, and sees that pushing the jobless rate higher than it previously projected, reported Reuters during the weekend.

The news also quotes GS’ note, released late Friday, stating that it now sees GDP growth of 1.1% next year, down from its prior call for 1.5% growth from the fourth quarter of 2022 to the end of 2023.

Key quotes

Also read: EUR/USD Weekly Forecast: Peak Fed hawkishness? Not so fast, determined message to send pair plunging

“The European Central Bank (ECB) could raise interest rates into next year, causing pain for consumers as it tries to depress demand that is now increasingly adding to sky-high inflation,” ECB Chief Economist Philip Lane said on Saturday per Reuters. “At 0.75%, the ECB's deposit rate is still too low as it continues to stimulate the economy, so the ECB's job is not yet done,” ECB’s Lane added.

Additional quotes

Elsewhere, said ECB Governing Council member and German central bank head Joachim Nagel stated that the ECB rates are far away from levels that are suitable for inflation. The policymaker also added that he doesn’t see a hard recession while mentioning that the ECB must be resolute on rates in October and beyond.

EUR/USD grinds higher

EUR/USD braces for this week’s Federal Open Market Committee (FOMC) meeting while grinding higher around 1.0015 by the press time of early Monday morning in Asia.

Also read: EUR/USD sees upside above 1.0050 despite soaring Fed bets

• GBP/USD licks its wounds near the lowest levels since 1985.
• Oversold RSI conditions, short-term support line restrict immediate downside amid the UK’s bank holiday.
• Recovery remains elusive below the 21-DMA nearly resistance, key FE levels may entertain bears below the stated support line.
• Bearish trend is likely to prevail but a short-term rebound can’t be ruled out.

GBP/USD stays defensive at around 1.1415-20 during the sluggish Asian session on Monday, after bouncing off the lowest levels since 1985 the previous day.

The Cable pair’s latest rebound could be linked to the oversold RSI (14), as well as the quote’s inability to break a downward sloping support line from mid-May.

It should, however, be noted that the recovery remains elusive until the quote stays below the 21-DMA resistance level near 1.1590.

Following that, the monthly high near 1.1740 and July’s bottom surrounding 1.1760 will be in focus.

Alternatively, GBP/USD bears may keep attacking the aforementioned support line, at 1.1330 before aiming for the 61.8% and 78.6% Fibonacci Expansion (FE) levels, respectively near 1.1285 and 1.1170.

In a case where the Cable bears keep reins past 1.1170, the 1.1000 psychological magnet and the year 1985 low near 1.0520 should gain the market’s attention.

Overall, GBP/USD is likely to remain bearish but hopes of a short-term rebound remain on the table.

GBP/USD: Daily chart

Trend: Corrective bounce expected

• NZD/USD is aiming to recapture 0.6000 amid a decline in consensus for the US growth rate.
• Fed’s interest rates are expected to peak around 4-5% beyond 2023.
• A dovish PBOC’s monetary policy will support the antipodean.

The NZD/USD pair is marching towards the psychological resistance of 0.6000 after a break above the 0.5940-0.5985 range in the early Tokyo session. The asset has entered inside the prior balanced profile in a range of 0.5977-0.6026 after a rebound whose breakdown led to a decent fall. The major is likely to display significant gains ahead as the US dollar index (DXY) has turned lackluster ahead of the interest rate decision by the Federal Reserve (Fed).

The survey from the Financial Times conducted in partnership with the Initiative on Global Markets at the University of Chicago’s Booth School of Business sees Fed interest rates above 4% beyond 2023. The Fed is unlikely to shift its stance to a ‘neutral’ path before the conclusion of 2023 as price pressures will take sufficient time to return to the restoration level. Also, the interest rates will peak around 4-5% and will keep them until they find a slowdown in the inflation rate for several months.

Meanwhile, the DXY is expected to display a vulnerable performance as economists at Goldman Sachs have trimmed the growth forecasts for 2023. The US Gross Domestic Product (GDP) is expected to increase by 1.1% as Fed’s tightening path along with the current restrictive policy will prove less room for growth in the scale of economic activities.

On the NZ front, investors have shifted their focus toward the monetary policy meeting of the People’s Bank of China (PBOC). To spurt the inflation rate and economic activities, a dovish tone is expected from PBOC’s policymakers. A loose monetary policy will strengthen the antipodean a major trading partner of China.

Also, the Westpac Consumer Survey for the third quarter will be keenly watched, which is seen higher at 87.6 vs. the prior release of 78.7.

• Gold price floats above 29-month low flashed on Friday as the Fed week begins.
• US data favors traders to price-in 75 bps Fed rate hike.
• Yields dribble around multi-day top, stocks remain pressured but DXY stays on the bull’s radar.
• Off in Japan, the UK will join a light calendar at home to restrict intraday moves.

Gold price (XAU/USD) remains steady at around $1,675 as Asian traders begin the key week comprising the monetary policy meeting of the Fed.

The yellow metal refreshed the multi-month low the previous day amid broad US dollar strength, as well as increasingly hawkish calls of the US central bank’s next move, before bouncing off $1,654. The recovery moves, however, remain elusive amid a light calendar for the day and the market’s anxiety ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting.

On Friday, the University of Michigan's preliminary readings of Consumer Sentiment for September came in at 59.5, up from 58.6 in the prior month while easing below 60.0 market forecasts. With the firmer US data, the odds of the Fed’s 75 basis points rate hike (bps) rose to nearly 80%, around 82% by the press time, while the market’s expectations of a full one percentage increase in the Fed rate rose to 18%.

It should be noted that a jump in China’s Treasury buying and the fears emanating from Beijing, as well as from Europe, also underpinned the US dollar’s safe-haven demand, which in turn weighed on the XAU/USD prices. That said, the US Dollar Index (DXY) dribbled around the 20-year high marked earlier in the month after the firmer data and geopolitical chatters.

Additionally, hawkish comments from the European Central Bank (ECB) policymakers could also be considered to favor the gold price. “The European Central Bank (ECB) could raise interest rates into next year, causing pain for consumers as it tries to depress demand that is now increasingly adding to sky-high inflation,” ECB Chief Economist Philip Lane said on Saturday per Reuters. On the same line was a ECB Governing Council member and German central bank head Joachim Nagel who said, “ECB rates are far away from levels that are suitable for inflation.”

Amid these plays, Wall Street benchmarks closed in the red while the US Treasury yields remained firmer, which in turn favored the market’s risk-off mood and exerted downside pressure on the metal prices.

Moving on, the XAU/USD traders will keenly await the Fed’s verdict and are likely to favor USD bulls amid hawkish hopes. However, the dot-plot, economic projections and Fed Chair Powell’s speech will be crucial for clear directions.

Technical analysis

Gold price defends the bounce off a six-week-old descending trend channel’s support line, as well as the 61.8% Fibonacci Expansion (FE) of April-August moves. In doing so, the XAU/USD also justifies the RSI (14) bounce off the oversold territory.

However, the bearish MACD signals and sustained trading beyond the previous support line from late July, now resistance around $1,694, keep gold sellers hopeful.

Even if the quote crosses the $1,694 hurdle, the 21-DMA and upper line of the stated channel, respectively around $1,711 and $1,718, could challenge the metal’s recovery moves. It should be noted that a downward sloping resistance line from June 13, close to $1,762, appears the last defense of the bears.

Alternatively, the 61.8% FE and the aforementioned channel’s bottom, respectively near $1,694 and $1,650, are likely to restrict the short-term XAU/USD downside.

Following that, the 78.6% FE level and a four-month-old descending trend line, close to $1,622 and $1,590 in that order.

Overall, gold is likely to remain bearish but the downside room appears limited, at least for intraday.

Gold: Daily chart

Trend: Limited downside expected

• USD/JPY bulls are pressured still ahead of this week's central banks. 
• The Fed and BoJ will be eyed for the week ahead. 

USD/JPY fell from 143.69 at the end of the week to score a low of 142.83 as the greenback moved down slightly on Friday but registered a gain for the week as traders remain of the view that the US Federal Reserve will stick to an aggressive path when it hikes interest rates this week.

The US dollar found some support when consumer sentiment improved moderately in September. The University of Michigan's preliminary September reading on the overall index on consumer sentiment came in at 59.5, up from 58.6 in the prior month. Economists polled by Reuters had forecast a preliminary reading of 60.0 in September. The greenback's DXY's index that measured it against a basket of currencies fell 0.1% on the day to 109.68. It reached a two-decade high of 110.79 earlier this month. For the week, it was up 0.6%, and it is up about 15% for the year so far. The markets are in anticipation that the Fed will hike by 75-basis-points with there being some chance of a 100-bps increase.

Other than the Fed, the Bank of Japan is expected to maintain its accommodative stance at its meeting on Sept. 21-22 it has commonly communicated that it has no intention of raising rates or tweaking its dovish policy guidance to prop up the yen. Meanwhile, analysts at Rabobank have argued that USD/JPY 140 could be problematic for Japan, which imports a substantial proportion of its energy. 

''However, it is often the pace and volatility around currency movements that prove more worrisome for policy makers rather than a certain level.  Either way the dip back towards 142.00 this week will be welcomed by Japanese officials.  That said, it is our view that USD strength will sustain for some months yet.  It is also possible that the BoJ will maintain loose policy settings into next year.  This suggests scope for USD/JPY to head higher in the coming months.  A move to 150 can not be ruled out.''

• EUR/USD is expected to deliver an upside move above 1.0050.
• The doors of the Fed’s full percent rate hike are open amid soaring core CPI numbers.
• A decline in Eurozone Consumer Confidence could impact the shared currency bulls.

The EUR/USD pair attempted an upside break above the three-day consolidation formed in a narrow range of 0.9950-1.0020 in the last week. The asset is expected to generate gains as a break above 1.0040 will confirm the conclusion of the inventory accumulation process. The major is displaying signs of strength despite the rising odds of a bumper rate hike announcement by the Federal Reserve (Fed).

Considering the market consensus, Fed chair Jerome Powell will push the interest rates higher to 3.25-3.50% with a third consecutive rate hike by 75 basis points (bps). As price pressures have rebounded and are not responding well to the ongoing pace of interest rates, the extent of the rate hike is open to a full percent rate hike.

In the prior, US Consumer Price Index (CPI) release, the core inflation improved dramatically to 6.3%, higher than the expectations of 6.1% and the prior release of 5.9%. Also, the US Retail Sales landed at 0.3%, higher than the expectations of 0% and the prior release of -0.4%. This indicates that a revival in the demand prospects is not caring for the price rise index, which is supporting the Fed to go conservative unhesitatingly.

On the Eurozone front, investors are awaiting the release of Thursday’s Consumer Confidence data.  The economic data is seen lower at -26 against the prior release of -24.9. Consumers are upset over the inflation chaos and signs of failure by the European Central Bank (ECB) in dealing with the same. A decline in consumer confidence indicates a loss of confidence in the economy. This is the outcome of bleak growth prospects, soaring inflation, and deepening energy prices.

• AUD/USD bulls eye 0.6750 for the opening sessions. 
• The daily structure was broken last week, leaving bias to the downside longer-term. 

As per the prior analysis, AUD/USD Price Analysis: Bearish bias persists as bears take control at key daily support, where it was stated that AUD/USD showed no sign of correcting on a longer-term time frame basis, threatening a break of key support in the following analysis:

the bears did indeed stay the course. 

AUD/USD H1 chart, prior analysis

It was argued that the bears would be looking for an engulfing formation below the pin bar that had tapped the lower quarter of the 0.67 area that has pierced the 50% retracement of the latest bearish impulse on the hourly time frame. This was an area of confluence as per the wicks there and the bias is to the downside below 0.6750 tops:

AUD/USD updates, H1, daily chart

The price sank and has so far respected the resistance on the retests. However, a bullish structure is formed, to a bullish continuation can not be ruled out for the opening sessions:

On the other hand, the daily resistance could be as far as the bulls make it, near 0.6750: