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• GBP/JPY is on the verge of overstepping the immediate hurdle of 164.00.
• The odds of widening BOE-BOJ policy divergence are supporting the pound bulls.
•  Japan’s National CPI has landed higher at 3.0% vs. 2.6% as expected.

The GBP/JPY pair is on the verge of overstepping the round-level resistance of 164.00 in the early Asian session. The asset has extended its gains after delivering an upside break of the consolidation formed in a narrow range of 162.78-163.60. The risk-sensitive currency has picked significant bids as risk-on impulse rebounds and is expected to advance further.

The cross is likely to deliver a fresh rally as the Bank of England (BOE)-Bank of Japan (BOJ) policy divergence is expected to widen further. The BOE is set to announce one more 50 basis points (bps) rate hike on Thursday as a step further to fixing the inflation chaos. The recent decline in the headline Consumer Price Index (CPI) to 9.9% vs. the expectation of 10.2% and the prior release of 10.1% is not going to trim the extent of the rate hike.

The UK inflation rate is near the double-digit figure, the highest among the G-7 nations, and is also facing an energy crisis. A significant decline in the price pressures is highly required otherwise it will continue to harm the confidence of the households, which are already forced to make higher payouts.

On the Tokyo front, the BOJ officials are worried over the prolonged depreciation of the Japanese yen and are expected to shift their stance this time. A prolonged ultra-dovish stance will conclude and the BOJ will approach the ‘neutral’ stance. But that does not warrant a drop in the BOE-BOJ policy divergence.

Meanwhile, the Statistics Bureau of Japan has reported the National CPI at 3%, higher than the forecasts and the prior release of 2.6%. Also, the core CPI that excludes food and oil prices has improved to 1.6% that the former figure of 1.2% but remained lower than the expectations of 1.7%.

• Silver price grinds higher as buyers attack short-term key hurdle amid impending bullish moving average cross.
• Sustained bounce off 38.2% Fibonacci retracement, firmer RSI keep buyers hopeful.
• 61.8% Fibonacci retracement level, monthly high also tests further upside.

Silver price (XAG/USD) seesaws around $19.50 as buyers attack immediate resistance amid a looming bullish crossover during Tuesday’s Asian session. In doing so, the metal prices defend the previous day’s rebound from the 200-SMA while trying to keep buyers hopeful.

Successful trading beyond the key SMAs join firmer RSI (14), not overbought, to favor XAG/USD bulls as they attack one-week-old resistance around $19.60 by the press time.

As the 50-SMA inches closer to piercing the 200-SMA from below, the bulls are bracing for an upside past the immediate resistance. However, the monthly high near the $20.00 psychological magnet will be an extra challenge for the silver buyers to tackle before retaking control.

Following that, the previous monthly peak surrounding $20.90 and the $21.00 threshold will be in focus.

Alternatively, pullback moves need not only decline below the 200-SMA level surrounding $19.30 but should also remain below the $19.20 support comprising the 50-SMA to tease XAG/USD sellers.

Even so, the 38.2% Fibonacci retracement level of the August-September downside, near $18.80, could challenge the silver price downside.

Silver: Four-hour chart

Trend: Further upside expected

• NZD/USD bulls take on the offers around the 50% mark.
• 61.8% ratio has a confluence with a structure that could be the last defense ahead of a significant push from the bulls to challenge the prior swing highs. 

The Kiwi is correcting from a key support area following a solid move to the downside and rejection from a critical resistance. As per the prior analysis, NZD/USD Price Analysis: Bulls take control ahead of the Fed, but bears could pounce, the bears moved in and the following illustrates prospects for a downside continuation.

NZD/USD H4 prior analysis

NZD/USD updates

The 4-hour chart sees the price rejected at a prior low in a creeping correction to the 50% mean reversion mark. Should resistances start to play in, there will be prospects for a downside continuation for the week ahead.

The hourly chart is attempting to take on the offers around the 50% mark in the latest move from support. Beyond the 50% mark, the 61.8% ratio has a confluence with a structure that could be the last defense ahead of a significant push from the bulls to challenge the prior swing highs. 

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped for the third consecutive day as traders await the key central bank decisions, including those from the Federal Open Market Committee (FOMC). That said, the aforementioned inflation cursor dropped to the lowest levels since late July, to 2.34%by the end of Monday’s North American trading session.

More importantly, the 5-year breakeven inflation rate per the FRED data dropped to the lowest levels since September 2021, at 2.44% at the latest. The same raised concerns about the market’s surprise reaction to the hawkish Fed bets.

Given the slump in the US inflation expectations, the fears of a short squeeze in the EUR/USD gain major attention and help the EUR/USD prices to remain firmer. “If Fed rhetoric after Wednesday's meeting were to reinforce signals from swaps and consumers, U.S. rates and the dollar should weaken, which would likely drive a big EUR/USD short squeeze,” said Reuters.

Also read: EUR/USD steadies above parity as traders await ECB’s Lagarde, Fed

• USD/CHF has sensed a sigh of relief after declining to near 0.9640 as DXY loses steam.
• The Fed should come out with an ‘out of the box’ solution to cool off the red-hot inflation sooner.
• A 75 bps rate hike by the SNB will push the interest rates to a positive zone after a period of 10 years.

The USD/CHF pair is attempting to build a base of around 0.9640 in the early Asian session. Earlier, the asset witnessed a steep fall after failing to strike the round-level resistance of 0.9700. The correction in the asset ensures the unavailability of sheer momentum and will conclude sooner. A lackluster performance is expected from the asset ahead as investors will await the announcement of the monetary policies for making informed decisions.

Recent events clear the responsiveness of change in the inflation rate is not desired as per the change in the interest rates by the Federal Reserve (Fed). The current pace of hiking interest rates by the Fed is extremely high and disappointment with the resulting outcome will force the Fed either to come out with an ‘out of the box’ solution or scale up the current pace to bring price stability sooner and the overall demand could accelerate further.

So expectations of a full percent rate hike by the Fed cannot be ruled out as the Fed will deploy its entire chaos to achieve its foremost priority. For a longer-term perspective, the Financial Times has come forward with an interest rate target of 4-5% in 2023, which will sustain beyond 2023 and only a series of slowdowns in price pressures will compel the Fed to turn ‘neutral’.

On the Swiss franc front, the interest rate decision from the Swiss National Bank (SNB) will also hog the limelight. The inflation rate in the Swiss region is rising at a modest pace and has landed at 3.5% in August 2022. Considering the market consensus, SNB Chairman Thomas J. Jordan will announce a rate hike by 75 basis points (bps), which will push the interest rates into the positive territory to 0.5%. The SNB interest rates will enter positive territory after a period of 10 years.

• USD/CAD justifies bearish candlestick formation, bullish channel rejection at multi-day high.
• Downbeat MACD, RSI conditions also keep sellers hopeful to test the key HMAs.
• Recovery moves need validation from the recent high to convince bulls.

USD/CAD remains pressured around 1.3345 after reversing from the 22-month high the previous day. In doing so, the Loonie pair justifies the bearish candlestick formation at the multi-day top, as well as a rejection of the previously bullish chart formation, during Tuesday’s Asian session.

Given the RSI and the MACD both support the latest weakness in the USD/CAD prices, the quote is likely to witness further downside.

However, 100-HMA and 200-HMA, respectively around 1.3225 and 1.3135, could challenge the pair sellers before directing them to the 1.3000 psychological magnet.

Even if the quote remains below the 1.3000 mark, the monthly low near 1.2950-55 will act as the final defense for the USD/CAD bulls.

Alternatively, recovery moves may initially aim for the one-week-old bullish channel’s support line, now resistance near 1.3300.

Following that, the top of the “Gravestone Doji”, near 1.3380, will be crucial as an upside break which could reject the bearish signals flashed by the candlestick at the multi-day top. In that case, October 2020 peak surrounding 1.3390 will be in focus.

USD/CAD: Hourly chart

Trend: Further weakness expected

• The EUR/JPY approaches the top of the 142.50-143.60 range, eyeing a break that could bolster the cross toward 145.00.
• Short term, the EUR/JPY is neutral biased, but recent verbal Intervention by Japanese authorities in the last week bolstered the yen.

On Monday, the EUR/JPY erased last Friday’s losses, though remained trading subdued, amidst an upbeat Wall Street session, with most US equities finishing the day in the green. At the time of writing, the EUR/JPY is trading at 143.62, above the opening price by 0.06%, as the Asian session begins.

EUR/JPY Price Analysis: Technical outlook

The EUR/JPY continues to trade within the 142.50-143.60 range for the third consecutive trading session. Even though buyers reclaimed control, they need a clear break above the top of the range to challenge the psychological 144.00 figure. If that scenario plays out, EUR/JPY traders should be aware that the Relative Strength Index (RSI) exited overbought conditions, with readings of 64, aiming upwards, meaning that the upward move might be capped nearby the YTD highs at 145.63

Short term, the cross-currency pair remains neutral. Even though most of the EMAs reside below the exchange rate, price action in the last three days consolidated to a narrow range, forming a bearish rectangle after the EUR/JPY reached the YTD high at 145.63. Therefore, the EUR/JPY could be headed to the downside, bolstered by technical factors and Japanese authorities’ verbal intervention in the FX markets.

Therefore, the EUR/JPY first support would be the 20-EMA at 143.17. Break below will immediately expose the S1 pivot at 143.00, followed by the S2 daily pivot at 142-49.

EUR/JPY Key Technical Levels

• EUR/USD remains sidelined after witnessing a sluggish start to the key week.
• Economic fears surrounding Eurozone join hawkish Fed bets and Sino-American tension to keep bears hopeful.
• Pre-Fed consolidation of stocks join downbeat US housing data to weigh on DXY, despite firmer yields.
• Second-tier US data, risk catalysts will be in focus ahead of the FOMC.

EUR/USD dribbles around 1.0030 during Tuesday’s Asian session, after witnessing a four-day uptrend, as markets brace for the key central bank events. In doing so, the major currency pair fails to justify the economic fears at home, as well as geopolitical tensions emanating from China and Russia.

Downbeat US housing market numbers and a mostly priced-in 75 basis points (bps) rate hike from the Fed appear to help the EUR/USD pair amid a light calendar and an absence of the UK and Japan. Also keeping the pair buyers hopeful were firmer equities and inflation concerns.

Elsewhere, Reuters mentioned the correlation between the US 5-year/5-year inflation-linked swaps and the March 2023 Eurodollar prices, a key gauge of terminal Fed rate expectations until early Q2, to suggest the fear of a short squeeze. “If Fed rhetoric after Wednesday's meeting were to reinforce signals from swaps and consumers, U.S. rates and the dollar should weaken, which would likely drive a big EUR/USD short squeeze,” said Reuters.

Also positive could be the EU policymakers’ readiness to use emergency powers to avoid a supply crisis. Reuters reports after obtaining the European Union (EU) draft rules. “Under draft rules, the EU is to ask companies to accept priority rated orders for critical products.”

On the same line, European Central Bank (ECB) Vice President Luis de Guindos said on Monday that “growth slowdown is not enough to ease inflation.”

Furthermore, US Dollar Index (DXY) started Monday on a positive footing before downbeat US housing data and hawkish Fed bets raised doubts on the upside gap available for the greenback to react to the Fed’s 0.75% rate hike, which is mostly priced in. That said, the NAHB Housing Market Index fell for a ninth consecutive month to 46 versus 48 expected and 49 prior.

Alternatively, the Bundesbank said on Monday that it expects the German economy to shrink markedly in the autumn and winter months amid reduced or rationed energy consumption, as reported by Reuters.

Further, US President Biden 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, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seemed to weigh on the EUR/USD price ahead of the key monetary policy announcements. In a response to US President Biden’s comments, China’s Foreign Ministry said on Monday that Beijing “deplores and firmly opposes this and has lodged stern representations.”

Against this backdrop, Wall Street closed positive and the US Treasury yields refreshed cycle tops but the DXY remains pressured.

Looking forward, a few more US housing data and comments from ECB President Christine will entertain the EUR/USD traders ahead of the key Wednesday. Should ECB’s Lagarde choose to remain hawkish, the pair may witness further upside while preparing the ground for bears.

Technical analysis

Gradually firmer RSI and MACD signals keep buyers hopeful to overcome the 50-SMA immediate hurdle surrounding 1.0035, after witnessing multiple defeats to cross the same in the last week. If not, then the 0.9945 support holds the key to the EUR/USD pair’s fresh downside.

• A double bottom formation has resulted in a firmer rebound in the asset.
• The RSI (14) is on the verge of shifting into the bullish range of 60.00-80.00.
• A slippage below the two-year low at 1.1350 will drag the cable into unchartered territory.

The GBP/USD pair has witnessed a firmer rebound after defending its two-year low at 1.1350, recorded last week. The cable has extended its gains after overstepping the round-level resistance of 1.1400 and has reached its critical hurdle of 1.1440. The rebound move seems full of confidence and is expected to stay in bullish territory for a while, however, the broader picture is extremely brutal.

On an hourly scale, the asset has rebounded after forming a Double Bottom around a two-year low at 1.1350. A re-test of potential lows with lower selling pressure and absorption of the same with higher buying interest pushed the asset higher.

It is worth noting that the cable has crossed the 20-and 50-period Exponential Moving Averages (EMAs) at 1.1413 and 1.1426 respectively while the 50-EMA is still above the shorter one. This signals the strength of the pound bulls.

Also, the Relative Strength Index (RSI) (14) is on the verge of shifting into the bullish range of 60.00-80.00, which will trigger pound bulls for sheer upside momentum.

Should the asset drop below the fresh two-year low at 1.1350, greenback bulls will drag the cable towards the round-levels support of 1.1300. A slippage below the latter will drag the asset towards the 7 January 1985 low at 1.1245.

On the flip side, a break above Friday’s high at 1.1480 will send the asset towards Thursday’s high at 1.1542, followed by the round-level resistance at 1.1600.

GBP/USD hourly chart

• Gold price begins the key week in a cautious mode, keeping the bounce off yearly low.
• Yields, stocks improved but DXY pares previous gains.
• Absence of Japan, UK joined light calendar to restrict market moves but Fed hawks remained unmoved.
• Pre-Fed anxiety to keep XAU/USD on a dicey ground but US dollar pullback may entertain countertrend traders.

Gold price (XAU/USD) holds onto the recent rebound from the yearly low of around $1,675 as traders brace for major central bank decisions. In addition to the pre-event cautious, a light calendar and quiet macro also contribute to the metal’s inaction during the early Tuesday morning in Asia.

The market began the key week comprising multiple central bank announcements in a dicey mode amid a lack of major updates and bank holidays in Japan and the UK. Also keeping the bullion traders cautious were mixed updates surrounding China and the US dollar’s sluggish performance before Wednesday’s Federal Open Market Committee (FOMC).

The US Dollar Index (DXY) started Monday on a positive footing before downbeat US housing data and hawkish Fed bets raised doubts on the upside gap available for the greenback to react to the Fed’s 0.75% rate hike, which is mostly priced in. That said, the NAHB Housing Market Index fell for a ninth consecutive month to 46 versus 48 expected and 49 prior.

US President Biden 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, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seemed to weigh on the gold price ahead of the key monetary policy announcements. In a response to US President Biden’s comments, China’s Foreign Ministry said on Monday that Beijing “deplores and firmly opposes this and has lodged stern representations.”

Elsewhere, upbeat covid updates from China, as it unlocked Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone, favored the risk appetite. China’s Premier Li Keqiang told the state media on Monday that the Chinese economy maintains a recovering trend overall, as reported by Reuters. Earlier on Monday, China’s State Planner, National Development and Reform Commission said, “Foundation of domestic economic recovery is still weak despite positive changes in main economic indicators.”

Amid these plays, Wall Street closed positive and the US Treasury yields refreshed cycle tops but the DXY remains pressured.

Moving on, a few more US housing data and the full markets will entertain the XAU/USD traders ahead of the key Wednesday. Given the already priced-in Fed rate hike, the gold price may witness a recovery in case the FOMC fails to provide any major hawkish reason to back the monetary policy tightening.

Technical analysis

Gold justifies the upside break of a four-day-old descending resistance line, now support around $1,670, to aim for the support-turned-resistance line from September 01, around $1,698 by the press time. Also acting as an upside filter is the 200-HMA hurdle surrounding the $1,700 threshold.

It’s worth noting that the RSI (14) is speedily approaching the overbought territory and the metal’s upside past the $1,700 threshold appears difficult.

That said, a pullback move below the $1,670 previous support could quickly fetch the XAU/USD price towards the recently flashed yearly low surrounding $1,655.

In a case where the gold price remains bearish past $1,655, the April 2020 low surrounding $1,570 will gain the market’s attention.

Gold: Hourly chart

Trend: Limited upside expected

• AUD/USD is scaling higher towards 0.6750 as the negative market sentiment has trimmed.
• The Fed looks to announce a surprise hike by a full percent to fix the inflation chaos.
• A detailed version of the RBA monetary policy will support investors in making informed decisions.

The AUD/USD pair is hovering around the critical hurdle of 0.6730 in the early Tokyo session. The asset is advancing towards the crucial resistance of 0.6750 as the risk-on profile accelerates. On Monday, the asset witnessed a firmer rebound after defending the novel two-year low at 0.6670, recorded last week.

The asset displayed a firmer rebound after the US dollar index (DXY) witnessed a steep fall while attempting to recapture the two-decade low at 110.79. The DXY slipped despite the soaring odds of an extreme hawkish stance on interest rates by the Federal Reserve (Fed). The monetary policy meeting is scheduled for September 22 and investors are expecting a third consecutive rate hike by 75 basis points (bps). An occurrence of the same will push the interest rates to 3.00-3.25%.

The DXY has surrendered the majority of its gains but that doesn’t warrant a bearish reversal as investors are also expecting a surprise rate hike with a higher-than-expected extent. Considering the stubbornness in the price pressures, a rate hike by a full percent could be announced. The Fed has room to take a bold decision amid a supportive labor market and robust retail demand.

On the Aussie front, investors are awaiting the release of the Reserve Bank of Australia (RBA) minutes, which will provide the ideology of RBA Governor Philip Lowe behind announcing the fourth consecutive rate hike. Also, a detailed version of the economic situation of Australia and its economic catalysts such as growth rate, trade activities, and demand pattern will be of utmost importance.

• West Texas Intermediate is up  on the day with eyes on the Fed.
• US will sell 10 million bbls of oil from its strategic reserve.

West Texas Intermediate is up 0.11% on the day and has traded between $82.11 and $86.21bbls so far. The black gold was reversing early offers that lead to the lows even as the US dollar bulls moved in as markets remain in anticipation of the Federal Reserve and a slew of other central banks that meet this week.

Fed funds futures have priced in a 79% chance of a 75-basis-point rate hike this week and a 21% probability of a 100-basis-point increase at the conclusion of the Fed committee's two-day policy meeting.  However, some observers argue that the central bank could move to raise rates by a full percentage point after August inflation ran hotter than expected. With the combination of the worries, major economies will tip into recession, oil could see less demand at the same time the US dollar picks up a safe haven bid that is already close to its 20-year high as per the DXY index. 

Nevertheless, China lifted a two-week lockdown on the 21-million citizens of Chengdu, returning normal activity to the Sichuan capital, which could be a contributing factor to the rise in oil prices at the start of the week. On the other hand, there was also news that the US will sell 10 million bbls of oil from its strategic reserve for delivery in November, the Department of Energy said on Monday.

''Markets are increasingly skeptical about the prospects for an immediate resolution on the Iran file as well, which translates into a resurgence in energy supply risks despite the ongoing slump in prices. As markets reprice supply risk premia, the lack of liquidity could also exacerbate upside volatility in crude,'' analysts at TD Securities said.

• NZD/USD dropped close to 0.60%, spurred by a risk-off impulse in the FX complex.
• Investors remain at bay as worries about an aggressive Fed increased.
• Higher US Treasury bond yields weighed on the NZD/USD.

The NZD/USD tumbles to a fresh year-to-date low at 0.5929 during the North American session, as Wall Street finished positive, ahead of Fed’s decision on Wednesday. Factors like an aggressive tightening cycle by the Federal Reserve, threatening to spur a US recession, keep investors on their toes.

As the North American session finishes, the NZD/USD is edging lower after hitting a daily high at 0.6002US trading at 0.5955, below its opening price by 0.57%.

Late in the New York session, sentiment improved. The lack of US economic data maintained market participants awaiting Fed’s decision on Wednesday, where Chair Powell and Co. are expected to raise rates by 75 bps. Even though US equities rose, US Treasury bond yields, mainly the 10-year benchmark note, increased to 3.494%.

Data-wise, the US NAHB housing market index fell for the ninth straight month, signaling a deceleration in the housing market. At 46, the index is well off its post-pandemic high, portraying the influence of higher interest rates.

Aside from this, the New Zealand docket featured the Performance of Services Index (PSI), which rose sharply by 58.6, exceeding estimates and the previous month’s reading. According to the report, significant gains were witnessed in new activity/sales and order/business.

What to watch

An absent New Zealand economic docket will leave traders leaning on US data. The US calendar will reveal Building Permits alongside Housing Starts

NZD/USD Key Technical Levels

• EUR/USD bulls encroach on key resistances.
• Bears are lurking and eye a downside extension. 

EUR/USD is attempting to pull out of a phase of consolidation following a drop from close to 1.02 the figure at the start of last week. However, the price may find resistance in the coming sessions if the bulls stay on the collision course for a deep-rooted trendline. The following analysis illustrates a downside bias for the days ahead.

EUR/USD H1 chart

The hourly chart hs the price attempting a break of horizontal resistance but a break of trendline support would be expected to see the price turn quickly to the downside again and back within the sideways channel. 

EUR/USD daily charts

EUR/USD is correcting in a creeping trend on the daily charts within the bearish cycle and below trendline resistance. A 50% mean reversion will bring the price into close proximity to the resistance and failures will bring the lows back into focus with prospects of a downside extension of the broader bear trend.

What you need to take care of on Tuesday, September 20:

The week started in slow motion amid a scarce macroeconomic calendar, a holiday in the UK, and multiple central banks’ announcements scheduled for later in the week.

The dollar appreciated throughout the first half of the day but gave up in the American session, ending the day with modest losses against most of its major rivals. The currency moved alongside the markets’ sentiment, the latter set by equities. Asian and European indexes closed in the red, but Wall Street shrugged off the negative tone and trimmed most of its early losses.

Financial markets will likely remain in wait-and-see ahead of central banks’ decisions. This week, over fifteen institutions are set to decide between Wednesday and Thursday, including the US Federal Reserve, the Bank of England, the Bank of Japan, and the Switzerland National Bank. Massive quantitative tightening will be announced in the upcoming days, regardless of the potential effects on economic growth.

Meanwhile, Russia and China agreed to extend their cooperation on defense, focusing on joint exercises and weighing on the market’s mood.

Asian and European indexes closed in the red on Monday, but Wall Street trimmed most of its losses, with major indexes ending the day mixed. US Treasury yields maintained the upward pressure, with the near-term bonds yielding the most.

The EUR/USD pair trades around 1.0020, while GBP/USD hovers around 1.1430. The AUD/USD pair currently trades at 0.6725, while USD/CAD is down to 1.3255. Finally, the USD/JPY pair remained stable and changes hands at 143.20.

Commodities fell at the beginning of the day but finished it flat, with gold trading at $1,674 a troy ounce and WTI at $84.90 a barrel at the end of the American session.

Early on Tuesday, the focus will be on the RBA Meeting Minutes. Market players will be looking for clues on future rate hikes.

Ethereum Price Prediction: A dangerous knife to catch

• GBP/USD bulls come up for air in the face of a softer US dollar in NY.
• The focus for the week is on the Fed and BoE.

GBP/USD is back to trading flat on the day as the bulls move in from the lows of 1.1355, taking on the 1.14 area again. The greenback is a touch softer on the US session in some two-way business while traders remain in anticipation of the Federal Reserve and Bank of England meetings this week.

The sentiment surrounding surging inflation and tighter monetary policy continues to run the show, favoring the US dollar more so as the UK economy fares poorly vs. the US economy. The greenback remains close to two-decade highs as per the US dollar index DXY which measures the currency against six counterparts. DXY was up at 110.18 the high on Monday, not far from 20-year high of 110.79 hit on September. 7.

Risk-off sentiment is also contributing to a higher US dollar in the face of the aggressive tightening path that global banks are on as they try to contain uncomfortably high inflation. A slew of central banks will meet this week and Fed funds futures have priced in a 79% chance of a 75-basis-point rate hike this week and a 21% probability of a 100-basis-point increase at the conclusion of the Fed committee's two-day policy meeting. Meanwhile, the BoE is expected to raise rates by either 50bps and 75bps. 

''We look for the BoE to deliver a 75bps hike, although the decision will likely be closely balanced between 50 and 75bps,'' analysts at TD Securities said.

''While headline inflation recently fell to match the MPC's latest forecast, red-hot wage growth and record low unemployment argue in favor of a 75bps increase. We also expect the MPC to approve the start of asset sales at a pace of £10bn per quarter.''

• Despite a firmer dollar, technically, gold bulls are eyeing the prospects of a move toward the prior lows in a 50% mean reversion.
• The focus remains on the global central banks as the US dollar and Treasury yields continue to dictate the show

The gold price came under some pressure at the start of the week, down some 0.20% after falling from a high of $1679 to a low of $1,659 on the day and near a 29-month low scored on Friday. The US dollar and Treasury yields continue to dictate the show as traders remain in anticipation of the Federal Reserve this week and expect the US central bank to deliver a steep interest rate hike when it meets this week.

The sentiment surrounding surging inflation and tighter monetary policy continues to strip the opportunity cost of holding zero-yield precious metals. At the same time, the greenback remains close to two-decade highs, making greenback-priced bullion more expensive for overseas buyers. The dollar index DXY which measures the currency against six counterparts, was up 0.4% at 109.98, not far from 20-year high of 110.79 hit on September. 7.

Risk-off sentiment is also contributing to a higher US dollar in the face of the aggressive tightening path that global banks are on as they try to contain uncomfortably high inflation. A slew of central banks will meet this week and Fed funds futures have priced in a 79% chance of a 75-basis-point rate hike this week and a 21% probability of a 100-basis-point increase at the conclusion of the Fed committee's two-day policy meeting.

Meanwhile, analysts at TD Securities said they ''expect continued outflows from money managers and ETF holdings to weigh on prices, which ultimately raises the probability of a pending capitulation from the small number of family offices and proprietary trading shops who hold complacent length in gold.''

''The persistence of inflation continues to support an aggressive effort by the Fed, and we now expect the FMOC to raise the target rate by 75bp at its meeting next week, deliver another 75bp hike in November, and hike a further 50bp in December. In this context, while prices are certainly weak, precious metals' price action could still have further to fall as the restrictive rates regime is set to last for longer.''

Gold Monthly chart

Gold is on the verge of a key breakout as per the monthly chart above However, if the bulls move in before the month is out, we could be looking at an equally significant recovery and a correction that brings up the following prior lows into focus as potential resistances:

Gold, daily chart

From a daily perspective, the M-formation is laying out with bulls moving in and eyeing the prospects of a move toward the prior lows in a 50% mean reversion.

• The EUR/GBP advances 0.11% during Monday’s North American session.
• Medium-term, as shown by the EUR/GBP daily chart, the pair is upward biased.
• Negative divergence in the 4-hour scale, to tumble the EUR/GBP towards the 0.8700 figure.

The EUR/GBP edges up during the North American session, reaching a fresh YTD high at around 0.8787 but retreated towards the 0.8760s mark, forming a doji, meaning that buyers/sellers are at an equilibrium point. At the time of writing, the EUR/GBP is trading at 0.8767, up by 0.10%.

EUR/GBP Price Analysis: Technical outlook

From a daily chart perspective, the EUR/GBP is upward biased, but as the Relative Strength Index (RSI) gets into overbought territory, it might open the door for some consolidation. Additionally, it’s worth noting that there is a negative divergence between price action and the RSI, suggesting that the cross-currency might drop towards the 0.8700 figure or below before resuming its uptrend.

In the near term, the EUR/GBP four-hour scale portrays a divergence, with price action registering higher highs, contrary to RSI’s printing lower highs, meaning that sellers are gathering momentum. Hence, the EUR/GBP in the short term is downward biased.

Therefore, the EUR/GBP first support is the daily pivot of 0.8752. Break below will expose the confluence of the 20-EMA and the S1 daily pivot at the 0.8719/24 range, followed by the 50-EMA at 0.8696, ahead of the S2 daily pivot at 0.8680.

EUR/GBP Key Technical Levels

• The AUD/USD begins the week on the right foot, slightly up by 0.12%.
• On Wednesday, the US Federal Reserve is expected to hike 75 bps, but there’s a slim chance of a 100 bps.
• The Aussie economic docket will feature the RBA minutes ahead of the Fed’s decision.

The AUD/USD climbs during the North American session, above its opening price by 0.12%, as sentiment fluctuates between risk-off/on, courtesy of increasing recession fears in the US spurred by an aggressive Federal Reserve. At the time of writing, the AUD/USD is trading at 0.6713.

Of late, US equities are fluctuating as investors prepare for the Fed’s decision on Wednesday. At the same meeting, policymakers are expected to update their forecasts regarding interest rates, unemployment, and US GDP growth. AUD/USD traders should be aware that it will include projections for 2025.

AUD/USD gains some ground ahead of the RBA minutes and Fed’s decision

The Federal Reserve Open Market Committee (FOMC) is expected to raise rates by 75 bps, to the 3-3.25% threshold, amidst an environment of headline inflation above 8%, below the YTD peak around 9%, while core CPI it’s getting higher, at around 7%.

Reflection of the above-mentioned is higher US Treasury bond yields, with the 10-year benchmark note rate gaining almost three bps at 3.473%, underpinning the greenback, which, as portrayed by the US Dollar Index, gains 0.10% at 109.754.

Aside from this, in the Asian session, the Reserve Bank of Australia (RBA) head of domestic markets Jonathan Kearns said that “higher interest rates reduce borrowing capacity and increase loan repayments,” meaning that increasing borrowing costs would trigger a decline in the housing market.

In the meantime, RBA Governor Philip Lowe last week opened the door for a less aggressive monetary policy at “some point,” putting 25 bps rate hikes in play for the October monetary policy meeting.

Analysts at TD Securities expect the RBA to hike 50 bps in October while “retaining 25bps hikes for the Nov, Dec and Feb ’23 meetings, taking our terminal cash forecast from 3.35% to 3.60%.”

The Aussie calendar will feature the RBA minutes on Tuesday, and the RBA’s Governor Michele Bullock will cross newswires on Wednesday. On the US front, the FOMC will unveil its monetary decision on Wednesday, alongside the press conference of Chair Jerome Powell, 30 minutes after the decision.

AUD/USD Key Technical Levels

Analysts from TD Securities see the USD/CAD pair moving to the upside and they have an idea of buying the pair at levels near 1.3300 with a target at 1.3500 and a stop-loss at 1.3180. 

Key Quotes: 

“The debt party that has supported the last two major expansions is over and the CAD will need to act as a relief valve for the macro imbalances that exist in the household sector as rates push higher. We project a record rise in household debt servicing ratios by year-end. That should prevent the BOC from keeping up with the Fed. Our estimate of the Fed's terminal rate is well above 4%. 

“We believe the BOC has neared theirs. We expect Canada's debt problem and higher rates to kick off a data domino into Q4. There is nothing to like about the CAD at this time; it is the worst-ranked currency on our scorecard with almost all macro drivers leaning in the negative.”

“With global PMIs weakening, it will be difficult for the CAD to rally. We are also wary that a 'Volcker' kind of messaging emerges at the Fed, hampering the CAD. Key USDCAD support in 1.3200/1.3230 as it marks a break of triple top.”
 

The USD/BRL is falling on Monday after posting last Friday, the highest daily close since early August. Analysts at Rabobank see the USD/BRL pair at 5.30 by the end of the year. 

Key Quotes: 

“We still believe the Fed will remain hawkish, the USD will remain holding its safe haven status, and domestically the traditional electoral cycle will weigh on local assets. We still see the USDBRL at 5.30 by end-22.”

“Coming up next, all eyes are on the Copom (Wed). The decision comes right after the FOMC’s one, and we foresee the Brazilian monetary authority announcing a hawkish pause (0bp) to the hiking cycle that brought the Selic rate from 2.00% in February 2021 to 13.75% in the August 2022 meeting.”

• USD/JPY fluctuates around 143.00 amid a negative market sentiment, spurred by recession fears on Fed’s aggressive tightening path.
• The USD/JPY daily chart portrays buyers in control, but price action remains constrained.
• Short term, the USD/JPY is range-bound, trapped in the 142.60-143.60 range.

The USD/JPY seesaws around 24-year highs above the 143.00 psychological level, for the third consecutive trading session, amidst a risk-off impulse, courtesy of fears that the Fed’s aggression would likely tip the US economy into a recession. At the time of writing, the USD/JPY is trading at 143.24, above its opening price by 0.24%.

USD/JPY Price Analysis: Technical outlook

The USD/JPY daily chart keeps illustrating that buyers are in charge, albeit price action remains subdued. The daily moving averages (DMAs) reside below the exchange rate, while the Relative Strength Index (RSI) exited from overbought conditions, a respite for US dollar buyers that would like to re-test the USD/JPY year-to-date high at around 145.00. However, it should be noted that once 143.00 gives way, it would pave the way for a fall towards the 20-day EMA at 140.92.

Short term, the four-hour scale depicts the USD/JPY sideways, trapped in the 142.50-143.60 range. Oscillators led by the Relative Strength Index (RSI) is almost flat, hoovering around the 50-midline, displaying that neither buyers nor sellers are committed to opening fresh bets against the rise/fall of the major.

On the upside, the USD/JPY first resistance would be 144.00, ahead of the YTD high at around 144.99. on the flip side, the USD/JPY first support would be the daily pivot at 143.15, followed by the psychological 143.00, ahead of the S1 pivot point at 142.61.

USD/JPY Key Technical Levels

The USD/CNY continues to face upside pressure according to analysts from Danske Bank. They point out that the difference between interest rates in China and the US clearly favor the US dollar. 

Key Quotes: 

“USD/CNY has taken another leg higher lately on a stronger USD and wider US-China spread.”

“Relative rates clearly in favour of higher USD/CNY. US money market rates now far above Chinese.”

“Stock markets weaker lately on global recession fears, more US restrictions on Chinese tech, continued property crisis and weaker CNY.”

“PMIs dropped back in August, but the credit impulse is still robust. Retail sales surprised to the upside in August but remain weak. Confidence is low. The property sector is still in a deep crisis although stress among developers has eased somewhat lately.”

• US dollar losses momentum amid an improvement in risk sentiment.
• Wall Street turns green, US yields modestly off highs.
• EUR/USD continues to consolidate ahead of the FOMC meeting.

The EUR/USD rose after the beginning of the American session and recently climbed to 1.0017, before pulling back to the parity area. It is posting modest losses on Monday, as it continues to trade in a range.

The move higher in EUR/USD took place amid a small retreat of the US dollar as Wall Street indexes turned positive. US yields are off highs but still near multi-year highs ahead of the FOMC meeting on Wednesday.

The US central bank is expected to raise interest rates by 75basis points on Wednesday. The combination of an aggressive Fed and a cautious tone among investors regarding signs of a global economic slowdown supports the greenback. “The repricing of Fed tightening risks is likely to keep the dollar bid across the board near-term.  As we said during this most recent dollar correction lower, nothing has really changed fundamentally and the global backdrop continues to favor the dollar and U.S. assets in general”, explained analysts at Brown Brother Harriman.

Range prevails

The EUR/USD continues to trade around the parity level, as it had been the case since last Wednesday. A break above 1.0030 should strengthen the euro while on the flip side, the critical support is the 0.9950 area. A firm break under 0.9950 would expose the next support at 0.9910. The next support is 0.9870, the last defence to fresh multi-year lows.

Technical levels

• GBP/USD began the week on the right foot, awaiting Fed and BoE’s monetary policy decisions.
• Most analysts estimate the Fed would hike 75 bps in September’s meeting.
• GBP/USD Price Analysis: Remains downward biased, but a break above 1.1500 could shift the bias to neutral.

The British pound loses some traction against the greenback, after hitting a daily low at 1.1355, exchanges hands above its opening price by 0.04%, amidst a slightly positive market sentiment. During the week, the Bank of England, and the Federal Reserve, are expected to hike rates, with the BoE estimated to go 50 bps, while the latter has forecasts of 75 bps or even 100 bps.

The major began trading at around the 1.1400 figure. At the time of writing, the GBP/USD spot price is at 1.1401, clinging to the 1.1400 figure, in a thin trading session, due to the London holiday, in observance of Queen Elizabeth II’s funeral.

GBP/USD seesaws around 1.1400, with light calendars on Monday and Tuesday

US economic data released in September further emphasized the need for increasing interest rates. Most bank analysts estimate that Jerome Powell and Co would hike 75 bps, even though the Consumer Price Index (CPI) ticker is lower, yet remains above the 8% threshold. Contrarily, core inflation in the US surpassed the 7% YoY threshold, portraying a scenario of inflation broadening in the economy.

Worth noting that September’s Fed meeting will update the Summary of Economic Projections (SEP), and forecasts for 2025 will begin. Analysts at Deutsche Bank expect the Fed to hike 75 bps and also estimate that the Fed will update the Unemployment Rate towards 4.5%, as they aim to achieve a soft landing.

On the UK’s side, the Bank of England is expected to increase the Bank’s Rate by 50 bps on Thursday. Deutsche Bank analysts estimate the BoE’s terminal rate at 4%, a 150 bps upgrade, over their previous forecast.

What to watch

The UK economic docket is absent. On the US front, housing data would shed some light on the effects of higher interest rates.

GBP/USD Price Analysis: Technical outlook

From a daily chart perspective, the GBP/USD remains downward biased. During the day, the major dropped below the 1.1400 figure but fell short of registering a fresh 37-year low and reclaimed the 1.1400 figure. Traders should know that the Relative Strength Index (RSI) is registering higher lows, contrary to Sterling’s price action. Unless GBP/USD buyers reclaim the 1.1500 figure, the pair’s likely scenario is to remain range-bound, with central bank decisions looming.

The British pound remains weak with the GBP/USD pair trading below the 1.14 level. Economists at Scotiabank expect cable to suffer more losses.

Key resistance not seen until 1.1740/50

“Sterling is soft and continues to pressure minor support (last week’s low) at the 1.1350/55 area.” 

“The broader trend lower in cable remains intense and deeply entrenched across multiple timeframes and the lack of obvious support points below the market leave the GBP/USD pair vulnerable to more losses.” 

“Key resistance is a distant 1.1740/50.”

EUR/USD continues to consolidate after last week’s tumble from resistance around the 1.02 zone. Economists at Scotiabank expect the world’s most popular currency pair to hover around the 0.9950 area.

Euro to retain a weak bias

“Firm gains Friday have failed to hold and spot continues to press support at 0.9950, ahead of a renewed test of the upper 0.98s.”

“Look for more range trading around 0.9950 in the short run but, absent a clear move through the 1.02 range, the EUR will retain a weak bias.”

• Gold meets with a fresh supply and slides back closer to the YTD low set on Friday.
• Resurgent USD demand turns out to be a key factor exerting downward pressure.
• The risk-off impulse helps limit losses ahead of key central bank meetings this week.

Gold maintains its offered tone through the early North American session and is currently placed near the $1,665 region, just above the daily low. A stronger US dollar is seen weighing on the dollar-denominated commodity, which remains well within the striking distance of its lowest level since April 2020 touched on Friday.

Expectations that the Federal Reserve will stick to its aggressive rate-hike path to tame uncomfortably high inflation continue to underpin the greenback. A fall in the near-term inflation expectations for consumer prices in the US to a one-year low in September forced investors to scale back bets for a full 100 bps Fed rate hike move. The US central bank, however, is expected to deliver at least a 75 bps at the end of a two-day monetary policy meeting on Wednesday, which continues to underpin the greenback.

This, in turn, remains supportive of elevated US Treasury bond yields. This, along with the prospects for a faster interest rate hike by other major central banks, further contributes to driving flows away from the non-yielding yellow metal. That said, the prevalent risk-off environment, as depicted by a fresh leg down in the equity markets, offers some support to traditional safe-haven assets. This turns out to be the only factor lending some support to gold and limiting the downside, at least for now.

Investors also seem reluctant to place aggressive bets and prefer to move to the sidelines ahead of a flurry of central bank meetings this week. The Fed is scheduled to announce its decision on Wednesday, which will play a key role in influencing the near-term USD price dynamics. This will be followed by the Bank of Japan (BoJ), the Swiss National Bank (SNB) and the Bank of England (BoE) on Thursday. This, in turn, should assist investors to determine the next leg of a directional move for gold.

Technical levels to watch

• USD/TRY trades in new highs around the 18.30 region.
• The lira depreciates further and flirts with the 18.30 level vs. the dollar.
• The CBRT decision will be a close call later in the week.

Further weakness in the Turkish currency motivates USD/TRY to print new record highs around the 18.30 level at the beginning of the week.

USD/TRY now looks to the Fed, CBRT

USD/TRY extends the march north albeit at a snail pace on Monday, this time reaching the 18.30 region, or new all-time peaks on the back of the firmer note in the dollar and the omnipresent depreciation of the lira.

Later in the week, the Turkish central bank (CBRT) will have its monthly monetary policy gathering. Consensus around the event appears divided between those who expect further rate cuts and many others who lean towards a wait-and-see stance in order to assess the effects on the economy (if any at all) of the August’s surprising interest rate cut.

Furthermore, the lira has already lost more than 38% in 2022 and closed with losses in every month of the year so far.

Extra upside pressure for the pair would likely come from the FOMC gathering on Wednesday, where a 75 bps rate hike by the Fed is largely anticipated, which should keep the sentiment in the risk complex and the EM FX space depressed.

What to look for around TRY

USD/TRY maintains the underlying gradual upside well in place and already flirts with the 18.30 level.

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

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in July and August), real interest rates remain entrenched well in negative territory and the political pressure to keep the CBRT biased towards low interest rates remains omnipresent.

In addition, the lira is poised to keep suffering against the backdrop of Ankara’s plans to prioritize growth (via higher exports and tourism revenue) and the improvement in the current account.

Key events in Türkiye this week: Consumer Confidence, CBRT Interest Rate decision (Thursday).

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

USD/TRY key levels

So far, the pair is gaining 0.55% at 18.2944 and faces the next hurdle at 18.3033 (all-time high September 19) seconded by 19.00 (round level). On the downside, a break below 17.8743 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low August 9).

• A combination of factors pushes USD/CAD to its highest level since November 2020 on Monday.
• The formation of an ascending trend channel points to a well-established short-term bullish trend.
• The technical set-up favours bullish traders and supports prospects for a further appreciating move.

The USD/CAD pair builds on last week's stronger US CPI-inspired rally from the vicinity of mid-1.2900s and gains some follow-through traction on Monday. The pair maintains its bid tone through the early North American session and is currently placed just above the 1.3300 mark, or the highest level since November 2020.

The US dollar is back in demand amid firming expectations that the Fed will deliver a supersized rate hike at the end of a two-day policy meeting on Wednesday. Apart from this, bearish crude oil prices continue to undermine the commodity-linked loonie and remain supportive of the USD/CAD pair's ongoing positive momentum.

Looking at the broader picture, the recent move up along a multi-month-old ascending channel points to a well-established short-term bullish trend. This, along with last week's convincing break through the 1.3210-1.3220 supply zone and a subsequent move beyond the 1.3300 mark, supports prospects for additional gains.

The constructive set-up is reinforced by the fact that technical indicators on the daily chart have been gaining positive traction and are still far from being in the overbought territory. Hence, some follow-through strength towards the ascending channel resistance, around the 1.3400 mark, looks like a distinct possibility.

On the flip side, any meaningful corrective decline could find decent support near the 1.3220-1.3210 resistance breakpoint. Any further pullback below the 1.3200 mark could be seen as a buying opportunity and remain limited near the 1.3160-1.3150 region. The latter should now act as a strong base for the USD/CAD pair and a pivotal point.

USD/CAD daily chart

Key levels to watch

• EUR/USD reverses three daily gains in a row on Monday.
• There is an initial resistance at the 7-month line near 1.0160.

EUR/USD comes under some selling pressure and deflates below the parity region at the beginning of the week.

The pair seems to have embarked on a consolidative range ahead of the key FOMC event on Wednesday. Immediately to the upside comes the interim 55-day SMA at 1.0101 ahead of the key 7-month resistance line, today near 1.0160. A move beyond the latter is needed to mitigate the downside pressure and allow spot to confront the September high at 1.0197 (September 12) ahead of potential extra gains.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0722.

EUR/USD daily chart

• AUD/USD meets with a fresh supply on Monday and slides back closer to the YTD low.
• Aggressive Fed rate hike bets, the risk-off mood lifts the USD and exerts some pressure.
• The fundamental backdrop favours bearish traders ahead of the crucial FOMC meeting.

The AUD/USD pair struggles to capitalize on its modest intraday uptick and attracts fresh sellers near the 0.6000 psychological mark on Monday. The intraday descent extends through the mid-European session and drags spot prices to the 0.6675-0.6670 area, or its lowest level since June 2020 touched on Friday.

A combination of factors assists the US dollar to regain positive traction on the first day of a new week, which, in turn, is seen exerting pressure on the AUD/USD pair. Firming expectations that the Fed will hike interest rates at a faster pace to tame inflation continues to act as a tailwind for the greenback. Apart from this, the prevalent risk-off environment offers additional support to the safe-haven buck and contributes to driving flows away from the risk-sensitive aussie.

The market sentiment remains fragile amid worries that rapidly rising borrowing costs will lead to a deeper global economic downturn. This, along with headwinds stemming from China's zero-covid policy, the protracted Russia-Ukraine war and the deteriorating US-China relationship, tempers investors' appetite for perceived riskier assets. In fact, US President Joe Biden said the US will defend Taiwan in the event of an attack by China and triggers a fresh leg down in the equity markets.

The fundamental backdrop seems tilted firmly in favour of bearish traders and supports prospects for a further near-term depreciating move for the AUD/USD pair. Investors, however, might refrain from placing aggressive bets and prefer to move to the sidelines ahead of the two-day FOMC policy meeting, starting on Tuesday. The US central bank is scheduled to announce its decision on Wednesday and is universally expected to deliver at least a 75 bps interest rate increase.

The markets have also been pricing in a small chance of full 100 bps lift-off. Hence, the focus will be on the so-called dot-plot, which along with updated economic projections and Fed Chair Jerome Powell's remarks at the post-meeting press conference, might provide fresh clues about the US central bank's policy outlook. This, in turn, will play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for the AUD/USD pair.

Technical levels to watch

Statistics Canada will release August Consumer Price Index (CPI) data on Tuesday, September 20 at 12:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of five major banks regarding the upcoming Canadian inflation data.  

The August Canada inflation rate is expected to fall to -0.1% from 0.1% MoM, clocking in at 7.3% from 7.6% YoY. The Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to decline to 0.3% MoM, sitting at 6.0% on yearly basis from the 6.1% previous.

RBC Economics

“We look for a dip from 7.6% in July to 7.2% in August – down from a recent peak of 8.1% in June. But beneath the weakening headline number, some prices are still powering up. Food price growth likely accelerated again. And we look for the rate excluding food and energy products to hold steady at 5.5%. Alongside this, the Bank of Canada’s preferred core inflation measures also likely remained elevated. We continue to believe the headline inflation rate has hit its peak as lower commodity prices and easing global supply chain pressures lower growth in goods prices. But we don’t expect ‘core’ measures to peak until later this year when higher interest rates start to cut deeply into consumer demand.”

NBF

“If our forecasts materialize, annual inflation should have continued its downward trend to 7.0% last month (compared to 7.6% in July) due to a 0.4% MoM decline (NSA). It turns out that gasoline plunged another 9% in August, following a similar pullback in July. A negative contribution is also expected from air transportation, as a reversal is very likely after the staggering 26% increase the previous month. While price increases could still be sustained in the services sector, we expect goods prices to moderate due to lower transportation prices and easing supply chain issues. All in all, that should lead to a moderation in both CPI-Median (4.9% from 5.0%) and CPI-Trim (5.3% from 5.4%).”

TDS

“We look for a modest dip in headline CPI to 7.3% YoY as another large drop in energy drives a 0.1% MoM decline. Food, shelter, and travel-related components will provide a key source of strength to offset the drag from gasoline. We also look for core CPI measures to push higher, driven in large part by revisions to CPI-common, which will give a hawkish tinge to the report.”

CIBC

“The continued downtrend in gasoline prices will be key behind a 0.1% decline in CPI during August and a deceleration in the annual rate of inflation to 7.2%. However, the earlier US figure suggests that food and other goods prices, including autos, may have remained strong positive contributors to inflation, despite reductions in shipping costs and agricultural commodity prices suggesting that there may be some good news later in the year on these fronts. One difference between the US and Canadian figures that should bring a larger deceleration north of the border is the treatment of owned accommodation. Homeowners’ rebuilding costs should be broadly flat month-over-month, while the other owned accommodation category (largely real estate agents’ fees) should be a big negative again as it picks up the ongoing correction in house prices.”

Citibank

“Canada CPI NSA MoM (Aug) Citi: -0.1%, prior: 0.1%; CPI YoY – Citi: 7.3%, prior: 7.6%. Canada’s headline CPI should decline 0.1% MoM with shelter prices expected to continue to slow with a further moderation in home prices. However, market attention is likely to be more focused on core CPI and inflation expectations as key inputs into BoC’s assessment of how high rates need to rise. While there are some signs that core CPI could be moderating slightly by year-end, we see risks skewed towards core CPI remaining at an uncomfortably high level that keeps BoC raising rates for longer and/or by large amounts.”

The US Dollar Index (DXY) is rising to the 110.00 area following Friday's retreat. This week’s FOMC meeting could send the DXY lower if the Fed is perceived less hawkish than expected, in the opinion of economists at OCBC Bank.

Caution to keep USD supported on dips in the lead-up to FOMC

“While a hawkish Fed is now the baseline scenario, we caution that a Fed that is perceived as less hawkish could see DXY ease lower post-decision. Meantime, in the lead-up to FOMC, expect caution to keep USD broadly supported on dips.”

“Support at 109.30 (21 DMA), 108.45 (38.2% Fibo retracement of Aug low to Sep high) and 107.70 levels (50-DMA, 50% Fibo).”

“Resistance at 110.30 before 110.78 (previous high).”

USD/JPY reclaimed 143.00 early Monday. As economists at OCBC Bank note, bullish trend channel stays intact but gains are slowing.

Break under 141.50 to open the door towards 140.10 and 139.35

“Bullish momentum on daily chart shows signs of waning while RSI is falling from overbought conditions. Risks skewed to the downside though bullish trend channel intact for now.”

“Support at 142.50 (channel lower bound), 141.50 (23.6% Fibo retracement of Aug low to Sep double top). Decisive break below 141.50 puts next support at 140.10 (21-DMA) and 139.35 (38.2% Fibo).”

“Resistance at 145 (interim double top).”

EUR/USD is trading just below parity. Economists at BBH expect the world’s most popular currency pair to challenge the 0.9865 mark.

Bundesbank noted growing risks of recession in Germany

“With the fundamentals deteriorating, we still look for a test of this month’s cycle low near 0.9865.”

“Bundesbank noted ‘there are increasing signs of a recession of the German economy in the sense of a clear, broad-based and longer-lasting decline in economic output.’ September PMI readings out this Friday should confirm what markets already know, and that is Germany is already in recession.”

China’s Premier Li Keqiang told the state media on Monday that the Chinese economy maintains a recovering trend overall, as reported by Reuters.

China will increase imports of agricultural products from Vietnam, Li further noted.

Market reaction

These comments don't seem to be having a noticeable impact on risk perception and safe haven flows continue to dominate the financial markets. As of writing, the US Dollar Index was up 0.25% on the day at 109.90 and the US stock index futures were losing between 0.75% and 0.9%. 

• DXY keeps the choppy trade unchanged around 110.00.
• Extra upside could see the cycle high near 110.80 revisited.

DXY resumes the upside following Friday’s daily retracement.

Despite the ongoing consolidation trade, the dollar’s short-term bullish view remains unchanged while above the 7-month support line near 106.50. Against that, another bull run to the YTD peak around 110.80 remains well on the cards for the time being.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 101.73.

DXY daily chart

FX Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggests USD/IDR could see its upside momentum dwindled below 14,890.

Key Quotes

“Our expectations for USD/IDR to ‘consolidate between 14,770 and 14,920’ were incorrect as it soared to 14,960 last Friday (16 Sep) before extending its advance today. Upward momentum is improving quickly and USD/IDR is likely to advance further this week.”

“That said, July’s peak of 15,033 is likely out of reach for now (there is another resistance at 15,000). On the downside, a breach of 14,890 would indicate that USD/IDR is unlikely to advance further.”

• EUR/JPY keeps the erratic performance above 143.00 on Monday.
• Next on the upside comes the cycle highs past 145.00.

EUR/JPY keeps the choppiness well and sound above the 143.00 mark at the beginning of the week.

Price action around the cross remains inconclusive for the time being and would not be surprising to see this stance extend in the next sessions. That said, a break above the this range bound theme exposes the 2022 peaks around 145.60, while the 139.00 zone – where the 55- and 100-day SMAs coincide – should offer initial contention.

In the meantime, while above the 200-day SMA at 135.30, the prospects for the pair should remain constructive.

EUR/JPY daily chart

• Silver comes under renewed selling pressure and reverses Friday’s modest gains.
• Repeated failures near a descending trend-line warrant some caution for bulls.
• Strength beyond the $20.00 mark is needed to support prospects for further gains.

Silver struggles to capitalize on Friday's goodish rebound from a one-week low and meets with a fresh supply on the first day of a new week. The white metal maintains its offered tone through the first half of the European session and is currently placed near the daily low, around the $19.30 region.

From a technical perspective, the XAG/USD, so far, has been struggling to make it through a descending trend-line resistance extending from the May swing high. Repeated failures near the said barrier suggest that the recent recovery from over a two-year low, the $17.55 area might have already run out of steam.

That said, technical indicators on the daily chart are holding with a mild positive bias and support prospects for the emergence of some dip-buying at lower levels. Hence, it will be prudent to wait for some follow-through selling below the $19.00 mark before positioning for any further depreciating move.

The next relevant support is pegged near Friday's swing low, around the $18.80-$18.75 region, which if broken decisively will shift the near-term bias back in favour of bearish traders. The XAG/USD might then accelerate the fall to the $18.45-$18.40 intermediate support en route to the $18.00 round-figure mark.

On the flip side, the aforementioned descending trend-line, currently around the $19.85 region, might continue to act as an immediate strong barrier. This is closely followed by the $20.00 psychological mark. A sustained strength beyond the latter is needed to confirm a near-term bullish breakout and additional gains.

The subsequent move up has the potential to lift the XAG/USD to the 100-day SMA, near the $20.30 area. The momentum could further get extended towards the $20.50 region, above which spot prices could aim to reclaim the $21.00 round-figure mark before eventually climbing further towards the $21.50 area.

Silver daily chart

Key levels to watch

The Bundesbank said on Monday that it expects the German economy to shrink markedly in the autumn and winter months amid reduced or rationed energy consumption, as reported by Reuters.

German central bank further noted that that the economy would still likely contract even if outright rationing was avoided. 

Market reaction

Markets remain risk-averse during the European trading hours on Monday with Germany's DAX 30 losing nearly 1% on the day. Meanwhile, EUR/USD was trading at 0.9980 at the time of writing, down 0.4% on a daily basis.

Further upside could prompt USD/MYR to meet the next resistance of note at 4.5550, note FX Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“While we expected USD/MYR to strengthen last week, we were of the view it ‘could advance further but the resistance at 4.5100 is unlikely to come into view for now’. We underestimated the upward momentum as USD/MYR soared to 4.5330 last Friday before extending its advance today. Upward momentum is strong and USD/MYR is likely to strengthen further.”

“That said, deeply overbought short-term conditions could ‘limit’ gains to 4.5550. Support is at 4.5300 but only a breach of 4.5150 would indicate the current strong upward pressure has eased.”

• GBP/USD meets with a fresh supply on Monday and is pressured by resurgent USD demand.
• The UK’s bleak economic outlook undermines the GBP and contributes to the intraday slide.
• Investors now look to the FOMC and the BoE policy meetings for a fresh directional impetus.

The GBP/USD pair comes under some renewed selling pressure on Monday and extends its steady intraday descent through the first half of the European session. The pair is currently placed around the 1.1360 area, just a few pips above its lowest level since 1985 touched on Friday.

In the absence of any fresh catalyst, a bleak outlook for the UK economy continues to undermine the British pound and exerts some downward pressure on the GBP/USD pair. The UK Office for National Statistics reported on Friday that monthly Retail Sales recorded the biggest fall since December 2021 and fell much more than expected in August. This is seen as another sign that the economy is sliding into recession.

Apart from this, resurgent US dollar demand is seen as another factor contributing to the offered tone surrounding the GBP/USD pair. The stronger US CPI report released last week bolstered expectations that the Fed will tighten its monetary policy at a faster pace. In fact, the markets have been pricing in at least a 75 bps rate hike and a small chance of a full 100 bps lift-off at this week's FOMC meeting starting Tuesday.

Furthermore, the prevalent risk-off environment provides an additional lift to the safe-haven buck. The market sentiment remains fragile amid worries that rapidly rising borrowing costs, along with headwinds stemming from China's zero-covid policy and the protracted Russia-Ukraine war, would lead to a deeper global economic downturn. This, along with the worsening US-China relationship, tempers investors' appetite for riskier assets.

The aforementioned factors, to a larger extent, offsets rising bets for more aggressive rate hikes by the Bank of England, which, so far, has failed to lend any support to the GBP/USD pair. Bearish traders, however, might prefer to wait on the sidelines ahead of this week's key central bank event risks before placing fresh bets. The Fed will announce its policy decision on Wednesday and will be followed by the BoE meeting on Thursday.

In the meantime, the USD price dynamics might continue to influence the GBP/USD pair amid relatively thin liquidity on the back of a holiday in the UK in observance of the funeral of Queen Elizabeth. There isn't any major market-moving economic data due for release on Monday, either from the UK or the US. Hence, traders might take cues from the broader risk sentiment, which will drive the USD demand and provide some impetus to the GBP/USD pair.

Technical levels to watch

In the opinion of FX Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research, USD/THB could move into a consolidative phase in the short term.

Key Quotes

“Last Monday (12 Sep, spot at 36.45), we highlighted that USD/THB is likely to weaken but we were of the view that ‘any weakness is expected to encounter solid support at 36.10’. USD/THB subsequently dropped to 36.19 before lifting off and surged to 37.10. The rapid improvement in upward momentum is likely to lead to further USD/THB strength.”

“That said, short-term conditions are overbought and USD/THB could consolidate for a few days before heading higher to 37.20. Support wise, a breach of 36.45 would indicate that the build-up of upward momentum has fizzled out.”

European Central Bank (ECB) Vice President Luis de Guindos said on Monday that “growth slowdown is not enough to ease inflation.”

“Inflation expectations need to be well anchored,” the central bank policymaker said.

Market reaction

The shared currency is unfazed by the above comments, with EUR/USD losing 0.37% on the day to trade at 0.9971 at the time of writing.

• Gold meets with a fresh supply on Monday amid a goodish pickup in the USD demand.
• Aggressive Fed rate hike bets, elevated US bond yields continue to underpin the buck.
• The risk-off impulse fails to impress bullish traders or lend any support to the XAU/USD.

Gold struggles to capitalize on Friday's goodish rebound from its lowest level since April 2020 and meets with a fresh supply on the first day of a new week. The XAU/USD continues losing ground through the early European session and drops to a fresh daily low, around the $1,660 area in the last hour.

The intraday descent is sponsored by the emergence of fresh buying around the US dollar, which tends to undermine demand for the dollar-denominated commodity. The stronger US consumer inflation data released last week all but cemented expectations that the Fed will tighten its monetary policy at a faster pace.

In fact, the markets have been pricing in a small chance of a full 100 bps rate increase at this week's FOMC meeting. This remains supportive of elevated US Treasury bond yields, which continue to act as a tailwind for the greenback and contributes to driving flows away from the non-yielding yellow metal.

Even the prevalent risk-off environment fails to impress bullish traders or offer any support to the safe-haven gold. The rapidly rising borrowing costs, along with the economic headwinds stemming from China's zero-covid policy and the protracted Russia-Ukraine war, have been fueling recession fears.

Adding to this, the worsening US-China relationship tempers investors' appetite for perceived riskier assets, which is evident from a generally weaker tone around the equity markets. In the latest development, US President Joe Biden said the US would defend Taiwan in the event of an attack by China.

It, however, remains to be seen if bearish traders can maintain their dominant position or opt to lighten their bets ahead of the central bank event risks. The Fed, the Bank of Japan, the Swiss National Bank and the Bank of England will announce their respective policy decisions during the latter part of the week.

In the meantime, the prospects for a more aggressive policy tightening by major central banks should continue to act as a headwind for gold. This, in turn, suggests that any meaningful recovery attempt could be seen as a selling opportunity amid absent relevant market-moving economic data from the US.

Technical levels to watch

The European Commission proposed on Monday emergency power to avoid a supply crisis. Reuters reports after obtaining the European Union (EU) draft rules.

Key highlights

“Under draft rules, the EU is to ask companies to accept priority rated orders for critical products.”

“Under EU draft rules EU countries may ask companies to expand or repurpose production lines.”

“EU countries may have to build up stockpiles under EU draft rules.”

Related reads

• EUR/USD looks offered, extends the downside below parity
• Bulgaria says Gazprom is ready to discuss gas supply proposals

• The pair loses the grip and breaches parity once again.
• The dollar looks bid amidst higher US yields on Monday.
• ECB-speak, EMU Construction Output next on tap.

Sellers regain control around the European currency and drag EUR/USD back below the psychological parity zone at the beginning of the week.

EUR/USD faces next support at the 2022 low

EUR/USD so far reverses three consecutive daily builds and refocuses on the downside against the backdrop of the weak performance in the risk complex and fresh buying interest surrounding the dollar ahead of the interest rate decision by the Fed on Wednesday.

On the latter, the probability of a ¾ point rate hike hovers around the 80% as per CME Group’s Fed Watch Tool, while the likeliness of a 100 bps rate raise lost momentum as of late.

In the German debt market, the 10-year Bund yields extend the gradual multi-week rally and flirt with the 1.80% region so far.

In the euro docket, Construction Output in the broader Euroland will be the only release seconded by speeches by ECB’s E.Fernandez-Bollo, L.De Guindos and A.Enria. In the US, the NAHB index due followed by 3-month and 6-month Bill auctions.

What to look for around EUR

EUR/USD remains under pressure and breaks below the parity level following increasing cautiousness and dollar buying ahead of the FOMC gathering (Wednesday).

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

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

Key events in the euro area this week: ECB Lagarde (Tuesday) – Flash Consumer Confidence (Thursday) – EMU, Germany Flash Manufacturing/Services PMI (Friday).

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

EUR/USD levels to watch

So far, the pair is losing 0.32% at 0.9979 and the breakdown of 0.9944 (weekly low September 16) would target 0.9863 (2022 low September 6) en route to 0.9859 (December 2002 low). On the other hand, the initial barrier emerges at 1.0197 (monthly high September 12) followed by 1.0202 (August 17 high) and then 1.0310 (100-day SMA).

According to the majority of leading academic economists polled by the Financial Times (FT) in partnership with the Initiative on Global Markets (IGM) at the University of Chicago’s Booth School of Business, the US Federal Reserve bank (Fed) is seen raising above 4% and holding it there beyond 2023.

Key takeaways

“Nearly 70 percent of the 44 economists surveyed between September 13 and 15 believe the fed funds rate of this tightening cycle will peak between 4 percent and 5 percent, with 20 percent of the view that it will need to pass that level.”

“Most of the respondents project core PCE will drop from its most recent July level of 4.6 percent to 3.5 percent by the end of 2023. But nearly a third expect it to still exceed 3 percent 12 months later. “

“Another 27 percent said “it was about as likely as not” to remain above that threshold at that time — indicating great unease about high inflation becoming more deeply embedded in the economy.”

“Nearly 70 percent of the respondents expect the National Bureau of Economic Research — the official arbiter of when US recessions begin and end — to declare one in 2023, with the bulk holding the view it will occur in the first or second quarter.”

• USD/JPY regains positive traction on Monday and is supported by a pickup in the USD demand.
• The Fed-BoJ policy divergence continues to weigh on the JPY and remains supportive of the move.
• Fears of a BoJ intervention, a softer risk tone to limit losses for the JPY and might cap the upside.

The USD/JPY pair attracts fresh buying near the 142.65 area on Monday and builds on its steady intraday ascent through the early European session. Spot prices hit a fresh daily low, around the 143.50-143.55 region in the last hour, reversing Friday's modest negative move amid a goodish pickup in demand for the US dollar.

The US consumer inflation figures for August all but cemented expectations for a more aggressive policy tightening by the Fed. In fact, the markets have been pricing in at least a 75 bps rate increase and a smaller chance of a full 100 bps hike at this week's FOMC meeting. This remains supportive of elevated US Treasury bond yields, which continue to act as a tailwind for the greenback and is offering support to the USD/JPY pair.  

In contrast, the Bank of Japan has been lagging far behind in the process of policy normalisation and remains committed to continuing with its monetary easing. This marks a big divergence in comparison to a more hawkish stance adopted by other major central banks, which continues to undermine the Japanese yen and provide an additional lift to the USD/JPY pair. That said, a combination of factors might keep a lid on any further gains.

Speculations that the BoJ may soon step in to arrest any further freefall in the domestic currency, along with the prevalent risk-off environment, extend some support to the safe-haven JPY. Investors also seem reluctant and prefer to move on the sidelines ahead of this week's key central bank event risks. The Fed is scheduled to announce its policy decision on Wednesday, which will be followed by the BoJ meeting on Thursday.

This, in turn, will play a key role in influencing the next leg of a directional move for the USD/JPY pair. In the meantime, any meaningful pullback might continue to attract some buying at lower levels and remain limited amid absent relevant market-moving economic releases from the US on Monday.

Technical levels to watch

EUR/USD has declined below parity at the beginning of the week. As FXStreet’s Eren Sengezer notes, near-term technical outlook points to a buildup of bearish momentum.

Near-term technical outlook shows that buyers remain hesitant

“0.9950 (lower limit of the one-week-old range, static level) aligns as initial support. If this level turns into resistance, EUR/USD could slide toward 0.9900 (psychological level) and 0.9865 (September 6 low).”

“On the upside, 1.0000 (psychological level, 100-period SMA) forms significant resistance. In order to extend its rebound, the pair needs to stabilize above that level. In that case, 1.0030/40 (Fibonacci 50% retracement of the latest uptrend, 50-period SMA) and 1.0070 (200-period SMA, Fibonacci 38.2% retracement) could be targeted.”

USD/SEK has experienced a steady uptrend. While above the 50-day moving average (DMA), the pair should trend higher and surpass the 11 level, economists at Société Générale report.

Peak near 10.88 is an interim hurdle

“The peak formed earlier this month near 10.88 is an interim hurdle. However, a large downside is not envisaged; 50-DMA near 10.45/10.41 should provide support. 

“Holding above 10.45/10.41, the USD/SEK pair is expected to inch higher towards 2001 highs of 11.04 and perhaps even towards projections of 11.18.”

USD/ZAR has extended its up move. Economists at Société Générale expect the pair to enjoy further gains on a break above the August 2020 levels of 17.80/17.95 – which is also the 76.4% retracement from 2020.

Recent pivot low at 17.00 is an important support near-term 

“Signals of a deeper pullback are still not visible; recent pivot low at 17.00 should now be an important support near-term.”

“Beyond 17.80/17.95, next potential objectives could be at projections of 18.45 and 2020 high of 19.20/19.35.”

Extra upside could still motivate USD/CNH to test the 7.0500 region in the short-term horizon, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted last Friday that ‘the rapid rise appears to be running ahead of itself but in view of the solid momentum, USD could strengthen further to 7.0300 before a pullback is likely’. We added, ‘the major resistance at 7.0500 is unlikely to come into view’. While our view was not wrong as USD soared to 7.0427, the pullback from the high was sharper than expected (low has been 6.9982). The pullback could extend but is not expected to break 6.9800 (minor support is at 6.9900). Resistance levels are at 7.0100 and 7.0210.”

Next 1-3 weeks: “We turned positive on USD in the middle of last week. As USD soared, in our latest narrative from Friday (16 Sep, spot at 7.0100), we indicated that the surge in momentum is likely to lead to further rapid rise in USD. We added, ‘the level to watch is at 7.0500’. USD subsequently soared to 7.0427 before pulling back sharply. While the sharp pullback from the high has dented the upward momentum somewhat, there is still chance for USD to advance to 7.0500. Only a break of 6.9660 (no change in ‘strong support’ level from last Friday) would indicate that the current upward pressure has eased.”

GBP/USD plumbed a 37-year low of 1.1351 last week. Downside bias stays intact ahead of the Bank of England (BoE) meeting, economists at Société Générale report.

Persistence in downtrend

“GBP/USD has breached the low of 2020 and further pain could lie in store this week if the BoE decides to start selling gilts.”

“Investors will brace for the so-called fiscal event on Friday. The fiscal loosening will be offset by monetary tightening by the BoE and is unlikely to bring much relief to the pound as investors fret over the deterioration of public finances and rising bond yields.”

“Signals of rebound are still not visible; next projections are at 1.1270/1.1210 and 1.0950.”

“Daily Kijun line at 1.1740/1.1760 caps upside.”

• The index fades Friday’s pullback and reclaims 110.00 and beyond.
• The risk complex starts the week on the negative foot.
• All the attention will be on the FOMC event later in the week.

The greenback, in terms of the USD Index (DXY), leaves behind Friday’s daily drop and refocuses on the 110.00 mark and above at the beginning of the week.

USD Index shifts the attention to the Fed

The index manages to keep the trade in the upper end of the recent range near the 110.00 neighbourhood amidst renewed weakness in the risk-associated universe, while market participants are expected to remain prudent ahead of the FOMC event due later in the week.

So far, investors’ preference look tilted towards a 75 bps rate hike on Wednesday, as the probability of a full-point rate raise has been losing traction following its sudden emergence post-US CPI hype.

The move higher in the dollar appears so far underpinned by the small advance in US yields across the curve.

In the docket, short-term Bill Auctions are due in the first turn seconded by the NAHB Housing Market Index.

What to look for around USD

The dollar appears reluctant to correct lower and maintains the trade in the upper end of the range near the 110.00 zone so far on Monday.

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

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

Key events in the US this week: NAHB Index (Monday) – Building Permits, Housing Starts (Tuesday) – MBA Mortgage Applications, Existing Home Sales, FOMC Interest Rate decision, Powell press conference (Wednesday) – Initial Claims, CB Leading Index (Thursday) – Flash Manufacturing/Services PMIs, Powell speech (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is advancing 0.39% at 110.07 and a break above 110.26 (weekly high September 16) would expose 110.78 (2022 high September 7) and then 111.90 (weekly high September 6 2002). On the other hand, the next support emerges at 107.68 (monthly low September 13) followed by 107.58 (weekly low August 26) and finally 105.82 (100-day SMA).

Norges Bank (NB) hiked its key rate by another 50 bps to 1.75% in August. At Thursday's meeting, the central bank will have to raise its rate path significantly to propel the krone, economists at Commerzbank report.

NB to refer to the downside risks for the economy

“The market is pricing in 50 bps. That means Norges Bank would have to raise its rate path quite considerably and deliver a hawkish statement to support NOK additionally.” 

“The recent regional business survey illustrated that the risks for growth have risen. Moreover, inflation might begin to peak soon. So it is not certain that NB will be much more restrictive than it was before. I fear it is more likely to refer to the downside risks for the economy, and I, therefore, see little upside potential for NOK.”

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, USD/JPY still faces the continuation of the side-lined mood within the 141.00-145.00 range.

Key Quotes

24-hour view: “We highlighted last Friday that ‘the price actions appear to be part of a consolidation’ and we expected USD to ‘trade sideways within a range of 142.60/143.70’. Even though our view for sideway-trading was not wrong, USD traded in a narrower range than expected (142.82/1.43.68). The underlying tone has weakened and the bias for USD today is tilted to the downside. However, any weakness is likely limited to a test of 142.20 (minor support is at 142.50). Resistance is at 143.30 followed by 143.60.”

Next 1-3 weeks: “Our latest narrative from last Thursday (15 Sep, spot at 143.10) still stands. As highlighted, USD does not appear to be ready to move above 145.00 in a sustained manner. From here, USD is likely to trade between 141.00 and 145.00 for a period of time.”

Considering preliminary readings from CME Group for natural gas futures markets, open interest dropped for the second session in a row on Friday, this time by around 8.7K contracts. In the same line, volume went down for the second consecutive session, now by around 34.7K contracts.

Natural Gas faces solid support near $7.50

Friday’s strong decline in natural gas prices was amidst dwindling open interest and volume, hinting at the likelihood that the continuation of the downtrend appears unlikely at least in the very near term. The commodity, in the meantime, remains well supported by the $7.50 region per MMBtu.

• USD/CAD continues gaining traction on Monday and climbs to its highest level since November 2020.
• Bearish crude oil prices undermine the loonie and offer some support amid a modest USD strength.
• Bulls might turn cautious as the focus shifts to the highly-anticipated FOMC decision on Wednesday.

The USD/CAD pair builds on last week's bullish breakout momentum through the 1.3210-1.3220 resistance zone and gains some follow-through traction on Monday. The momentum lifts spot prices further beyond the 1.3300 mark, to the highest level since November 2020 during the early European session and is sponsored by a combination of factors.

Concerns that a deeper global economic downturn and China's zero-covid policy will dent fuel demand drag crude oil prices to over a one-week low. This, in turn, undermines the commodity-linked loonie and acts as a tailwind for the USD/CAD pair. Apart from this, the emergence of fresh US dollar buying, supported by hawkish Fed expectations, provides an additional lift to the major and remains supportive of the ongoing positive move.

The incoming US macro data, including the stronger US CPI report for August, suggested that the Fed will tighten its monetary policy at a faster pace. In fact, the markets have fully priced in at least a 75 bps rate increase and a smaller chance of a full 100 bps hike at this week's FOMC meeting. This remains supportive of elevated US Treasury bond yields, which, along with the risk-off mood, is seen benefitting the safe-haven buck.

The market sentiment remains fragile amid worries that the rapid rise in borrowing costs will lead to a deeper global economic downturn. Adding to this, the deteriorating US-China relationship tempers investors' appetite for perceived riskier assets, which is evident from a generally weaker tone around the equity markets. In the latest development, US President Joe Biden said the US would defend Taiwan in the event of an attack by China.

The fundamental backdrop favours the USD bulls and suggests that the path of least resistance for the USD/CAD pair is to the upside. Even from a technical perspective, acceptance above the 1.3300 mark supports prospects for a further appreciating move. That said, traders might refrain from placing aggressive bets amid absent relevant market-moving economic data and ahead of the highly-anticipated FOMC policy decision on Wednesday.

Technical levels to watch

The Riksbank is set to expected to announce a 75 basis points rate hike on Tuesday. In order to provide support for the krona, the krona will have to increase its rate path, economists at Commerbznka report.

A 100 bps move is not completely ruled out

“A rate step by 75 bps to 1.50% has been priced in, so Riksbank will have to raise its rate path significantly to sound restrictive and to provide upside potential to SEK short-term.” 

“I don't want to completely rule out a 100 bps move, but I am skeptical. In this case, however, the krona would see a significant push to the upside.”

See – Riksbank Preview: Forecasts from six major banks, risks of a 100 bps hike are back on the table

Due to the many central bank meetings, once again the key question this week is: who is doing most? In the opinion of economists at Commerbznka, it is totally clear who is going to do the least or take the most insignificant action, the Bank of Japan (BoJ). Thus, USD/JPY is set to test the 150 level.

Yen to be the weakest currency this week

“The BoJ will continue to stick to its expansionary monetary policy and not send out any signals pointing towards normalisation. On the contrary, the prospect of weaker growth for the global economy and the fact that the inflation rates might possibly have exceeded their peaks over the coming months might confirm the BoJ in its approach. That is also why I see the yen to be the weakest currency this week.”

“I can imagine very well that USD/JPY will be aiming for the 150 mark over the course of the week, above all if the Fed were to remain extremely restrictive again.”

The Riksbank is set to announce its Interest Rate Decision on Tuesday, September 20 and as we get closer to the release time, here are the expectations forecast by the economists and researchers of six major banks for the upcoming central bank's meeting. 

Riksbank is expected to continue the tightening cycle with a 75 bps hike to 1.50%. Nonetheless, an even bigger increase could be on the cards, with some analysts highlighting the chance of a full point rise.

Credit Suisse

“We see rising risks of the Riksbank hiking 100 bps.”

Danske Bank

“We expect the Riksbank to deliver 75 bps although 100 bps shouldn't be ruled out.”

Commerzbank

“Riksbank will hike its key rate by 75 bps to then 1.50% while at the same time adjusting the rate path to the upside. The market is also pricing in 75 bps so the effect on SEK is likely to be limited, Riksbank will have to raise its rate path significantly to sound restrictive and to provide upside potential to SEK short-term. I don't want to completely rule out a 100 bps move, but I am skeptical. In this case, however, the krona would see a significant push to the upside.”

Swedbank

“We maintain our call of 2 consecutive 75 bps rate hikes in the autumn followed by a 25 bps hike in February. If anything, risks appear now to be more balanced between more (100 bps) and less hikes (50 bps) in the upcoming meeting. At the September meeting, we also expect the Riksbank to decide on further reductions in asset purchases. We expect them to halve the asset purchases in the fourth quarter, to SEK 4.625 billion in total.”

TDS

“We now see the policy rate ending the year at 2.25%, a 25 bps increase from our previous call. The Riksbank has two options to get there: to hike by 75 bps two meetings in a row or to follow a more front-loaded approach of 100 bps followed by a ‘milder’ 50 bps increase. While it is a close call, we think the latter of the two options is marginally more likely to materialize.”

ING

“With only two meetings left this year and facing higher-than-expected inflation and a tight jobs market, we expect the Riksbank to hike rates by at least 75 bps. We expect a repeat move in November.”

Responding to US President Joe Biden’s comments on Taiwan, China’s Foreign Ministry said on Monday that Beijing “deplores and firmly opposes this and has lodged stern representations.”

China’s Foreign Ministry added that “we reserve the right to take all necessary measures.”

American President Joe Biden said late Sunday, “US military would defend Taiwan in the event of an invasion by China.”

Market reaction

Renewed US-China tensions surrounding Taiwan are affecting the broader market sentiment amid pre-FOMC anxiety. AUD/USD is accelerating declines to near 0.6685, down 0.47% on the day, at the press time.

Economists at Scotiabank see limited scope for the loonie to rebound in the short run and ongoing upside risk for USD/CAD towards 1.3350.

CAD prone to more weakness

“A strong weekly close for the USD plus bullishly-aligned trend strength oscillators – DMI – on the intraday, daily and weekly charts suggest ongoing upside risks for the USD in the week ahead and limited potential for counter-trend USD corrections.”

“We look for USD dips to remain well supported on weakness to the low/mid-1.32s now.”

“We spot resistance – and the likely bogey for a bullish-USD response to developments next week – at 1.3350. Above there, we spot resistance at 1.3420 and 1.3650.”

• NZD/USD attracts fresh sellers on Monday and drifts back closer to its lowest level since May 2020.
• Aggressive Fed rate hike bets, the risk-off mood continues to underpin the USD and exert pressure.
• Trades, however, might refrain from placing aggressive bets ahead of the FOMC policy meeting.

The NZD/USD pair struggles to capitalize on its modest uptick and meets with a fresh supply near the 0.6000 psychological mark on Monday. The intraday downfall drags spot prices to mid-0.5900s during the early European session, back closer to the lowest level since May 2020 touched on Friday.

A combination of factors assists the US dollar to regain positive traction on the first day of a new week, which, in turn, is seen exerting pressure on the NZD/USD pair. Growing acceptance that the Fed will hike interest rates at a faster pace to tame inflation continues to act as a tailwind for the greenback. Apart from this, the prevalent risk-off environment offers additional support to the safe-haven buck and contributes to driving flows away from the risk-sensitive kiwi.

The market sentiment remains fragile amid worries that the rapid rise in borrowing costs will lead to a deeper global economic downturn. This, along with the economic headwinds stemming from fresh COVID-19 lockdowns in China and the protracted Russia-Ukraine war, has been fueling recession fears. This, in turn, tempers investors' appetite for riskier assets, which is evident from a generally weaker tone around the equity markets and benefitting traditional safe-haven assets.

The fundamental backdrop seems tilted firmly in favour of bearish traders and suggests that the path of least resistance for the NZD/USD pair is to the downside. Investors, however, might refrain from placing aggressive bets and prefer to move to the sidelines ahead of the two-day FOMC policy meeting, starting on Tuesday. The US central bank is scheduled to announce its decision on Wednesday and is universally expected to deliver at least a 75 bps interest rate increase.

The markets have also been pricing in a small chance of full 100 bps lift-off. Hence, the focus will be on the updated economic projections, the so-called dot plot and Fed Chair Jerome Powell's remarks at the post-meeting press conference. Investors will look closely look for fresh clues about a more aggressive policy tightening by the US central bank. This will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the NZD/USD pair.

Technical levels to watch

The Swiss National Bank (SNB) will deliver a 75 basis points rate hike this week, in the opinion of economists at Commerzbank. Therefore, the Swiss franc is expected to remain on a solid foot.

A 100 bps step is not excluded

“The SNB will hike by 75 bps to 0.50%. By doing that the SNB does not take any major risks as the market is pricing in this step so the effect on the franc is likely to be limited. If, however, the SNB seems surprisingly moderate in its statement as far as future rate hikes are concerned that might put downside pressure on CHF. In my view that would not be in the SNB’s interest as it also wants to intervene against a weak franc.”

“It is likely to keep the ‘restrictive door’ wide open for now, which should support the franc in principle.” 

“I do not want to exclude a 100 bps step completely as the SNB might try to rely more on frontloading to move the key rate away from zero more quickly – the SNB can always be relied upon for a surprise. A step of this magnitude would no doubt be positive for CHF.”

Here is what you need to know on Monday, September 19:

The greenback started the new week on a firm footing with the US Dollar Index (DXY) rising to the 110.00 area following Friday's retreat. The cautious market mood ahead of key central bank events helps the dollar outperform its rivals as a safe haven. US stock index futures are down between 0.4% and 0.8% while the 10-year benchmark US Treasury bond yield stays flat at around 3.45% heading into the European session. Germany's Bundesbank will release its monthly report and NAHB Housing Index will be the only data featured in the US economic docket later in the day.

On Friday, the one-year and 5-year inflation expectations components of the University of Michigan's Consumer Sentiment Survey declined from August levels, forcing the DXY to erase a small portion of its weekly gains. 

Over the weekend, US President Joe Biden said that the US military would defend Taiwan in the event of an invasion by China. This comment seems to be causing geopolitical tensions to escalate at the beginning of the new week. "We are going to get control of inflation," Biden added.

EUR/USD closed the last three days of the previous week in positive territory and managed to close above parity on Friday. The renewed dollar strength, however, dragged the pair back below that level early Monday.

GBP/USD touched a fresh multi-decade low of 1.1350 last Friday before a modest recovery. The pair was last seen trading near 1.1400. UK markets will be closed on Monday due to the Her Majesty Queen Elizabeth II’s State Funeral.

USD/JPY reclaimed 143.00 early Monday and was last seen edging higher toward 143.50. The Bank of Japan is widely expected to keep its monetary policy settings unchanged later this week. 

Gold plunged to its weakest level since April 2020 on Friday at $1,653 on Monday but ended up closing the day in positive territory amid profit taking ahead of the weekend. XAU/USD, however, failed to build on Friday's gains and was last seen losing 0.5% on the day below $1,670.

Bitcoin lost more than 7% last week and came under heavy bearish pressure early Monday. BTC/USD was last seen trading at its lowest level since December 2020 below $18,500, down nearly 7% on a daily basis. Ethereum is trading at fresh two-month lows below $1,300 with a daily loss of nearly 3%. 

• WTI takes offers to refresh intraday low, justifies bearish moving average cross and support break.
• Monthly low lures sellers, recovery needs validation from $90.00.

WTI crude oil prices stand on slippery ground near $84.20, refreshing intraday low heading into Monday’s European session.

The black gold’s latest weakness could be linked to a bearish signal flashed by the 50-HMA and the 200-HMA cross, as well as the downside break of a one-week-old ascending trend line.

Given the bearish MACD signals supporting the aforementioned signals to the south, the quote is likely to refresh the monthly low, also the lowest since February, while challenging the $81.00 threshold.

Following that, the $80.00 round figure could act as the last defense of the bears before highlighting the July 2021 peak near $76.40.

Meanwhile, recovery moves need to stay beyond the 200-HMA hurdle surrounding $85.60, a break of which could quickly propel the quote towards the previous weekly top surrounding $89.65.

Also acting as an upside filter is the $90.00 psychological magnet as well as the 61.8% Fibonacci retracement of the August 30 to September 08 downturn, around $91.10.

Overall, crude oil prices are on the way to refreshing the multi-month low marked on September 08.

WTI: Hourly chart

Trend: Further weakness expected

NZD/USD remains below 0.60. Economists at ANZ Bank expect the kiwi to remain under pressure as the Federal Reserve is set to put Fed Funds rate above the RBNZ’s OCR.

Technical levels of 0.60 and 0.5940 can be quickly overcome by macroeconomic events

“The kiwi remains below the psychological 0.60 level. Support at 0.5940 (the 76.4% Fibo of the 2020/21 rally) has held so far in a textbook fashion, but these technical levels (on both sides of the current price) can be quickly overcome by macroeconomic events, and this week brings the September Fed meeting. 

“It’s a light data week locally, and that makes the Fed the singular focus, and importantly, either 75 or 100 bps will put the Fed Funds rate above the RBNZ’s OCR; that’s the NZD’s challenge.”

“Support 0.5825/0.5915/0.0.5940 Resistance 0.6160/0.6400.”

The Fed rate decision on Wednesday is being watched very carefully. In the opinion of economists at Commerzbank, the US dollar is set to strengthen if the expected peak in rates is increased. 

Where do board members expect rates to peak?

“The market is still indecisive as to whether the Fed will deliver 75 bps or 100 bps, but what is clear is that the Fed projections of June for the key rate are definitely too low.” 

“The big question is where do board members expect rates to peak? A significant increase in the projections would support USD, otherwise, the greenback will benefit only moderately from the rate decision.”

The EU Commission is really tightening the thumbscrews, threatening Hungary to withhold funds. Subsequently, economists at Commerzbank expect the EUR/HUF pair to race higher.

Risk premium on HUF

“The fact that the EU is getting serious should make the market realize that the risk is real and that Hungary may have to forgo substantial sums. However, since the Hungarian government has already shown its will for agreement, the risk premium on the HUF may be somewhat lower.”

“The process poses downside risks for the HUF as long as it is not clear what the EU Commission's final decision will be. Therefore, EUR/HUF is likely to trend higher.”

Gold price has kicked off the week on a wrong footing this Monday, having faced rejection at $1,680 on its road to recovery. In the view of FXStreet’s Dhwani Mehta, XAU/USD could retest $1,650 support.

The downside bias remains well in place

“The immediate support is seen at the previous day’s low of $1,654, below which sellers could aim for the $1,650 psychological level. Further down, the falling trendline support at $1,629 will be challenged on the way to the pattern target measured at $1,574.”

“On the flip side, the recovery needs to find a strong foothold above the $1,680 recent highs. The next relevant upside barrier is seen at $1,700. The bearish 21-Daily Moving Average (DMA) at $1,715 could lure buyers should the renewed upside gain traction.” 

FX option expiries for Sept 19 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9900 926m
• 0.9950 301m
• 1.0000 673m
• 1.0015 308m

- GBP/USD: GBP amounts        

• 1.1620 487m

- USD/JPY: USD amounts                     

• 142.30 365m

- USD/CHF: USD amounts        

• 0.9545 575m

- AUD/USD: AUD amounts  

• 0.6700 332m

On Thursday the Bank of England (BoE) will decide on its key rate. But in the view of economists at Commerbznkak, sterling is set to remain under pressure.

BoE to struggle to get inflation under control

“The FX market reacted sensitively to the publication of the retail sales on Friday morning and sterling came under downside pressure. That is likely to reflect market concerns that the BoE will not get inflation under control that quickly. Concerns about that are likely to continue ahead of the BoE meeting, putting pressure on sterling.”

“It remains to be seen whether the BoE will succeed in providing support for sterling with the help of a courageous rate hike and hawkish comments. I have to admit that I find that difficult to believe at the moment.”

• USD/TRY grinds higher amid a sluggish start to the key week.
• Inflation woes, CBRT inaction contrasts with firmer US data, hawkish Fed bets to keep buyers hopeful.
• Light calendar, off in Japan/UK restrict intraday moves.

USD/TRY picks up bids to reverse Friday’s corrective pullback around 18.28 heading into Monday’s European session. In doing so, the Turkish lira (TRY) justifies the broad US dollar strength ahead of Wednesday’s Federal Open Market Committee (FOMC). Also keeping the pair buyers hopeful are concerns surrounding the Central Bank of the Republic of Türkiye (CBRT).

Firmer US data and the Fed’s readiness to tame inflation underpins the hawkish bias of the markets towards the central bank’s next move, which in turn underpin the US dollar’s strength.

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 d 82% by the press time while the market’s expectations of a full one percentage increase in the Fed rate rose to 18%.

On the contrary, the CBRT remains intact despite the record high inflation numbers and hence keeps the USD/TRY bulls hopeful.

It should be noted that the headlines surrounding China and Ukraine sour the sentiment amid off in the UK and Japan. The same helps the US Dollar Index (DXY) to reverse Friday’s pullback.

That said, US President Biden 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. On the same line are the covid updates from China as it unlocks Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to favor the pair buyers ahead of the key monetary policy announcements. On the other hand, Ukrainian Nuclear Energy Coporation recently mentioned, per Al-Jazeera news, “Russian attack caused damage to power supply lines at the Pevdinokrainsk plant.”

Amid these plays, the S&P 500 Futures print mild losses while tracking Wall Street’s Friday close. It should be noted that the off in Japan restricts the bond moves in Asia but the yields are sturdy near the multi-day high amid recession fears and hawkish Fed expectations.

Moving on, the expectations of higher rates from the Fed contrasts with the likely inaction by the CBRT to keep USD/TRY bulls hopeful.

Technical analysis

Higher high formation joins the USD/TRY pair’s successful trading above the 10-DMA immediate support, around 18.25 by the press time, keeping buyers hopeful.

• Gold prices are declining to recapture their two-year low at $1,654.20 amid soaring hawkish Fed bets.
• The Fed is expected to deliver a surprise announcement regarding the interest rates.
• Price pressures have not responded effectively to the current pace of hiking interest rates.

Gold price (XAU/USD) has witnessed a vertical fall after failing to overstep the critical resistance of $1,680.00 in the Asian session. The precious metal is eyeing more losses as an intraday inventory distribution is indicating the resumption of a downside journey ahead. The yellow metal is expected to find a cushion around a two-year low at $1,654.20.

The gold prices are facing severe pressure from the market participants as the US dollar index (DXY) is gearing up for a fresh rally ahead. As per the consensus, the Federal Reserve (Fed) will announce a third consecutive rate hike by 75 basis points (bps). However, investors should be prepared for an upside surprise as the price pressures have not responded effectively to the current pace of hiking interest rates.

A survey from Financial Times dictates that the interest rates will peak around 4-5% and will remain steady beyond 2023. It further cited that the inflation chaos will take sufficient time to get fixed and a series of slowdowns in the inflationary pressures will only warrant adaptation of a ‘neutral’ approach.

Gold technical analysis

On an hourly scale, gold prices are declining towards potential support at $1,654.20, which is a two-year low, recorded last week. Declining 20-and 50-period Exponential Moving Averages (EMAs) at $1,670.50 and $1,674.74 adds to the downside filters. Also, the Relative Strength Index (RSI) (14) is on the verge of slipping into the bearish range of 20.00-40.00, which will trigger a bearish momentum.

Gold hourly scale

• GBP/JPY pauses four-day downtrend at a fortnight low.
• Impending bearish MACD signals, downbeat RSI keeps sellers hopeful.
• A convergence of 21-DMA and 50-DMA precedes 100-DMA to restrict immediate downside.

GBP/JPY remains defensive around 163.30, holding lower ground near the two-week bottom heading into Monday’s European session. In doing so, the cross-currency pair jostles with multiple key Daily Moving Averages (DMAs) after declining for the last four consecutive days.

That said, the 21-DMA and the 50-DMA confluence near 163.30-25 appears to be the immediate support for the GBP/JPY pair ahead of the 100-DMA support near 163.00.

If at all the quote declines below 163.00, the 50% Fibonacci retracement level of May-June upside, near 162.10, precedes a four-month-old support line, near 161.60, to challenge the quote’s further declines.

In a case where the GBP/JPY prices break the 161.60 support, the odds of witnessing a south-run towards the 61.8% Fibonacci retracement level near 160.50 can’t be ruled out.

Alternatively, the 164.00 threshold precedes the tops marked in July and September, respectively near 166.30 and 167.35, which could challenge GBP/JPY buyers.

Should the cross-currency pair roses past 167.35, the yearly top marked in June around 168.75 and the 170.00 round figure will be in the spotlight.

Overall, GBP/JPY remains on the bear’s radar despite the latest inaction.

GBP/JPY: Daily chart

Trend: Further downside expected

Bulgarian Minister said in an interview on Monday that the Russian giant, Gazprom, is ready to discuss gas supply proposals.

The minister said that Bulgaria will launch gas tenders this week.

Gold broke below $1,700 and lost more than 2% on a weekly basis. As FXStreet’s Eren Sengenzer notes, gold’s technical outlook shows that the bearish bias stays.  

Daily close above $1,700 could open the door for an extended recovery 

“Gold touched the lower limit of the descending regression channel coming from March on Friday and the Relative Strength Index (RSI) indicator on the daily chart rebounded from 50, suggesting gold is in a correction phase while staying bearish.”

“On the upside, $1,680 (mid-point of the descending channel, former support) aligns as the next hurdle ahead of $1,700 (psychological level, static level). A daily close above the latter could attract additional buyers and open the door for an extended recovery toward the upper end of the regression channel at $1,720, where the 20-day SMA is also located.”

“Interim support is located at $1,665 (static level) ahead of $1,654 (September 16 low) and $1,640 (static level from April 2020).”

• EUR/JPY has continued its sideways movement around 143.00 as the spotlight has shifted to the BOJ policy.
• Depreciating yen will force the BOJ to adopt a neutral approach toward the monetary policy.
• Eurozone’s Consumer Confidence is seen lower at -26 vs. -24.9 reported earlier.

The EUR/JPY pair is displaying back-and-forth moves in a narrow range of 143.00-143.26 in the early European session. The asset has turned sideways as investors are awaiting the release of the interest rate decision by the Bank of Japan (BOJ), which will release on Thursday.

The depreciating yen is becoming a nightmare for the Japanese economy, the BOJ’s officials are preparing for an intervention in the Fx moves in seldom without discussing with the remaining G-7 central banks. Japanese officials believe that the current yen position doesn’t justify its fundamentals.

As BOJ is worried about the depreciating yen, the central bank is expected to shift its stance initially in its scheduled monetary policy on Thursday. BOJ Governor Haruhiko Kuroda will restrict himself from announcing any stimulus package and will end its prolonged ultra-loose monetary policy. A neutral approach is expected to be followed as subdued growth prospects and lower inflation rates do not favor an aggressive approach.

Before the mega event, the release of Japan’s National Consumer Price Index (CPI) will be of utmost importance. The headline CPI is seen to stabilize at 2.6% while the core CPI that excludes oil and food bills will accelerate significantly to  1.7%, 50 basis points (bps) higher than the prior release.

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.

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang note the downside pressure around AUD/USD remains unchanged in the very near term.

Key Quotes

24-hour view: “Last Friday, we indicated that ‘downward momentum has improved, albeit not by much’ and we held the view that ‘there is room for AUD to drop below 0.6680 but the next support at 0.6640 is unlikely to come under threat’. Our view turned out to be correct as AUD dropped to 0.6670 before rebounding quickly. The rebound amidst oversold conditions suggests AUD is unlikely to weaken further. For today, AUD is more likely to range-trade, expected to be between 0.6680 and 0.6750.”

Next 1-3 weeks: “In our latest narrative from last Friday (16 Sep, spot at 0.6700), we highlighted that ‘downward momentum is improving quickly and a break of 0.6680 would not be surprising and would shift the focus to 0.6640’. AUD subsequently took out 0.6680, dropped to 0.6670 before rebounding to close higher by +0.31%. While we continue to expect AUD to weaken, oversold shorter-term conditions could lead to a couple of days of consolidation first. Overall, only a breach of 0.6770 (no change in ‘strong resistance’ level from last Friday) would indicate that AUD is unlikely to weaken further.”

CME Group’s flash data for crude oil futures markets noted traders added just 613 contracts to their open interest positions on Friday, reversing two consecutive daily drops. Volume, instead, shrank for the second session in a row, this time by around 123.7K contracts.

WTI: A drop to $81.21 is not ruled out

Prices of the WTI charted an inconclusive session at the end of last week amidst a small uptick in open interest and shrinking volume. That said, extra range bound appears favoured in the very near term, although a potential drop to the multi-month lows near the $81.00 mark per barrel (September 8) should not be ruled out.

• AUD/USD grinds lower while fading the previous day’s bounce off two-year low.
• Fears of Sino-American tussles, China’s economic conditions keep bears hopeful.
• Off in Japan and the UK restrict immediate moves amid light calendar, PBOC RRR cut gained a little attention.
• RBA Minutes, Bullock’s speech and Aussie PMIs can entertain traders but nothing more important than the FOMC.

AUD/USD retreats towards the 28-month low marked the previous day, holding lower ground near the 0.6700 threshold ahead of Monday’s European session. In doing so, the Aussie pair justifies the downbeat sentiment amid a sluggish session.

While tracing the clues, headlines surrounding Australia’s biggest customer China and fears of the US Federal Reserve’s (Fed) aggression gain major attention. It should be noted that the mixed comments from Reserve Bank of Australia official Jonathan Kearns also seemed to have exerted downside pressure on the risk-barometer pair.

Also read:

Elsewhere, comments from China’s State Planner, National Development and Reform Commission (NDRC), act as an extra negative catalyst for the AUD/USD prices. “Foundation of domestic economic recovery is still weak despite positive changes in main economic indicators,” said China’s NDRC.

It should be noted that the People’s Bank of China (PBOC) cuts the 14-day reverse repo rate by 10 basis points (bps) to 2.15%. “With no reverse repos maturing on Monday, China central bank injects 12 billion yuan on the day,” per Reuters. The same might have signaled that the dragon nation isn’t in the recovery mode and needs more rate cuts than the rate hikes, which in turn could have favored the Aussie pair sellers.

Elsewhere, US President Biden 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. On the same line are the covid updates from China as it unlocks Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to weigh on the pair price ahead of the key monetary policy announcements.

While portraying the mood, the S&P 500 Futures print mild losses while tracking Wall Street’s Friday close. It should be noted that the off in Japan restricts the bond moves in Asia but the yields are sturdy near the multi-day high amid recession fears and hawkish Fed expectations.

It should be noted that the odds of the Fed’s 75 basis points rate hike (bps) rose to 82% while the market’s expectations of a full one percentage increase in the Fed rate lifted to 18% at the latest.

Looking forward, a light calendar and off in the UK may restrict AUD/USD moves. However, the risk-aversion and the pre-Fed anxiety could keep the pair on the back foot. Also important are the RBA Minutes, comments from RBA policymaker Guy Bullock and preliminary readings of September’s Aussie PMIs.

Technical analysis

AUD/USD bears await a daily closing below the two-month-old support line, close to 0.6700 by the press time, to refresh the multi-month low.

The Bank of Japan (BOJ) is likely to call an end to its special measures to facilitate the financing of smaller firms at its Sept. 21-22 policy meeting, MNI said in its preview ahead of the central bank’s decision on Thursday.

Key quotes

“BOJ will stand pat on monetary policy in the face of continuing economic weakness.”

“While officials are monitoring rising inflationary pressures due to higher food prices and while a slide in the yen to a 24-year low against the dollar could potentially raise political pressure on the Bank to act, the BOJ's board will likely maintain an easing bias given that the output gap is in negative territory. “

“Fears over downside risks to the economy could even prompt the bank to tweak guidance for "short- and long-term policy interest rates to remain at present or lower levels."

• Asian stocks are displaying a mixed performance as the focus shifts to interest rate policies.
• Bumper retail sales have strengthened the Chinese equities.
• Dovish Japan will conclude sooner and a neutral approach will be triggered.

Markets in the Asian domain are displaying a mixed performance ahead of a volatile week, which will be full of surprises led by interest rate announcements from various central banks. But the risk tone has turned dirty as US President Joe Biden says the US military would defend Taiwan in the event of an invasion by China.

At the press time, Japan’s Nikkei225 tumbled 1.11%, Hang Seng surrendered 1.07% while China A50 jumped 0.88%.

The week is going to bewilder the market participants as the People’s Bank of China (PBOC), Federal Reserve (Fed), Bank of Japan (BOJ), Bank of England (BOE), and Swiss National Bank (SNB) will announce their interest rate decisions.

Chinese equities have defended the downside and are advancing after upbeat Retail Sales data.  The economic data has landed at 5.4%, higher than the expectations of 3.5% and the prior release of 2.7%. A release of upbeat Retail Sales data in times when the inflation rate is dropping in the Chinese economy indicates that the retail demand has remained extremely robust. The pattern is expected to continue further as the respective administration has already announced stimulus packages to spurt the growth rate.

Japanese markets are facing the heat ahead of BOJ policy. The central bank is expected to shift its prolonged ultra-dovish monetary policy stance to neutral to support the depreciating yen. The highlight of a depreciating yen has already created havoc for investors investing in Japanese equities. Companies that are highly dependent on global inputs are forced to make higher payouts.

On the oil front, oil prices have slipped below the critical support of $85.00. The black gold is expected to witness severe heat amid a bleak growth outlook globally. As world central banks are gearing up for a fresh rate hike cycle, oil prices have started moving towards the south.

GBP/USD could still drop further in the next weeks, suggest FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “While we expected GBP to weaken last Friday, we highlighted that ‘it is left to be seen if GBP can break the solid support at 1.1400 today’. However, GBP easily took out 1.1400 as it plummeted to 1.1351 before bouncing back to end the day at 1.1422 (-0.44%). The rebound amidst oversold conditions and waning downward momentum suggests GBP is unlikely to weaken further. For today, GBP is more likely to consolidate within a range of 1.1380/1.1480.”

Next 1-3 weeks: “We turned negative on GBP last Wednesday (14 Sep, spot at 1.1510). As GBP declined, in our latest narrative from last Friday, we indicated that the risk of a break of the major support 1.1400 has increased. We added, “a break of the solid support could potentially trigger a rapid sell-off as there is no significant support until 1.1300”. GBP subsequently took out 1.1400, plummeted to 1.1351 before rebounding. There is no change in our view for now even though oversold shorter-term conditions could lead to 1 to 2 days of consolidation first. All in, the downside risk is intact as long as GBP does not move above 1.1540 (‘strong resistance’ level was at 1.1590 last Friday).”

• USD/CHF picks up bids inside short-term bearish chart formation.
• 200-HMA breakout favor buyers but RSI conditions, rising wedge’s upper line challenge further upside.
• Weekly horizontal support could test bears before giving them control.

USD/CHF rises to a one-week high of around 0.9660 heading into Monday’s European session. In doing so, the Swiss currency (CHF) pair picks up bids inside a one-week-old rising wedge bearish formation.

That said, the 200-HMA breakout keeps the buyers hopeful unless the quote stays beyond 0.9645. However, the stated wedge’s upper line of 0.9665 could challenge the pair’s further upside.

Should USD/CHF bulls keep reins past 0.9665, the 0.9700 threshold and the 61.8% Fibonacci retracement of September 07-13 downside, near 0.9720, could lure the buyers.

It’s worth noting that the buyer’s dominance beyond 0.9720 will enable them to challenge the monthly top surrounding 0.9870.

On the flip side, the 200-HMA level near 0.9645 restricts immediate downside ahead of the stated wedge’s support line, close to 0.9620.

Also acting as a downside filter is the one-week-old horizontal support zone near 0.9560-45.

If at all the USD/CHF bears keep reins past 0.9545, the odds of retesting the 200-DMA level on the daily chart, around 0.9485 by the press time, will be a crucial support to watch.

USD/CHF: Hourly chart

Trend: Limited upside expected

Open interest in gold futures markets reversed two consecutive daily builds and shrank by around 5.1K contracts on Friday according to advanced prints from CME Group. Volume followed suit and dropped by around 55.8K contracts.

Gold could revisit the $1,650 region

Friday’s bullish attempt in gold prices was on the back of shrinking open interest and volume, leaving the door open to the resumption of the downtrend in the very near term. That said, the next target of note emerges at the recent 2022 lows near the $1,650 mark per ounce troy.

• EUR/USD has slipped below the 1.0000 parity on soaring hawkish Fed bets.
• The DXY has advanced despite Goldman Sachs having posted a bleak growth outlook.
• Further rate hike announcements by the ECB will cause more pain to customers.

The EUR/USD pair has slipped below the magical figure of 1.0000 as the US dollar index (DXY) has advanced amid soaring bets on a bumpers rate hike by the Federal Reserve (Fed). The asset has declined sharply after failing to overstep Friday’s high at 1.0036. The major is expected to remain on the tenterhooks ahead.

DXY’s investors have ignored the trimmed growth forecasts for the US economy, cited by the economists at Goldman Sachs. As per the forecasts, the US economy is expected to deliver a growth of 1.1% in its Gross Domestic Product (GDP) for 2023 vs. the prior consensus of 1.5%. The investment firm has slashed the growth targets due to further tightening of the monetary policy, which will squeeze liquidity from the economy dramatically.

Meanwhile, the market risk profile has turned sour as US President Joe Biden says the US military would defend Taiwan in the event of an invasion by China.

The Fed is most likely announcing a third consecutive rate hike by 75 basis points (bps). The extent of the rate could be stretched further amid a vulnerable response by the inflation rate to the current pace of hiking policy rates.

On the Eurozone front, the shared currency bulls have weakened as European Central Bank (ECB) policymakers have displayed a gloomy growth picture. 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,” He also cited that higher interest rates will accelerate pain for consumers and will squeeze demand further.

In opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, a sustained move sub-0.9900 in EUR/USD seems not favoured for the time being.

Key Quotes

24-hour view: “We expected EUR to ‘trade sideways within a range of 0.9965/1.0040’ last Friday. EUR subsequently dipped briefly to 0.9943, rebounded to 1.0036 before closing at 1.0015 (+0.16%). The underlying tone has improved slightly and we see room for EUR to edge higher today. However, any advance is unlikely to challenge the major resistance at 1.0070 (there is another resistance at 1.0050). Support can be found at 0.9995 and 0.9970.”

Next 1-3 weeks: “Our latest narrative from last Wednesday (14 Sep, spot at 0.9980) still stands. As highlighted, EUR is under pressure but at this stage, a sustained decline below the major support at 0.9900 appears unlikely. On the upside, a breach of 1.0070 (no change in ‘strong resistance’ level from last Friday) would indicate that the current downward pressure has eased.”

• Copper struggles to extend Friday’s rebound amid off in Japan and the UK.
• PBOC announces RRR cut, Dalian and Chengdu witness unlock but Taiwan concerns amplify China-linked fears.
• Oversupply fears, hawkish Fed bets exert downside pressure on the metal prices.

Copper price remains sidelined amid a sluggish start to the key week as traders struggle to justify mixed catalysts during the holidays in Japan and the UK.

That said, the three-month copper on the London Metal Exchange (LME) rose 0.5% to $7,804 a tonne by 03:25 GMT, per Reuters, whereas the most-traded October copper contract on the Shanghai Futures Exchange (SFE) advanced 1% to 62,650 yuan ($8,940.42) a tonne. On the contrary, the COMEX Futures drop 0.60% by the press time.

US President Joe Biden’s comments that he is more optimistic than I have been in a long time initially favored the red metal. The national leader also stated that they are going to get control of inflation. On the same line are the covid updates from China as it unlocks Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to weigh on the steel price ahead of the key monetary policy announcements.

Further, the People’s Bank of China (PBOC) cuts the 14-day reverse repo rate by 10 basis points (bps) to 2.15%. “With no reverse repos maturing on Monday, China central bank injects 12 billion yuan on the day,” per Reuters. The same might have signaled that the dragon nation isn’t in recovery mode and needs more rate cuts than the rate hikes, which in turn could have drowned the gold price. The reason is China’s status as one of the biggest gold consumers in the world.

Elsewhere, hawkish hopes from the Fed also weigh on the metal prices, especially amid recession fears. 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% while the market’s expectations of a full one percentage increase in the Fed rate rose to 20% at the latest.

Looking forward, headlines surrounding China may entertain copper traders but major attention will be given to the central bank actions from the US, the UK and Japan as the former two bear hawkish expectations and can drown the metal prices.

Also read: Steel price rebounds on covid updates, comments from Fitch on China

• A drop below a fresh two-year low at 1.1350 will drag the asset into unchartered territory.
• Declining 10-and 20-EMAs adds to the downside filters.
• The RSI (14) is oscillating in the bearish range of 20.00-40.00.

The GBP/USD pair is displaying a less-confident pullback after a rebound from a fresh two-year low at 1.1350, recorded last week. The cable is expected to remain in the grip of bears and will display more weakness after dropping below the critical support of 1.1350.

On a weekly scale, the asset is hovering around a two-year low at 1.1350, which will remain critical support for the pound bulls. The conclusion of pullback former on a lower timeframe will resume the downside journey with more enthusiasm and zeal.

The 10-and 20-period Exponential Moving Averages (EMAs) at 1.1737 and 1.2027 are declining, which adds to the downside filters.

Also, the Relative Strength Index (RSI) (14) is oscillating in the bearish range of 20.00-40.00, which signals a continuation of the downside trend.

Should the asset drop below the fresh two-year low at 1.1350, greenback bulls will drag the cable towards the round-levels support of 1.1300. A slippage below the latter will drag the asset towards the 7 January 1985 low at 1.1245.

On the flip side, a break above Friday’s high at 1.1480 will send the asset towards Thursday’s high at 1.1542, followed by the round-level resistance at 1.1600.

GBP/USD weekly chart      

• USD/CAD remains firmer around the highest level since November 2020.
• Overbought RSI, 61.8% FE and upper line of the bullish channel challenge the buyers.
• July’s top restricts immediate downside, October 2020 high acts as an additional upside filter.

USD/CAD remains on the front foot around 1.3285 during Monday’s early European morning, up for the third consecutive day near the 22-month high flashed the previous day.

A successful break of July’s top, surrounding 1.3220 keeps the USD/CAD buyers hopeful. However, nearly overbought RSI (14) joined the upper line of an 11-month-old ascending trend channel and the 61.8% Fibonacci Expansion (FE) of October 2021 to August 2022 moves to challenge the pair buyers.

With this, the 1.3300-10 resistance confluence restricts the Loonie pair’s immediate upside, a break of which could direct the quote towards the upper line of an immediate bullish channel, close to 1.3370.

It’s worth noting that October 2020 peak near 1.3390 and the 1.3400 threshold also act as short-term hurdles to watch for the USD/CAD bulls.

Alternatively, a downside break of July’s peak of 1.3223 could direct the pair towards the top marked in May, surrounding 1.3080.

However, the 1.3000 psychological magnet and the aforementioned short-term channel’s support line, close to 1.2990, could restrict additional declines in the USD/CAD pair.

Overall, USD/CAD bulls have limited room to cheer but the bears also have a tough road to regaining the market’s confidence. As a result, the quote is likely to grind higher.

USD/CAD: Daily chart

Trend: Limited upside expected

• Gold price fades Friday’s corrective bounce off the lowest levels since April 2020.
• Sour sentiment joins hawkish expectations from the Fed to weigh on XAU/USD prices.
• Biden announced support for Taiwan in case of China’s attack, PBOC cuts RRR.
• Risk appetite remains sluggish amid off in Japan and the UK, central banks in focus.

Gold price (XAU/USD) holds lower ground near the intraday bottom surrounding $1,670 during early Monday morning in Europe. In doing so, the metal prices bear the burden of the firmer US dollar amid a sluggish session due to the holidays in Japan and the UK. The reason could be linked to the hawkish Fed bets and headlines surrounding China.

US Dollar Index (DXY) snaps a two-day downtrend while printing 0.18% intraday gains around 109.85 by the press time. The greenback’s gauge versus the six major currencies recently cheered upbeat consumer sentiment data from the University of Michigan for September, as well as the market’s optimistic bets on the Fed’s next move. That said, the odds of the Fed’s 75 basis points rate hike (bps) rose to 80% while the market’s expectations of a full one percentage increase in the Fed rate lift up to 20% at the latest.

Elsewhere, US President Biden 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. On the same line are the covid updates from China as it unlocks Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to weigh on the steel price ahead of the key monetary policy announcements.

Also, the People’s Bank of China (PBOC) cuts the 14-day reverse repo rate by 10 basis points (bps) to 2.15%. “With no reverse repos maturing on Monday, China central bank injects 12 billion yuan on the day,” per Reuters. The same might have signalled that the dragon nation isn’t on the recovery mode and needs more rate cuts than the rate hikes, which in turn could have drowned the gold price. The reason is China’s status as one of the biggest gold consumers in the world.

Against this backdrop, the S&P 500 Futures print mild losses while tracking Wall Street’s Friday close. It should be noted that the off in Japan restricts the bond moves in Asia but the yields are sturdy near the multi-day high amid recession fears and hawkish Fed expectations.

Moving on, a light calendar and holidays in the key markets could restrict intraday moves of the XAU/USD. However, bears are likely to keep reins amid hawkish hopes from the Fed, which in turned down could defy the bearish chart pattern and trigger the much-awaited rebound.

Also read: Gold Weekly Forecast: Can XAU/USD gain traction on a 75 bps Fed hike?

Technical analysis

Gold price remains inside a six-week-old bearish channel, holding lower grounds of late. In doing so, the XAU/USD also reverse the previous day’s upside break of the 10-SMA, around $1,668 by the press time.

Given the metal’s failure to defend the upside break of a short-term SMA inside a bearish chart formation, the gold bears are likely to keep the reins. However, the recently bullish MACD signals and nearly oversold RSI seems to restrict the short-term downside of the metal around the stated channel’s support line, close to $1,650 by the press time.

Meanwhile, the $1,700 threshold and the 100-SMA guard the quote’s immediate upside around $1,710 before challenging the bearish chart pattern’s upper line, near $1,720 by the press time.

It should be noted that the metal’s upside past $1,720 will need validation from the 200-SMA level surrounding $1,740 to recall the gold buyers.

Gold: Four-hour chart

Trend: Limited downside expected

• USD/JPY is oscillating around 143.00 as the focus shifts to Fed-BOJ monetary policies.
• The Fed could accelerate the interest rates by a full percent to cool down the red-hot inflation.
• BOJ policymakers may conclude the prolonged ultra-dovish monetary policy.

The USD/JPY pair is witnessing a topsy-turvy market structure as investors have shifted to the sidelines ahead of the monetary policies by the Federal Reserve (Fed) and the Bank of Japan (BOJ). The cross is hovering around 143.00 and a loss in upside momentum is visible, therefore, the critical support of 142.50 will remain in action.

The US dollar index (DXY) has defended the downside bias after sensing buying interest around 109.50 in the Tokyo session. Investors have started pouring funds into the DXY as odds of a rate hike by the Fed are soaring. The Fed is expected to communicate a third consecutive rate hike by 75 basis points (bps) as price pressures are needed to fix sooner.

Scrutiny of prior events indicates that the core Consumer Price Index (CPI) is not responding well to the current pace of rate hikes. Therefore, the Fed could announce more quantitative tools to fix the inflation chaos or accelerate the pace further by announcing a rate hike by 100 basis bps.

Meanwhile, the risk profile is turning sour as US President Joe Biden has warned that the US military would defend Taiwan if China strikes the latter.

On the Tokyo front, BOJ policymakers are expected to terminate the prolonged ultra-loose monetary policy in order to safeguard yen from further depreciation. A ‘neutral’ approach is expected by the BOJ policymakers and no further stimulus packages will be announced. Japan officials are already worried about the depreciating yen and are preparing to intervene in the Fx moves, therefore, a neutral move matches the expectations.

“US military would defend Taiwan in the event of an invasion by China,” American President Joe Biden said in an interview on US TV.

Additional comments

“We are going to get control of inflation.”

“I am more optimistic than I have been in a long time.”

“Ukraine is not losing the war, is making gains in certain areas.”

“US forces would defend Taiwan in the event of a Chinese invasion.”

Market reaction

AUD/USD was last seen trading at 0.6707, down 0.16% on a daily basis.

• A bullish flag formation is indicating a continuation of upside momentum.
• Overlapping 20-and 50-EMAs signals that consolidation will stay a little longer.
• A bullish momentum will trigger if the RSI (14) recaptures the bullish range of 60.00-80.00.

Silver price (XAG/USD) has sensed barricades after attempting a break above the critical hurdle of 19.60 in the Tokyo session. On a broader note, the asset has turned sideways after failing to cross the psychological resistance of $20.00.

A Bullish Flag formation on an hourly scale is supporting bulls. The formation of a Bullish Flag denotes a consolidation phase after a vertical upside move. The north-side sheer move is been recorded from September 7 low at $17.88. The consolidation phase of a Bullish Flag indicates an initiative buying structure in which the buyers initiate longs after the establishment of a bullish bias.

The 20-and 50-period Exponential Moving Averages (EMAs) at $19.38 and $19.34 respectively are tangled with each other, which signals a consolidation ahead.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range but that doesn’t resemble a bearish reversal.

A decisive break above the psychological resistance of $20.00 will drive the bright metal towards August 11 low at $20.25, followed by August 15 high at $20.87.

On the flip side, silver bulls could lose their grip if the asset drops below Friday’s low at $18.78 for a downside towards September 8 low at $18.32. A breach of the latter will drag the asset towards September low at $17.85.

Silver hourly chart

Speaking at the Australian Financial Review's  (AFR) property conference on Monday, Reserve Bank of Australia's (RBA) head of domestic markets Jonathan Kearns expressed his take on the impact of interest rate hikes on domestic housing prices.

Key quotes

“Higher mortgage repayments are offset by shrinking loan sizes as house prices start to decline.”

"Estimates suggest the net effect is that mortgage payments for new buyers would be higher for about two years as a result of higher interest rates."

"But after that, the declines in housing prices and mortgage size begin to dominate."

"Many factors other than interest rates also influence housing prices.”

"For example, the demand for housing would be greater with stronger household income growth, increased population through immigration, or a preference for fewer people living in each household."

Market reaction

AUD/USD is trimming losses on the above comments, trading at 0.6707, still down 0.16% on the day.

The National Development and Reform Commission (NDRC), the country’s state planner, announced on Monday that they have “approved nine fixed-asset investment projects worth a total of 80.2 bln yuan in August.”

Additional takeaways

Market reaction

Despite PBOC easing action and China’s investment boost, AUD/USD fails to capitalize, losing 0.24% on the day to trade at 0.6700, as of writing.

Moody’s Investors Service is out with their expectations on the upcoming US Federal Reserve (Fed) interest rate decision, in the wake of a 75 bps rate hike fully priced in for September.

Key quotes

“The August US consumer price index changes the calculus for the Federal Reserve, which is now likely to hike the target range for the fed funds rate by 75 basis points.”

“Financial markets are fully pricing in a 75-basis point rate hike this month and put the odds of a 100-basis point hike at 25%.”

“It’s fairly clear that the Fed is going to front-load rate hikes more than in our September baseline and the terminal rate, or the peak for the fed funds rate this cycle, will also be higher.”

“The upcoming baseline forecast is going to factor in a 50-basis point rate hike in November (previously 25 basis points) and maintain a 25-basis point hike in December. This would imply that the target range for the fed funds rate will likely be near 4% to 4.25%.”

“The Fed’s track record in tightening monetary policy without causing a recession is not great.”

• EUR/USD takes offers to refresh intraday low, down for the first time in four.
• US dollar cheers hawkish Fed bets, sluggish session and mixed comments from US President Biden to remain firmer.
• ECB policymakers favor further rate hikes but suggest economic pain ahead.
• Second-tier headlines surrounding China entertain traders amid an off in Japan and the UK.

EUR/USD remains on the back foot around 0.9995 while refreshing the intraday low, as well as posting the first daily loss in four, during early Monday. The major currency pair’s latest weakness could be linked to the US dollar’s firmer moves ahead of the key monetary policy meetings, especially amid hawkish Fed bets and a light calendar. However, holidays in Japan and the UK join a light calendar for the day to restrict immediate moves.

Among the negatives are the firmer US data and the CME’s FedWatch Tool which suggests more odds of the hawkish Fed action. On the same line could be the People’s Bank of China’s (PBOC) latest reverse repo cut of 10 basis points (bps).

At home, “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, 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.

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%.

Recently, US President Biden 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. On the same line are the covid updates from China as it unlocks Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to weigh on the steel price ahead of the key monetary policy announcements.

Amid these plays, the S&P 500 Futures print mild losses while tracking Wall Street’s Friday close. It should be noted that the off in Japan restricts the bond moves in Asia but the yields are sturdy near the multi-day high amid recession fears and hawkish Fed expectations.

Looking forward, the absence of Japan and the UK will join the light calendar to restrict intraday moves of the EUR/USD pair. However, the bears are likely to retake control as the Fed hawks seem to have more strength compared to their ECB counterparts. Also keeping the pair sellers hopeful is the energy crisis in the bloc. Even so, the Fed’s 0.75% rate hike is already given and priced in, which in turn highlights the economic forecasts and Fed Chairman Jerome Powell’s speech as the key catalysts to watch for fresh impulse.

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

Technical analysis

Unless declining back below 21-DMA support near 0.9990, the EUR/USD prices are likely to aim for the 50-DMA resistance near 1.0100. However, the upper line of a falling wedge bullish chart pattern, established in late June, around 1.0150, appears a strong upside hurdle.

• USD/CNH picks up bids to refresh intraday high, crosses immediate resistance line, 50-EMA hurdle.
• PBOC cuts reverse repo rate by 10 bps to 2.15%.
• Sustained bounce off 100-EMA, one-week-old horizontal support keeps buyers hopeful.
• Sellers need validation from 61.8% Fibonacci retracement to retake control.

USD/CNH reverses the previous day’s pullback from the 26-month high while renewing the intraday top near 7.0120 during Monday’s Asian session. In doing so, the offshore Chinese yuan pair respects the People’s Bank of China’s (PBOC) rate cut to cross immediate hurdles amid a sluggish session.

That said, the Chinese central bank lowers the 14-day reverse repo rate by 10 basis points (bps) to 2.15%. “With no reverse repos maturing on Monday, China central bank injects 12 billion yuan on the day,” per Reuters.

Given the immediate break of the downward sloping resistance line from Friday, now support near the 7.0000 threshold, as well as the 50-EMA, the USD/CNH prices are likely to rush towards the recently flashed multi-day top near 7.0425.

It should, however, be noted that the tops marked during June 2020 near 7.0975 will precede the 7.1000 psychological magnet to restrict the pair’s further upside.

Meanwhile, a one-week-old horizontal area and the 100-EMA, respectively near 6.9960-50 and 6.9900, could restrict short-term declines of the USD/CNH pair.

Following that, the 61.8% Fibonacci retracement level of September 12-16 moves, near 6.9600, could challenge the bears before giving them control.

USD/CNH: Hourly chart

Trend: Further upside expected

• Steel price pauses recent downside around one-week low, mildly bid of late.
• Fitch expects no further deterioration in China’s steel profitability.
• China’s Chengdu and Dalian lift covid-led lockdowns, PBOC cuts 14-day reverse repo rate.

Steel price rebound from nearly eight-day low on cautious optimism surrounding China. Also favoring the metal buyers could be the absence of Japan and the UK which allows the quote to brace for this week’s key monetary policy meetings. Furthermore, the People’s Bank of China’s (PBOC) latest action also helps the industrial metal prices to remain firmer.

That said, prices of the most active steel rebar contract on the Shanghai Futures Exchange (SFE) prints nearly 0.50% intraday gains around 3,711 offshore Chinese yuan by the press time of Monday’s Asian session.

That said, the Chinese central bank lowers the 14-day reverse repo rate by 10 basis points (bps) to 2.15%. “With no reverse repos maturing on Monday, China central bank injects 12 billion yuan on the day,” per Reuters.

On the other hand, global rating agency Fitch said, “Do not expect further deterioration in China's steel sector profitability following production cuts in response to weak demand,” per Reuters. Fitch also mentioned, “We expect production to recover from September as construction enters peak season.” It should, however, be noted that Fitch does not expect a strong recovery in steel demand, which in turn could keep grinding the metal prices lower.

Elsewhere, US President Biden 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. On the same line are the covid updates from China as it unlocks Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone.

However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to weigh on the steel price ahead of the key monetary policy announcements.

It’s worth noting that a daily off in the UK and Japan join a light calendar to restrict the market moves on Monday, which in turn challenges the metal’s corrective bounce.

• AUD/USD extends pullback from intraday high, stays near two-year low.
• PBOC cuts 14-day reverse repo rate to 2.15%.
• Ascending support line from mid-July restricts immediate downside.
• Bearish MACD signals, downbeat RSI favor sellers inside four-month-old bearish channel, 50-DMA restricts immediate recovery.

AUD/USD pulls back from its intraday high towards 0.6700, around 0.6720 by the press time, as it reacts to the People’s Bank of China’s (PBOC) recent rate cut during Monday’s Asian session.

That said, the Chinese central bank lowers the 14-day reverse repo rate by 10 basis points (bps) to 2.15%. “With no reverse repos maturing on Monday, China central bank injects 12 billion yuan on the day,” per Reuters.

Technically, the bearish MACD signals and the downbeat RSI (14), not oversold, keeps AUD/USD sellers hopeful of revisiting an upward sloping support line from mid-July, near 0.6700 by the press time.

It should, however, be noted that the Aussie pair’s downside past 0.6700 needs validation from the latest multi-month low near 0.6680 before aiming for the support line of a four-month-long bearish channel, close to 0.6565 at the latest.

On the contrary, recovery moves remain elusive until the quote crosses the 50-DMA hurdle surrounding 0.6890. However, a 12-day-long horizontal resistance and 50-SMA on the four-hour chart, near 0.6770-75, seem to restrict immediate upside.

Above all, the AUD/USD bears keep reins until the quote stays below the stated bearish channel’s resistance line, around 0.7060 by the press time.

AUD/USD: Daily chart

Trend: Further weakness expected

• GBP/JPY is juggling in a 163.12-163.34 range ahead of interest rate policies.
• Japanese and the UK markets are closed on account of Respect for Aged Day and Bank Holiday respectively.
• The BOE needs a series of declines in the inflation rate to slowdown the pace of hiking interest rates.

The GBP/JPY pair is displaying topsy-turvy moves in a narrow range of 163.12-163.34 in the Tokyo session. The asset has continued its bewildering movement of the past week. The cross has turned sideways as investors are looking to initiate a well-informed decision ahead of the outcome of the monetary policy meetings by the Bank of Japan (BOJ) and the Bank of England (BOE).

The Japanese economy is worried over the depreciating yen as it is forcing the companies to halt or scale down production capacities, which are highly dependent on global inputs. This will force the BOJ to shift to a ‘neutral’ stance and avoid injecting more liquidity into the economy. As Japanese officials believe that the current yen price is not justifying the fundamentals and eventually preparing to intervene in Fx moves, it bolsters the case of shifting towards a ‘neutral’ policy. 

It is worth noting that Japanese markets are closed on account of Respect for Aged Day and UK markets are closed due to Bank Holiday. Therefore, a lackluster performance is expected from the cross.

On the UK front, last week’s release of the inflation data would support the Bank of England (BOE) but is not sufficient to trim the expected extent of the interest rate hike. The headline UK Consumer Price Index (CPI) landed lower at 9.9% against the expectations of 10.2% despite soaring energy prices. BOE Governor Andrew Bailey is expected to announce a rate hike by 50 basis points (bps).

A one-time decline in the inflation rate is not sufficient to compel the BOE to trim the hawkish tone. A series of slowdowns in the inflation rate will be lucrative to shift the policy stance.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.9396 vs. the estimate of 6.9488.

About the fix

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

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

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

• GBP/USD reverses early Asian session gains on firmer DXY, sidelined of late.
• Market’s cautious optimism fails to impress Cable buyers amid fears of BOE’s disappointment.
• US President Biden will meet his UK counterpart on Wednesday.
• Fed, BOE both are up for 0.75% rate hike but qualitative updates will be the key to fresh impulse.

GBP/USD struggles to remain above 1.1400 as traders begin the key week comprising the monetary policy announcements from the US Federal Reserve (Fed) and the Bank of England (BOE). That said, the quote seesaws around 1.1430-25 while defending the early Asian session rebound from the lowest levels since 1985, tested the previous day.

The Cable pair’s initial recovery could be linked to the Brexit-positive headlines. However, recently mixed comments from US President Joe Biden and anxiety ahead of the key events seem to test the GBP/USD bulls.

“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.

US President Biden 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. On the same line are the covid updates from China as it unlocks Dalian a city in China’s Liaoning province while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to keep the GBP/USD bears hopeful.

It should be noted that the hawkish hopes from the Fed have recently escalated after 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%.

While the Fed hawks are likely to exert downside pressure on the GBP/USD prices, expectations that the BOE will be forced to act more bullish, due to Lizz Truss’ election as the new Prime Minister of the UK, seem to challenge the pair sellers. Also, hopes that the UK-US ties will be stronger and offer additional support to the Cable pair.  British Prime Minister Liz Truss will hold a full bilateral meeting with Joe Biden at the United Nations General Assembly on Wednesday rather than meeting the U.S. president at Downing Street on Sunday, her office said on Saturday, per Reuters.

Given the holiday in the UK and a light calendar elsewhere, GBP/USD may witness a sluggish session. However, the Fed vs. BOE play will be critical for the pair traders to watch this week. Not only the interest rate announcements, which are mostly priced in, but the economic forecasts and speeches from the respective central bank leaders are also crucial. Should Fed Chair Powell disappoint US dollar bulls and the BOE shows more optimism, the odds of the GBP/USD rebound can’t be ruled out.

Technical analysis

Although the oversold RSI conditions triggered a GBP/USD rebound from a four-month-old support line, around 1.1330 by the press time, the recovery remains elusive until the quote stays below the 21-DMA resistance level near 1.1590.

• NZD/USD bulls and bears will battle it out for ground into the Fed. 
• The bulls are currently taking on key resistance. 

As per the prior analysis, NZD/USD Price Analysis: Bulls step in and eye the 0.6000s, the price has indeed come up to the 0.6000s, but the bears put up a strong defense on the way there as the following will show. Meanwhile, the prospects from here are two-fold as the countdown to the Federal Reserve gets underway.

NZD/USD H4 chart

The price was showing signs of a bullish correction for the session ahead with 0.6000 on the radar.

NZD/USD updates

The price reached towards the 0.6000s but failed sooner and dropped heavily as illustrated and projected so.

Since then, however. the bulls have remerged leaving two possible scenarios for the forthcoming days:

If the price continues to correct higher, it will leave a more well-defined W-formation behind that may either result in a move lower or higher on a retest of the neckline, as illustrated above ad below respectively. 

• Gold prices are advancing towards $1,700.00 amid a subdued DXY on the US warning to China.
• US President Joe Biden says the US military would defend Taiwan if China strikes the latter.
• A third consecutive 75 bps rate hike is highly expected by the Fed.

Gold price (XAU/USD) has turned sideways around $1,680.00 after sensing a fragile hurdle in the Asian session. The precious metal has shifted into a mark-up phase after delivering an upside break of the consolidation formed in a range of $1,654.35-1,669.80. The yellow metal has rebounded firmly after refreshing a two-year low at $1,654.19 last week.

The gold prices are expected to remain volatile ahead of the interest rate decision by the Federal Reserve (Fed). As per the consensus, the Fed is expected to announce a third consecutive 75 basis points (bps) interest rate hike. However, doors are open for a higher rate extent as price pressures are needed to contain sooner.

Meanwhile, the US dollar index (DXY) is oscillating around the critical support of 109.50 as market veterans have slashed the US growth rates. 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.

Also, the risk profile will be at play as US President Joe Biden says the US military would defend Taiwan in the event of an invasion by China.

Gold technical analysis

Gold prices are advancing towards the demand zone placed in a narrow range of $1,692.00-1,693.00 on an hourly scale. The precious metal has crossed the 50-period Exponential Moving Average (EMA) at $1,676.45, which adds to the upside filters. Also, the Relative Strength Index (RSI) (14) is on the verge of shifting into the bullish range of 60.00-80.00.

Gold hourly chart

• USD/JPY pares intraday losses inside immediate trading range near two-decade high.
• Yields remain unchanged as Japan celebrates the Respect-for-the-Aged Day holiday on Monday.
• Mixed sentiment, light calendar also restrict intraday moves.
• Fed vs. BOJ divergence can keep buyers hopeful even as intervention talks tease short-term sellers.

USD/JPY bounces off intraday low towards regaining 143.00 even as Monday’s off in Japan restricts the yen pair’s immediate moves. That said, the quote’s latest rebound could be linked to the cautiously optimistic sentiment and the market’s preparations for this week’s monetary policy meeting of the US Federal Reserve (Fed) and the Bank of Japan (BOJ).

While portraying the mood, the S&P 500 Futures print mild gains despite the downbeat closing of the Wall Street benchmarks.

The reason could be linked to the 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. On the same line are the covid updates from China as it unlocks Dalian a city in China’s Liaoning province while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone.

However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seems to keep the USD/JPY buyers hopeful ahead of the key monetary policy announcements. It should be noted, however, that the chatters surrounding the BOJ’s intervention appeared to have stopped the bulls of late.

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%.

Given the holiday in Japan and a light calendar elsewhere, USD/JPY may witness a sluggish session. However, the Fed vs. BOJ play will be critical for the pair traders to watch this week. Not only the interest rate announcements, which in are mostly priced-in, the economic forecasts and speeches from the respective central bank leaders are also crucial. Should Fed Chair Powell disappoints US dollar bulls and the BOJ shows readiness to intervene to defend the yen, the odds of the USD/JPY downside can’t be ruled out.

Technical analysis

A short-term trading range between 145.00 and 141.50 can restrict USD/JPY moves. However, the first daily closing below the 10-DMA since mid-August favors sellers of late.

• AUD/JPY stabilizes above 96.00, more upside seems favored ahead of RBA minutes.
• The BOJ is expected to avoid a dovish commentary and will shift to a ‘neutral’ stance on interest rates.
• Japan’s National core CPI is seen higher at 1.7% vs. 1.2% on costly oil imports amid a weaker yen.

The AUD/JPY pair has faced a less-confident hurdle at 96.20 after a firmer rebound from the critical support of 95.60 in the Asian session. The cross is expected to demolish the above-mentioned hurdle sooner and will resume its upside journey above 96.50. The asset is expected to display topsy-turvy moves ahead of the interest rate decision by the Bank of Japan (BOJ), which will be announced on Thursday.

As BOJ is preparing for an intervention in the Fx moves to support the depreciating yen against the G-7 currencies, a shift in policy stance is highly expected by the market participants. BOJ’s Haruhiko Kuroda is not in a position to scale up the interest rates as the price rise index and Japan’s growth rate are not supporting the same. The economy has failed in accelerating price pressures despite a prolonged ultra-loose monetary policy. So a ‘neutral’ stance is expected and no further stimulus will be provided.

But before that, the release of Japan’s National Consumer Price Index (CPI) also holds significant importance. The headline CPI is expected to remain steady at 2.6% while the core CPI will scale higher to 1.7% against the former print of 1.2%. The depreciating yen is resulting in costly fossil fuels for Japan and eventually higher energy bills for households.

On the Aussie front, investors focusing on the release of the minutes from the Reserve Bank of Australia (RBA) of the September monetary policy meeting. This will provide a detailed version of the ideology of the RBA policymakers behind announcing a fourth consecutive 50 basis points (bps) interest rate hike. Also, it will provide the current economic situation and further prospects.

• EUR/USD extends Friday’s upside break of 21-DMA to print four-day uptrend.
• Bullish MACD signals, RSI rebound favor short-term buyers inside bullish chart pattern.
• 50-DMA guards immediate upside, 1.0150 is the key hurdle.
• Bears need validation from 0.9860 to retake control.

EUR/USD renews intraday high near 1.0030 during the four-day uptrend to Monday’s Asian session. The major currency pair’s latest run-up could be linked to Friday’s successful upside break of the 21-DMA, as well as the price-positive signals from the MACD and RSI.

That said, the quote is well-set to aim for the 50-DMA resistance near 1.0100. However, the upper line of a falling wedge bullish chart pattern, established in late June, around 1.0150, appears a strong upside hurdle.

It’s worth noting that a successful break of 1.0150 will confirm the bullish chart pattern suggesting a theoretical target surrounding 1.0900. However, tops marked during August and May, respectively around 1.0370 and 1.0790, could act as intermediate halts during the rise.

The monthly high around 1.0200 and June’s peak of 1.0615 are some extra upside hurdles that could entertain the EUR/USD bulls.

Alternatively, a downside break of the 21-DMA, near 0.9990 at the latest, could quickly direct the sellers towards the recent swing low close to 0.9945.

However, multiple levels surrounding 0.9880 and the lower line of the stated wedge, close to 0.9860, could challenge the EUR/USD bears afterward.

If the quote remains bearish past 0.9860, the odds of witnessing a slump towards the 61.8% Fibonacci Expansion (FE) of the pair’s late June to early September moves, near 0.9725 can’t be ruled out.

EUR/USD: Daily chart

Trend: Limited recovery expected