Tin tức thì trường

• NZD/USD bears take a breather after refreshing multi-day low, seesaws around key support.
• Downbeat NZ GDT Price Index, PBOC inaction joins risk-off mood to weigh on prices.
• Hawkish Fed bets drown the Kiwi pair as odds of the 1.0% rate hike recently gained attention.

NZD/USD pauses the two-day downtrend, flirting with the yearly bottom surrounding 0.5900, as sellers brace for the key Fed verdict during Wednesday’s Asian session. While the pre-Fed anxiety restricts immediate moves of the Kiwi pair, fears surrounding China and Russia join downbeat data at home to weigh on the quote.

A snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, recently challenged the NZD/USD rebound. On the same line could be the news suggesting US Senators’ demand for secondary sanctions on Russian oil. It’s worth noting that the People’s Bank of China’s (PBOC) inaction and fears of economic slowdown, as well as geopolitical tussles with the US, also drown the NZD/USD prices due to the strong trade ties between Auckland and Beijing.

That said, New Zealand’s (NZD) GDT Price Index dropped to 2.0% versus 4.9% prior. The details suggest that the Whole Milk Pwder (WMP) prices rose at a slower pace of 3.7%.

On the other hand, the nine-month downtrend in the US NAHB Housing Market Index precedes the Building Permits to 1.517M in August versus 1.61M forecast and 1.685M prior. However, Housing Starts improved to 1.575M compared to 1.445M market consensus and 1.404M previous readings.

Other than the mostly firmer US housing data, the chatters that the US Federal Reserve (Fed) may surprise markets by a 1.0% rate hike, per the latest talks from global economist Nouriel Roubini, also weighed on the risk-off mood and the NZD/USD prices.

Amid these plays, US 10-year Treasury yields rose to the highest level since February 2011, around 3.567% by the press time, whereas Wall Street closed in the red. Further, the S&P 500 Futures remains indecisive of late.

Looking forward, NZD/USD prices are likely to remain depressed but may portray the pre-Fed inaction.

Also read: Federal Reserve Preview: Forecasting 5% interest rates? Dollar to move on dot-plot, Powell's pledges

Technical analysis

A one-month-old descending trend line, around 0.5860 by the press time, restricts immediate downside of the NZD/USD pair ahead of directing bears towards the year 2020 low near 0.5470.

• AUD/JPY erased its earlier weekly gains, almost flat up by 0.08%.
• The cross-currency daily chart shows the AUD/JPY shifting to a neutral-to-downward bias, further cemented by the RSI, diving towards the 50-midline.
• Short term, the AUD/JPY is downward biased, and it could fall towards the 95.20 area.

The AUD/JPY is slightly dropping as the Asian Pacific session begins, though extending Tuesday’s fall, courtesy of a risk-off impulse in the financial markets, as shown by global equities tumbling. At the time of writing, the AUD/JPY is trading at 96.10, barely down by 0.01%.

AUD/JPY Price Analysis: Technical outlook

Even though market sentiment shifted sour, the AUD/JPY has remained so far above all the daily moving averages (DMAs), meaning that it still has an upward bias. Nevertheless, price action edged lower since hitting the YTD high at  98.59 on September 13, meaning the pair has recorded almost seven consecutive sessions of losses. Therefore, the AUD/JPY bias shifted to neutral, with risks slightly skewed to the downside. Because the Relative Strength Index (RSI) accelerated its downfall to the 50-midline, and a cross below could exacerbate an AUD/JPY fall towards the 50-day EMA at 94.91, followed by a drop to the 100-day EMA at 93.70.

Near term, the AUD/JPY is downward biased for some reasons. Firstly, the AUD/JPY tumbled below the 20, 50, and 100-EMAs. That, alongside the Relative Strength Index (RSI) dropping to bearish territory, shows sellers gathering momentum ahead of the central bank’s monetary policy meetings.

Therefore, the AUD/JPY first support would be an upslope trendline that passes around 95.80. Once cleared, the next support would be the S1 daily pivot at 95.81, followed by the S2 pivot point at 95.53, ahead of the 200-EMA at 95.27.

AUD/JPY Key Technical Levels

• GBP/JPY extends the previous day’s pullback from 38.2% Fibonacci retracement.
• 200-SMA, seven-week-old support line restrict short-term downside.
• Bulls have multiple hurdles before challenging the yearly top.

GBP/JPY remains pressured towards the 200-SMA as it extends the previous day’s losses to 163.40 during Wednesday’s Asian session. In doing so, the cross-currency pair justifies the recent pullback from the 38.2% Fibonacci retracement level of the August-September upside.

Given the downbeat MACD and RSI (14), are not oversold, the GBP/JPY prices are likely to stay depressed, which in turn favors the odds of breaking the 200-SMA support near 163.00.

However, the 61.8% Fibonacci retracement level and an upward sloping support line from early August, respectively near 162.45 and 161.75, could challenge the GBP/JPY bears afterward.

Should the cross-currency pair drop below 161.75, the bears can aim for the monthly low surrounding 160.65 before directing the sellers towards the 160.00 psychological magnet.

Alternatively, the 38.2% Fibonacci retracement level near 164.30 appears the immediate hurdle for the GBP/JPY buyers to tackle.

Following that, multiple resistances are there between 166.00 and 168.80 to challenge the bulls, a break of which could quickly refresh the yearly top surrounding the 170.00 level.

Overall, GBP/JPY is likely to witness further downside but the room to the south is limited.

GBP/JPY: Four-hour chart

Trend: Limited downside expected

• A Bullish Engulfing candlestick formation has concluded the short-term correction.
• Advancing 10-and 20-EMAs add to the upside filters.
• The greenback bulls are set to re-test the two-year high at 1.3420.

The USD/CAD pair is displaying back-and-forth moves in a narrow range of 1.3356-1.3375 in the early Tokyo session. The asset has turned sideways after a vertical upside move from a low of 1.3227, recorded on Tuesday. The major has strengthened ahead of the Federal Reserve (Fed) monetary policy and is marching to recapture a two-year high of around 1.3420.

The formation of a Bullish Engulfing candlestick pattern in which the wide bullish candlestick engulfs the prior bearish candlestick in an uptrend indicates that the mild correction is concluded now and the greenback bulls are gearing up for a fresh bullish impulsive wave. The horizontal support placed from July 14 high at 1.3224 will continue to provide a cushion to the asset.

Advancing 10-and 20-period Exponential Moving Averages (EMAs) at 1.3228 and 1.3155 respectively adds to the upside filters.

Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-480.00, which indicates a perpendicular upside move ahead.

A decisive break above Tuesday’s high at 1.3375 will trigger the Bearish Engulfing formation and will activate the greenback bulls for further upside towards a two-year high of around 1.3420. A breach of the latter will unleash bulls for a rally towards the psychological resistance of 1.3500.

On the flip side, a slippage below the plotted support at 1.3224 will drag the asset towards the 20-EMA at 1.3155, followed by June 17 high at 1.3079.

USD/CAD daily chart

• GBP/USD remains pressured around multi-year low as traders brace for FOMC.
• UK PM Truss unveiled policies to achieve higher growth, stamp duty cut gains a major attention.
• US-UK talks appear ‘uninteresting’ amid no trade deal prospects, Brexit talks appear lucrative.
• Fed’s 0.75% rate hike, fresh economic projections and Chairman Powell’s speech will be crucial.

GBP/USD holds lower ground near the 37-year bottom, close to 1.1375, as market braces for the US Federal Reserve’s (Fed) monetary policy announcement during early Wednesday in Asia. In doing so, the Cable pair ignores recently positive updates from the UK’s political frontier, as well as Brexit, amid fears that the divergence between the Fed and the Bank of England (BOE) is likely to remain wider.

UK PM Lizz Truss unveiled a slew of policy measures, including a cut in the stamp duty as she pushes for ‘prosperity’, per The Times. UK PM Truss says, per The Guardian, “Chancellor will explain how tax cuts will be paid for on Friday.”

It should be noted that UK PM Truss also rejected the chatters that her policies would encourage the Bank of England to raise interest rates, reported The Guardian. This is something which might have exerted more downside pressure on the GBP/USD prices ahead of the BOE meeting, up for publishing on Thursday.

Elsewhere, UK PM Truss and US President Joe Biden will have a bilateral meeting on Wednesday but the former has already turned down any scope for a trade deal with the US, which in turn pours cold water on the face of the GBP/USD optimists.

Alternatively, expectations that the UK and Northern Ireland (NI) will fasten Brexit process, even at the cost of more aggressive measures, seemed to be a positive catalyst for the Cable pair. On the same line are the hawkish hopes from the “Old Lady”, as the BOE is popularly known.

The chatters that the US Federal Reserve (Fed) may surprise markets by a 1.0% rate hike, per the latest talks from global economist Nouriel Roubini, also weighed on the risk-off mood and the GBP/USD prices.

It should be noted that the nine-month downtrend in the US NAHB Housing Market Index precedes the Building Permits to 1.517M in August versus 1.61M forecast and 1.685M prior. However, Housing Starts improved to 1.575M compared to 1.445M market consensus and 1.404M previous readings.

Against this backdrop, US 10-year Treasury yields rose to the highest level since February 2011, around 3.567% by the press time, whereas Wall Street closed in the red.

Looking forward, the Biden-Truss meeting and the UK’s political/Brexit updates may entertain traders ahead of the Fed’s announcements. While the 0.75% rate hike is already given, any surprises will be taken seriously and can move the GBP/USD prices.

Also read: Fed September Preview: Terminal rate projection is key

Technical analysis

A three-month-old support line, near 1.1330 by the press time, keeps offering bounce to the GBP/USD pair. The recovery moves, however, remains capped by the 5-DMA hurdle, around 1.1415 at the latest.

• Gold prices are facing selling pressure on expectations of a bigger-than-expected Fed rate hike.
• The precious metal is expected to re-test the two-year low at $1,654.50.
• A downside break of the Ascending Triangle indicates more weakness ahead.

Gold price (XAU/USD) has turned sideways in a narrow range of $1,660.00-1,667.00 after declining from the critical hurdle of $1,680.00 on Tuesday. The precious metal is expected to display more weakness ahead of the interest rate decision by the Federal Reserve (Fed) and will likely kiss the two-year low at around $1,654.50.

The yellow metal is facing severe heat from the market participants as the Fed is expected to scale up the current pace of hiking interest rates. Fed’s foremost priority is to bring price stability into the economy and a recent reading of the inflationary pressures doesn’t display a meaningful response from the latter. The Fed could not let high inflation settle into the economic behavior as it may destroy the confidence of consumers in the economy.

Meanwhile, the US dollar index (DXY) has established above the psychological hurdle of 110.00 and is expected to remain in positive territory. More upside seems imminent as the Fed is highly expected to tighten the policy with a much bigger rate. Also, the guidance will be extremely hawkish ahead.

Gold technical analysis

Gold prices have delivered a downside break of the Ascending Triangle whose upward-sloping trendline is placed from the previous week’s low at $1,654.17 while the horizontal resistance is plotted from Friday’s high at $1,680.39.

The 20-period Exponential Moving Average (EMA) at $1,667.30 is acting as major resistance for the bulls. Also, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which indicates more weakness ahead.

Gold hourly chart

Democratic and Republican senators on Tuesday proposed that U.S. President Joe Biden's administration use secondary sanctions on international banks to strengthen a price cap G7 countries plan to impose on Russian oil over Moscow's invasion of Ukraine, per Reuters.

Key quotes

Market reaction

The news adds strength to the risk-aversion and exerts downside pressure on the AUD/USD prices but fails to propel the oil to the north amid recession fears.

Also read: WTI falls further ahead of the Fed

• USD/CHF is almost flat during the week, with minimal gains of 0.06%.
• The Fed and the Swiss National Bank (SNB) monetary policy meetings are looming, keeping the pair range-bound.
• Short term, the USD/CHF could fall under the 0.9600 mark.

USD/CHF ended Tuesday’s trading session almost flat, with a minimal 0.01% gain, courtesy of broad US dollar strength across the board. Nevertheless, as the Asian Pacific session begins, the USD/CHF is trading at 0.9646, slightly below its opening price by 0.02%, ahead of the Fed and the Swiss National Bank monetary policy decisions.

USD/CHF Price Analysis: Technical outlook

The USD/CHF daily chart portrays the major as range-bound, trading within the 20 and 50-day EMAs, each at 0.9685 and 0.9626, respectively. On Tuesday, the USD/CHF remained subdued due to choppy trading conditions, as it usually happens, with the Fed’s decision looming. The Relative Strength Index (RSI) depicts that the pair is bearish; nevertheless, with the major trading above the 200-day EMA at 0.9486 confirms the neutral bias.

The USD/CHF 4-hour scale portrays the pair as neutral-to-bearish biased. It’s worth noticing that the recent upward impulse encountered resistance at around the 100-EMA at 0.9690, with buyers falling short of reclaiming the 0.9700 figure. Hence, the USD/CHF slid below important EMAs but remained above the two-week up trendline.

If the USD/CHF breaks below 0.9630, that could pave the way for further losses. Therefore, the USD/CHF first support would be the 200-EMA at 0.9623. Once cleared, the next support would be the confluence of the S1 pivot and the 50-EMA at 0.9613, followed by the S2 daily pivot at 0.9588.

USD/CHF Key Technical Levels

Australia's central bank on Wednesday said its A$300 billion ($200.67 billion) pandemic-era bond buying program (BPP) had benefits to the economy but will also cause large losses for the bank, potentially putting it into negative equity, reported Reuters.

Key quotes

Market reaction

AUD/USD resists reacting to the otherwise price-positive news as it remains pressured near the yearly low, around 0.6690 by the press time, amid pre-Fed anxiety.

Also read: AUD/USD sellers keep reins around yearly low under 0.6700, RBA’s Bullock, Fed eyed

• AUD/USD holds lower ground near two-year bottom marked the last week.
• RBA Minutes joined mixed US housing data, chatters over Fed’s 1.0% rate hike to underpin US dollar strength.
• Geopolitical fears surrounding China, Europe adds strength to risk-off mood.
• Australia’s Westpac Leading Index, RBA’s Bullock can be eyed for immediate directions ahead of Fed.

AUD/USD justifies its risk-barometer status while gradually approaching the yearly low marked on Friday, retreating to 0.6690 during Wednesday’s Asian session. The market’s risk aversion could be attributed to the pre-Fed anxiety and geopolitical fears surrounding China and Europe. Also adding to the Aussie pair’s weakness were the downbeat statements from the Reserve Bank of Australia’s (RBA) latest Monetary Policy Meeting Minutes.

RBA Minutes showed that the policymakers are well prepared for further rate hikes to tame inflation. However, the statements like, “Interest rates have increased quite quickly and were getting closer to normal settings,” seem to weigh on AUD/USD prices of late.

Elsewhere, chatters that the US Federal Reserve (Fed) may surprise markets by a 1.0% rate hike, per the latest talks from global economist Nouriel Roubini, also weigh on the risk-off mood.

It should be noted that the nine-month downtrend in the US NAHB Housing Market Index precedes the Building Permits to 1.517M in August versus 1.61M forecast and 1.685M prior. However, Housing Starts improved to 1.575M compared to 1.445M market consensus and 1.404M previous readings.

Amid these plays, US 10-year Treasury yields rose to the highest level since February 2011, around 3.567% by the press time, whereas Wall Street closed in the red.

Moving on, RBA’s Bullock may offer an intermediate rebound of the AUD/USD pair but the overall bearish trend is likely to persist unless Fed surprises the markets, which is less likely.

Also read: Federal Reserve Preview: Forecasting 5% interest rates? Dollar to move on dot-plot, Powell's pledges

Technical analysis

A sustained trading below the 10-DMA resistance, around 0.6750 by the press time, directs AUD/USD bears towards a one-month-old descending support line, close to 0.6470 at the latest.

• EUR/USD is expected to display sheer downside after dropping below the immediate hurdle of 0.9950.
• The Fed could accelerate the current pace of hiking interest rates.
• ECB policymaker is committed to do ‘whatever it takes’ to safeguard economy from soaring inflation.

The EUR/USD pair witnessed selling pressure after testing the parity in the New York session. The asset is established below the magical figure of 1.0000 and is expected to display more weakness after surrendering the cushion of 0.9950. A downside break below 0.9950 will result in a sheer fall as the asset will print a fresh two-week low and will test the two-decade low at 0.9864.

The downside bias is gaining limelight as the Federal Reserve (Fed) is going to tighten its policy further. The current interest rates stand at 2.25-2.50% and a third consecutive 75 basis points (bps) interest rate hike will push them above 3%. Well, considering the less responsiveness of the inflation rate towards the current pace of hiking borrowing rates, a higher-than-expected extent of a rate hike cannot be ruled out. The Fed could step up its policy rate by 100 bps, thanks to the tight labor market and robust retail demand.

Apart from that, the guidance on interest rate peaks will be extremely crucial. A recent survey from Financial Times claims that the interest rates by the Fed will top around 4-5%. And, a path to a ‘neutral’ approach will be seen beyond 2023 after a slowdown in the price pressures for several months.

On the Eurozone front, the speech from European Central Bank (ECB) President Christine Lagarde has cleared that the agency is committed to bringing down the price pressures ‘whatever it takes and won’t let build a lasting inflation problem.  The central bank will scale up interest rates further and their quick move towards a rate hike cycle shows their commitment. While ECB Governing Council member Madis Muller infuses optimism into eurozone investors on Tuesday, citing that “rates are far from the level that would slow the economy”

• WTI bulls are under pressure as the bears turn up the heat into the Fed.
• Risk-off sentiment is making its way through to the energy markets.

West Texas Intermediate crude oil was under more pressure on Tuesday ahead of the outcome of a two-day meeting of the Federal Reserve's policy committee that started on Tuesday. 

Traders are in anticipation of another loaded rate hike to US interest rates in the face of high inflation. WTI was down by some 0.9% trading around $84.25 having fallen from a high of $86.10 and reaching a low of $83.04 on the day. 

The sentiment surrounding surging inflation and tighter monetary policy continues to weigh on the price of oil while the US dollar index DXY, which measures the currency against six counterparts, trades around 110.20, not far from a 20-year high of 110.79 hit in trade of September. 7. 

The 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, weighing on demand for the black gold. 

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 after August inflation rose more than expected.

Meanwhile, the Biden Administration's news that it will release a further 10 million barrels from US strategic reserves in November and a China push to export more refined products has likely been a factor in the price drop in oil.

On the other hand, analysts at TD Securities argued that ''with the weakness from positioning, sentiment and liquidity premia priced in, the market narrative is slowly shifting back toward structural tightness as winter looms on the horizon.''

''Marginally improving demand prospects amid Chinese re-opening and potential winter gas-oil substitution, along with long-term supply and spare capacity concerns, have seen spreads churning higher once again.

Indeed, our indicators still fundamentally suggest that 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.''

• Silver prices drop more than 1.50% in the week and remain below the $20.00 mark.
• US equities finished in the red, as sentiment stays sour ahead of the Fed’s monetary policy decision.
• US housing data was mixed, flashing signs of the Fed’s tightening conditions.

Silver price tumbles for the second consecutive day, though found support at around the 50-day EMA at $19.25, as investors prepare for the Federal Reserve Open Market Committee (FOMC) meeting. Consequently, US Treasury bond yields rose, underpinning the greenback, which remains above the 110.000 thresholds, a headwind for the white metal. At the time of writing, XAG/USD is trading at $19.26, below its opening price by 1.47%.

Wall Street finished with losses due to a dampened market sentiment. High US bond yields and rising geopolitical tensions in the Ukraine-Russia conflict underpinned the greenback. The US Dollar Index, a measure of the buck vs. six currencies, gains 0.52% at 110.159, a headwind for the non-yielding metal.

Market players have priced in a 75 bps rate hike, as shown by the CME FedWatcth Tool. Odds of a ¾ hike lie at 82%, while for a 100 bps, there’s a slim 18% possibility.

Analysts at Citi expect the US central bank to hike 75 bps but added that “more important” will be the dot plot and the Summary of Economic Projections (SEP). They estimate the median dots to “rise to 4.0- 4.25% for 2022 and around 4.5% in 2023. In the press conference, consensus expects Chair Powell to sound similar to his speech at Jackson Hole.”

Furthermore, they expect the Fed to acknowledge a weaker GDP growth and higher unemployment projections for 2023.

Meanwhile, the US economic calendar on Tuesday revealed US housing data, which came mixed. Housing Starts increased by 12.2% MoM reading, above estimates of a 0.3% uptick. Contrarily, Building Permits dropped 10% MoM, below the 4.8% contraction estimated.

“Since the Fed is signaling that it isn’t going to stop raising rates until it tames inflation, the housing market will continue to be weak, with the potential it experiences its own recession,” said Ryan Sweet, a senior economist at Moody’s Analytics in New York. “This isn’t entirely bad news, as the housing market was red-hot.”

What to watch

The US economic docket will feature the US Existing Home Sales on Wednesday, followed by the Fed’s interest rate decision and Jerome Powell’s press conference.

Silver (XAG/USD) Key Technical Levels

• NZD/USD bears move in as the Fed event draws near.
• US dollar rallies on fresh fuel into the Fed.

NZD/USD is ending the day down by some 1% after falling from 0.5975 to a low of 0.5885 having broken below key supports and now printing the lowest level since May 18 2009. The US dollar and yields are the driving force as the centerpiece of the calendar falls in on Wednesday's interest rate decision from the Federal Reserve. 

The US dollar was back to trading near a two-decade high on the day, as investors held firm on the expectation of another aggressive rate hike by the Fed. Rate futures traders are pricing in an 81% chance of a 75 basis point hike and a 19% probability of a 100 bps in tightening. This is supporting US yields and the DXY index while risk-off sentiment weighs on asset classes and proxy forex elsewhere. As such, the high beta bird is being shot down.

''We’ve been talking about the potential for USD strength for some time, and it’s now here with a vengeance; while we may see a few wobbles, the USD’s twin safe haven/high rates appeal is hard to deny despite us seeing fair value in the NZD well into the 0.60s,'' analysts at ANZ Bank argued.

''Technically, last night’s fall puts the NZD in a precarious spot; a break below 0.5825 will put it in “clear air” all the way down to the 2020 low of 0.5470.''

What you need to take care of on Wednesday, September 21:

The American dollar advanced on Tuesday as the market’s mood soured. Higher US government bond yields backed the greenback throughout the day, as the 2-year Treasury yield soared to its highest in fifteen years ahead of the US Federal Reserve announcement.

The yield on the 10-year Treasury note is now at 3.56% after hitting 3.604%, while the 2-year yield peaked at 3.992%, now hovering at around 3.96%.

Cautious, however, limited the dollar’s gains. Market players are concerned the US Federal Reserve could hike rates by more than 75 bps given stubbornly high inflation. The central bank will present fresh Economic Projections, with the focus on growth and inflation expectations.

The US Federal Reserve will be the first but not the only central bank to announce its monetary policy decision in the next 48 hours. The Bank of Japan, the Switzerland National Bank, and the Bank of England are the most relevant to making decisions following the Fed.

The EUR/USD pair was unable to retain parity and settled at around 0.9970. The GBP/USD pair trades around 1.1380. Commodity-linked currencies were among the worst performers, down against the dollar. USD/CAD trades at 1.3360, while AUD/USD is down to 0.6690. The USD/JPY pair holds ground around 143.60.

Spot gold shed some ground now at $1,664 a troy ounce. Crude oil prices also eased, with WTI now at $84 per barrel.

Asian shares managed to post gains, but European indexes closed in the red. Wall Street trimmed weekly gains and also settled in the red.

Colorado begins accepting Bitcoin for tax payments as BTC sinks below $19,000

Bank of Canada's Deputy Governor Paul Beaudry, in a speech to university students in Waterloo, Ontario, said  "we will continue to take whatever actions are necessary to restore price stability for households and businesses and to maintain Canadians' confidence that we can deliver on our mandate of bringing inflation back to 2%."

Even following inflation that slowed again in August, the Bank of Canada on Tuesday said it remained "too high". This followed data that showed price pressures were easing off peak levels.

"In August, inflation stood at 7%. While we're headed in the right direction, that's still too high," Beaudry said in prepared remarks provided ahead of the speech.

Meanwhile, CAD hit a two-year low vs. the greenback on Tuesday after Canada's annual inflation rate slowed to 7.0% in August, below analyst forecasts of 7.3% and down from 7.6% in July.

USD/CAD touched its highest since October 2020 at 1.3375 and is up 0.8% on the day. Since the start of 2022, CAD has lost 5.5%.

• GBP/USD bears take control ahead of the central bank meetings this week. 
• Bulls and bears battle it out at key hourly support. 

GBP/USD has been in the hands of the bears at the start of this week in the lead into the centerpiece events being the Bank of England and the Federal Reserve. Currently, the price is attempting to correct from the lows of 1.1357 at 1.1370 but is well off from the highs of the day's range at 1.1460. The following illustrates the market structure from both a near-term and longer-term perspective. 

GBP/USD H1 chart

From an hourly perspective, the price has run into a familiar support area and would be expected to correct higher from here with the price imbalance between 1.1380and close to 1.40 the figure eyed. 

GBP/USD daily chart

Overall, as per the daily chart above and the weekly below, the price is in a strong bearish trend which leaves the focus on the downside, especially as the bears take out the 2020 low of 1.1410.

GBP/USD weekly and month charts

1.1240 and 1.0520 are a focus on the longer-term outlook. However, a revisit to 1.19 and 1.20 in a mean reversion of the recent monthly bearish impulse to meet and prior lows could be in order:

• USD/CAD is marching up, bolstered by high US T-bond yields underpinning the greenback.
• Canada’s CPI rose below forecasts but remains above the 7% threshold.
• US housing data was mixed, though higher mortgage rates would likely continue to deteriorate the housing market.G

The USD/CAD rises to fresh two-year highs, above the 1.3300 mark, invalidating a previous triple-top chart pattern, courtesy of a buoyant US dollar, alongside falling crude oil prices, are a tailwind for the USD/CAD.

The USD/CAD is climbing sharply after hitting a daily low at around 1.3226, also spurred by the advancement of US T-bond yields, led by the 10-year benchmark note sitting at 3.563%, on expectations that the Federal Reserve would raise rates by at least 75 bps. At the time of writing, the USD/CAD is trading at 1.3365, above its opening price by 0.83%.

USD/CAD soars above 1.3300 on US dollar strength

Earlier in the North American session, Statistics Canada reported that inflation in the country remains higher but eased a tone, registering figures below estimations. The Consumer Price index (CPI) in August rose 7% YoY, less than estimates of 7.3% and below 7.6% of July’s figure. On the month-over-month numbers, inflation dropped 0.3%, more than a contraction of 0.1%. According to the report, lower gasoline prices and slower gains in shelter are the main reasons for inflation ticking lower.

The so-called core CPI, which excludes volatile items, eased slightly from 5.4% YoY in July to 5.2% in August. Sources cited by Reuters said, “today’s numbers reinforce our view that the Bank of Canada might only have one 50-bp rate hike left, whereas the Fed could very well continue raising rates for longer and to higher levels.”

Elsewhere, the US economic docket featured August’s Housing Starts and Building Permits. The former unexpectedly rose above forecasts while the latter flashed signs of higher mortgage rates, decelerating to its slowest pace in two years.

Meanwhile, the US Dollar Index, a gauge of the greenback’s value against six peers, is rising 0.57%, up at 110.215, while the US 10-year bond yield edges up eight bps, at 3.571%, a tailwind for the USD/CAD.

What to watch

An absent Canadian docket would leave USD/CAD traders leaning on the buck’s dynamics. On the US economic calendar, US Existing Home Sales, the Fed’s decision, and Jerome Powell’s press conference would shed some light regarding the path of the US central bank.

USD/CAD Key Technical Levels

• Gold bears move in as the Fed two-day meeting gets underway. 
• Bulls could see an opportunity from deeper down in the meantime. 

The gold price edged lower on Tuesday as the US dollar and yields climbed in anticipation of the outcome of the two-day Federal Open Market Committee meeting that got underway today. At the time of writing, gold is trading at $1,664.30 down 0.68%, losing ground from the highs of $1,679.51 to a low for the day of $1,660.10, so far. 

The opportunity cost of holding zero-yield precious metals has been removed by the sentiment surrounding this week's slew of central banks meeting, with the Fed being the centerpiece event. At the same time, the greenback remains close to two-decade highs, making greenback-priced bullion more expensive for overseas buyers. 

The US dollar has been particularly perky on Tuesday, trading near a two-decade high, as investors held firm on the expectation of another aggressive rate hike by the Federal Reserve. Rate futures traders are pricing in an 81% chance of a 75 basis point hike and a 19% probability of a 100 bps in tightening.

This is supporting US yields and the DXY index that is now not far from 110.79, a level hit earlier this month for the first time since June 2002. Risk-off sentiment has also contributed 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. 

Fed outlook

''We expect the FOMC to deliver its third consecutive 75bp rate hike, bringing the policy stance decidedly above its estimate of the longer-run neutral level,'' analysts at TD Securities said.

''We also look for the Committee to provide more hawkish signals through the update of its economic projections and for Chair Powell to build on his Jackson Hole message.''

As far as Treasury yields go, the analysts said that they should respond to the ''size of the hike, the 2023/2024 dots, and Powell's tone on further tightening. Given the hawkish market positioning, a "sell the rumor, buy the fact" reaction is possible.''

And for the greenback, they argued that a ''buy the rumor, sell the fact is a tempting play for the USD,'' but the analysts say that they are wary that the messaging at this meeting will be more hawkish than usual.

''Neutral bias and reassess after.''

Gold technical analysis

As for the technical outlook, the price is running deeper towards a key support area that could come under pressure over the meeting and outcome.

The weekly charts show the prospects of a move lower prior to the next bullish phase that precedes a downside extension.  Below, the daily chart's M-formation is a reversion pattern and the correction is already underway:

• AUD/USD drops below the 0.6680 figure, courtesy of a risk-off impulse and broad US dollar strength.
• US housing data was mixed, with housing starts exceeding estimates while building permits dropped.
• At the RBA’s September meeting, members discussed increasing 50 or 25 bps, a dovish sign of the central bank.

The Australian dollar is erasing Monday’s gains during the North American session due to a risk-off impulse, a strong US dollar ahead of the Fed’s 75 bps rate hike, and also on the back of dovish minutes released by the Reserve Bank of Australia (RBA) of their September meeting.

The AUD/USD retraces from weekly highs hit around 0.6747 but is diving below the 0.6700 psychological figure for reasons mentioned above. At the time of writing, the AUD/USD is trading at 0.6683, below its opening price.

AUD/USD drops on RBA’s discussion of hiking 25 or 50

Earlier in the North American session, data from the US Department of Commerce showed that Housing Starts for August unexpectedly rose, above estimates. Contrarily US Building Permits slowed to their slowest pace in two years, flashing signs of higher mortgage rates, influenced by the US Federal Reserve’s current tightening cycle.

In the meantime, the US Dollar Index, a gauge of the buck’s value vs. a basket of currencies, is rising 0.42%, up at 110.052, while the US 10-year bond yield edges up eight bps, at 3.573%, a headwind for the EUR/USD.

During the Asian session, September RBA minutes emphasized that monetary policy is not on a “pre-set path and would be balanced to try and keep the economy on an even keel.” According to the minutes, most RBA members are seeing the case for a slower pace of increases is becoming “stronger as the level of cash rate rises.”

Westpac analysts expect the RBA to hike 50 bps in October, followed by 25 bps in November, December, and February, lifting rates to 3.6%.

What to watch

The Aussie economic docket would feature a speech for RBA member Bullock. In the US economic calendar, US Existing Home Sales, the Fed’s decision, and Jerome Powell’s press conference would shed some light regarding the path of the US central bank.

AUD/USD Key Technical Levels

Christine Lagarde, President of the European Central Bank said that they will not let this phase of high inflation feed into economic behavior and create a lasting inflation problem.

Key statements

If there were evidence that high inflation risked de-anchoring inflation expectations, then the policy rate that is compatible with our target would lie in the restrictive territory.
    
Says where rates ultimately settle, and the size of the steps that we move in, will depend on how the inflation outlook evolves as we proceed.
    
Says inflation expectations remain relatively well anchored across a range of measures.
    
Says if energy prices are durably higher during the transition, it may have an impact on industrial production.
    
Says moving faster at the start of the hiking cycle clearly conveys our commitment.

Says expects to raise rates further. 

Says the terminal rate at which our hiking cycle ends must be compatible with inflation returning durably to our target.

EUR/USD update

Meanwhile, the euro has extended its losses vs a strong US dollar after ECB's Lagarde's comments. EUR/USD was last down 0.6% at 0.9965, still, some way from the two-decade lows at 0.9864 made on September 6.

The US dollar has been perky on Tuesday, trading near a two-decade high, as investors held firm on the expectation of another aggressive rate hike by the Federal Reserve that starts its two-day meeting today. Rate futures traders are pricing in an 81% chance of a 75 basis point hike and a 19% probability of a 100 bps in tightening. This is supporting US yields and the DXY index that is now not far from 110.79, a level hit earlier this month for the first time since June 2002.

The key event this week will be the FOMC decision on Wednesday but other central banks will also have their monetary policy meetings, including the Bank of Japan, the Bank of England and the Swiss National Bank on Thursday. Analysts at Standard Chartered see the SNB raising rates by 100 basis points, a call above the market consensus of 75 bps. 

Key Quotes: 

“We now expect the Swiss National Bank (SNB) to hike by 100bps on 22 September, taking the base rate to 0.75% from -0.25%, and out of negative territory for the first time since 2014. We previously expected it to hike by 50bps after the surprise 50bps hike in June.”

“We believe positive currency rhetoric from the SNB and increasing hawkishness among major central banks support our larger-than-consensus rate hike forecast; most economists are predicting a 75bps hike, though markets are pricing in around an 86bps step.”

“Note the SNB monetary policy committee (MPC) sets rates only once every quarter; we forecast a further 50bps of hikes each at the ECB’s October and December meetings. We see a further 75bps of tightening by the SNB in December, taking the base rate to 1.5% by end-2022 (previously 0.25%), followed by a final 50bps of hikes in Q1-2023 to a terminal rate of 2.0%.”

• EUR/USD remains defensive ahead of the Federal Reserve’s September meeting.
• The Fed is expected to hike by 75 bps, making it three large rate increases in straight meetings.
• Germany’s PPI continued elevating sharply, increasing the odds of another rate hike by the ECB.

The EUR/USD slides below parity on a choppy trading session courtesy of a tranche of central bank’s monetary policy decisions, particularly the US Federal Reserve, which is expected to raise rates by 75 bps on Wednesday. Therefore, US equities tumbled, while US bond yields rose sharply.

The EUR/USD remains under pressure after hitting a weekly high at around 1.0050 earlier, bolstered by higher than expected German PPI. However, as the North American session began, the exchange rate tumbled below parity and its opening price. At the time of writing, the EUR/USD is trading at 0.9983.

EUR/USD drops on strong US dollar

Earlier, US housing data revealed by the Commerce Department reported that housing starts had risen surprisingly, though building permits decelerated to their lowest pace in two years, showing how higher mortgages are weighing on demand. Borrowing costs climbing since the Fed began hiking rates have taken mortgage rates above the 6% threshold.

In the meantime, the US Dollar Index, a gauge of the buck’s value vs. a basket of currencies, is rising 0.42%, up at 110.052, while the US 10-year bond yield edges up eight bps, at 3.573%, a headwind for the EUR/USD.

Elsewhere, data revealed in the Euro area, mainly Germany, showed that prices paid by producers climbed in August by 7.9% MoM, vs. 2.4% estimates, and two and a half percent higher than July’s reading. On an annual basis, the reading edged up by 45.8% above 37% estimates. Sources quoted by Reuters said that “surging costs are seen in not only oil and gas but also electricity.”

Regarding energy themes, German regulators reported that gas inventory levels are at 89.67% as of Monday, as the winter season looms. Even though the rhythm of stockpiling has been impressive, the possibility of no more Rusian gas flowing through the coldest season may spur rationing.

What to watch

The EU’s docket will feature the ECB Vice-President Luis de Guindos on Wednesday, alongside the German Finance minister Lindner. On the US front, US Existing Home Sales and the much-awaited FOMC’s monetary policy decision.

EUR/USD Key Technical Levels

Data released on Tuesday showed a larger than expected decline in the annual Consumer Price Index in Canada that weigh on the loonie. Analysts at CIBC, point out that inflation remains above the Bank of Canada’s target, meaning that the central bank will likely raise interest rates further. 

Key Quotes: 

“Canadian inflation decelerated further in August, and unlike the prior month the move wasn't just a story of lower gasoline prices. Unadjusted headline CPI fell by 0.3%, with the annual rate easing to 7.0%, from 7.6% in the prior month (consensus -0.1%, 7.3% y/y). While gasoline was the main cause of the monthly drop in CPI.”

“While overall inflation remains well above the Bank of Canada's target, meaning that more rate hikes are likely in the cards, a clearer gap appears to be opening up between Canadian and US inflation trends which should bring a lower peak from the Bank of Canada than the Federal Reserve.”

“Inflation likely hasn't slowed far enough, or for long enough, to convince the Bank of Canada that further interest rate hikes aren't necessary. Because of that, we still see a peak of 3.75% for the overnight rate later this year. However, today's inflation readings, as well as other data highlighting a slowing Canadian economy, support the view that interest rates here should peak below what the Federal Reserve will need to do in the US in order to get inflation back to a 2% target.

• USD/MXN continues to move sideways around the 20-day SMA.
• Bearish risks prevail while below 20.10.
• Break above 20.25 to open the doors to more gains.

The USD/MXN is rising on Tuesday bouncing from the 19.90 area, currently hovering around 20.00 as financial markets appear on a wait-and-see mode until the FOMC decision. Fed’s decision and Powell’s press conference could trigger volatility, affecting the pair.

Risks in USD/MXN are tilted to the downside in the short term, while it remains below 20.10. The immediate support is the 19.90 area. A break lower would expose the critical support seen at 19.80. A daily close below would initially target 19.72. Further losses under 19.70 should point to a decline toward 19.50.

On the upside, the pair is facing immediate resistance at 20.10 in the very short term. A break above could lead to a test of a key area seen between 20.20 and 20.25 that contains a horizontal level, a downtrend line and the 200-day Simple Moving Average.

A firm break above 20.25 should favor an acceleration targeting 20.45 and would change the risks to the upside for the next weeks.

USD/MXN daily chart

• Japanese yen weakens amid a Treasury sell-off.
• Market participants are looking at the FOMC meeting, Fed is set to raise rates by 75 bps.
• USD/JPY with a bullish bias in the short term.

The USD/JPY rose from under 143.00 to 143.92, reaching the highest level in almost a week as US yields jumped on the day the two-day FOMC meeting started. At the same time, stocks in Wall Street were falling by 0.85% on average.

Dollar strengthens ahead of the FOMC

The US 10-year bond yield jumped to 3.59%, hitting levels not seen since January 2011.  European bond yields also rose. The decline in bonds weakened the Japanese yen, that dropped across the board during the American session.

The greenback printed fresh daily highs and then moved off highs. The DXY peaked at 110.27, the highest level since September 7 and then pulled back toward 110.00.

US economic data released on Tuesday came in mixed, with a sharp gain in August Housing Starts and a decline in Building Permits. The focus is on the Federal Reserve, that is expected to announce on Wednesday a 75 basis points rate hike. Prices are moving mostly sideways, on a wait-and-see mode ahead of the key event.

The USD/JPY is moving with a bullish bias, currently holding above the 143.50 support area. Above the next barrier is seen at 144.40. On the flip side, the 142.75/85 zone is the critical short-term support area.

Technical levels

According to the Federal Reserve Bank of Atlanta's GDPNow model, the US economy is expected to grow at an annualized rate of 0.3% in the third quarter, down from 0.5% in the previous estimate.

"After this morning's housing starts report from the US Census Bureau, the nowcast of third-quarter residential investment growth decreased from -20.8% to -24.5%," Atlanta Fed explained in its publication.

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen rising 0.35% on the day at around 110.00.

• The GBP/USD would likely remain in choppy trading conditions with central bank decisions lurking.
• Dismal sentiment keep global equities down, while US Treasury yields are rallying sharply.
• US housing data was mixed on Tuesday, ahead of Existing Home Sales data on Wednesday.

The British pound remains under pressure amidst a week where a lot of central banks would feature their monetary policy meetings for September; being in the spotlight, the US Federal Reserve and the Bank of England, each estimated to raise rates by 75 and 50 bps, respectively. Therefore, the GBP/USD oscillates above/below the 1.1410 mark, for the second consecutive day, at the time of writing.

Global equities portray a dismal sentiment. Traders expect an aggressive Federal Reserve on Wednesday, and uncertainty about the Summary of Economic Projections (SEP) update keeps investors on their toes.

GBP/USD hovers around 1.1410 awaiting the central bank’s decisions

US housing data crossing newswires shows the sector is feeling higher interest rates by the US central bank. The US Commerce Department reported that US Home Building Permits dropped below expectations of 1.604M to 1.517M. Contrarily, Housing Starts rebounded 12.2%, crushing forecasts of 0.3%, while July data was revised down.

In the meantime, the US Dollar Index, a headwind for the GBP/USD, rises more than 0.30%, up at 109.985, underpinned by higher US Treasury bond yields. The US 10-year benchmark note rate sits at 3.596%, skyrocketing ten bps, reaching its highest level since April 2011.

Of late crossing newswires, the UK’s new Prime Minister Liz Truss said, “We have to look at all tax rates.” She added that the UK’s Chancellor would outline that the new government will be fiscally responsible on Friday.

That said, traders should expect choppy trading conditions in the GBP/USD ahead of both central bank monetary policy decisions. Wednesday’s UK economic docket will feature the Confederation of British Industry (CBI) Index, estimated to contract -13. The calendar will reveal US Existing Home Sales on the US front ahead of the FOMC’s monetary policy decision.

GBP/USD Key Technical Levels

The US Federal Reserve will announce its monetary policy decision on Wednesday, September 21 at 18:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 16 major banks. 

The Fed is set to raise rates by 75 basis points for the third time. Investors will pay close attention to terminal rate projection in dot plot. Fed Chair Powell's willingness to accept a recession is also critical.

TDS

“We expect the FOMC to deliver another large 75 bps rate increase, lifting the target range for the Fed Funds rate to 3.00%-3.25%. In doing so, the Committee would bring the policy stance above its estimate of the longer-run neutral level. We also look for the FOMC to provide more hawkish signals through the update of its economic projections, and for Chair Powell to build on his message from Jackson Hole. Tempting to buy the rumor/sell the fact for the USD, we prefer to be neutral. While the curve has aggressively repriced terminal, there is risk that Powell could channel Volcker on messaging. Over the balance of the year, we still see more USD strength.”

NAB

“We still expect that Fed will raise Fed funds rate by 75 bps. However, we have revised higher our expectation for the peak fed funds rate for this cycle – we now expect a target range of 4.00-4.25% (3.50-3.75% previously) by early 2023.”

Swedbank

“We expect that the Fed will hike the federal funds rate by another 75 bps in September, before lowering the pace to 25 bps in November and December, as the interest rate goes into restrictive territory. This would leave the terminal rate at 3.50-3.75% by the end of this year. The Fed will also ramp up their quantitative tightening in September, by letting up to USD95 bn roll of the balance sheet every month. We then expect the Fed to be on hold during next year, trying to manage a fine balance between curbing inflation and not harming the real economy too much.”

Danske Bank

“We expect Fed to hike 75 bps next week – the market is more upbeat and see a possibility of a 100 bps hike.  Recent inflation data does not warrant such a large hike, and the fact that real yields are rising and financial conditions have tightened implies Fed's hawkish post-Jackson Hole communication is working as intended. While we keep our call of the third consecutive 75 bps hike, we also find a chance of a fourth 75 bps hike in November, and potentially a fifth 75 bps hike in December, and a terminal rate well above 4% next year likely.”

Commerzbank

“The Fed is expected to make another big rate move at next week's meeting, the third ‘75er’ in a row. The currency market is already expecting a strong interest rate step on the part of the Fed, which is why the dollar should benefit only slightly from 75 bps. The Fed would already have to surprise the currency market with a stronger move and presumably also signal that the key interest rate could still rise above 4% for the dollar to get another additional boost.”

Westpac

“A 75 bps hike seems a done deal. Indeed, the market is pricing some chance of a 100 bps increase. To us, at this point in the cycle and with real-term interest rates around +1.0%, a 100 bps increase is unnecessary and potentially risky. Also, note that an additional 100 bps of hikes is forecast for the remainder of the year; the market sees the risk of more. Critical to assessing the outlook for policy beyond September will be the FOMC’s updated forecasts for inflation, growth and the fed funds rate in 2023 and 2024. We see big risks for growth into the medium-term; but if the FOMC is more sanguine, market pricing could turn more hawkish.” 

Nordea

“We look for the Fed to hike its Fed Funds Target Range by 75 bps. We have updated our rates forecast, bringing forward some interest rate hikes from next year. We expect rates to go above neutral and into restrictive territory by early next year and to stay there for as long as it takes to get the job done on inflation. Our take is that this will require a long long period of high rates and we see slim chances of a Fed pivot anytime soon.” 

ING

“A 75 bps hike is still our favoured call, but we acknowledge the risk that with inflation proving to be stickier than we had suspected, the subsequent meetings in November and December could see more aggressive action from the Fed than we are currently pencilling in. While the geopolitical backdrop, the China slowdown story, the potential for energy rationing in Europe, the strong dollar and fragile-looking domestic equity and housing markets argue for a more moderate path of tightening in the coming months, if inflation momentum doesn’t slow the bank will hike by a further 75 bps in November and possibly 50 bps in December. The message from the Fed is likely to emphasise data dependency, but its updated economic forecasts are likely to show the end-2022 Fed funds rate at 4.125% rather than 3.4% (July forecast) and we suspect it will be kept at that for 2023, before dropping back to a long-term average rate of 2.5%.”

SocGen

“We expect a third 75 bps rate hike. There has been some talk of 100 bps, but Fed officials pushed back on that option earlier and we do not expect them to take it now.”

Rabobank

“We expect the FOMC to raise the target range for the federal funds rate by 75 bps to 3.00-3.25%. Next year we expect the top of the target range to peak at 5.00% and we do not expect the Fed to pivot before 2024. The main reason why we remain above consensus in our forecasts for the Fed and money market rates is that we think that a wage-price spiral has started that will keep inflation persistent. With the Fed clearly prioritizing price stability over full employment, this is going to push the FOMC higher than they currently anticipate.”

NBF

“The FOMC is set to increase the fed funds target by 75 bps for the third consecutive meeting. With inflation still hot and the labour market remaining tight, the Fed is likely to signal that further rate increases will be necessary. On that note, we’re set to receive a new Summary of Economic Projections and ‘dot plot’ which will give us fresh insight into the FOMC’s expected policy rate trajectory. In all likelihood, the median 2022 ‘dot’ will be pushed higher, towards 4%. Consistent with recent Fed rhetoric, it’s unlikely they’ll be signalling rate cuts until at least 2024. Just as interesting will be the FOMC’s economic projections. June’s SEPs were consistent with a very soft landing but Powell’s Jackson Hole comments conceded that ‘pain’ may be coming for households and businesses, so there should be a material downgrade coming. As usual, there will be a Jerome Powell press conference after the meeting which should provide marginal guidance on the path of interest rates going forward.”

ANZ

“We expect the Fed to hike the target range by 75 bps and to re-emphasise its overtly hawkish guidance. We also expect that the tightening cycle will extend through the first half of 2023 and have raised our terminal FFR to 5.0%, up from 4.0% previously. The FOMC’s economic projections should shift notably from June given Fed rhetoric of a sustained period of below-trend growth being needed. We expect notable downgrades to GDP resulting in a higher unemployment track. The dot plot should be steeper and higher compared to June.”

CIBC

“After the fire and brimstone of the past week’s core CPI data, the least the Fed can do is raise rates another 75 bps to a ceiling of 3.25% and pledge that more is coming. The case could easily be made for 100 bps. Nobody on the FOMC really believes that rates won’t get to 3.5% at some point, and the Fed could take the shock out of such a move by explaining that it’s only about getting rates to the required level sooner, just as the Bank of Canada did after its 100 bps move. But the fact that the Fed declined to do 100 bps when rates were at a much lower level suggests that it’s probably not on the drawing board now.”

Citibank

“We expect the Fed to hike by another 75 bps to bring the cash rate to 3.00-3.25%. More important will be the Fed dot plot and economic projections and there remains a hawkish risk that median expectations for the fed funds rate in the Summary of Economic Projections increase significantly from their June values and that median dots rise to 4.0-4.25% for 2022 and around 4.5% in 2023. In the press conference, consensus expects Chair Powell to sound similar to his speech at Jackson Hole.”

Wells Fargo

“We look for another 75 bps rate hike. An update to the FOMC's Summary of Economic Projections (SEP) will also be provided. We expect the 2022 median projection for the federal funds rate to be 3.875%, up from 3.375% in the June SEP. Despite the hawkish rhetoric, few Fed officials have advocated for a peak federal funds rate that is well above 4%. Our expectation is that the median projection for the 2023 fed funds rate will be 4.125%. For 2024 and 2025, we think the dots will show a steady easing of policy as inflation moves back to 2%. Weaker GDP growth and higher unemployment projections for 2023 also seem likely In terms of the post-meeting press conference, we anticipate Chair Powell's comments to mirror his speech at Jackson Hole in which he made clear that the Federal Reserve views its fight against inflation as far from finished.”

OCBC

“We expect the Fed to hike its Fed funds rate by 75 bps, which will bring it to 3.00-3.25%.”

EUR/USD holds in a trading range around parity. Economists at Scotiabank expect sideways trade to persist for now.

Broader technical tone turns more positive above 1.0120

“Short-term price signals are neutral as are trend strength signals, implying more sideways range trade is likely.”

“The broader technical tone turns more positive above 1.0120 (major trend resistance).”

“Support is 0.9865/75.”

“Benchmark natgas prices continue to ease and Germany announced that it will spend another EUR2.5 bn on LNG to ease the energy crisis. High energy costs are, however, coming at a cost. The eurozone current account recorded a EUR19.9 bn deficit in Jul, the weakest since 2008.”

The British pound remains weak. Economists at Scotiabank expect the GBP/USD to suffer significant losses on a break under 1.1350/55.

Trend signals are bearishly aligned for the GBP

“GBP/USD price action suggests more consolidation in the short run but the upward tilt to the consolidation range in place since last Friday rather implies ongoing downside risks (bear flag potential), absent any clearer signs of GBP strength.”

“Trend signals are bearishly aligned for the GBP across a range of timeframes, suggesting ongoing downside risks for the pound.”

“Support is 1.1350/55, with pressure on the GBP resuming on a break below here.” 

“Resistance is 1.1465/75.”

• Gold comes under renewed selling pressure on Tuesday amid resurgent USD demand.
• Aggressive Fed rate hike bets lift the US bond yields and continue to underpin the buck.
• The risk-off impulse fails to lend support to the XAU/USD ahead of the FOMC meeting.

Gold meets with a fresh supply on Tuesday and extends its steady intraday descent through the early North American session. The XAU/USD is currently placed around the $1,660 level, down nearly 0.90% for the day, and remains well within the striking distance of its lowest level since April 2020 touched on Friday.

The US dollar catches aggressive bids and makes a solid comeback from a one-week low, which, in turn, is seen as a key factor exerting downward pressure on the dollar-denominated commodity. The Federal Reserve is widely expected to deliver a third successive super-sized 75 bps rate hike at the end of a two-day policy meeting on Wednesday. The markets have also been pricing in a smaller chance of a full 100 bps rate increase, which remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the buck.

In fact, the yield on the rate-sensitive two-year US government bond stands tall near its highest level since November 2007. Adding to this, the benchmark 10-year Treasury note reaches a level not seen since April 2011, which is seen as another factor that contributes to driving flows away from the non-yielding yellow metal. The intraday downfall seems rather unaffected by the risk-off impulse, which tends to offer some support to the safe-haven gold. This, in turn, suggests that the path of least resistance for the XAU/USD is to the downside.

Apart from the highly-anticipated FOMC decision, the focus will be on the updated economic projections, the so-called dot plot and Fed Chair Jerome Powell's comments at the post-meeting press conference. Investors will look for clues about the future rate hike path, which will influence the near-term USD price dynamics and help determine the next leg of a directional move for gold. Nevertheless, the fundamental backdrop still seems tilted in favour of bearish traders and any attempted recovery move might still be seen as a selling opportunity.

Technical levels to watch

• USD/TRY rises to fresh all-time tops beyond 18.30.
• The strong upside in the dollar pushes the pair higher.
• The Turkish central bank (CBRT) meets on Thursday.

The Turkish lira accelerates the downside and helps USD/TRY printing new record peaks past the 18.30 level on turnaround Tuesday.

USD/TRY now looks to the CBRT

USD/TRY keeps the auspicious start of the week and adds to Monday’s gains well north of the 18.00 mark to clinch fresh all-time highs on the back of the strong bounce in the dollar.

Indeed, Tuesday’s pick-up in the dollar weighs on the EM FX space ahead of the key FOMC event on Wednesday, where the Fed is expected to hike rates by 75 bps.

Still around central banks, the CBRT will decide on the One-Week Repo Rate on Thursday, amidst markets’ consensus now tilted to an on hold stance, as the bank would likely stay on the sidelines assessing the effects on the economy of the unexpected rate cut in August.

Earlier on Tuesday, President Erdogan dialed down the current high inflation levels saying that inflation is not an “insurmountable economic threat”, while he expects consumer prices to start falling at the turn of the year.

It is worth recalling that the CPI in Türkiye ran at the highest pace in the last 24 years in August at around 80%YoY.

What to look for around TRY

USD/TRY maintains the underlying gradual upside well in place and already trespasses 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 0.26% at 18.3103 and faces the next hurdle at 18.3118(all-time high September 20) seconded by 19.00 (round level). On the downside, a break below 17.8983 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low August 9).

Gold price is back in the red zone ahead of the FOMC meeting. Strategists at TD Securities expect the yellow metal to remain under downside pressure.

Precious metals could fall further

“A stronger dollar and rates continue to weigh on the precious metal complex with the FOMC on the horizon.”

“Aggressive Fed expectations are being priced in, the persistence of inflation continues to support an aggressive effort by the Fed, and we now expect the FOMC to raise the target rate by 75 bps at its meeting next week, deliver another 75 bps hike in November, and hike a further 50 bps in December.” 

“We see the potential for 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.” 

“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.”

In Canada, Headline CPI surprised to the downside at 7.0% YoY in August as prices fell by 0.3% MoM (market: 7.3%, -0.1%). Core inflation measures also edged lower to 5.2%. These figures are marginally negative for the loonie as it helps alleviate the debate over terminal in Canada, economists at TD Securities report.

USD/CAD to remain within 1.3230/1.3350 range ahead of the Fed

“CPI continued to cool through August with inflation falling from 7.6% to 7.0% YoY as prices fell by 0.3% MoM. Core inflation measures also edged lower to 5.2% on average to add to the upbeat tone, although this followed another upward revision to July (5.30% to 5.43%).”

“CPI data is marginally negative for CAD since the implication here is that the BoC may not need to keep racing alongside the Fed to jack rates up. In any event, this report does not warrant a huge reaction here; our bias remains for CAD underperformance, though it is noteworthy that price action in USD/CAD has respected the 50% retrace from the 2020-current cycle (around 1.3340/50).” 

“Until the Fed, we should see the pair reflect risk sentiment but ultimately should be contained to key levels (1.3230/1.3350) until tomorrow's meeting.”

USD/MXN has returned above 20.00. The pair could enjoy further gains on a break above the 200-day moving average (DMA) at 20.30, economists at Société Générale report.

Break of 19.41 can result in a deeper downward move

“Defending the multiyear trend line and May lows of 19.75/19.41 can lead to a short-term up move; it would be interesting to see if the pair can reclaim the 200-DMA near 20.30. Holding below this hurdle, the downtrend may eventually extend.”

“Break of 19.41 can result in a deeper down move towards next objectives at projections of 19.05/18.90 and 2020 low of 18.50.”

The week ending 13 September saw bearish flows in the gold market. In the view of strategists at Société Générale, the yellow metal is higly vulnerable to short covering.

Further rate increases to come, which is bearish for gold

“The complex saw an unusual crosswind in flows as silver saw a USD1.6 bn bullish flow against a USD2.0 bn bearish flow for gold. This constitutes the fifth week of bearish flows for gold. As such, gold is extremely vulnerable to short covering as the current short positions are above the 90th percentile over the past two years.”

“Gold flows were net bearish in the period, as money managers seem to have reacted more swiftly and strongly in this market than in other precious metal markets to the higher-than-expected CPI US data released towards the end of our period. This suggested that the high-interest rate environment set by the US Fed would be maintained, with further rate increases to come, which is bearish for gold, as increasing rates depreciate the attractiveness of non-yielding assets.”

• USD/CAD regains strong positive traction on Tuesday amid broad-based USD strength.
• Aggressive Fed rate hikes, a further rise in the US bond yields continue to lift the buck.
• Softer Canadian CPI, subdued oil prices undermine the loonie and remain supportive.

The USD/CAD pair continues scaling higher through the early North American session and refreshes the daily high, around the 1.3315-1.3320 area in reaction to softer Canadian consumer inflation figures.

Statistics Canada reported this Tuesday that the headline CPI declined by 0.3% in August and the yearly rate decelerated to 7.0%, both missing consensus estimates. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, remained flat on a monthly bases and eased more than expected to a 5.8% YoY rate from 6.1% in July. The data seems to have pushed back expectations for more aggressive policy tightening by the BoC, which, along with subdued action around crude oil prices, continues to undermine the commodity-linked loonie.

The US dollar, on the other hand, builds on its solid intraday bounce from a one-week low and remains well supported by growing acceptance that the Fed will hike rates at a faster pace to tame inflation. This leads to a fresh leg up in the US Treasury bond yields and continues to act as a tailwind for the greenback. Apart from this, the risk-off impulse - as depicted by a weaker tone around the equity markets - provides an additional lift to the safe-haven buck. The combination of the aforementioned factors contributes to the strong bid tone surrounding the USD/CAD pair.

It will now be interesting to see if bulls can capitalize on the move ahead of the highly-anticipated FOMC meeting, starting this Tuesday. The Fed is scheduled to announce its decision on Wednesday and is expected to deliver another 75 bps rate increase. Furthermore, the updated economic projections, the so-called dot plot and Fed Chair Jerome Powell's remarks at the post-meeting press conference will be looked upon for clues about the future rate-hike path. This will play a key role in influencing the USD and provide a fresh directional impetus to the USD/CAD pair.

Technical levels to watch

• Inflation in Canada declined at a stronger pace than expected in August.
• USD/CAD trades in positive territory above 1.3300 after the data.

Inflation in Canada, as measured by the Consumer Price Index (CPI), fell to 7% in August from 7.6% in July, the data published by Statistics Canada showed on Tuesday. This reading came in lower than the market expectation of 7.3%.

The Bank of Canada's (BOC) Core CPI, which excludes volatile food and energy prices, declined to 5.8% on a yearly basis from 6.1% in July, compared to analysts' estimate of 6%.

Market reaction

With the initial reaction, USD/CAD rose sharply and was last seen gaining 0.55% on a daily basis at 1.3320.

• A combination of factors prompts fresh selling around AUD/USD on Tuesday.
• Aggressive Fed rate hike bets, elevated US bond yields revive the USD demand.
• Recession fears also underpin the buck and weigh on the risk-sensitive aussie.

The AUD/USD pair attracts fresh selling in the vicinity of mid-0.6700s, or a three-day high touched earlier this Tuesday and continues losing ground through the early North American session. The pair is currently placed near the lower end of its daily trading range, around the 0.6700 mark, and remains well within the striking distance of its lowest level since June 2020.

The Australian dollar started weakening following the release of the Reserve Bank of Australia's (RBA) September meeting minutes. The central bank reiterated that policy was not on a pre-set path and noted that interest rates are getting closer to normal levels. The RBA further added that it sees the case for slowing the pace of rate hikes. This, along with resurgent US dollar demand, is exerting downward pressure on the AUD/USD pair.

Expectations that the Federal Reserve will stick to its aggressive rate-hiking cycle to curb stubbornly high inflation assist the greenback to rebound swiftly from a one-week low. The US central bank is expected to deliver at least a 75 bps rate hike at the end of a two-day monetary policy meeting on Wednesday. This, in turn, remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback.

Apart from this, a softer risk tone - amid growing recession fears - provides an additional lift to the safe-haven buck and contributes to driving flows away from the risk-sensitive aussie. The USD sticks to its intraday gains and moves little following the release of the mixed US housing market data. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside.

Bearish traders, however, might prefer to wait for some follow-through selling below the 0.6670 region before positioning for any further depreciating move. Investors might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the key central bank event risk - the highly-anticipated FOMC decision on Wednesday.

Technical levels to watch

• Housing Starts in the US rose sharply in August.
• US Dollar Index holds in positive territory above 110.00.

The monthly data published by the US Census Bureau revealed on Tuesday that Housing Starts rose by 12.2% in August following July's10.9% contraction.

On a negative note, Building Permits declined by 10% in the same period. 

"Single‐family authorizations in August were at a rate of 899,000; this is 3.5% below the revised July figure of 932,000," the publication read. "Authorizations of units in buildings with five units or more were at a rate of 571,000 in August."

Market reaction

The US Dollar Index preserves its bullish momentum and was last seen rising 0.48% on the day at 110.12.

• The Swedish krona depreciates to multi-month lows vs. euro.
• The Riksbank unexpectedly hiked rates by 100 bps on Tuesday.
• The next up barrier comes at the 2022 highs around 10.90.

The Swedish currency loses further ground vs. the euro and lifts EUR/SEK to new 6-month tops around 10.8500 following the interest rate decision by the Riksbank.

EUR/SEK stronger on Riksbank dovish hike

EUR/SEK edges higher despite the unexpected full-point interest rate hike by the Riksbank at its meeting earlier on Tuesday.

Indeed, the Scandinavian central bank increased the policy rate to 1.75% (from 0.75%) on the back of rising risks of inflation getting entrenched. In order to bring inflation back to the bank’s target, the Riksbank left the door open to extra rate hikes in the upcoming meetings.

The central bank now sees the policy rate at 2.5% in a year’s time - just a tad higher from the 2.0% announced at the June’s meeting - although with inflation running at 3-decade highs market participants believe rates could most likely be around 3.5% at the end of 2023.

The Riksbank revised its inflation and growth forecasts and now expected the CPIF at 7.8% this year and 5.1% in 2023, while the economy is expected to expand 2.7% in 2022 and contract 0.7% next year.

EUR/SEK levels to consider

So far, spot is up 0.38% at 10.8360 and a breakout of 10.8489 (monthly high September 20) would expose 10.9049 (2022 high March 7) and then 10.9746 (high April 21 2021). On the other hand, the next support emerges at 10.5984 (monthly low September 20) followed by 10.5374 (weekly low August 26) and finally 10.4917 (200-day SMA).

The US Dollar Index (DXY) moves sideways slightly above 109.50. Economists at Société Générale expect the index to enjoy further gains on a break past 111.

Short-term downtrend likely on a dip under 107.60

“If the index establishes itself above the high formed earlier this month at 111 – which is also a graphical level, the up move is expected to extend further towards next projections at 112.60/113.00.” 

“It is worth noting that the daily MACD has started posting negative divergence. Although this is not a reversal signal, it does point towards receding upward momentum.”

“Defending the 50-DMA at 107.60 would be essential for persistence in uptrend. Should a break materialize, a short-term downtrend is likely.”

The Turkish lira has slipped to a YTD low of 18.30 against the US dollar. Further losses are not ruled out from here, economists at Société Générale report.

17.95/17.75 to cushion downside

“USD/TRY has formed a series of highs peaks and troughs and is now challenging the high formed in 2021 near 18.36. Overcoming this could result in next leg of uptrend towards projections of 18.75 and 19.30/19.70.”

“Short-term support is located at the 50-DMA near 17.95/17.75. This is expected to cushion downside in case a brief pullback materializes.”

EUR/SEK could revisit the recent high of 10.90 after Sweden’s Riksbank went big and raised the policy rate by 100 bps to 1.75%, economists at Société Générale report.

Policy rate path significantly increased

“Riksbank raises policy rate by larger than forecast 100 bps to 1.75%, signals further tightening in next six months. Rate forecast raised to 0.7% this year, 2.5% in 2023 and 2.5% in 2024.”

“The pair is expected to revisit recent high of 10.90. Overcoming this can extend the move towards 11.05, the 76.4% retracement from 2020 and projections of 11.26.”

“Recent pivot low of 10.60/10.56 is near-term support.”

• EUR/USD comes under pressure and challenges parity.
• Immediately to the downside comes the weekly low at 0.9944.

EUR/USD triggers a corrective downside soon after hitting multi-session highs around 1.0050 on Tuesday.

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 1.0097 ahead of the key 7-month resistance line, today near 1.0150. 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 1.0716.

EUR/USD daily chart

• DXY resumes the upside and retargets 110.00.
• The lack of direction could extend until the FOMC event.

DXY leaves behind two daily pullbacks in a row and refocuses the attention to the 110.00 region on Tuesday.

Despite the ongoing consolidation, the dollar’s short-term bullish view remains unchanged while above the 7-month support line near 106.60. Against that, extra side-lined trading could extend further ahead of the FOMC event on Wednesday, although 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 101.80.

DXY daily chart

Canada CPI Overview

Statistics Canada will release the latest consumer inflation figures for August later during the early North American session on Wednesday, at 12:30 GMT. The headline CPI is expected to decline by 0.1% MoM as compared to a modest 0.1% rise reported in July. Furthermore, the yearly rate is anticipated to decelerate from 7.6% to 7.3% in August. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to rise by 0.3% MoM in August and come in at 6% on a yearly basis, down from 6.1% in July.

Analysts at RBC Economics offer a brief preview of the report and explain: “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.”

How Could it Affect USD/CAD?

The Bank of Canada (BoC)focuses more on the core rate. If the reading comes in line with expectations or slightly above, it will fuel speculations the BoC will keep its aggressive stance. This might be enough to provide a modest lift to the Canadian dollar, though subdued action around crude oil prices could cap any meaningful upside. Conversely, a softer print should allow the USD/CAD pair to build on its intraday positive move amid resurgent US dollar demand.

Nevertheless, the fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside. Hence, a subsequent strength back towards testing the highest level since November 2020, around the 1.3345 region touched on Monday, remains a distinct possibility. The momentum could further get extended towards the top boundary of a multi-month-old ascending channel, currently placed just ahead of the 1.3400 round-figure mark.

On the flip side, the 1.3220-1.3210 region, coinciding with the overnight swing low, might continue to protect any meaningful pullback ahead of the 1.3200 mark. Any subsequent decline might still be seen as a buying opportunity and find decent support near the 1.3120-1.3115 region. This is closely followed by the 1.3100 mark, below which the USD/CAD pair could accelerate the fall towards the next relevant support near the 1.3055 horizontal zone.

Key Notes

  •   Canadian CPI Preview: Forecasts from five major banks, core inflation to stay high

  •   USD/CAD Forecast: Bullish potential intact, Canadian CPI eyed ahead of FOMC meeting

  •   USD/CAD: Levels below 1.30 might remain out of reach for now – Commerzbank

About Canadian CPI

The Consumer Price Index (CPI) released by Statistics Canada is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of CAD is dragged down by inflation. The Bank of Canada aims at an inflation range (1%-3%). Generally speaking, a high reading is seen as anticipatory of a rate hike and is positive (or bullish) for the CAD.

• EUR/JPY adds to Monday’s uptick and regains 144.00.
• Further gains could see the YTD high at 145.63 revisited.

EUR/JPY attempts to break above the ongoing consolidation and briefly surpass the 144.00 barrier on Tuesday.

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 this range bound theme exposes the 2022 top at 145.63 (September 12).

In the meantime, while above the 200-day SMA at 135.38, the prospects for the pair should remain constructive.

EUR/JPY daily chart

• NZD/USD drops to its lowest level since April 2020 and is pressured by a combination of factors.
• Bets for more aggressive Fed rate hikes assist the USD to rebound swiftly from a one-week low.
• Recession fears further benefit the safe-haven greenback and weigh on the risk-sensitive kiwi.

The NZD/USD pair adds to the previous day's modest losses and remains under heavy selling pressure for the second successive day on Tuesday. The downward trajectory drags spot prices to the lowest level since April 2020 during the first half of the European session, with bears now awaiting a sustained break below the 0.5900 mark.

The US dollar stages a solid rebound from a one-week low touched earlier this Tuesday, which turns out to be a key factor exerting downward pressure on the NZD/USD pair. The stronger US CPI report released last week all but cemented expectations that the Fed will stick to its aggressive policy tightening path. This remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback.

Apart from this, a fresh wave of a risk-aversion trade further benefits the safe-haven buck and contributes to driving flows away from the risk-sensitive kiwi. The market sentiment remains fragile amid concerns that rapidly rising interest rates will lead to a deeper global economic downturn. Furthermore, headwinds stemming from China's zero-covid policy and the protracted war in Ukraine have been fueling recession fears.

From a technical perspective the pair has reached a major multi-month trend line at 0.5900 drawn by joining the May and July 2022 lows. This warrants some caution on the part of bears as such key support may provide a rallying point for bulls. A clear and decisive break below the trend line, confirmed by a daily close or open below, would cement the bearish trend and signal a steeper acceleration to the downside. That said, caution is warranted ahead of central bank risk this week. The Fed is scheduled to announce its policy decision at the end of a two-day meeting on Wednesday and this is likely to be a game-changer for the dollar and the pair.

The US central bank is widely expected to deliver another 75 bps rate increase. Hence, the focus will be on updated economic projections, the so-called dot plot and Fed Chair Jerome Powell's speech at the post-meeting press conference. Market participants will look for clues about the Fed's policy outlook, which will play a key role in influencing the USD price dynamics and help determine the near-term trajectory for the NZD/USD pair.

Technical levels to watch

• USD/CAD catches fresh bids on Tuesday amid a goodish pickup in the USD demand.
• Aggressive Fed rate hike bets, recession fears seem to benefit the safe-haven greenback.
• Demand concerns cap oil prices, which undermines the loonie and remains supportive.

The USD/CAD pair stalls the overnight sharp retracement slide from the highest level since November 2020 and catches fresh bids near the 1.3225 area on Tuesday. The pair builds on its steady intraday ascent through the first half of the European session and is currently placed near the daily high, just below the 1.3300 round-figure mark.

A combination of supporting factors assists the US dollar to stage a solid bounce from a one-week low touched earlier this Tuesday, which, in turn, provides a goodish lift to the USD/CAD pair. Investors seem convinced that the Fed will stick to its aggressive policy tightening path and have fully priced in at least a 75 bps rate increase at the end of a two-day policy meeting on Wednesday. This remains supportive of elevated US Treasury bond yields, which, along with a turnaround in the risk sentiment, continues to lend support to the safe-haven greenback.

The market sentiment remains fragile on the back of growing recession fears, amid headwinds stemming from China's zero-covid policy and protracted Russia-Ukraine war. Furthermore, worries that a deeper global economic downturn could dent fuel demand keep a lid on any meaningful upside for crude oil prices. This, in turn, undermines the commodity-linked loonie, which further contributes to the USD/CAD pair's intraday move up and supports prospects for additional gains. That said, traders might refrain from placing aggressive bets ahead of key data/event risks.

The Canadian CPI report is due for release later during the early North American session and influences the domestic currency. The US economic docket features housing market data - Building Permits and Housing Starts. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the major.

Technical levels to watch

• Gold price is back in the red zone, as US Treasury yields see a renewed upside.
• Heft Fed rate hike expectations bolster the yields and the US dollar.
• XAU/USD bears target $1,754 and $1,751 as the downside resumes.

Gold price has stalled its two-day recovery mode from 29-month lows but remains within a familiar range between $1,680 and $1,650. Investors refrain from placing any directional bets on the bright metal ahead of the Fed and BOE rate hike decisions, which could have a significant impact on risk sentiment and the US dollar valuations. The Fed is widely expected to hike rates by 75 bps this week, although a slim chance of 100 bps rise still remains on the cards. Aggressive global tightening bets weigh negatively on the non-interest-bearing gold at a time when the US Treasury yields are surging to multi-year highs across the time curve.

Also read: Gold Price Forecast: XAU/USD bulls to remain cautious below $1,700 amid pre-Fed anxiety

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price has breached the Fibonacci 61.8% one-day support at $1,667.

Bears are now geared up to test the Bollinger Band one-day Lower at $1,664. The previous day’s low of $1,660 will be the next downside target.

Further south, the previous week’s low at $1,654 and the pivot point one-day S2 at $1,651 could come to the rescue of XAU buyers should the selling momentum pick up steam.

On the flip side, the $1,672 hurdle could into play once again. That level is the confluence of the Fibonacci 38.2% one-day and the Fibonacci 23.6% one-week.

The previous year’s low of $1,677 will offer stiff resistance on the road to recovery, above which bulls will challenge the previous day’s high of $1,680.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

No changes are predicted to the current ultra-loose monetary stance by the BoJ at its event later this week, notes Economist Lee Sue Ann at UOB Group.

Key Quotes

“Even as Japan’s inflation is heading higher, it is still below 2% beyond the FY2022 spike and the driving factor is largely stemming from commodities while domestic demand remains weak and wage growth still lacklustre.”

“And add the spike in COVID-19 inflections domestically and slow reopening of borders, there is little incentive for the central bank to change course and we continue to expect the BOJ not considering policy normalisation in 2022.”

• USD/JPY gains positive traction for the second successive day amid a pickup in the USD demand.
• The Fed-BoJ policy divergence undermines the JPY and remains supportive of the modest uptick.
• A softer risk tone caps the upside as the focus remains on this week’s key central bank event risks.

The USD/JPY pair attracts some dip-buying on Tuesday and climbs to the top boundary of a four-day-old trading range, around the 143.75 region during the first half of the European session.

The US dollar regains positive traction following an early slide to a one-week low and turns out to be a key factor pushing the USD/JPY pair higher for the second successive day. Expectations that the Fed will continue to tighten its monetary policy at a faster pace to tame inflation remain supportive of elevated US Treasury bond yields. This, in turn, continues to act as a tailwind for the greenback.

The Japanese yen, on the other hand, is undermined by the fact that the Bank of Japan remains committed to maintaining ultra-low interest rates and its dovish policy guidance. This marks a big divergence in comparison to a more hawkish stance adopted by other major central banks and supports prospects for some meaningful upside for the USD/JPY pair. That said, a combination of factors could cap gains.

The market sentiment remains fragile amid concerns that rapidly rising borrowing costs will lead to a deeper global economic downturn. Adding to this, headwinds stemming from China's zero-covid policy and the protracted Russia-Ukraine war have been fueling recession fears. This, in turn, could offer some support to the safe-haven JPY and keep a lid on any further gains for the USD/JPY pair.

Investors might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the key central bank event risks. The Fed is scheduled to announce its monetary policy decision at the end of a two-day meeting on Wednesday. This will be followed by the BoJ meeting on Thursday, which will play a key role in determining the next leg of a directional move for the USD/JPY pair.

In the meantime, traders on Tuesday might take cues from the US housing market data - Building Permits and Housing Starts. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, the broader market risk sentiment could further contribute to producing short-term trading opportunities around the major.

Technical levels to watch

UOB Group’s Economist Lee Sue Ann suggests the Bank Indonesia (BI) could hike further its policy rate at the September 22 meeting.

Key Quotes

“Consistent with our forecast that inflation expectation will likely continue to build up higher, we maintain our view that BI will continue to hike its benchmark interest rates higher, with our forecast for three more 25bps hikes in months to follow for the 7D Reverse Repo to settle at 4.50% by year-end.”

European Central Bank (ECB) Governing Council member Madis Muller said on Tuesday, “rates are far from the level that would slow the economy..”

Muller added that “interest rates are still low in a historical context.”

Market reaction

EUR/USD is struggling to find demand while trading just above parity amid a broad US dollar bounce, as the European stocks erase opening gains on pre-Fed and BOE rate hikes anxiety.

EUR/USD has lost its bullish momentum early Tuesday. The pair could go into a consolidation phase ahead of the Federal Reserve's policy announcements on Wednesday, FXStreet’s Eren Sengezer reports.

Euro bulls hesitate ahead of Fed decision

“The near-term technical outlook doesn't provide a directional clue and EUR/USD could go into a consolidation phase ahead of the Federal Reserve's policy announcements on Wednesday.”

“A four-hour close below 1.0000 (psychological level, 100-period SMA, Fibonacci 61.8% retracement of the latest downtrend) could open the door for an extended slide toward 0.9950 (psychological level) ahead of 0.9900 (psychological level).”

“1.0030/40 (Fibonacci 50% retracement of the latest uptrend, 50-period SMA) and 1.0070 (200-period SMA, Fibonacci 38.2% retracement) forms key resistance before 1.0060/70  (200-period SMA, Fibonacci 38.2% retracement) and 1.0100 (psychological level).”

Amin H. Nasser, CEO of Saudi Aramco, makes some comments on the global energy crisis, price caps and oil demand during his appearance on Tuesday.

Key quotes

Market reaction

WTI is defending the $85 mark, digesting the above comments. The US oil is up 0.76% on the day.

• GBP/USD gains some positive traction on Tuesday, though the uptick lacks bullish conviction.
• A goodish USD rebound from a one-week low turns out to be a key factor capping the upside.
• Any meaningful downfall seems unlikely ahead of the FOMC and the BoE meetings this week.

The GBP/USD pair builds on the previous day's recovery move from the vicinity of mid-1.1300s, or its lowest level since 1985 and edges higher through the first half of trading on Tuesday. The pair stick to modest intraday gains through the early European session, though seems to struggle to capitalize on the move beyond mid-1.1400s and retreats a few pips from the daily peak.

A combination of factors assists the US dollar to attract some dip-buying following an early slide to a one-week low, which, in turn, acts as a headwind for the GBP/USD pair. Expectations that the Federal Reserve will stick to its faster rate-hiking cycle to tame inflation remain supportive of elevated US Treasury bond yields. In fact, the US central bank is widely expected to deliver another supersized 75 bps rate hike at the end of a two-day meeting on Wednesday.

Furthermore, the markets have been pricing in a small chance of a full 100 bps lift-off, which remains supportive of elevated US Treasury bond yields. The yield on the rate-sensitive two-year US government bond rose to its highest level since November 2007 and the 10-year Treasury note reached a level not seen since April 2011 on Monday. Apart from this, growing recession fears lend support to the safe-haven greenback and also contribute to capping the GBP/USD pair.

Market participants also seem reluctant to place aggressive bullish bets around the British pound amid a bleak outlook for the UK economy. This, to a larger extent, overshadows the prospects for more aggressive rate hikes by the Bank of England, which, so far, has failed to impress bulls or provide any meaningful impetus to the GBP/USD pair. The downside, however, seems cushioned as traders might prefer to move to the sidelines ahead of the key central bank event risks.

The Fed is scheduled to announce its monetary policy decision at the end of a two-day meeting on Wednesday. This will be followed by the BoE meeting on Thursday, which should help determine the next leg of a directional move for the GBP/USD pair. In the meantime, traders on Tuesday might take cues from the US housing market data, which along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the major.

Technical levels to watch

GBP/USD clings to modest daily gains at around 1.1450. Looking ahead, economists at HSBC expect the pair to test year-to-date lows in the coming weeks.

Fiscal cost of plans to alleviate energy costs could pressure GBP

“We suspect GBP/USD is set to challenge the YTD lows again over the coming weeks.” 

“A likely acceleration in the Bank of England (BoE) tightening pace looks set to increase recession fears. For the upcoming BoE meeting on 22 September, the market is 80% priced for a 75 bps hike rather than 50 bps (our economists expect this smaller move), which creates some downside risk for GBP.”

“The fiscal cost of the UK government plans to alleviate energy costs could also pressure GBP, especially give the ongoing deterioration in the external balance.”

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest set of results in the Chinese economic calendar.

Key Takeaways

“Improvements were seen across China’s data including the industrial production (IP), retail sales, fixed asset investment (FAI) and surveyed jobless rate in Aug. The numbers were also slightly ahead of Bloomberg’s consensus forecasts which we think were set quite modest given the worsening economic outlook including the COVID situation and power crunch in Aug.”

“Due to challenging outlook both internally and externally, we are maintaining our 2022 GDP growth forecast for China at 3.3% with 3Q22 at 3.4% y/y and 4Q22 at 4.5% y/y, a recovery from 2.5% y/y in 1H22.”

“The People’s Bank of China (PBoC) maintained the 1Y medium-term lending facility (MLF) rate at 2.75% in Sep and rolled over CNY400 bn of the CNY600 bn that expired this month. This was after the central bank cut the 1Y MLF rate a second time this year in Aug, by 10 bps.”

“As consumer and producer price inflation both pulled back in Aug and economic outlook remains weak, we continue to see scope for a further 10bps cut to the 1Y MLF in 4Q22. This will bring a corresponding drop in the loan prime rates (LPR). We forecast the 1Y LPR to move lower to 3.55% by end-4Q22 (from current 3.65%). After 35 bps cut YTD, the 5Y LPR is still poised to fall further (from current 4.30%) as PBoC extends support to the property market.”

• EUR/USD keeps the gradual upside well in place above parity.
• Germany Producer Prices surprised to the upside in August.
• Chair Lagarde is due to speak later in the European afternoon.

The single currency keeps the bid bias well in place for yet another session and this time lifts EUR/USD further north of the key parity region on Tuesday.

EUR/USD looks to Lagarde, Fed

EUR/USD advances for the fifth consecutive session and looks to consolidate the breakout of the parity region amidst the persistent loss of upside momentum in the greenback.

The pair’s improvement comes in tandem with further gains in the German 10-year Bund yields - which trade in new 3-month tops near the 1.90% level – along with the relentless advance in their US peers, all ahead of the FOMC gathering. On the latter, conviction among investors of a 75 bps rate hike on Wednesday appears well anchored for the time being.

In the domestic calendar, Producer Prices in Germany rose 7.9% MoM in August and 45.8% from a year earlier. Later in the session, ECB’s Chair C.Lagarde will speak at an event in Frankfurt.

Across the pond, Housing Starts and Building Permits during August will take centre stage.

What to look for around EUR

EUR/USD extends further the gradual recovery from recent lows in the sub-parity zone against the backdrop of the slow march south in the dollar.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns 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 gaining 0.12% at 1.0034 and the immediate resistance comes at 1.0097 (55-day SMA) seconded by 1.0197 (monthly high September 12) and finally 1.0305 (100-day SMA). On the other hand, a breach of 0.9944 (weekly low September 16) would target 0.9863 (2022 low September 6) en route to 0.9859 (December 2002 low).

NZD/USD has tested two-year low around 0.5920. Economists at HSBC expect the pair to extend its downfall over the coming weeks.

NZD is likely to weaken against the AUD

“In the coming weeks and medium-term, we expect the NZD to weaken against the USD”

“Like the AUD, the NZD will likely be affected by fragile risk appetite.”

“It is worth noting that hard-landing risks are arguably higher in New Zealand than in Australia. This means the NZD is likely to weaken against the AUD, with a gradual increase in AUD/NZD.”

Here is what you need to know on Tuesday, September 20:

Major currency pair trade in familiar ranges on Tuesday as investors move to the sidelines ahead of key central bank policy decisions. The US Dollar Index (DXY), which closed virtually unchanged on Monday, moves sideways slightly above 109.50 and the market mood improves modestly with US stock index futures rising between 0.2% and 0.3%. Later in the day, Building Permits and Housing Starts data for August will be featured in the US economic docket. Consumer Price Index (CPI) figures from Canada will also be watched closely by market participants.

Wall Street Journal author Nick Timiraos, who correctly leaked the 75 basis points (bps) rate hike in July, published an article late Monday and refrained from suggesting that the Fed could raise its policy rate by 100 bps on Wednesday. The greenback lost some interest after this development and the DXY erased its daily gains. The benchmark 10-year US Treasury bond yield stays relatively quiet near 3.5% on Tuesday.

Federal Reserve Preview: Forecasting 5% interest rates? Dollar to move on dot-plot, Powell's pledges.

Earlier in the day, Sweden's central bank, Riksbank, announced that it raised its policy rate by 100 bps to 1.75%, compared to Reuters' estimate for a rate increase of 75 bps. With the initial reaction, EUR/SEK fell to a fresh daily low of 10.7305 but managed to recover to the 10.8000 area.

During the Asian trading hours, the Reserve Bank of Australia's (RBA) September monetary policy meeting minutes showed that policymakers saw a case for a slower pace of rate increases as becoming stronger. AUD/USD's reaction to the RBA's publication was largely muted and the pair was last seen trading flat on the day at around 0.6730.

Annual CPI in Canada is expected to decline to 7.4% in August from 7.6% in July. Ahead of this data, the USD/CAD pair trades in a tight range near the mid-1.3200s.

EUR/USD managed to stage a rebound in the second half of the day on Monday and closed in positive territory above parity. The pair was last seen posting small daily gains near 1.0030.

GBP/USD clings to modest daily gains at around 1.1450 early Tuesday. “There aren’t currently any negotiations taking place with the US and I don’t have any expectation that those are going to start in the short to medium term," British Prime Minister Liz Truss said regarding a potential trade deal with the US but these comments were largely ignored by market participants.

The data from Japan revealed on Tuesday that the National CPI climbed to 3% in August from 2.6% in July. Although this print came in stronger than the market expectation of 2.6%, USD/JPY managed to hold its ground and was last seen rising 0.2% on the day at 143.50.

Gold is having a tough time attracting buyers and trading in negative territory slightly above $1,670. The resilience of the 10-year US T-bond yield makes it difficult for XAU/USD to gather recovery momentum.

Bitcoin shook off the bearish pressure late Monday but it's yet to reclaim $20,000. Ethereum gained nearly 3% on Monday but failed to preserve its bullish momentum early Tuesday. At the time of press, ETH/USD was down 1% on the day at $1,360.

AUD/USD struggles to capitalize on the previous day's bounce from the vicinity of the year-to-date low. Economists at HSBC expect the pair to edge lower over the coming weeks.

AUD will likely benefit less from the terms of trade channel

“We look for downside in the AUD against the USD over the coming weeks and medium-term.” 

“Vulnerable risk sentiment amid tighter global financial conditions and a worsening global growth outlook is likely to weigh on the AUD.” 

“The AUD may also face asymmetric downside risks around the Reserve Bank of Australia’s (RBA) meeting in October, should the market expect the RBA to pivot earlier.” 

“The AUD will likely benefit less from the terms of trade channel, as the current strength in commodity prices has been driven more by supply constraints than by robust demand expectations, which could be detrimental to global growth and delay a material pick-up in business investment.”

USD/CNH could still advance further and test the 7.0500 region in the next weeks, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected ‘the pullback in USD to extend’ yesterday. Instead of pulling back, USD traded between 6.9905 and 7.0254 before closing little changed at 7.0038 (+0.08%). The movement appears to be part of a consolidation and USD is likely to trade within a range of 6.9800/7.0200 for today.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (19 Sep, spot at 6.9980). As indicated, while the sharp pullback from the high of 7.0427 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 yesterday) would indicate that the USD strength that started the middle of last week has run its course.”

• A combination of diverging forces fails to provide any meaningful impetus to AUD/USD on Tuesday.
• The less hawkish RBA minutes, a modest pickup in the USD demand act as a headwind for the pair.
• A positive risk tone caps gains for the safe-haven greenback and limits the downside for the major.

The AUD/USD pair struggles to capitalize on the previous day's bounce from the vicinity of the YTD low and seesaws between tepid gains/minor losses through the early European session on Tuesday. The pair is currently placed in neutral territory, around the 0.6725-0.6730 region, and remains at the mercy of the US dollar price dynamics.

The less hawkish minutes of the Reserve Bank of Australia's (RBA) September meeting turns out to be a key factor that capped the early uptick for the AUD/USD pair to a three-day high. The Australian central bank reiterated that policy was not on a pre-set path and noted that interest rates are getting closer to normal levels. The RBA added that it sees the case for slowing the pace of hikes, which, along with the emergence of some USD buying, acts as a headwind for the major.

Expectations that the Federal Reserve will stick to its aggressive rate-hiking cycle to tame inflation assist the USD to reverse an early dip to a one-week low. In fact, the US central bank is expected to deliver another supersized 75 bps rate hike at the end of a two-day policy meeting on Wednesday. The markets have also been pricing in a small chance of a full 100 bps, which remains supportive of elevated US Treasury bond yields and continues to lend support to the buck.

That said, a generally positive tone around the equity markets caps gains for the safe-haven greenback and extends some support to the perceived riskier aussie. Investors also seem reluctant and prefer to move to the sidelines ahead of the highly-anticipated FOMC policy meeting, starting this Tuesday. This, in turn, warrants some caution before positioning for any firm intraday direction. Traders now eye the US housing market data for some impetus later during the early North American session.

Technical levels to watch

• The index comes under pressure and slips back to 109.50.
• The Federal Reserve starts its 2-day meeting later on Tuesday.
• Housing Starts, Building Permits next of note in the US calendar.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main rivals, extends the gradual decline and hovers around the 109.50 region on turnaround Tuesday.

USD Index looks prudent ahead of FOMC

The index so far clinches its third consecutive daily pullback and extends the corrective downside from last week’s peaks past the 110.00 hurdle amidst the lack of a clear direction in the global markets and swelling cautiousness ahead of the FOMC event on Wednesday.

Some loss of momentum in US yields also accompany the slow decline in the dollar on Tuesday, as market participants seem to have already fully priced in a ¾ point interest rate raise by the Fed on Wednesday. Despite a 100 bps rate hike still remains on the table, its probability has dwindled to around 16% according to CME Group’s FedWatch Tool.

 In the US data space, the housing sector will take centre stage in light of the publication of Building Permits and Housing Starts for the month of August.

What to look for around USD

The dollar grinds lower after climbing as high as the area above the 110.00 barrier in past days.

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: 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 retreating 0.04% at 109.54 and faces the next contention at 107.68 (monthly low September 13) followed by 107.58 (weekly low August 26) and finally 105.88 (100-day SMA). On the upside, a breakout of 110.26 (weekly high September 16) would expose 110.78 (2022 high September 7) and then 111.90 (weekly high September 6 2002).

Sweden's central bank, Riksbank, announced on Tuesday that it raised its policy rate by 100 basis points (bps) to 1.75%. Reuters' estimate was pointing to a 75 bps rate increase.

Market reaction

With the initial reaction, EUR/SEK fell to a fresh daily low of 10.7305 before recovering modestly. As of writing, the pair was trading at 10.7720, where it was down 0.15% on a daily basis.

Key takeaways from policy statement

"Forecast for policy rate is that it will continue to be raised in coming six months."

"Development of inflation going forward is still difficult to assess and Riksbank will adapt monetary policy as necessary to ensure that inflation is brought back to target."

"Monetary policy now needs to be tightened further to bring inflation back to target."

"By raising policy rate more now, risk of high inflation in longer term is reduced, and thereby need for greater monetary policy tightening further ahead."

"Asset purchases will continue in accordance with decision in June but are expected to cease at end of year."

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, USD/JPY is still predicted to maintain the 141.40-144.70 range in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the bias for USD today is tilted to the downside’ but we were of the view that ‘any weakness is likely limited to a test of 142.20’. Our expectations did not materialize as USD traded within a range of 142.63/143.64. The underlying tone still appears to be on the soft side and we continue to see downside bias in USD. That said, any weakness is unlikely to break 142.20 (there is another support at 142.50). Resistance can be found at 143.35 followed by 143.70.”

Next 1-3 weeks: “Our latest narrative from last Thursday (15 Sep, spot at 143.10) where USD is likely to trade between 141.00 and 145.00 for a period of time. USD traded in a relatively quiet manner the past few days and we expect USD to trade sideways, albeit likely within a narrower range of 141.40/144.70. Looking ahead, as long as there is no clear break of 141.40, USD could attempt to move towards 145.00 at a later stage.”

EUR/USD continues to consolidate near parity. But economists at HSBC expect the pair to see new year-to-date (YTD) lows in the coming weeks.

Risks from Italy’s upcoming general election do not appear onerous

“While parity on EUR/USD is providing an anchor for now, we expect the pair to break to new YTD lows in the coming weeks on a combination of USD strength and the range of challenges facing the eurozone economy (such as recession risks and elevated inflation).”

“On a positive note, the risks from Italy’s upcoming general election on 25 September do not appear onerous, while our economists note that the tone of the campaign has been moderate and there has been no strong EUR-sceptic element. If there are downside risks to the EUR from Italian political developments, they seem unlikely to materialize this month.”

Open interest in natural gas futures markets rose by around 2.7K contracts following two consecutive daily pullbacks at the end of the week, noted advanced prints from CME Group. On the other hand, volume dropped for the thirds straight session, this time by around 41.3K contracts.

Natural Gas remains supported by the $7.50 region

Monday’s indecision in prices of natural gas came on the back of rising open interest, which signals the likeliness of extra side-lined trading in the very near term. Against that, the $7.50 region per MMBtu is still expected to hold the downside for the time being.

It is a really busy week for central bankers. In the opinion of economists at ING, central bankers pressing more firmly on the monetary brakes will only invert yield curves further, provide greater headwinds to risk assets and keep the dollar bid near the highs.

Tighter monetary conditions favour the dollar

“There seems no reason for the Fed to soften the hawkishness shown at the recent Jackson Hole symposium and a 75 bps 'hawkish hike' should keep the dollar near its highs of the year.”

“Tighter monetary policy around the world will increase the headwinds for risk assets – after all, central bankers are deliberately trying to slow aggregate demand. This should again play into the hands of the anti-cyclical dollar and one which now pays over 3% p.a. on a one-month deposit.”

“Expect a quiet, pre-FOMC session today, where softer housing starts or building permits August data look unlikely to impact market pricing of the Fed tightening cycle – currently pencilling in a peak near 4.50% next spring.” 

“DXY should stay bid in a 109.50/110.00 range.”

• Silver once again fails ahead of a multi-month-old descending trend-line resistance.
• The technical set-up favours bulls and supports prospects for an eventual breakout.
• Weakness below the $18.80-75 region is needed to negate the near-term positive bias.

Silver meets with a fresh supply on Tuesday and remains on the defensive through the early European session. The white metal is currently trading near the daily low, just below the mid-$19.00s.

From a technical perspective, the XAG/USD has been oscillating in a familiar band over the past week or so. The range-bound price action points to indecision among traders over the next leg of a directional move. Moreover, the upside remains capped near a descending trend-line resistance extending from the May swing high.

The said barrier around the $19.75 area should act as a pivotal point and help determine the near-term trajectory for the XAG/USD. A convincing breakthrough will be seen as a fresh trigger for bulls and set the stage for an extension of the recent recovery from over a two-year low, the $17.55 region touched earlier this month.

Given that oscillators on the daily chart are holding with a mild positive bias, the XAG/USD might then aim to surpass the $20.00 psychological mark and test the 100-day SMA, near the $20.25 area. Some follow-through has the potential to lift spot prices beyond the $20.50 intermediate hurdle, towards the $21.00 round-figure mark.

On the flip side, the $19.00 mark might protect the immediate downside ahead of the $18.80-$18.75 zone, which if broken decisively will shift the near-term bias back in favour of bearish traders. The XAG/USD might then accelerate the downfall to the $18.45-$18.40 support before eventually dropping to the $18.00 round figure.

Silver daily chart

Key levels to watch

GBP/USD dribbles above 1.1400. Economists at ING expect the pair to move back lower towards 1.1350.

Sterling to remain vulnerable

“Normally loose fiscal and tight monetary policy would be good for the pound. However, it seems that foreign investors are concerned as to how government support will be financed – with the fear that this will largely come through an additional supply of UK Gilts.”

“A difficult external environment and concerns as to how a government spending spree will be financed leave sterling vulnerable.”

“Cable can easily sink back to 1.1350 and should remain offered this month, while the former resistance level of 0.8720 should now prove support to EUR/GBP as it edges up to 0.8800.”

Aggressive Fed action and tightening financial conditions may keep downward pressure on stocks. Strategists at Charles Schwab expect the S&P 500 Index to remain below the 4,330/4,400 resistance zone.

Federal Reserve to squash inflation via the tightening of financial conditions

“Now the Fed concedes it may have to allow more economic and/or market harm to bring inflation down, with equity market volatility/weakness in a vacuum not likely to trigger a shift in policy.”

“Assessing technicians' consensus, as an example, resistance sits somewhere between 4,330 and 4,400 on the S&P 500, a range (for now) that represents a key hurdle.”

“Although Friday brought a ‘volume thrust’ (with higher volume associated with stronger stocks), historically persistent declines tend to end (or pause) with a string/series of positive breadth days. For now, rallies are more likely countertrend, while bouts of weakness are the trend.”

NZD/USD could debilitate further and slip back to the 0.5900 region in the next weeks, note FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Our view for NZD to ‘trade sideways between 0.5960 and 0.6015’ was incorrect as it dropped to a low of 0.5929 before rebounding. Despite the decline, downward momentum has not improved by much and NZD is unlikely to weaken further. For today, NZD is more likely to trade sideways within a range of 0.5935/0.5990.”

Next 1-3 weeks: “We have expected NZD to weaken since the middle of last Wednesday (14 Sep, spot at 0.6005). In our latest narrative from last Friday (16 Sep, spot at 0.5965), we highlighted that NZD is likely to weaken further, possibly to 0.5900. Yesterday (19 Sep), NZD dropped to a low of 0.5929. While downward momentum has not improved by much, there is room for NZD to weaken further to 0.5900. Only a breach of 0.6020 (‘strong resistance’ level was at 0.6035 yesterday) would indicate that the weakness in NZD has stabilized.”

• USD/CNH takes the bids to refresh intraday high, snaps two-day downtrend.
• Sustained bounce off 5-DMA, bullish chart pattern keeps buyers hopeful.
• Overbought RSI, early 2020 swing lows challenge immediate upside.

USD/CNH renews intraday high near 7.0190 during the early Tuesday morning in Europe. In doing so, the offshore Chinese yuan (CNH) pair bears the burden of the People’s Bank of China’s (PBOC) inaction while staying inside a six-week-old bullish trend channel.

That said, the PBOC keeps the one-year and five-year Loan Prime Rate (LPR) unchanged at 3.65% and 4.30% respectively.

In addition to the PBOC moves, the pair’s rebound from the 5-DMA also keeps the USD/CNH buyers hopeful unless the quote stays beyond the 7.0015 level.

However, the overbought RSI conditions, as well as the aforementioned channel’s resistance line near 7.0625, challenge the quote’s upside past 7.0015.

It should be noted that the lows marked during April and June of 2020, around 7.0360 and 7.0400 in that order, could restrict the USD/CNH upside afterward.

Meanwhile, a downside break of the 7.0015 mark will need validation from the 7.0000 psychological magnet.

Also likely to challenge the USD/CNH bears will be the stated channel’s lower line and the 21-DMA, respectively around 6.9500 and 6.9400 in that order.

USD/CNH: Daily chart

Trend: Limited upside expected

In the view of economists at HSBC, the USD’s outlook depends on global growth, risk appetite, and relative yields but they still do not see a shift in these three drivers. As such, the US dollar will remain resilient.

Ongoing and persistent strength

The USD is likely to remain supported by a deteriorating global growth outlook, with rising recession probabilities in Europe and the UK. 

“The Federal Reserve is likely to continue to hike rates until early 2023 before keeping its policy rate steady throughout 2023, according to our economists and the current rates market expectations. In other words, the Fed’s tightening path and associated USD strength are likely to persist.” 

“It is hard to see how risk appetite can change for the better, while global growth weakness and central banks pivoting to rate cuts are not on the near-term horizon. The current risk-averse tone in financial markets is likely to also support the USD, given its ‘safe-haven’ profile. Nonetheless, it will be important to see if risk appetite improves, once markets believe central banks have raised rates enough.”

Considering preliminary readings from CME Group for crude oil futures markets, traders reduced their open interest for the fourth consecutive session on Monday, this time by around 8.4K contracts. Volume followed suit and shrank for the third session in a row.

WTI: Bullish attempts capped by $90.00

Prices of the WTI navigated a volatile session on Monday and closed with modest losses around the $85.00 mark per barrel. The downtick was on the back of shrinking open interest and volume and could allow for a near term rebound, although the upside appears limited around the $90.00 yardstick for the time being.

This week is full of G10 central bank meetings so there will be less attention on the meeting of the Banco Central do Brasil (BCB) this Wednesday. Therefore, the USD/BRL is set to be driven by the Federal Reserve meeting, but a surprise hike from the BCBC could support the Brazilian real, economists at Commerzbank report.

Break in the rate hike cycle?

“It would come as a surprise if the BCB were to suddenly sound dovish on Wednesday or even signalled rate cuts. It seems more likely that interest rates will remain unchanged while the BCB will keep the door open for further tightening so that the decision is unlikely to put major pressure on BRL. A surprise rate hike might even provide some support for BRL.”

“It has to be said though that the attention of market participants will focus mainly on the Fed meeting this week, which is also being held on Wednesday so that USD/BRL is likely to be mainly driven by the USD side.”

In Canada, Consumer Price Inflation (CPI) is due today. Core inflation measures are likely to be of great interest as will give an indication as to how much further monetary policy tightening in Canada is likely to go. Nonetheless, the USD/CAD pair is set to remain above the 1.30 level, economists at Commerbznka report.

Core inflation is what matters

“If the core inflation data were to surprise to the upside, similar to the data from the US recently, the market is likely to increase its expectations for the level at which the key rate will peak. CAD might be able to benefit briefly.”

“The environment remains difficult for CAD though. High market uncertainty and the fall in commodity prices combined with USD remaining at high levels mean that levels below 1.30 in USD/CAD might remain out of reach for now.”

See – Canadian CPI Preview: Forecasts from five major banks, core inflation to stay high

Then Bank of Japan is set to maintain a dovish stance this week. At the same time, the Federal Reserve is set to continue its hiking cycle. Thus, the USD/JPY pair could extend its upmove, economists at Commerzbank report.

Prices in Japan continue to rise

“The BoJ is likely to be the only G10 central bank to leave its ultra-expansionary monetary policy unchanged this week. This is despite the fact that prices in Japan are also rising at an increasingly rapid pace. As a result, criticism of Japan's monetary policy is likely to grow louder and downward pressure on the JPY will remain high.”

“If the Fed acts decisively again tomorrow, USD/JPY could continue to trend upward. After all, the differences in monetary policies are simply too striking.”

There are no relevant data due for publication today. Therefore, economists at Commerzbank expect the EUR/USD pair to trade sideways close to parity until the Federal Reserve meeting scheduled on Wednesday.

Trade in EUR/USD lacking momentum

“EUR/USD investors have to be patient for a little longer as the US central bank decision is not due until tomorrow.”

“As only second-tier data publications are due on Tuesday, the EUR/USD pair is likely to trade sideways close to parity until the Federal Reserve meeting.”

China's Foreign Minister Wang Yi urges to deal with the Taiwan issue properly, Reuters reported on Tuesday.

Last week, Wang said that Japan must not 'obscure' its stance on the Taiwan issue.

The tension between US and China over Taiwan escalated this week after American President Joe Biden that the “US military would defend Taiwan in the event of an invasion by China.”

Market reaction

The aussie remains undermined by the renewed US dollar buying and looming US-China woes. The spot is currently trading at 0.6719, down 0.10% on the day.

• USD/CHF retreats from intraday high but prints mild gains on a day.
• Swiss trade balance, import/exports print softer numbers for August.
• DXY snaps two-day downtrend amid hawkish Fed bets, ignores inflation expectations.
• SNB is up for 0.50% rate hike but Fed’s 75 bps rate lift appears mostly priced in.

USD/CHF remains mildly bid around 0.9655, after a sluggish week-start, as downbeat Swiss data joins the broad US dollar strength amid Tuesday’s Asian session. Also challenging the Swiss currency (CHF) pair buyers is the cautious mood ahead of the monetary policy decisions from the US Federal Reserve (Fed) and the Swiss National Bank (SNB).

That said, the Swiss Trade Balance eased to 3,424M in August versus 3,717M market forecasts and 3,522M previous readings. The details suggest that the Exports also dropped to 20,942M versus 22,242M while Imports slid to 17,519M versus 18,720M during the stated month.

Elsewhere, the US Dollar Index (DXY) prints the first daily gain of around 109.65-70 in three while tracking the Treasury yields. Also keeping the greenback on a firmer footing are the geopolitical fears surrounding China and Russia.

It should be noted that the downbeat US housing numbers and multi-day low of the US inflation expectations, as per the breakeven inflation rate of the St. Louis Federal Reserve (FRED), challenged the US dollar buyers earlier.

Against this backdrop, the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 whereas the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order.

Moving on, Wednesday’s Federal Open Market Committee (FOMC) will be the first key catalyst for the USD/CHF pair amid the mostly priced-in 0.75 rate hike. With this, the US dollar’s further upside hinges on Fed Chair Jerome Powell’s speech and the economic forecasts. Following that, Thursday’s SNB’s 0.50% rate hike will unveil the first positive rate since late 2014, which in turn could help the CHF buyers to return.

Technical analysis

Monday’s Doji candlestick challenges USD/CHF buyers unless the quote provides a daily closing beyond the 100-DMA hurdle surrounding 0.9690.

FX option expiries for Sept 20 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9800 1.3b
• 0.9900 287m
• 0.9920 402m
• 0.9975-80 265m
• 1.0000 823m
• 1.0040-50 965m
• 1.0100 632m
• 1.0125 668m
• 1.0200-10 500m

- GBP/USD: GBP amounts        

• 1.1425 697m
• 1.1525 449m

- USD/JPY: USD amounts                     

• 141.00 226m
• 143.25 260m

- USD/CHF: USD amounts        

• 0.9545 575m

- AUD/USD: AUD amounts  

• 0.6675 406m
• 0.6720 400m
• 0.6725-35 408m
• 0.6750 313m

- USD/CAD: USD amounts       

• 1.3100 282m
• 1.3130 394m

- EUR/JPY: EUR amounts

• 141.00 489m

• Oil prices have overstepped the critical hurdle of $85.00 as the ‘value buy’ component kicked in.
• PBOCs unchanged policy will keep the oil demand in China intact.
• Fed policy and guidance on interest rates will remain in focus.

West Texas Intermediate (WTI), futures on NYMEX, have bounced back sharply after slipping to near $82.00 on Monday. The asset has witnessed a single tail buying structure and has recaptured the critical hurdle of $85.00. The oil prices have turned sideways now in the $84.78-85.63 range and are preparing for further upside towards the round-level resistance of $90.00.

Investors have shrugged off the clouds of uncertainty over the oil demand ahead of an interest rate decision by various members of the G-7 group. To tame the roaring inflation, central banks are prepared for a fresh rate hike cycle and hawkish guidance on borrowing rates. No doubt, the decision will trim the projections for oil demand.

A value buy component has resulted in a responsive buying for the oil but that needs meaningful catalysts to support the rally.

Meanwhile, the People’s Bank of China (PBOC) has kept its monetary policy unchanged. The central bank has kept its one-year and five-year Prime Lending Rate (PLR) stable. A rate cut was expected by the market participants as the economy is strict on its path of spurting the growth rate. Also, China’s inflation rate slipped in August, which bolstered the expectations of a dovish stance. China is the world’s largest importer of oil and a stable monetary policy will keep the oil demand intact.

Going forwards, investors’ focus will be on the interest rate decision by the Federal Reserve (Fed). The Fed is expected to step up its interest rates by a third consecutive 75 basis point (bps) interest rate hike. This may shake the oil bulls significantly.

Also, the oil stockpiles data by the Energy Information Administration (EIA) will be of utmost importance. The agency has been displaying a build-up of oil inventories for the past two weeks.

Ahead of her first bilateral meeting with US President Joe Biden in New York on Wednesday, UK Prime Minister (PM) Liz Truss dismissed speculation that Britain may strike a trade deal with the US.

Key quotes

“There aren’t currently any negotiations taking place with the US and I don’t have any expectation that those are going to start in the short to medium term.”

“Priorities would be joining the trans-Pacific trading partnership of 11 countries, including Australia, Canada and Singapore, as well as striking deals with the Gulf States and India.”

“Number one” focus in talks with Biden at the UN on Wednesday would be global security, especially working with the US and European partners to deal with Russian aggression in Ukraine.

Market reaction

The pound remains vulnerable in early Europe, with GBP/USD looking to attack 1.1400, losing 0.07% on the day.

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, GBP/USD remains under pressure and could face some range bound in the near term.

Key Quotes

24-hour view: “We expected GBP to ‘to consolidate within a range of 1.1380/1.1480’ yesterday. However, GBP dipped to 1.1359, rebounded to 1.1440 before closing at 1.1434 (+0.10%). The rebound in GBP has scope to extend but any advance is viewed as part of a higher sideway trading range of 1.1400/1.1480. In other words, we do not expect a sustained rise above 1.1480.”

Next 1-3 weeks: “There is no change in our view from yesterday (19 Sep, spot at 1.1435). As highlighted, the downside risk in GBP remains intact but oversold 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 (no change in ‘strong resistance’ level from yesterday).”

• EUR/GBP remains pressured after refreshing 19-month high the previous day.
• Overbought RSI adds strength to the pullback moves targeting the previous double-top.
• Bulls can aim for late 2020 lows beyond 0.8785.

EUR/GBP reverses from a nine-month-old resistance as it drops to 0.8768 during early Tuesday morning in Europe. In doing so, the cross-currency pair also respects the overbought RSI conditions, as well as sluggish MACD.

That said, the quote’s latest weakness eyes the previous double tops, now the key support around 0.8720.

However, the 0.8700 threshold and a two-week-old support line around 0.8660 could restrict the EUR/GBP pair’s further downside.

In a case where the pair breaks the 0.8660 support, the odds favoring its slump towards the monthly low surrounding 0.8565 can’t be ruled out.

Alternatively, an upside clearance of the stated resistance line, at 0.8785 by the press time, needs validation from the 0.8800 round figure to direct the pair buyers towards the late 2020 swing lows around 0.8865-70.

It’s worth noting that the EUR/GBP run-up beyond 0.8870 won’t hesitate to challenge the 0.9000 psychological magnet.

Overall, EUR/GBP is likely to witness a pullback from the multi-day high but the bullish trend is likely to prevail.

EUR/GBP: Daily chart

Trend: Pullback expected

Bank Indonesia (BI) will hold its monthly governor board meeting on Thursday, September 22 at 07:00. Here you can find the expectations as forecast by the economists and researchers of six major banks regarding the upcoming central bank's rate decision. 

BI is expected to hike rates by 25 basis points to 4% but there are a few analysts who look for a larger 50 bps move. 

ANZ

“We expect BI to hike the policy rate by 25 bps amid rising inflation pressures. Inflation is likely to continue rising as the impact of the hike to fuel prices on 3 September continues to filter through to other goods and services. The government estimates that inflation will end 2022 at 6.6-6.8%, which is broadly in line with our own projections. We expect inflation to return to BI’s target band of 2-4% in H2 2023. However, aggressive rate hikes are unlikely to be on the cards. The IDR’s outperformance relative to regional peers and still sizeable trade surpluses also reduces the impetus for larger hikes. Overall, our baseline scenario is for BI to increase its policy rate in steps of 25 bps until it reaches a terminal rate of 5.25% (in Q1 2023).”

Standard Chartered

“We expect BI to hike the 7-day reverse repo rate by 25 bps to 4.0% to contain inflation expectations from the recent increase in subsidised fuel prices, following the pre-emptive 25 bps hike in August. We expect BI to hike by a total of 75 bps to 4.5% by the end of this year, as we think it will want to maintain positive real rates adjusted for core inflation (we expect core inflation to reach 4% in 2022). We expect BI to maintain a gradual pace of interest rate hikes, given a relatively stable IDR and likely contained core inflation.”

ING

“BI surprised markets with a rate hike at its August meeting and we can’t rule out another surprise. We expect BI to hike 50 bps. Headline inflation has just recently moved past the central bank’s target and we can expect this trend to continue after its fuel price hike. BI Governor Perry Warjiyo, however, did rule out ‘jumbo-sized’ rate hikes, possibly referring to the 75 bps rate hikes carried out by the Fed.” 

TDS

“After the surprise move last month, we expect BI to hike by 25 bps again to keep a cap on price pressures. Core inflation is trending higher and may be indirectly affected by the 30% increase in fuel prices.”

SocGen

“Our immediate call is for another 25 bps rate hike – lifting the policy rate to 4.0% from 3.75%. The hike in fuel prices and multiple rounds of pass-through will likely lead to a sharper spike in inflation ahead. Not only do we see core inflation rising, we also expect the price hike to lead to higher food prices, reversing the recent easing that saw headline inflation drop from 4.9% in July to 4.7% in August. We expect BI to be rather aggressive, though it may not frontload rate hikes and opt for incremental changes.”

OCBC

“Helped by the current account stability due to coal-related receipts, the Indonesian rupiah has stayed remarkably resilient, even in the face of renewed USD strength. Such an environment cannot be taken for granted, especially if the central bank were to somehow dismiss the need to hike policy rate further to fight against the fuel-driven inflation risk. Hence, we see BI hiking rate by 25 bps.”

CME Group’s flash data for gold futures markets noted open interest resumed the uptrend and rose by more than 2K contracts on Monday. Volume, instead, shrank for the second session in a row, this time by around 82.6K contracts.

Gold looks supported near $1,650

Monday’s inconclusive price action in gold was amidst rising open interest, which is supportive of some consolidation in the very near term. In the meantime, the area of recent lows near $1,650 per ounce troy emerges as quite a decent contention for the time being.

Gold price is looking to extend its downside consolidation phase on Tuesday, having revisited 29-month lows near $1,655 a day before. XAU/USD needs acceptance above $1,680 on a four-hourly closing basis to confirm a triangle breakout, FXStreet’s Dhwani Mehta reports.

XAU/USD bulls to remain cautious below $1,700

“Gold has been traversing within an ascending triangle formation after hitting the two-year bottom last Friday. Bulls are testing the upper boundary of the triangle, which is aligned at $1,680. They need a four-hourly candlestick close above the latter to confirm a triangle breakout. The next upside barrier will be seen at the $1,690 round number, above which the $1,700 threshold could come into play.”

“On the flip side, the bearish 21-Simple Moving Average (SMA) at $1,672 will be the immediate cushion. The next line of defense for XAU bulls is envisioned at the previous day’s low of $1,660. The 29-month low of $1,654 will be back on sellers’ radars should the downside momentum gather steam.”

• Gold prices have lost their steam as the DXY has rebounded firmly.
• Investors are pouring funds into the DXY on expectations of a bumper rate hike by the Fed.
• Fed’s interest rate could peak around 4-5% but will sustain steady beyond 2023.

Gold price (XAU/USD) has resumed its downside journey after sensing selling interest at around $1,680.00 in the Asian session. The pullback move in the precious metal is concluding now as the US dollar index (DXY) has rebounded firmly. The DXY has picked bids after slipping below the critical hurdle of 109.50.

Bids and the DXY have shown a magnetic relationship as investors are underpinning the latter ahead of the Federal Reserve (Fed) policy. The Fed is expected to accelerate its interest rates by a third consecutive 75 basis point (bps) hike.  As price pressures are not displaying meaningful exhaustion and have also not displayed signs of making a top, the Fed is forced to tighten the monetary tools further.

Apart from the announcement, investors will also focus on the interest rate guidance. The survey from the Financial Times conducted in partnership with the Initiative on Global Markets at the University of Chicago’s Booth School of Business sees Fed interest rates above 4% beyond 2023. The Fed is unlikely to shift its stance to a ‘neutral’ path before the conclusion of 2023 as price pressures will take sufficient time to return to the restoration level. Also, the interest rates will peak around 4-5%.

Gold technical analysis

On an hourly scale, gold prices are oscillating in an Ascending Triangle whose upward-sloping trendline is placed from the previous week’s low at $1,654.17 while the horizontal resistance is plotted from Friday’s high at $1,680.39.

The asset has surrendered the support of the 20-period Exponential Moving Average (EMA), which is placed at $1,673.43.

Gold hourly chart

• NZD/USD fades corrective bounce off the lowest level since May 2020.
• PBOC inaction, downbeat RBA minutes contrast with hawkish Fed bets to favor Kiwi bears.
• Return of full markets amplify cautious mood ahead of the key central bank announcements.
• Short-term descending trend line, May 2020 low highlights 0.5920 as the key support.

NZD/USD takes offers to refresh intraday low around 0.5935 heading into Tuesday’s European session. In doing so, the Kiwi pair drops for the second consecutive day while fading the previous day’s bounce off the 28-month low marked on Monday.

The quote’s latest weakness could be linked to the broad US dollar rebound, as well as the market’s cautious mood ahead of the US Federal Reserve (Fed) monetary policy announcements. Additionally, fears surrounding China and Europe joining downbeat monetary policy meeting minutes from the Reserve Bank of Australia’s (RBA) and People’s Bank of China’s (PBOC) inaction seem to weigh on the NZD/USD prices.

RBA Minutes showed that the policymakers are well prepared for further rate hikes to tame inflation. However, the statements like, “Interest rates have increased quite quickly and were getting closer to normal settings,” seem to weigh on NZD/USD prices of late.

Also, the People’s Bank of China (PBOC) keeps the one-year and five-year Loan Prime Rate (LPR) unchanged at 3.65% and 4.30% respectively, which in turn poured cold water on the face of expectations of a rate cut and weigh on Kiwi prices.

Elsewhere, downbeat US housing numbers and multi-day low of the US inflation expectations, as per the breakeven inflation rate of the St. Louis Federal Reserve (FRED), seem to challenge the US dollar buyers.

Against this backdrop, the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 whereas the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order.

Moving on, NZD/USD bears are likely to keep the reins ahead of the Fed’s verdict. However, the pre-event consolidation might allow the quote to pare recent losses.

Technical analysis

A four-month-old descending trend line joins May 2020 bottom to portray 0.5920 as a tough nut to crack for the NZD/USD bears.

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang suggest a sustained breach of 0.9900 in EUR/USD remains unlikely in the short term.

Key Quotes

24-hour view: “Our expectations for EUR to ‘edge higher’ yesterday did not materialize as it traded between 0.9964 and 1.0029 before closing little changed at 1.0022 (+0.07%). The underlying tone still appears to be on the firm side and we continue to see room for EUR to edge higher. That said, any advance is unlikely to challenge the major resistance at 1.0070 (there is another resistance at 1.0050). Support can be found at 1.0000 and 0.9975.”

Next 1-3 weeks: “Our latest narrative from last Wednesday (14 Sep, spot at 0.9980) still stands. As indicated, 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 yesterday) would indicate that the current downward pressure has eased.”

• An upthrust formation at a crucial hurdle of 1.0050 has weakened the Eurozone bulls.
• The shared currency bulls could lose parity if sustains in the consolidation area.
• Failure in sustainability above 60.00 by the RSI (14) has pushed the asset back inside the woods.

The EUR/USD pair has sensed selling pressure after hitting an intraday high of 1.0050 in the Tokyo session. The asset has slipped sharply and is looking to extend losses as it is hovering around the immediate support of 1.0020. An occurrence of the same will deliver a vertical decline and the asset would lose the magical support of 1.0000.

Formation of an upthrust while attempting to break the tad longer consolidation has cleared that the downside bias is far from over. The upthrust formation signifies the availability of significant offers at a much-poked hurdle. The asset has slipped back into the consolidation range of 0.9956-1.0037 and will wait for a potential trigger to make a decisive move.

Asset prices are still higher than the 20-period Exponential Moving Average (EMA) at 1.0017 but don’t support a bullish bias now and will be demolished sooner.

Adding to that, the Relative Strength Index (RSI) (14) has failed to sustain in the bullish range of 60.00-80.00, which signals that the shared currency bulls are not bullish now.

Going forward, a drop below Friday’s low at 0.9945 will drag the asset towards a two-decade low at 0.9864, followed by the round-level support at 0.9800.

Alternatively, a break above Tuesday’s high at 1.0050 will send the asset towards September 6 high at 1.0113. A breach of the latter will drive the asset towards the previous week’s high at 1.0198.

EUR/USD hourly chart

• GBP/USD retreats from intraday high, fades bounce off yearly low.
• Bullish candlestick formation, RSI conditions join three-month-old support line to lure bulls.
• Bears could aim for 1985 low on clear break of 1.1350.

GBP/USD struggles to extend the previous day’s rebound from a three-month-old support line, retreating to 1.1420 heading into Tuesday’s London open. Even so, the bullish candlestick formation and oversold RSI (14) tease the Cable pair buyers ahead of the key weekly events.

Read: GBP/USD dribbles above 1.1400 with eyes on yearly low, Fed vs. BOE divergence

GBP/USD pair’s rebound from the downward sloping support line from June portrayed a Dragonfly Doji at the lowest levels since 1985 during the previous day. The same joins oversold RSI conditions to keep buyers hopeful. It’s worth noting that the trend reversal suggesting candlestick has more importance if it's at the multi-day low, as it's in the case of the Cable pair.

However, the 5-DMA hurdle surrounding 1.1460 restricts the quote’s immediate upside ahead of the 21-DMA resistance near 1.1590.

In a case where the GBP/USD bulls keep reins past 1.1590, the monthly high near 1.1740 and July’s low of 1.1760 will be in focus.

Meanwhile, a downside break of the 1.1450 support line figures could quickly fetch the quote towards the 1.1000 psychological magnet. Following that, the year 1985 low near 1.0520 will be in focus.

GBP/USD: Daily chart

Trend: Corrective pullback expected

• USD/IDR picks up bids to reverse the pullback from a two-month high.
• Firmer Inflation pushes BI towards another rate hike, Fed hawks also keep the reins.
• Sluggish sentiment, light calendar tests intraday traders ahead of the key events.

USD/IDR pares intraday losses around $14,980 during Tuesday’s Asian session, consolidating the two-day losses made around the highest levels since late July. In doing so, the Indonesian rupiah (IDR) pair justifies the market’s anxiety ahead of the monetary policy meetings of the US Federal Reserve (Fed) and the Bank Indonesia (BI).

The IDR’s latest weakness could be linked to the downbeat comments from global rating agency Fitch as it said, “Profits of Indonesia’s modern grocery retailers are likely to come under pressure from weaker consumption due to increased inflation.” The update also mentioned that the BI has reported substantially higher inflation of 4.69% in August 2022, from 2.18% in January 2022 and 1.59% in August 2021.

With this in mind, a Reuters poll suggests that Bank Indonesia will follow a surprise August interest rate rise with another 25 basis point hike at its meeting on Thursday, still moving more slowly than most of its peers in trying to bring down inflation.

On other hand, the CME’s FedWatch tool hints at 82% chance of the 75 basis points of a Fed rate hike during Wednesday’s monetary policy meeting. Also, the tool signals around 18% odds favoring the full one percent upside in the rate by the Fed.

It should be noted that the economic fears surrounding China and Europe also challenge USD/IDR bears. However, downbeat US housing data and inflation expectations seemed to have exerted downside pressure on the quote previously.

Against this backdrop, the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 whereas the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order.

Moving on, USD/IDR traders should closely wait for the Fed vs. BI play as the former is likely to not impress markets even with the hawkish move, which in turn could weigh on the pair in case if the Bank Indonesia manages to please IDR bulls.

Technical analysis

Despite the latest weakness, USD/IDR bears remain off the table unless the quote trades beyond the convergence of the 21-DMA and 50-DMA, around $14,900.

• Asian stocks have rebounded after tracking positive cues from Wall Street.
• Chinese indices have secured gains despite an unchanged PBOC policy.
• Oil prices have recaptured the hurdle of $85.00 ahead of Fed policy.

Markets in the Asian domain have rebounded sharply after plummeting on Monday. Asian indices are following the cues from Wall Street and are trading in the positive territory ahead of the interest rate decision by the Federal Reserve (Fed). Investors have shrugged off the clouds of uncertainty over the Fed meeting as a rate hike is expected, however, the extent could accelerate further.

At the press time, Japan’s Nikkei225 and ChinaA50 added 0.43% while Hang Sang jumped 1.37%.

Chinese equities are holding gains despite the maintenance of the status quo by the People’s Bank of China (PBOC). The central bank has kept its one-year and five-year Prime Lending Rate (PLR) unchanged. A rate cut was expected by the market participants as the economy is strict on its path of spurting the growth rate. Also, China’s inflation rate slipped in August, which bolstered the expectations of a dovish stance.

Meanwhile, Japan’s Ministry of Finance (MOF) has promised additional spending of 3.48 trillion yen in budget reserves to cope with price hikes and covid-19, news wires from Reuters. An improvement in price pressures will surely delight the Bank of Japan (BOJ) as the central bank is facing the headwinds of prolonged depreciation in the domestic currency.

On the oil front, oil prices have recaptured the critical resistance of $85.00 despite soaring odds of a bumper rate hike by the Federal Reserve (Fed). Squeezing liquidity from the economy will have a significant impact on oil demand. In spite of this fact, investors are pouring funds into black gold.

• USD/JPY struggles for clear directions amid mixed concerns, anxiety ahead of key events.
• Japan’s National Consumer Price Index (CPI) jumps to eight-year high in August.
• Chatters surrounding BOJ intervention, stimulus join sluggish yields to restrict immediate moves.
• Second-tier US data may entertain traders but Fed vs. BOJ divergence is the key.

USD/JPY struggles to defend 143.00, despite a recent pick-up during early Tuesday morning in Europe. In doing so, the yen pair portrays the market’s indecision ahead of the key monetary policy meeting decision from the US Federal Reserve (Fed) and the Bank of Japan (BOJ).

It’s worth noting that the eight-year high Japan inflation data, as per the National CPI YoY for August, joins the weaker yen to push the Bank of Japan (BOJ) towards monetary policy change even if the doves are tightly holding the reins. Strong yields on the Japanese Government Bonds (JGBs) also underpin hawkish bias for the BOJ.

Even so, Reuters said that the Bank of Japan is set to maintain ultra-low interest rates and its dovish policy guidance on Thursday, a decision that comes hours after its US counterpart's expected big rate hike and could trigger a fresh bout of yen selling. The BOJ preview also mentioned, “At a two-day policy meeting ending on Thursday, the BOJ is set to maintain its short-term rate target at -0.1% and that for 10-year government bond yields around 0%. Kuroda will hold a news conference after the meeting.”

Elsewhere, Japanese Finance Minister Shunichi Suzuki said on Tuesday that he “expects the Bank of Japan (BOJ) to guide policy appropriately taking prices and the economy into account.” On the same line were comments from the country’s Chief Cabinet Secretary Hirokazu Matsuno said that the “decision on reserve funds tries to mitigate the impact of price increases.”

Furthermore, Japan’s Ministry of Finance (MOF) stated earlier that the government will spend 3.48 trillion yen in budget reserves to cope with price hikes and covid-19.

Alternatively, downbeat US housing numbers and multi-day low of the US inflation expectations, as per the breakeven inflation rate of the St. Louis Federal Reserve (FRED), seem to challenge the US dollar buyers. However, economic fears emanating from China and Europe, as well as the return of the full markets, put a carpet under the US dollar.

Amid these plays, the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 whereas the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order.

Moving on, USD/JPY traders will pay attention to the Fed versus BOJ divergence to determine the short-term directions of the pair. If the Fed chooses to talk down the further rate hikes and the BOJ sounds cautiously dovish, the odds of witnessing a pullback in prices can’t be ruled out.

Technical analysis

Despite the latest inaction, a sustained downside break of the 10-DMA, around 143.40 by the press time, joins multiple failures to cross the 145.00 hurdle to keep USD/JPY bears hopeful.

• USD/CAD is expected to slip further to near 1.3200 amid lower consensus for Canada’s CPI data.
• The Fed would be comfortable in hiking the interest rates by a full percent.
• Oil prices have rebounded firmly on expectations of more stimulus by the Chinese government.

The USD/CAD pair has turned sideways around 1.3250 after a less-confident rebound from 1.3227 in the Tokyo session. On Monday, the asset witnessed a steep fall after failing to sustain above the crucial resistance of 1.3300. The major slipped sharply after investors shrugged off the uncertainty over the monetary policy announcement by the Federal Reserve (Fed) on Wednesday.

As price pressures are too far from the desired rate of 2%, a continuation of the bumper rate hike announcement by the Fed cannot be ruled out. According to the estimates, the Fed will maintain its status quo and will announce a rate hike by 75 basis points (bps) for the third time.

However, the inflation rate is not responding well to the current pace of hiking interest rates, as desired. And, Fed chair Jerome Powell has room to accelerate the pace further due to robust retail demand and a tight labor market. Therefore, investors should be prepared for a higher-than-normal number.

Meanwhile, loonie investors are focusing on the Consumer Price Index (CPI) data. The headline CPI figure is seen lower at 7.3% vs. the prior release of 7.6%. It seems that restrictive monetary policies by the Bank of Canada (BOC) have got elevation and price pressures have started responding now. Also, the core CPI that excludes oil and food prices is expected to decline by 10 basis points (bps) to 6%.

On the oil front, oil prices have rebounded firmly after hitting a low near $82.00 as investors are expecting more stimulus from the Chinese administration. The oil prices have recaptured the critical hurdle of $85.00 and are expected to sustain higher as more stimulus in the Chinese economy will spurt the oil demand. This may strengthen the loonie bulls further.

It is worth noting that Canada is the largest exporter of oil to the US and higher oil prices accelerate fund inflows, which strengthen its fiscal balance sheet further.

• A rebound move after defending the two-year low at around 0.6680 has strengthened aussie bulls.
• The 50-EMA at 0.6713 has acted as major support for the antipodean.
• A bullish range shift by the RSI (14) will trigger an upside momentum.

The AUD/USD pair has rebounded sharply after correcting to near 0.6713 in the Tokyo session. The asset is gaining strength amid a firmer establishment above the round-level hurdle of 0.6700. The major has breached the immediate resistance of 0.6732 and is attempting to sustain above the same.

On an hourly scale, the commodity-sensitive currency has bounced sharply after testing the two-year low at around 0.6680. The formation of the Double Bottom chart pattern indicates lower selling pressure while testing the lows again and dried selling resulted in a vertical upside move. The road ahead is not easy for the antipodean and will find hurdles around the horizontal resistance placed from September 1 low around 0.6770.

The 50-period Exponential Moving Average (EMA) at 0.6713 has acted as a major cushion for the counter. While, the 200-EMA at 0.6754 is still higher, which could spoil the mood of Aussie investors.

The Relative Strength Index (RSI) (14) is on the verge of shifting into the bullish range of 60.00-80.00, which will deliver a vertical upside ahead.

Aussie bulls will strengthen further if the asset surpasses the above-mentioned critical hurdle at 0.6770. This will drive the asset towards September 5 high at 0.6832, followed by the previous week’s high at 0.6916.

Alternatively, a break below the above-mentioned demand zone will drag the asset towards the round-level support at 0.6600. A slippage below the latter will drag the asset towards the 25 May 2020 low at 0.6520.

AUD/USD hourly chart

• Gold price remains indecisive after bouncing off the yearly low.
• Sluggish markets, cautious mood ahead of the key central bank announcements test XAU/USD traders.
• Heavy fall in gold ETF holdings contrast with the DXY’s pullback to challenge traders.

Gold price (XAU/USD) changes hands near $1,676 while trying to defend Friday’s corrective bounce off the two-year low during Tuesday’s early European morning. In doing so, the bullion portrays the market’s anxiety ahead of the key central bank announcements amid trade/geopolitical fears emanating from Russia and China.

Fears that the US dollar has already priced in the Fed’s 0.75% rate hike and there is no further room for the greenback’s upside seemed to have weighed on the US currency of late. The fears could well be linked to the downbeat US housing data and inflation expectations.

The US NAHB Housing Market Index fell for a ninth consecutive month to 46 versus 48 expected and 49 prior. That said, the 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 to a two-month low near 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.

On other hand, European Commission’s readiness for using emergency power to avoid a supply crisis seemed to have joined the hawkish comments from the European Central Bank (ECB) policymakers to underpin the XAU/USD upside, via a softer USD. Also, a little less noise surrounding the US-China tension over Taiwan and China’s covid unlocks adds to the positives for the metal prices.

Even so, multi-day high yields and overall expectations of higher rates amid economic slowdown concerns seem to keep the gold price pressured. Also, news that holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to 30,799,131 ounces on Monday, the lowest since March 2020, add to the negative catalysts for the XAU/USD traders.

That said, the second-tier US housing numbers may offer immediate directions ahead of Wednesday’s FOMC.  Given the higher hopes from the Fed, any disappointment won’t be taken lightly and can provide the much-needed bounce to the XAU/USD from the yearly low.

Technical analysis

Gold price struggles to overcome the 5-DMA immediate hurdle near $1,680 inside a seven-week-old bearish channel. Also challenging the buyers are the bearish MACD signals and downbeat RSI (14) conditions.

It’s worth noting that the XAU/USD rebound past $1,680 needs validation from the previous support line from late July, around $1,695, as well as the $1,700 threshold, to recall the buyers.

On the contrary, the stated channel’s support line near $1,650 is likely to lure the gold sellers during the fresh downside.

Following that, the $1,600 round figure and the April 2020 low surrounding $1,570 will be in focus.

Gold: Daily chart

Trend: Bearish

According to economists at Goldman Sachs, the Bank of Japan (BOJ) is unlikely to alter its ultra-loose monetary policy stance, despite the increased pressure to act amidst the rapid depreciation of the yen and aggressive Fed rate hikes.

Key quotes

"We expect the BOJ to maintain the status quo across all monetary policy parameters — yield curve control (YCC), asset purchase programs, and forward guidance (with respect to policy rates) — at its September 21-22 monetary policy meeting (MPM).”

"We also expect the BOJ to confirm that the repeatedly extended special COVID-19 financing program will be wound down at the end of September, as scheduled."

• GBP/USD bounces off intraday low amid a sluggish welcome to the British traders after long weekend.
• British politics, Brexit headlines join cautious mood ahead of key central bank announcements to weigh on sentiment.
• BOE is likely to announce 0.50% rate hike but the Fed’s 75 bps move is already priced-in and keeps sellers on the edge.
• Risk catalysts, second-tier US data will also direct intraday moves.

GBP/USD struggles to defend buyers, despite the latest bounce off intraday low to 1.1420, as British traders return to their table after a long weekend on Tuesday. The Cable pair’s latest inaction could also be linked to the market’s fears ahead of the key monetary policy announcements from the Federal Open Market Committee (FOMC) and the Bank of England (BOE). Also challenging the quote are the headlines surrounding Brexit and UK politics.

A slew of global politicians is in London to pay their respects to Queen Elizabeth II, as well as discuss future ties amid a change in monarch and the Prime Minister. The majority of have, including Irish PM Micheal Martin, are less likely to witness any major change in their key strategic push, Brexit in this case, which in turn keeps the GBP/USD bears hopeful.

Elsewhere, softer US housing data and downbeat inflation expectations seemed to have favored the GBP/USD to rebound from the lowest levels since 1985 the previous day. The US NAHB Housing Market Index fell for a ninth consecutive month to 46 versus 48 expected and 49 prior. That said, the 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 to a two-month low near 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.

Even so, the CME’s FedWatch tool hints at 82% chance of the 75 basis points of a Fed rate hike during Wednesday’s monetary policy meeting. Also, the tool signals around 18% odds favoring the full one percent upside in the rate by the Fed.

Amid these plays, the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 whereas the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order. Also, Japan’s 10-year Government Bond yields (JGBs) jump to the highest since 2016.

Looking forward, Brexit/political updates from the UK may entertain GBP/USD traders and can mostly favor the bears. However, major attention will be on the divergence between the monetary policy announcements from the Fed and the BOE. Should the “Old Lady” as it is well known, choose to resist bold steps, the Cable pair may have a further downside to track.

Technical analysis

A two-month-old support line, near 1.1330 by the press time, restricts short-term GBP/USD downside.

• EUR/USD retreats from one-week high, snaps four-day uptrend.
• Sour sentiment, pre-Fed anxiety joins China/Europe chatters to recall bears.
• Multi-day low of US inflation expectations raised short-squeeze fears to underpin corrective bounce.
• Second-tier US data, speech from ECB President Lagarde eyed for fresh impulse.

EUR/USD takes offers to renew intraday low around 1.0020 as risk appetite weakens during full markets on Tuesday. In addition to the return of the Japanese and British traders after a long weekend, fears surrounding China and Europe join a cautious mood ahead of the key weekly events to weigh on the major currency pair.

Full markets keep the yields on a firmer footing while portraying the fears of recession. As a result, the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order. Also, Japan’s 10-year Government Bond yields (JGBs) jump to the highest since 2016. It should be noted that the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 to also signal the fading optimism.

Monday’s ninth consecutive fall in the US NAHB Housing Market Index joined the multi-day low of the US inflation expectations to previously favor the EUR/USD buyers. The 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 to a two-month low near 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.

Additionally, hopes that the market players are already certain about the Fed’s 0.75% rate hike and the same could allow the EUR/USD buyers to pare previous losses around the yearly low after the actual announcements seemed to have favored the recovery moves previously.

Elsewhere, hopes of a major stimulus from the European Commission and hawkish speech from the European Central Bank (ECB) officials also seemed to have favored the EUR/USD buyers.

It’s worth noting, however, that the return of the risk-off is likely to join the pre-event anxiety to exert downside pressure on the EUR/USD prices. That said, ECB President Christine Lagarde may allow the pair sellers to take a breather should she miss the mention of economic fears. Even so, the hawkish Fed expectations keep bears hopeful.

Technical analysis

A clear upside break of the 50-SMA immediate hurdle surrounding 1.0035 becomes necessary for the EUR/USD buyers to retake control. Otherwise, the 0.9945 support holds the key to the EUR/USD pair’s further downside.

Australia’s Treasurer Jim Chalmers revealed on Tuesday that the country’s budget deficit will be around A$50 billion smaller than forecast.

Additional quotes

“The final budget will be released next week.”

“The budget deficit in FY 21/22 will show improvement on the forecast.”

“Australia to support G7 initiative on cap on Russian oil prices.”

Market reaction

At the time of writing, AUD/USD is testing lows at 0.6713, shrugging off the above comments from Chalmers. The spot is down 0.16% on the day.

World Bank Group President David Malpass spoke with Fox Business earlier this morning and expressed his concerns over the global economic slowdown.

Key quotes

Related reads

• S&P 500 Futures, yields grind higher as market appears dicey ahead of key central bank moves
• Forex Today: Gearing up for central banks’ week

• Risk profile weakens on full markets’ return, pre-Fed consolidation continues.
• US Treasury Yields float near multi-day top, Japan 10-year bond coupons jumped to the highest since 2016.
• Stock future struggle to defend its latest corrective bounce amid inflation concerns.
• China, Russia concerns join light calendar to test traders.

Market sentiment remains sidelined, fading the week-start cautious optimism, as traders from Japan and the UK return from an extended holiday on Tuesday. Also weighing on the market’s mood could be the latest headlines surrounding yields and geopolitics, as well as inflation concerns.

While portraying the mood, the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 whereas the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order. Also, Japan’s 10-year Government Bond yields (JGBs) jump to the highest since 2016.

Softer housing data from the US and downbeat inflation expectations joined the absence of Tokyo and London to portray the market’s corrective pullback on Monday. the 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 to a two-month low near 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. On the same line, the US NAHB Housing Market Index fell for a ninth consecutive month to 46 versus 48 expected and 49 prior.

However, geopolitical fears surrounding China and Europe join hawkish Fed bets to keep bears hopeful. On Monday, US President Joe 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, Germany’s Bundesbank said 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.

That said, the CME’s FedWatch tool hints at 82% chance of the 75 basis points of a Fed rate hike during Wednesday’s monetary policy meeting. Also, the tool signals around 18% odds favoring the full one percent upside in the rate by the Fed.

Moving on, second-tier US housing data and chatters surrounding China can entertain traders ahead of Wednesday’s Federal Open Market Committee (FOMC).

Japanese Finance Minister Shunichi Suzuki said on Tuesday that he “expects the Bank of Japan (BOJ) to guide policy appropriately taking prices and the economy into account.”

He said that “specific monetary policy is up to the BOJ to decide.”

Market reaction

At the time of writing, USD/JPY is consolidating its latest leg up above 143.00, modestly flat on the day.

• AUD/JPY has attempted to build a cushion around 96.00 after tumbling from 96.50.
• A lower-than-expected hawkish commentary in RBA minutes has weakened the aussie bulls.
• An unchanged PBOC monetary policy has also weighed pressure on the antipodean.
• Improvement in Japan’s headline National CPI has weakened the cross.

The AUD/JPY pair has sensed a sigh of relief around 96.00 after witnessing a sheer downside from 96.50 in the Tokyo session. A lot of catalysts have weighted pressure on the cross. A lower-than-expected hawkish commentary on interest rates by the Reserve Bank of Australia (RBA) from its minutes has weakened the aussie bulls. RBA policymakers discussed a rate hike of 25 or 50 basis points (bps). The next rate hike will be more data-dependent and will keep in mind the consequences on the economy.

In September’s monetary policy meeting, RBA Governor Philip Lowe announced a fourth rate hike of 50 basis points (bps) and pushed the Official Cash Rate (OCR) to 2.35%. Apart from that, the RBA policymakers cited that the OCR is expected to peak around 3.85% and the inflation rate will top around 7%. With the current pace of hiking the OCR by 50 bps, the central bank will reach the desired target by December 2022.

Meanwhile, an unchanged People’s Bank of China (PBOC) monetary policy will keep the aussie bulls on the tenterhooks. A rate cut in Prime Lending Rate (PLR) was expected by the market participants as price pressures remained lower and acceleration in growth rate was higher than desired. It is worth noting that Australia is a leading trading partner of China and an unchanged monetary policy against expectations will scale down its export numbers against forecasts.

On the Tokyo front, Japan’s Ministry of Finance (MOF) stated that the government will spend 3.48 trillion yen in budget reserves to cope with price hikes and covid-19, as per Reuters. The headlines cleared that the inflation rate is picking up pace now in the Japanese region. The statement could be matched with the release of Japan’s National Consumer Price Index (CPI) numbers.

The headline National CPI has landed 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%.

• AUD/USD takes offers to refresh intraday low after RBA Minutes, PBOC rate announcement.
• RBA Board showed readiness to do what is necessary to tame inflation, PBOC keeps LPRs unchanged.
• Risk appetite weakens as full markets propel yields ahead of the key central banks’ announcements.
• Qualitative catalysts, second-tier housing data to entertain traders before Fed’s monetary policy announcements.

AUD/USD snaps a two-day uptrend while holding lower grounds near the daily bottom surrounding 0.6715 after the latest announcements from the Reserve Bank of Australia (RBA) and the People’s Bank of China. Also weighing on the Aussie pair could be the traders’ cautious mood amid full markets, after the week-start holidays in the UK and Japan.

RBA Minutes showed that the policymakers are well prepared for further rate hikes to tame inflation. However, the statements like, “Interest rates have increased quite quickly and were getting closer to normal settings,” seem to weigh on AUD/USD prices of late.

Also, the People’s Bank of China (PBOC) keeps the one-year and five-year Loan Prime Rate (LPR) unchanged at 3.65% and 4.30% respectively, which in turn poured cold water on the face of expectations of a rate cut and weigh on Aussie prices.

Elsewhere, a run-up in the US Treasury yields and the fears surrounding the Sino-American tussles, not to forget the market’s anxiety ahead of Wednesday’s Federal Open Market Committee (FOMC), seems to challenge the sentiment, as well as drown the AUD/USD.

Amid these plays, the US stock futures pare early Asian session gains and the US Treasury yields grind higher. It’s worth noting that the Japanese government bond yields rallied to the six-year high and portrayed the market’s rush towards risk-safety amid the fears of recession, as well as higher rates.

That said, AUD/USD traders may witness further downside amid the pre-Fed woes. However, today’s second-tier US housing data and chatters surrounding China can entertain traders.

Technical analysis

AUD/USD remains on the bear’s radar unless crossing a convergence of the two-week-old horizontal resistance area comprising the 50-SMA, around 0.6770.

Reserve Bank of Australia’s (RBA) September monetary policy meeting’s minutes showed that “all else equal, members saw the case for a slower pace of increase in interest rates as becoming stronger as the level of the cash rate rises.”

Additional takeaways

Market reaction

AUD/USD sticks to near-daily lows of 0.6717 on the dovish RBA minutes, losing 0.07 on the day.

• AUD/NZD has stepped up the crucial resistance of 1.1300 on expectations of hawkish RBA minutes.
• As per the RBA, the OCR and inflation rate will top around 3.85% and 7% respectively.
• NZ Westpac Consumer Survey is seen higher at 87.6 vs. 78.7 reported earlier.

The AUD/NZD pair has violated the crucial resistance of 1.1300 with significant force as investors are expecting signs of more rate hikes from the Reserve Bank of Australia (RBA) minutes. The cross is scaling sharply higher after establishing above the critical hurdle of 1.1260 on Monday. The asset is expected to display more upside considering the ongoing momentum.

Investors should be aware of the fact that the RBA announced a fourth rate hike of 50 basis points (bps) and pushed the Official Cash Rate (OCR) to 2.35% in the September monetary policy meeting. RBA Governor Philip Lowe is continuously accelerating the OCR to scale down the soaring price pressures. The Australian inflation rate has already increased to 6.1%, reading belongs to the second quarter of CY2022.

Apart from that, the RBA policymakers cited that the OCR is expected to peak around 3.85% and the inflation rate will top around 7%. With the current pace of hiking the OCR by 50 bps, the central bank will reach the desired target by December 2022.

On the NZ front, the kiwi bulls have failed to capitalize on upbeat Business NZ PMI data.  The economic data landed significantly higher at 58.6 vs. the prior release of 54.4. Going forward, the NZ Westpac Consumer Survey will be keenly watched. As per the preliminary consensus, the sentiment data will land at 87.6 for the third quarter against the former figure of 78.7.

In its monetary policy decision, unveiled early Tuesday, the People’s Bank of China (PBOC) keeps one-year and five-year Loan Prime Rate (LPR) unchanged at 3.65% and 4.30% respectively.

It should be noted that the PBOC keeps 7-day and 14-day reverse repos unchanged at 2.0% and 2.15% respectively.

Also read: PBOC sets USD/CNY reference rate at 6.9468 on Tuesday

AUD/USD pares recent gains

The news failed to impress AUD/USD traders as the Aussie pair extends pulback from the intrday high towards 0.6700 following the PBOC announcements. In doing so, the Aussie pair seems to wait for the Monetary Policy Meeting Minutes from the Reserve Bank of Australia (RBA).

Also read: AUD/USD prints three-day uptrend past 0.6700 with eyes on RBA Minutes, central banks

The People’s Bank of China (PBOC) set the USD/CNY reference rate at 6.9468 on Tuesday when compared to the previous fix and the previous close at 6.9488 and 7.0050 respectively. It should be noted that the PBOC fix eased below the market forecasts of 6.9483.

In addition to the rate announcement, Reuters also conveyed that with 2 billion yuan worth of reverse repos maturing on Tuesday, China central bank injects 24 billion yuan on a net basis on the day.

About the fix

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

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

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

• WTI extends pullback from intraday top after bouncing off weekly low the previous day.
• MACD conditions, repeated failures to cross 200-HMA keep sellers hopeful.
• Previous resistance line challenge sellers, buyers need validation from $86.00.

WTI crude oil price reverses the previous day’s rebound from the weekly low, also the lowest levels since January, as it drops to $85.05 during Tuesday’s Asian session.

In doing so, the black gold marks the third U-turn from the 200-HMA restricts as it approaches the one-week-old previous resistance line, around $84.65.

Not only the pullback from the 200-HMA but recently easing MACD and the lower high in prices also keep WTI sellers hopeful.

It’s worth noting that the 61.8% Fibonacci retracement of September 08-14 upside, around $84.25, adds to the downside filters before directing the quote towards the multi-month low marked earlier in September, close to $80.95.

Should the WTI bears conquer the $80.95 support, the downward trajectory won’t hesitate to break the $80.00 psychological magnet.

Alternatively, recovery moves need validation from the 200-HMA level surrounding $85.80. Also challenging the oil buyers is the Friday’s swing high near $86.00.

Following that, a run-up towards the monthly peak near $89.65 and then to the $90.00 psychological magnet can’t be ruled out.

WTI: Hourly chart

Trend: Further weakness expected

JAPAN GOVT TO SPEND 3.48 TRLN YEN IN BUDGET RESERVES TO COPE WITH PRICE HIKES, COVID-19

more to come

“The Bank of Japan’s outlier status is set to become even more acute this week with central banks from the Federal Reserve to the Swiss National Bank expected to raise borrowing costs,” mentioned Bloomberg late Monday.

Key quotes

Also read: USD/JPY declines to near 143.00 as DXY weakens further ahead of Fed policy

Early Tuesday morning in Asia, at 01:30 GMT, the Reserve Bank of Australia (RBA) will release the minutes of the latest monetary policy meeting held in August.

The RBA announced the fourth consecutive rate hike worth 50 basis points (bps) in September but failed to hide the growth concerns, which in turn raised doubts about the future moves of the Aussie central bank and tested the AUD/USD moves.

Although the RBA Minutes is more likely to keep its hawkish bias, the latest challenges for the key customer China and macroeconomic woes could probe the policymakers to adhere to softer rate increases in the future. The hints for such interesting events are likely to be watched in today’s RBA Minutes, making it crucial for the AUD/USD pair traders.

Westpac is on the same line and said,

Further detail on the Board’s views surrounding the current pace of rate hikes will be the key focus of the RBA’s September Meeting Minutes.

How could the minutes affect AUD/USD?

AUD/USD cheers broad US dollar weakness and cautious optimism in the market, as well as the downbeat US inflation expectations, to print a three-day uptrend around 0.6750.

That said, the Aussie pair’s further upside hinges on how the RBA Minutes manages to keep the bulls happy even if they know that the 50 bps rate hike is given. That being said, talks over the economic transition and neutral rate, as well as surrounding employment conditions, will also be crucial to watch for short-term AUD/USD forecast ahead of this week’s key Federal Open Market Committee (FOMC).

Technically, AUD/USD fades bounce off the nine-week-old ascending support line, around 0.6700 by the press time, amid bearish MACD signals and downbeat RSI (14), not oversold, which in turn suggests the Aussie pair’s further weakness.

Key Notes

AUD/USD prints three-day uptrend past 0.6700 with eyes on RBA Minutes, central banks

AUD/USD Forecast: Bulls cautious ahead of RBA Meeting Minutes

About the RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

• Gold price is eyeing more upside above $1,680.00 as investors have underpinned risk-on impulse.
• Robust retail demand and tight labor market are supporting the Fed to dictate a 1% rate hike.
• The DXY has slipped below 109.50 as investors have started discounting a bumper Fed rate hike.

Gold price (XAU/USD) has delivered an upside break of the consolidation formed around $1,675.00 in the early Tokyo session. The precious metal has advanced to near $1.680.00 and is preparing for a fresh rally. A decisive break above the immediate hurdle of $1,680.00 will strengthen the asset further. The bright metal has picked significant bids as the US dollar index (DXY) has witnessed a perpendicular fall at open.

The DXY has surrendered the critical support of 109.50 and has slipped further sharply. The asset has witnessed a severe weakness as investors have started discounting the bumper rate hike by the Federal Reserve (Fed). Considering the tight labor market and robust retail demand, the Fed is not tied to brisk hikes culture or maintaining the status quo. Investors should be prepared for a surprise rate hike by 100 basis points (bps) as inflationary pressures are needed to be tamed sooner.

A decline in the DXY prices has improved the risk appetite of the market participants significantly. Risk-perceived currencies and assets are picking up significant bids and are aiming sharply higher.

Gold technical analysis

Gold prices have bounced back firmly after sensing a decent buying interest around the demand zone placed in a narrow range of $1,654.17-1,660.46 on an hourly scale. The 20-and 50-period Exponential Moving Averages (EMAs) are on the verge of delivering a bullish crossover of around $1,673.00. The asset is expected to sense barricades around the horizontal resistance placed from September 7 low at $1,691.47.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which signals a continuation of bullish momentum.

Gold hourly chart

• US Dollar Index takes offers to print three-day downtrend amid pre-Fed consolidation.
• Inflation expectations, US housing numbers allow greenback to brace for hawkish FOMC.
• Risk catalysts, Fed bets keep buyers hopeful of 0.75% rate hike.
• Second-tier data can entertain traders but major attention will be on central bankers.

US Dollar Index (DXY) began the first full-market day of the week on the negative side as it drops to 109.40 during Tuesday’s Asian session. In doing so, the greenback’s gauge versus the six major currencies declined for the third consecutive day.

Softer US housing market data joined downbeat inflation expectations to weigh on the DXY amid a sluggish start to the key week.

That said, the 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 to a two-month low near 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. On the same line, the US NAHB Housing Market Index fell for a ninth consecutive month to 46 versus 48 expected and 49 prior.

On the contrary, the CME’s FedWatch tool hints at 82% chance of the 75 basis points of a Fed rate hike during Wednesday’s monetary policy meeting. Also, the tool signals around 18% odds favoring the full one percent upside in the rate by the Fed.

Not only the hawkish Fed bets but the risk catalysts surrounding China and Europe also should have underpinned the US dollar’s safe-haven demand.

On Monday, US President Joe 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, Germany’s Bundesbank said 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.

While portraying the mood, Wall Street closed positive and helps S&P 500 Futures to print mild gains as traders brace for the full markets. Further, the US Treasury yields also remain firmer around the multi-day top.

Technical analysis

Despite the recent pullback, the 21-DMA and an ascending support line from early August challenge the DXY bears around 109.30 and 108.40 in that order. Alternatively, recovery moves need validation from a two-week-old resistance line, around 110.10 by the press time.

• EUR/USD continues to creep higher in a correction on the daily charts
• Bulls eye a 50% mean reversion but failures will bring the lows back into focus with prospects of a downside extension of the broader bear trend.

As per the North American analysis, the euro is on the verge of testing critical resistances across the time frames and the following illustrates this n the hourly and daily charts. There will be prospects of a significant breakout of the bulls can take on the bearish commitments but failures will likely lead to a downside extension for the days ahead. 

EUR/USD H1 chart, prior analysis

EUR/USD update

EUR/USD is on the verge of a break of horizontal resistance.

The price is attempting to break higher, but as explained in the prior analysis, there is plenty of resistance ahead:

EUR/USD daily charts

EUR/USD continues to creep higher in a correction on the daily charts within the bearish cycle and below trendline resistance and is about to cross the 38.2% ratio.

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.

• USD/JPY has extended its losses after slipping to near 143.00 as DXY has weakened further.
• The DXY has dropped below 109.50 as investors have already discounted the rate hike by the Fed.
• Japan’s National CPI and core CPI have landed at 3.0% and 1.6% respectively.

The USD/JPY pair has extended its correction after surrendering the immediate hurdle of 143.15. The decline is purely parallel to the subdued performance of the US dollar index (DXY). A mixed National CPI has failed to strengthen the yen bulls. The headline National CPI has landed 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%.

On a broader note, the asset is oscillating in a range of 142.55-143.80 after declining from around 145.00.

The asset is expected to display a lackluster performance as investors are awaiting the interest rate decision by the Federal Reserve (Fed). In order to regard its foremost priority of cooling the red-hot inflation, the Fed will advance towards the path of hiking interest rates. Investors should not be surprised with a rate hike of more than 75 basis points (bps) as price pressures are not responding effectively to the current pace of accelerating borrowing rates.

Meanwhile, the DXY declined on Monday after failing to sustain above the psychological resistance of 110.00. The DXY witnessed a steep fall as investors started discounting the expectations of a subpar rate hike.

On the Tokyo front, the Bank of Japan (BOJ)’s recent plan of intervening in the Fx moves is hinting at a shift in monetary policy stance. A worried economy due to currency depreciation from a tad longer period will prefer to shift its stance from an ultra-dovish to neutral. Well, the economic situation is not supporting a stance shift but caring for domestic currency is a major concern now.

• AUD/USD extends Friday’s recovery moves from the yearly low.
• Market sentiment dwindles as inflation concerns contrast with the risk-negative catalysts, hawkish Fed bets.
• Aussie consumer sentiment figures, upbeat stocks, yields favored buyers earlier.
• RBA Minutes need to defend the rate hike trajectory to keep buyers hopeful.

AUD/USD takes bids to refresh intraday high near 0.6735, extending the corrective bounce from the yearly low during Tuesday’s Asian session. In doing so, the Aussie pair part ways from the typical pre-event caution amid a light calendar and mixed concerns.

That said, the recently flashed Australia weekly Consumer Confidence, per ANZ Roy Morgan, rose 0.4% week-on-week but failed to impress the AUD/USD bulls as traders fear the Reserve Bank of Australia’s (RBA) inability to defend the hawkish rate moves.

On the same line, the recently downbeat inflation expectations and the market’s preparations for the RBA moves, as well as the People’s Bank of China’s (PBOC) action, also favored the AUDUSD buyers previously.

It’s worth noting that the 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 to a two-month low near 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 Aussie pair gain major attention and help the AUD/USD prices to remain firmer.

Even so, 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 AUD/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.”

Amid these plays, the CME’s FedWatch tool hints at 82% chance of the 75 basis points of a Fed rate hike during Wednesday’s monetary policy meeting. Also, the tool signals around 18% odds favoring the full one percent upside in the rate by the Fed. It should be observed that Wall Street closed positive and helps S&P 500 Futures to print mild gains as traders brace for the full markets. Further, the US Treasury yields are also positive around the multi-day top.

Moving on, RBA Minutes and the PBOC’s anticipated rate cut could entertain AUD/USD buyers ahead of the second-tier US housing market data. However, major attention should be given to Wednesday’s Federal Open Market Committee (FOMC).

Technical analysis

AUD/USD fades bounce off nine-week-old ascending support line, around 0.6700 by the press time, amid bearish MACD signals and downbeat RSI (14), not oversold, which in turn suggests the Aussie pair’s further weakness.