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• USD/CAD prints three-day uptrend as it rises to the fresh high since July 2020.
• US Dollar cheers risk-off mood, Fed’s rate hike to favor the pair buyers.
• WTI crude oil drops towards the short-term key support on demand-supply fears.
• Qualitative catalysts will be important for fresh impulse.

USD/CAD takes the bids to refresh the multi-day high around 1.3485, up for the third consecutive day, as bulls take a breather during Thursday’s Asian session. In doing so, the Loonie pair justifies a firmer US dollar and the softer prices of Canada’s key export item WTI crude oil.

US Dollar Index (DXY) renews a two-decade top around 111.50 as hawkish Fed actions joined the recession woes. On the other hand, the WTI crude oil prices bear the burden of US President Joe Biden’s push for energy projects and the fears of economic slowdown due to the rate increases.

Fed matched the market’s expectations of announcing 75 basis points (bps) rate hike. The Fed’s action was the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labor market. Fed Chairman Jerome Powell also signaled that the way to tame inflation isn’t painless ahead. While the Fed matched market forecasts, the economic fears surrounding the rate hikes and expectations of another 0.75% increase in November kept the US Dollar on the front foot, despite marking heavy volatility around the announcements.

Elsewhere, Russian President Vladimir Putin’s announcement to mobilize partial troops also reignited the Ukraine-linked geopolitical fears and the supply-crunch fears, which offered an initial run-up to oil prices before the latest downside. Recently, Ukrainian President Volodymyr Zelensky said Ukrainian neutrality is out of the question and he rules out that a settlement can happen on a different basis than the Ukrainian peace formula.

Amid these plays, Wall Street ended the day on a negative tone while the US Treasury yields also dropped amid the market’s rush for risk safety. It’s worth noting that the S&P 500 Futures print 0.50% losses at the latest.

Moving on, USD/CAD traders should pay attention to the second-tier US data and the risks emanating from the geopolitical headlines for fresh impulse.

Technical analysis

USD/CAD stays on the way to June 2020 peak near 1.31715 unless declining back below the September 2020 top near 1.3420.

• AUD/NZD has remained muted around 1.1336 after a downbeat NZ Trade Balance data.
• NZ imports have accelerated and exports have declined for the third quarter.
• RBA’s light hawkish September policy is still keeping optimism for aussie bulls.

The AUD/NZD pair has not responded in anticipation amid the release of downbeat NZ Trade Balance data. On a session basis, the asset is extending its recovery above 1.1336 after a firmer rebound from 1.1315. Observing the broader note, the asset is displaying a balanced profile in a 1.1315-1.1367 range after a juggernaut rally from the round-level support of 1.1200.

The deficit in NZ Trade Balance data has widened further to -$12.28B vs. the prior release of -$11.97B on an annual basis. Also, the monthly deficit has widened to -$2,447M against the former figure of -$1,406M. The August report on Trade Balance dictates that the imports have advanced to $7.93B vs. the prior print of $7.76B. However, the export numbers have declined to $5.48 in comparison with the former release of $6.35B.

Apart from the Trade Balance data, NZ Westpac Consumer Survey data has also been released. Reading for the third quarter has remained in line with the estimates at 87.6 and higher than the prior figure of 78.7.

The cross is still in the markup phase despite less-hawkish dictations in the Reserve Bank of Australia (RBA) monetary policy minutes release on Tuesday. RBA policymakers discussed rate hikes of 25 or 50 basis points (bps) for the September monetary policy meeting. This indicates that the central bank is not interested in turning much more aggressive and is quite satisfied with the current pace of hiking the Official Cash Rate (OCR).

Also, the alternative of 25 bps was discussed, which signals that the current pace of hiking terminal rates could trim ahead. Investors should be aware of the fact that the RBA elevated its OCR to 2.35% by announcing a fourth consecutive 50 bps rate hike. Adding to that, the RBA has set a target for the OCR at 3.85% and believes that the inflation rate will start declining after making top around 7%.

• WTI prints four-day downtrend as it approaches two-week-old support line on demand fears, supply concerns.
• US President Biden pushes for energy projects, Fed amplified recession fears with 0.75% rate hike.
• Russia’s mobilization of troops renewed supply fears, EIA reported softer inventory build.
• Risk catalysts are the key, central banks and Moscow-Kyiv tension are important to watch for fresh impulse.

WTI crude oil prices remain depressed for the fourth consecutive day amid fears of energy demand during early Thursday morning in Asia. The black gold’s latest weakness could be linked to the US Federal Reserve’s rate hike and President Joe Biden’s push for more energy projects. While portraying the same, the black gold declines to $82.40 by the press time.

Fed announced 75 basis points (bps) of a rate hike, the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labour market. Fed Chairman Jerome Powell also signalled that the way to tame inflation isn’t painless ahead. While the Fed matched market forecasts, the economic fears surrounding the rate hikes and expectations of another 0.75% increase in November kept the recession fears on the table, despite marking heavy volatility around the announcements.

Elsewhere, the White House recently conveyed that US President Biden supports Senator Joe Manchin's permitting bill to speed energy projects.

It should be noted, however, that Russian President Vladimir Putin’s announcement to mobilize partial troops also reignited the Ukraine-linked geopolitical fears and the supply-crunch fears, which offered an initial run-up to oil prices before the latest downside. Russian President Putin threatened the West on Wednesday, noting that “We have lots of weapons to reply, it is not a bluff.” Following him was Russian Defence Minister Sergei Shoigu who said that “We are fighting not only with Ukraine but the collective west.” In a reaction, German Economy Minister Robert Habeck said, “Partial mobilization of Russian troops is a bad and wrong development,” adding that the “Government is in consultations on next step.” Jens Stoltenberg, NATO's Secretary General, told Reuters that Russian President Putin's announcement of military mobilization and threat to use nuclear weapons was "dangerous and reckless rhetoric."

Also likely to have challenged the black gold’s south-run, but failed, could be the weekly oil inventory details from the US Energy Information Administration (EIA). As per the latest EIA Crude Oil Stocks Change for the week ending on September 16, the inventories eased to 1.142M versus 2.161M forecasts and 2.442M prior.

Technical analysis

An upward sloping trend line from September 08, around $82.00, appears crucial for the short-term direction as a break of which will direct bears towards the monthly low near $81.00. Buyers need validation from the 21-DMA, around $87.10 at the latest.

• NZD/JPY fades bounce off six-week low after mixed NZ data.
• New Zealand’s Q3 Westpac Consumer Survey improved, trade deficit widened in August.
• Clear break of 100-DMA, weekly resistance line direct sellers towards four-month-old support.
• BOJ is likely to buck the trend of hawkish central bank announcements.

NZD/JPY retreats to 84.40 after a slew of New Zealand data failed to impress the pair buyers during Thursday’s Asian session. In doing so, the cross-currency pair defends the previous day’s downside break of the 100-DMA while also respecting the one-week-old descending resistance line.

New Zealand’s trade deficit widened to $12.28B during August versus $11.97B prior. Further details suggest that the Imports grew to $7.93B from $7.76B previous readings while the Exports dropped to $5.48B compared to $6.35B previous announcements. Earlier in the day, the nation’s Westpac Consumer Survey data for the third quarter (Q3) probed the NZD/USD bears while matching 87.6 forecasts versus 78.7 prior. “Consumer confidence in New Zealand improved in the third quarter but the mood in the country remains grim,” said Reuters following the data release.

On the other hand, the majority of the global central banks have been hawkish in lifting their benchmark rates so far but the Bank of Japan (BOJ) isn’t expected to do so, which in turn keeps the room for a surprise favor and weigh on the prices.

Also read: BOJ Preview: One day, it will surprise us all, but not today

Given the bearish MACD signals and the downbeat RSI (14), not oversold, joining the aforementioned catalysts, the NZD/JPY is on the way to testing an upward sloping support line from May, close to 83.85 by the press time.

Following that, the 50% and 61.8% Fibonacci retracement levels of May-September advances, respectively near 83.65 and 82.60, could lure the pair bears.

Meanwhile, recovery moves will need to cross the 100-DMA and the immediate resistance line, around 84.55 and 84.65 in that order, to convince NZD/JPY buyers.

In a case where the quote remains firmer past 84.65, a run-up towards June’s peak surrounding 86.80 can’t be ruled out.

NZD/JPY: Daily chart

Trend: Further weakness expected

• NZD/USD fails to overcome Fed-inspired losses even if trade, sentiment numbers at home are upbeat.
• New Zealand’s Q3 Westpac Consumer Survey came in firmer, trade deficit increased in August.
• Fed’s rate hike, fears of economic pain join pessimism from Russia, China to favor the US dollar buying.
• Light calendar at home, emphasizes risk catalysts for fresh impulse.

NZD/USD holds lower ground at 0.5845 while keeping the Fed-inspired losses after a slew of New Zealand (NZ) data during early Asian session on Thursday. The kiwi pair’s lack of respecting the mixed outcome could be linked to the market’s pessimism amid fears of recession and geopolitical woes.

New Zealand’s trade deficit widened to $12.28B versus $11.97B prior during August. Further details suggest that the Imports grew to $7.93B from $7.76B previous readings while the Exports dropped to $5.48B compared to $6.35B previous announcements.

Earlier in the day, the nation’s Westpac Consumer Survey data for the third quarter (Q3) probed the NZD/USD bears while matching 87.6 forecasts versus 78.7 prior. “Consumer confidence in New Zealand improved in the third quarter but the mood in the country remains grim,” said Reuters following the data release.

Elsewhere, the Fed matched market’s expectations of announcing 75 basis points (bps) of rate hike. The Fed’s action was the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labor market. Fed Chairman Jerome Powell also signaled that the way to tame inflation isn’t painless ahead. While the Fed matched market forecasts, the economic fears surrounding the rate hikes and expectations of another 0.75% increase in November kept the US Dollar on the front foot, despite marking heavy volatility around the announcements.

It should be noted that the Russian President Vladimir Putin’s announcement to mobilize partial troops also reignited the Ukraine-linked geopolitical fears and drowned the GBP/USD prices. Russian President Putin threatened the West on Wednesday, noting that “We have lots of weapons to reply, it is not a bluff.” In a reaction, German Economy Minister Robert Habeck said, “Partial mobilization of Russian troops is a bad and wrong development,” adding that the “Government is in consultations on next step.” Jens Stoltenberg, NATO's Secretary General, told Reuters that Russian President Putin's announcement of military mobilization and threat to use nuclear weapons was "dangerous and reckless rhetoric."

While portraying the mood, Wall Street ended the day on a negative tone while the US Treasury yields also dropped amid the market’s rush for risk safety. It’s worth noting that the S&P 500 Futures print 0.50% losses at the latest.

Moving on, NZD/USD traders may witness a lack of action amid a light calendar and the post-Fed calm. Even so, risk catalysts surrounding Russia and China might entertain the pair traders ahead of the US session wherein the second-tier numbers may direct intraday moves.

Technical analysis

NZD/USD is vulnerable to refreshing the multi-month low unless bouncing back beyond the support-turned-resistance line from May, around 0.5915 by the press time.

• AUD/JPY dropped on Wednesday, courtesy of a dampened market sentiment.
• The AUD/JPY daily chart shifted from upwards to neutral biased as the pair fell below the 20-day EMA and reached fresh weekly lows.
• Short term, the AUD/JPY is downward biased; it could fall below 95.00 if it clears the 200-EMA on the downside.

The AUD/JPY is slightly advancing as the Asian Pacific session begins after the US Federal Reserve decided to raise rates as widely expected. Nevertheless, on Wednesday, the cross-currency dropped by 0.62% as market sentiment shifted sour, as market participants sought safe-haven assets, meaning the US dollar and the Japanese yen. At the time of writing, the AUD/JPY is trading at 95.56.

AUD/JPY Price Analysis: Technical outlook

The AUD/JPY daily chart delineated the pair sliding below the 20-day EMA, hitting fresh weekly lows at 95.40. That said, the pair bias shifted from upward biased to neutral as sellers began gathering momentum, as shown by the Relative Strength Index (RSI) crossing below the 50-midline into bearish territory. Therefore, an extension towards fresh weekly lows on the AUD/JPY is on the cards.

Near term, the AUD/JPY is downward biased, as portrayed by the four-hour chart. Higher rates in the US spurred a sell-off in US equities, meaning that flows seeking safety are increasing. Therefore, the AUD/JPY could be headed to the downside due to the Japanese yen's safe-haven status, opening the door for a test of the 200-EMA.

Hence, the AUD/JPY first support would be the 200-EMA at 95.37. Break below will expose the S1 daily pivot at 95.20, followed by the S2 pivot point at 94.91, and then a challenge of the September 2022 low at 94.76.

AUD/JPY Key Technical Levels

• USD/CHF is auctioning around 0.9660 ahead of a decisive move post-Fed policy scrutiny.
• The Fed’s roadmap for fighting inflation will impact the growth rate, job opportunities, and housing space.
• A rate hike of 75 bps will shift SNB’s interest rates into positive territory after a decade.

The USD/CHF pair is juggling around 0.9660 in the early Tokyo session as volatility oscillators are having a sigh of relief after a notably higher volatile session. The asset gyrated in an extreme range of 0.9620-0.9700 and has turned sideways as investors are busy with the task of Federal Reserve (Fed)’s monetary policy scrutiny for a decisive move ahead.

Wednesday’s monetary policy from the Fed has turned out a nightmare for the risk-sensitive assets. The roadmap put forward to combat inflation is full of barricades for growth rate, employment generation, and housing sector in the US economy.

The Fed has laid down a target for the interest rate at 4.6% and is looking to reach 4.4% by the end of 2023, much higher than the prior peak estimation of 3.8%. This builds a case for two possibilities either the inflation rate is not responding well to the current pace of hiking interest rates or the inflation chaos is extremely huge and is need to be contained sooner.

Meanwhile, the US dollar index (DXY) is set to recapture the fresh two-decade high at 111.58. The DXY will continue its dream run as the labor market is extremely tight and has been supporting the Fed in hiking the interest rates unhesitatingly.

On the Swiss franc front, investors are awaiting the release of the interest rate decision by the Swiss National Bank. SNB Chairman Thomas J. Jordan is expected to hike the interest rates by 75 basis points. A bigger rate hike is expected from the SNB as the central bank announces its monetary policy once a quarter. A rate hike of 75 bps will turn the interest rates positive at 0.5%. SNB’s interest rate will shift into a positive trajectory after a decade.

• GBP/USD seesaws around multi-year low after a volatile day in favor of the bears.
• US dollar rises after Fed matched market forecasts with 75 bps rate hike, Powell predicts painful journey to tame inflation.
• Fears from Russia’s announcement of mobilization of troops, China supersede stimulus efforts from the UK’s new government.
• BOE is likely to announce 0.50% rate hike can offer positive surprise to Cable buyers while following friends in the line.

GBP/USD bears take a breather at the fresh low since 1985, portrayed after Fed-inspired losses, as traders brace for the Bank of England’s (BOE) monetary policy decision on Thursday. Also restricting the Cable pair’s immediate moves could be the lack of major catalysts during the initial Asian session.

The quote dropped the fresh 37-year low after the US Federal Reserve (Fed) announced 75 basis points (bps) of a rate hike. The Fed’s action was the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labor market. Fed Chairman Jerome Powell also signaled that the way to tame inflation isn’t painless ahead. While the Fed matched market forecasts, the economic fears surrounding the rate hikes and expectations of another 0.75% increase in November kept the US Dollar on the front foot, despite marking heavy volatility around the announcements.

Other than the Fed-linked moves, Russian President Vladimir Putin’s announcement to mobilize partial troops also reignited the Ukraine-linked geopolitical fears and drowned the GBP/USD prices. Russian President Putin threatened the West on Wednesday, noting that “We have lots of weapons to reply, it is not a bluff.” Following him was Russian Defence Minister Sergei Shoigu who said that “We are fighting not only with Ukraine but the collective west.” In a reaction, German Economy Minister Robert Habeck said, “Partial mobilization of Russian troops is a bad and wrong development,” adding that the “Government is in consultations on next step.” Jens Stoltenberg, NATO's Secretary General, told Reuters that Russian President Putin's announcement of military mobilization and threat to use nuclear weapons was "dangerous and reckless rhetoric."

At home, UK Business Department announced on Wednesday that said it would cap the cost of electricity and gas for businesses. Following that, British Prime Minister Liz Truss also mentioned that they will be introducing low-tax investment zones across the UK, as reported by Reuters. It should be noted that the UK PM Truss also reiterated that they are open to negotiating a trade deal when the US is ready to do so. 

Against this backdrop, Wall Street ended the day on a negative tone while the US Treasury yields also dropped amid the market’s rush for risk safety.

Looking forward, GBP/USD traders will pay attention to the BOE moves as the “Old Lady”, as it is popularly known, is expected to announce 50 basis points (bps) rate hike amid increasing inflation fears. However, the BOE’s peers from the US, Sweden and Brazil have recently announced a 0.75% rate increase and the central bank is under pressure to take a big move, even if the latest UK statistics don’t support the claim, which in turn hints at a positive surprise from the British central bank and a corrective bounce of the Cable.

Technical analysis

Unless bouncing back beyond the lower line of a four-month-old bearish channel, around 1.1300 by the press time, GBP/USD is vulnerable to printing more downside. In that case, the 1.1000 psychological magnet and the year 1985 low near 1.0520 will be in focus.

• Gold price has turned sideways after a solid volatile session amid Fed monetary policy announcement.
• Fed’s hawkish guidance on interest rates has spoiled the market mood.
• The DXY is advancing to recapture its fresh two-decade high at 111.58.

Gold price (XAU/USD) is displaying back-and-forth moves in a narrow range of $1,670.33-1,674.78 in the early Tokyo session. The precious metal is having a sigh of relief after a volatile session amid Federal Reserve (Fed) monetary policy meeting. A firmer rebound from around a two-year low at $1,654.00, followed by an extreme sell-off around $1,690.00 and now a volatility contraction is building a base for a decisive move ahead.

Fed chair Jerome Powell has hiked the interest rates as expected by 75 basis points (bps), escalating it to 3.00-3.25% with the old objective of bringing price stability. However, the roadmap plotted to tame the roaring inflation through policy tightening has spilled blood on Wall Street.

With the ultimate target of 4.6% terminal rates to combat inflationary pressures and reaching 4.4% by next year, the roadmap for wiping out add-over inflation seems gloomy for the growth outlook, employment opportunities, and wage rates.

Meanwhile, the US dollar index (DXY) is aiming to recapture the fresh two-decade high at 111.58, recorded on Wednesday. The asset is expected to sustain at elevated levels until signs of legitimate decline in the Consumer Price Index (CPI).

Gold technical analysis

Gold price is oscillating in a tad wider range of $1,654.00-1,690.50 on an hourly scale. The precious metal is expected to display a lackluster performance until the volatility indicators get cooled-off. The 50-period Exponential Moving Average (EMA) is overlapping with the asset price, which signals a consolidation ahead.

Also, the Relative Strength Index (RSI) (14) has shifted back into the 40.00-60.00, which seeks further trigger for a decisive move.

Gold hourly chart

• AUD/USD bears take a breather at multi-month low after a volatile day.
• Fed matches market forecasts of 75 bps Fed rate hikes.
• Powell defends rate hike trajectory, suggests more pain ahead.
• Second-tier US data, risk catalysts will be important for fresh impulse.

AUD/USD holds lower ground at a 28-month low surrounding 0.6620, after refreshing the multi-day bottom the previous day, as traders catch a pause after a volatile day thanks to the Fed and Russia. Also keeping the Aussie pair unchanged is the lack of major data/events on the calendar during early Wednesday.

The US Federal Reserve (Fed) announced 75 basis points (bps) of a rate hike, the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labour market. Fed Chairman Jerome Powell also signalled that the way to tame inflation isn’t painless ahead. While the Fed matched market forecasts, the economic fears surrounding the rate hikes and expectations of another 0.75% increase in November kept the US Dollar on the front foot, despite marking heavy volatility around the announcements.

Elsewhere, Russian President Vladimir Putin threatened the West on Wednesday, noting that “We have lots of weapons to reply, it is not a bluff.” Following him was Russian Defence Minister Sergei Shoigu who said that “We are fighting not only with Ukraine but the collective west.” In a reaction, German Economy Minister Robert Habeck said, “Partial mobilization of Russian troops is a bad and wrong development,” adding that the “Government is in consultations on next step.” Jens Stoltenberg, NATO's Secretary General, told Reuters that Russian President Putin's announcement of military mobilization and threat to use nuclear weapons was "dangerous and reckless rhetoric."

It should be noted that a snap lockdown in China’s steel hub Tangshan and the Asian Development Bank’s (ADB) cut in the growth forecasts for developing Asia for 2022 and 2023 also played as risk-negative catalysts.

Amid these plays, Wall Street ended the day on a negative tone while the US Treasury yields also dropped amid the market’s rush for risk safety, which in turn drowned the AUD/USD prices due to the pair’s risk-barometer status.

Looking forward, AUD/USD traders may witness a lack of major moves as the Fed has played its role. However, risk catalysts surrounding Russia and China might entertain the pair traders ahead of the US session wherein the second-tier numbers may direct intraday moves.

Technical analysis

The lower line of the four-month-old bearish channel, around 0.6560 by the press time, lures AUD/USD bears unless the prices remain below a two-month-old support line, near 0.6710 at the latest.

President Volodymyr Zelensky said Ukrainian neutrality is out of the question and he rules out that a settlement can happen on a different basis than the Ukrainian peace formula.

The headline comes following earlier news that Russian president Vladamir Putin had said he will mobilize an additional 300,000 troops to shore up the country's flagging invasion of Ukraine, where it is steadily surrendering territory to counter attacks from Ukrainian forces while making nuclear threats as well.

Ukrainian President said that while he thought Putin wouldn't use nuclear weapons and that "the world" would not "allow him to use those weapons," he could not fully rule out the possibility of a nuclear strike by Moscow.

"We cannot look into Putin's head," Zelensky said. "There are risks."

The US dollar picked up a safe haven bid on the latest escalations as did gold and oil rallied on the threats. 

• EUR/USD is expecting more weakness below 0.9800 on hawkish guidance by the Fed.
• Fed’s Powell has announced a third consecutive rate hike by 75 bps to tame inflation sooner.
• The interest rates are seen at 4.6% by the end of 2023

The EUR/USD pair has displayed a less-confident pullback after refreshing the multi-year low at 0.9813 in the late New York session. The fragile pullback is expected to demolish sooner and the asset will resume its downside journey. A decisive slippage below the critical support of 0.9813 will drag the asset with full power towards the south.

Investors had already discounted the announcement of the third consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed). However, the delivery of extreme ‘hawkish’ guidance on interest rates to respect the objective of bringing price stability has weakened the risk-perceived assets. What is killing the market mood is the escalation in interest rates target and jobless rates, and the unavailability of a time period in which the inflation chaos will be fixed.

Fed chair Jerome Powell is seeing interest rates at 4.6% by the end of 2023. The guidance has shifted much higher from 3.8%. Also, the Unemployment Rate is seen higher at 4.1%. Big tasks come with big sacrifices and the economic growth will face severe pain from the pace of hiking interest rates. No doubt, Fed’s Powell and his colleagues are following the pattern adapted by Fed’s Paul Volcker four decades ago.

On the Eurozone front, the German government is exploring its all measures to make sure that the administration must have sufficient energy inventories to cater to the elevated demand during the winter season. The government has promised to bail out the giant German gas importer Uniper but taking a 30% stake in the board. The company delivered extreme losses after Russia cut off gas supplies to Germany deliberately. 

Also, the European Central Bank (ECB) is providing hawkish guidance on interest rates so that the higher inflation rate should not settle in the economic behavior.

• As widely expected, an aggressive Fed rate hike bolstered the greenback.
• FOMC’s members updated their projections for the end of 2022 of the Federal funds rate (FFR) to 4.4%.
• The USD/CAD extended its gains after Chair Powell’s press conference, climbing towards its daily high above 1.3460s.

The USD/CAD advances for the second straight day after the US Fed Chair Jerome Powell and Co. decided to hike rates by 0.75% at their September meeting, as expected. Worth noting that Fed policymakers opened the door for further tightening, as shown by the Summary of Economic Projections (SEP) median, with most participants expecting rates to end in 2022 at around 4.4%. At the time of writing, the USD/CAD is trading at 1.3464, above its opening price by 0.76%.

USD/CAD climbed to two-year highs amidst a buoyant US dollar

During the day, the financial markets got what they were expecting: a hefty rate hike by the Fed. Additionally, Fed officials acknowledged that spending and production are moderating while emphasizing the robustness of the labor market. The committee expressed that inflation remains high due to imbalances between supply and demand.

At the meeting, Fed officials updated its economic projections for the rest of 2022, alongside adding projections for 2025. In 2022, the FOMC estimates that the Federal funds rate (FFR) would finish at 4.4%, growth is estimated at around 0.2%, while the unemployment rate is expected to rise by 3.8%.

At the same time, the committee estimates that inflationary pressures could peak at around 5.4% in the PCE reading, while core PCE is estimated to rise by 4.5%.

In the press conference, Jerome Powell expressed that “we have got to get inflation behind us” while reiterating that he would do it in a “painless” way if there were one. Nevertheless, he said that “there isn’t” while adding that “failing to restore price stability” would be more painful than what the Fed has done.

As a reflection of that, the US Dollar Index, a gauge of the buck’s value vs. a basket of six currencies, edged higher by 1%, refreshing two-decade highs at around 111.578, while US Treasury bond yields in the short end of the curve rose, with 2s finishing above the 4% threshold.

Therefore, the USD/CAD extended its gains during the day, after diving towards its daily low at 1.3357, before gaining more than 100 pips towards the end of the trading session.

What to watch

An absent Canadian calendar would keep USD/CAD traders leaning towards further US economic data. On Thursday, the US docket will feature unemployment claims alongside the US Current Account and the Kansas City Fed Manufacturing Index.

USD/CAD Key Technical Levels

• NZD/USD injured by the Fed's hawkish meeting.
• NZD/USD bulls could be about to regather themselves for a measured move higher.

As per the prior analysis, NZD/USD Price Analysis: Bears seek a move to take the bulls on at the 0.5850s, the price moved to the target around the centerpiece event of the week in the Federal Reserve. The following illustrates the market structure and bias from here on. 

NZD/USD prior analysis, weekly chart

It was argued that the price would be expected to correct at some stage soon but perhaps not until a challenge of the 0.5850s.

The M-formation is a reversion pattern that could see the price correct towards at least the prior lows near what would be a 38.2% Fibonacci retracement from the aforementioned 0.5850s that were hit during Fed volatility on Wednesday. 

NZD/USD update

The weekly outlook has played out so far according to the prior analysis. Meanwhile, on an hourly basis, there is the bullish scenario illustrated as follows:

A v-shaped peak could be forming here that may give way to a break of the trendline for a measured move higher to the midway point of the 0.59 area again for the end of the week.

• US dollar bulls move in again on a volatile day. 
• The markets are attempting to price the Fed following its two-day meeting. 

The US dollar has been moving like a yo-yo during the centerpiece event of the week which was the Federal Reserve on Wednesday. As measured by the DXY index, the price of the dollar vs. a basket of currencies has ranged between 111.57 and 110.612, initially spiking on the Fed announcements before dropping and recovering again in a 78.6% retracement of the range. At the time of writing, DXY is trading at 111.30, 1.00% higher on the day. 

The US dollar has been in demand on Wednesday on two main counts. The expectations for higher rates and the decision by Russian President Vladimir Putin to mobilize more troops for the conflict in Ukraine had already pushed the dollar to a two-decade high before the Fed announced its hawkish projections following a 75bps rate hike, as expected.

Fed key takeaways

• US Federal Reserve interest rate decision +75 bps vs +75 bps expected.
• Target Range stands at 3.00% - 3.25%.
• Interest Rate on Reserves Balances raised by 75Bps to 3.15% from 2.40%.
• The policy vote was unanimous. 
• Fed anticipates ongoing hikes will be appropriate, prepared to adjust policy as appropriate.
• Board members are highly attentive to inflation risks and strongly committed to returning inflation to 2%.
• Recent indicators point to modest growth in spending and production.
• Ukraine war creates additional upward pressure on inflation, weighing on global economic activity.
• Inflation remains elevated, reflecting pandemic-related imbalances, and higher food & energy.
• Job gains have been robust, the unemployment rate has remained low.
• The median forecast shows rates 4.4% at end-2022.
• Futures after FOMC decision imply traders see 89% chance fed raising rates at another 75bps at the November meeting.

Fed chairman presser

Meanwhile, Fed's chairman, Jerome Powell has been speaking to the press:

• Powell speech: MBS sales not something I expect to be considering in near term

• Powell speech: There is no painless way to bring inflation down

• Powell speech: No one knows if we will get a recession

• Powell speech: Just moved into lowest levels of what we consider restrictive today

• Powell speech: Dot plot projections do not represent plan or commitment

• Powell speech: No grounds for complacency on inflation

• Powell speech: Economy does not work without price stability

The markets are anticipating for the US dollar to stay strong but some analysts argue that the greenback is significantly overvalued. After all, since the beginning of the year, the dollar index has soared by nearly 16% in the biggest yearly percentage gain since 1972.

"We expect the U.S. dollar to remain firm in the short run but we remain reluctant to factor in additional, sustained US dollar gains from here and we think it would be complacent to dismiss out-of-hand downside risks here," said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.

DXY technical analysis 

From a near-term perspective, if the bears commit at the 78.6% ratio, then there are considerable arguments for a downside scenario. The trendline support could come under pressure and if this gives, we will see key 110.50 under pressure again. On the other hand, from a weekly perspective, the bias is to the upside towards 112.50:

What you need to take care of on Thursday, September 22:

The dollar stands victorious after the US Federal Reserve spurred volatility across the FX board. As widely anticipated, the American central bank hiked the benchmark rate by 75 bps to 3.25%, while policymakers maintained their determination to bring inflation down to target. However, there was no innovation in monetary policy; generally speaking, they are confident about economic progress.

At the same time, the Fed upwardly reviewed its inflation projections, with the PCE price index now seen at 5.4% this year and at 2.8% in 2023. It won’t be until 2024 when it will reach the 2% target. Growth suffered downward revisions, the steeper one in the near term. For this year, the Gross Domestic Product is now seen at 0.2%, down from 1.7%, but for the upcoming years, it is seen above 1%. Finally, the median expectation for the federal funds rate at the end of 2023 is 4.6%  from 3.8%.

Chief Jerome Powell was cautiously optimistic about economic progress, which put a cap on the dollar’s appreciation. Nevertheless, as Wall Street plunged to fresh lows, the greenback recovered ground.

Risk aversion led the way during the European session, as  Russian President Vladimir Putin announced a mobilization of reserve forces. Additional 300,000 citizens have been called to serve in Ukraine as Moscow loses ground in Ukraine. Putin claimed that the West wanted to destroy Russia and reiterated the plan to annex more of its neighbor country. EU member states held a meeting to discuss a coordinated response to the continuation of the war, according to European Commission spokesman Peter Stano.

The EUR/USD pair plunged to 0.9812, its lowest since October 2002, and currently hovers around 0.9860. GBP/USD also plummeted, now trading at 1.1280. Commodity-linked currencies are among the weakest, weighed by the poor performance of Wall Street. The AUD/USD pair trades at around 0.6640, while USD/CAD pressures highs in the 1.3440 price zone.

Safe-haven assets retain modest gains against the greenback. The USD/JPY pair hovers around 144.00 while spot gold jumped to $1,690 a troy ounce but gave up some $20 ahead of the close. Finally, WTI settled at $83.20 a barrel, marginally lower in the day.

Near-term US Treasury yields soared. The 2-year Treasury note currently offers 4.03% after reaching an intraday peak of 4.12%. The yield on the 10-year note eased to settle at 3.51%.

The Bank of Japan is next in line, as the monetary policy decision is coming up in the next Asian session. Finally, the Bank of England and the Switzerland National Bank will announce their decisions during European trading hours.

Cardano price: ADA is ready to explode, final stretch before Vasil hard fork

• AUD/USD bulls have eyes on the 0.6720s despite hawkish Fed.
• The US dollar has dropped from the post-Fed rate hike highs.

AUD/USD has rallied following a 30 pip drop below the round 0.6650 level that came on the back of the knee-jerk reaction to the Fed's interest rate hike. AUD/USD, however, recovered from a session low of 0.6621 to 0.6705 during the Fed's presser and back into the Tokyo highs in an explosive move vs. the bearish creeping trend. Technically, the rally came on the back of a harmonic pattern as illustrated below. 

Meanwhile, Federal Open Market Committee's conclusion to its two-day meeting resulted in the Federal Reserve deciding unanimously between its board members to hike interest rates by 75bps. The decision and further details surrounding the Fed's dot plot and economic forecasts have pressured the US yields and the dollar higher initially, however, there has been a turnaround with the greenback now trading back below the 111 area. 

The expectations for higher rates and a decision by Russian President Vladimir Putin to mobilize more troops for the conflict in Ukraine had already pushed the dollar to a two-decade high before the Fed. The DXY index that measures the US dollar against a basket of currencies was breaching into the 111 area but on a post-Fed announcement, the index shot up to a high of 111.578. It has since stumbled back to test a trendline support area near 110.60. 

Fed key takeaways

• US Federal Reserve interest rate decision +75 bps vs +75 bps expected.
• Target Range stands at 3.00% - 3.25%.
• Interest Rate on Reserves Balances raised by 75Bps to 3.15% from 2.40%.
• The policy vote was unanimous. 
• Fed anticipates ongoing hikes will be appropriate, prepared to adjust policy as appropriate.
• Board members are highly attentive to inflation risks and strongly committed to returning inflation to 2%.
• Recent indicators point to modest growth in spending and production.
• Ukraine war creates additional upward pressure on inflation, weighing on global economic activity.
• Inflation remains elevated, reflecting pandemic-related imbalances, and higher food & energy.
• Job gains have been robust, the unemployment rate has remained low.
• The median forecast shows rates 4.4% at end-2022.
• Futures after FOMC decision imply traders see 89% chance fed raising rates at another 75bps at the November meeting.

Fed chairman presser

Meanwhile, Fed's chairman, Jerome Powell has been speaking to the press:

• Powell speech: MBS sales not something I expect to be considering in near term

• Powell speech: There is no painless way to bring inflation down

• Powell speech: No one knows if we will get a recession

• Powell speech: Just moved into lowest levels of what we consider restrictive today

• Powell speech: Dot plot projections do not represent plan or commitment

• Powell speech: No grounds for complacency on inflation

• Powell speech: Economy does not work without price stability

AUD/USD technical analysis

The price completed a deep crab harmonic pattern. Following the sell-off to 0.6620's, the price rallied back to engage buyers and to trip stops at and around the 0.6650s for a run on positions accumulated towards the 0.67 area in what has been a creeping bearish trend established since the open of the week.  

The price would now be expected to complete a measured move to the 0.6720s following a correction to the upper quarter of the 0.66 area if not back to 0.6650 following the break of those structures and the trendline resistance that would be now be expected to act as a counter trendline support. 

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3-3.25% following the September policy meeting.

Key quotes

"Higher interest rates, slower growth, softening labor market are all painful for public but they are not as painful as failing to restore price stability."

"We want to act aggressively now and keep at it until we get inflation down."

"In housing market, we have to go through a correction to get back to normal price growth."

"This difficult correction should put housing market back into better balance."

"Likely rates will get to levels in the Summary of Economic Projections."

"We've written down a plausible path for fed funds rate and the actual path will be enough to bring down inflation."

• GBP/USD tanked to fresh multi-year lows at around 1.1234 as a reaction to the Fed’s 75 bps rate hike.
• According to the SEP, the US Federal Reserve would likely lift rates by an additional 125 bps.
• The SEP reported that growth might dip towards 0.2%, while inflation is projected to end at around 4.5 to 5.4%.

The GBP/USD sank and refreshed 37-year lows, sliding below the 1.1300 figure, hitting a 2022 YTD low at 1.1235 after the US Federal Reserve hiked rates by 75 bps in the September meeting. According to the Summary of Economic Projections (SEP), officials opened the door for another 75 bps in November and a 25 bps interest rate increase in December. At the time of writing, the GBP/USD seesaws around the 1.1300-50 area in a volatile trading session as Fed Chair Powell speaks.

Some remarks of Fed Chair Jerome Powell’s press conference

In the Q&A session, Chair Powell said that the Fed has moved into the lowest level of restriction and added that it would take some time to see the full effects of changing financial conditions. Powell said that longer-run inflation expectations remained somewhat anchored and added that supply shocks had caused part of the inflation, and if they abate, it could help ease elevated prices.

Furthermore, regarding a soft landing, he said it would be challenging, but no one knows if the current Fed tightening process would lead to a recession and how deep it would be.

Summary of the monetary policy statement

According to its mandate, the US Federal Reserve decided to hike rates to the 3-3.25% range on Wednesday, bringing inflation towards its 2% target. In the monetary policy statement, the FOMC reiterated that it’s strongly committed to reaching the Fed’s goal and mentioned that further rate hikes are needed.

Fed officials acknowledged that economic indicators point to modest economic growth while spending is getting hit by higher rates. Participants mentioned that the labor market remains “robust,” and the unemployment rate has remained low.

Concerning inflation, Fed officials mentioned that inflation remains elevated due to reflecting imbalances between supply and demand.

Aside from this, the Summary of Economic Projections (SEP) policymakers expects the Federal funds rate to increase to 4.4% by the year’s end, as reported by the median. Meanwhile, as reported by the PCE, inflation is estimated to reach 5.4%, while the core PCE figure, which is the benchmark for Fed members, is estimated to end at 4.5%. The unemployment rate is calculated to uptick to 3.8%.

Notably, most inflation readings were revised upwards, alongside interest rate projections.

Markets reaction

The GBP/USD dropped below the 1.1200 mark as the headline crossed newswires and reached a YTD low at 1.1234. However, bids entered around the year’s lows and climbed toward current price levels, jumping almost 100 pips, as the US Federal Reserve Chair Jerome Powell took the stand.

GBP/USD Key Technical Levels

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3-3.25% following the September policy meeting.

Key quotes

"There is no painless way to bring inflation down."

"We haven't given up the idea we can have just a modest increase in the jobless rate while bringing inflation down."

"Think of price stability as an asset that delivers benefits to the public."

"Delay in getting inflation down would only lead to more pain."

"Once you are on path to lower inflation, things will start to feel better."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3-3.25% following the September policy meeting.

Key quotes

"There is a fairly large group that would see 100 bps by year-end."

"Median policymaker sees 125 bps hikes by year-end."

"Core PCE inflation readings are not where we expected or wanted to be."

"MBS sales not something I expect to be considering in the near term."

"We are very aware of what's going on in other economies around the world and vice versa."

"Labor market in particular has been very strong."

"We are having an effect on interest-sensitive spending, exports and imports."

"There is still very significant savings out there to support growth."

"There is a possibility that growth could be stronger than we forecast, and that's a good thing."

"We cannot fail to get inflation down to 2%."

"Very high likelihood of period of much lower growth."

"We need to have a rise in unemployment, softer labor market conditions."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3-3.25% following the September policy meeting.

Key quotes

"Plausible that job openings could come down without as much of increase in unemployment."

"Longer run inflation expectations this cycle have remained fairly well anchored."

"That will also make it easier to bring inflation down."

"Part of inflation caused by supply shocks."

"Commodity prices look like they may have peaked."

"If supply shocks also abate, could also ease pressures on inflation."

"Restoring price stability while achieving soft landing is challenging."

"No one knows if we will get a recession, or if so, how deep it would be."

"Chances of a soft landing also likely to diminish to the extent that policy needs to be more restrictive or restrictive for longer."

"But not bringing down inflation would bring far greater pain."

"We believe we need to raise policy stance to restrictive level."

"By restrictive, I mean putting meaningful downward pressure on inflation."

"It needs to meaningfully put downward pressure on inflation."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3-3.25% following the September policy meeting.

Key quotes

"My main message is that FOMC is strongly resolved to bring inflation down."

"Our focus is getting inflation back down. To do that, we think we'll need softening in labor market, below trend economic growth."

"So far, only modest evidence labor market cooling off."

"In light of high inflation, we think we will need to bring funds rate to restrictive level, keep it there for some time."

"Before reducing rates would want to be very confident inflation moving back down to 2%."

"No certainty on how the economy will unfold, need to move policy to restrictive level."

"There is a possibility we would go to a certain level on rates and stay there, but not there yet."

"We've just moved into lowest levels of what we consider restrictive today."

"Still a ways to go on rates."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3-3.25% following the September policy meeting.

Key quotes

"Pace of rate increases will depend on data, outlook."

"At some point, will become appropriate to slow pace of rate hikes."

"We will continue to make decisions meeting by meeting."

"We'll need restrictive policy stance likely for some time."

"Dot plot projections do not represent plan or commitment."

"We are taking forceful, rapid steps."

"Reducing inflation is likely to require a sustained period of below-trend growth."

"We will keep at it until confident the job is done on inflation."

"We will do everything we can to achieve our goals."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3-3.25% following the September policy meeting.

Key quotes

"We expect supply and demand conditions in labor market to come into better balance over time."

"Inflation remains well above our 2% goal."

"Price pressure evident across broad range of goods and services."

"Participants continue to see upside risks to inflation."

"No grounds for complacency on inflation."

"Highly attentive to risks of inflation."

"Over coming months, we'll be looking for compelling evidence inflation is moving down."

FOMC Chairman Jerome Powell comments on the policy outlook after the Federal Reserve's decision to raise the policy rate by 75 basis points to the range of 3-3.25% following the September policy meeting.

Key quotes

"Strongly committed to bringing inflation down."

"Price stability is our bedrock."

"Economy does not work without price stability."

"We are moving our policy stance purposefully."

"Housing sector has weakened significantly."

"Weaker economic growth abroad restraining exports."

"Labor market has remained extremely tight, wage growth is elevated."

"Job gains have been robust."

"Labor market continues to be out of balance."

• Gold is moving between highs and lows of the day post-Fed.
• Fed hikes rates by 75bps as expected, and remains committed to hiking rates further. 

The gold price has extended its bear cycle trend to a fresh low following the Federal Open Market Committee's conclusion to its two-day meeting that resulted in the Federal Reserve deciding unanimously between its board members to hike interest rates by 75bps. The decision and further details surrounding the Fed's dot plot and economic forecasts have pressured the US yields and dollar higher which has weighed on gold. XAU/USD dropped from a pre-rate hike announcement of $1,669 to a low of $1,653.87 so far.

The expectations for higher rates while at the same time, investors fled for safety after a decision by Russian President Vladimir Putin to mobilize more troops for the conflict in Ukraine had already pushed the dollar to a two-decade high. The DXY index that measures the US dollar against a basket of currencies was breaching into the 111 area before the Fed. It has now gone on to print a post-Fed announcement high of 111.578 so far. 

Fed key takeaways

• US Federal Reserve interest rate decision +75 bps vs +75 bps expected.
• Target Range stands at 3.00% - 3.25%.
• Interest Rate on Reserves Balances raised by 75Bps to 3.15% from 2.40%.
• The policy vote was unanimous. 
• Fed anticipates ongoing hikes will be appropriate, prepared to adjust policy as appropriate.
• Board members are highly attentive to inflation risks and strongly committed to returning inflation to 2%.
• Recent indicators point to modest growth in spending and production.
• Ukraine war creates additional upward pressure on inflation, weighing on global economic activity.
• Inflation remains elevated, reflecting pandemic-related imbalances, and higher food & energy.
• Job gains have been robust, the unemployment rate has remained low.
• The median forecast shows rates 4.4% at end-2022.
• Futures after FOMC decision imply traders see 89% chance fed raising rates at another 75bps at the November meeting.

The focus will now turn to the Fed's chairman, Jerome Powell who will speak to the press:

Watch live: Fed Powell presser

Elsewhere, geopolitical tensions have been offering some support to gold.

The Russian president Vladamir Puti said he will mobilize an additional 300,000 troops to shore up the country's flagging invasion of Ukraine, where it is steadily surrendering territory to counter attacks from Ukrainian forces while making nuclear threats as well.

Gold technical analysis

There are still prospects of a move higher from out of the sideways channel as per the M-formation which is a reversion pattern.

• The Federal Reserve raised rates by 75 bps and expects rates to finish at around 4.4% in 2022.
• In the Summary of Economic Projections, the median of Fed officials estimates growth at 0.2% by the year’s end.
• EUR/USD Reaction: Tumbled to fresh multi-year lows at around 0.9812.

The EUR/USD collapsed to fresh multi-year lows as the US Federal Reserve hiked rates by 75 bps, and anticipated ongoing increases to the Federal fund’s rates (FFR) will be appropriate. Also, the Federal Reserve Open Market Committee (FOMC), decided to continue reducing the Balance Sheet, as planned in May. At the time of writing, the EUR/USD oscillates around the 0.9810-50 area, due to increased volatility, after the Fed’s decision.

Summary of the monetary policy statement

In its monetary policy statement, Fed officials acknowledged that indicators point to modest growth in spending and production. Additionally mentioned that the labor market remains “robust” and that inflation is still reflecting imbalances between supply and demand.

Policymakers reiterated the Fed’s commitment to return inflation to its 2% objective and would assess incoming data, including readings on public health, labor market conditions, inflation pressures, and inflation expectations.

Regarding the Summary of Economic Projections, FOMC members estimate the Federal funds rate (FFR) at 4.4% by the end of 2022, according to the median, while growth in the US for the same period is estimated to finish at 0.2%.

Concerning inflation data, Fed officials estimate that plain vanilla inflation, known as the PCE, will end at 4.5% in 2022 while excluding volatile items, and the Fed’s favorite gauge of inflation, the core PCE, to remain around 4.5% by the year’s end.

Markets reaction

Once the headline crossed newswires, the EUR/USD dropped below the 0.9870 mark and reached a daily low of 0.9812. However, it bounced off those lows, and so far, the EUR/USD has recovered some ground, at around 0.9839, ahead of the Federal Reserve Chair Jerome Powell’s press conference at around 18:30 GMT

EUR/USD Key Technical Levels

The US Federal Reserve's Summary of Economic Projections, the so-called dot plot, revealed on Wednesday that officials' median view of the Fed's policy rate at the end of 2023 stands at 4.6%, compared to 3.8% in June's dot plot.

Key takeaways via Reuters

"Fed officials' median view of fed funds rate at end-2022 4.4% vs 3.4% in June projection."

"Fed officials' median view of fed funds rate at end-2024 3.9% (prev 3.4%)."

"Fed officials' median view of fed funds rate at end-2025 2.9%."

"Fed officials' median view of fed funds rate in longer run 2.5% (prev 2.5%)."

"Ffed officials see year-end US jobless rate at 3.8% in 2022 (prev 3.7%); 4.4% in 2023 (prev 3.9%); 4.4% in 2024 (prev 4.1%); 4.3% in 2025; long-run at 4.0% (prev 4.0%)."

"Fed officials see PCE inflation at 5.4% in 2022 (prev 5.2%); 2.8% in 2023 (prev 2.6%); 2.3% in 2024 (prev 2.2%); 2.0% in 2025; long-run at 2.0% (prev 2.0%)."

"Fed officials see GDP growth at 0.2% in 2022 (prev 1.7%); 1.2% in 2023 (prev 1.7%); 1.7% in 2024 (prev 1.9%); 1.8% in 2025; long-run at 1.8% (prev 1.8%)."

"One Fed official sees US GDP contracting in 2023."

"Summary of economic projections implies at least one more 75-basis-point rate hike in 2022, no rate cuts until 2024."

The US Federal Reserve on Wednesday announced that it raised the policy rate, federal funds rate, by 75 bps to the range of 3-3.25%. This decision came in line with the market expectation. 

Follow our live coverage of the Fed's policy announcements and the market reaction.

Market reaction

With the initial reaction, the US Dollar Index jumped to its highest level in two decades above 111.50, gaining more than 1% on a daily basis.

Key takeaways from policy statement

"Fed is highly attentive to inflation risks, strongly committed to returning inflation to 2%."

"Job gains have been robust, unemployment rate has remained low."

"Recent indicators point to modest growth in spending and production."

"Inflation remains elevated, reflecting pandemic-related imbalances, higher food and energy prices, broader price pressures."

"War in Ukraine creating additional upward pressure on inflation, weighing on global economic activity."

"Prepared to adjust policy as appropriate."

"Vote in favor of policy was unanimous."

• EUR/GBP dropped after failing to break above the 0.8787 area.
• The EUR/GBP daily chart remains upward biased, but a negative divergence is looming, having risks skewed to the downside.
• In the short term, the EUR/GBP is already downward biased and could break below the 0.8700 mark.

The EUR/GBP dropped from daily highs after hitting a YTD high on Monday at 0.8787. Still, renewed fears of tensions arising between Ukraine and Russia weighed on the shared currency, which is trading below its opening price by 0.41% on Wednesday. At the time of writing, the EUR/GBP is trading at 0.8719.

EUR/GBP Price Analysis: Technical outlook

The EUR/GBP daily chart illustrates the cross-currency pair that, albeit tumbling from around YTD highs, the pair encountered support above the June 15 daily high at 0.8721. During the day, the EUR/GBP dived towards its daily low at 0.8711, but bids lifted the pair towards current exchange rates. EUR/GBP traders should be aware that a negative divergence is forming, with the EUR/GBP price action registering higher highs, contrary to the RSI, which printed lower lows.

Therefore, in the near term, traders could expect a correction before resuming the uptrend.

Short term, the EUR/GBP is downward biased, as depicted by the 4-hour chart. The negative divergence in this time frame sent the cross sliding below the 20-EMA, but the 50-EMA at 0.8711, was a difficult support level to hurdle. Nevertheless, with the RSI getting into negative territory and further weakness expected by the euro, a fall below the 0.8700 mark is likely.

Therefore, the EUR/GBP first support would be the 50-EMA at 0.8711, which, once cleared, could send the pair sliding towards the S1 pivot at 0.8696. A breach of the latter will expose the 100-EMA at 0.8672, followed by the last week’s low at 0.8625.

EUR/GBP Key Technical Levels

• USD/CAD bulls need to break 1.3410 and the bears 1.3350 around the Fed event.
• The Fed is expected to hike 75bps or even deliver 1 full basis point.

USD/CAD is starting to decelerate on the bid as we approach the Federal Reserve's interest rate decision at the top of the hour. At the time of writing, the pair is still higher by some 0.2% at 1.3395 after rallying on the day so far from a low of 1.3357 to a two-year high of 1.3408. Apart from the anticipation around a hawkish Fed,  geopolitical tensions have bolstered safe-haven assets, weighing on the CAD despite an attempted recovery in the price of oil.

Russian President Vladimir Putin called up 300,000 reservists to fight in Ukraine and hinted to the West he was prepared to use nuclear weapons to defend Russia which has fuelled demand for the safe haven US dollar and Treasuries.  In turn, however, the price of oil, one of Canada's major exports, has also jumped momentarily on the back of the escalation of the war that has raised concerns of tighter oil and gas supply.

However, the focus quickly turned back to the Federal Open Market Committee which concludes a two-day meeting today. The Fed is widely expected to lift interest rates by three-quarters of a percentage point for a third straight time. There is some speculation of a 1bp hike to borrowing costs in order to tame a potentially corrosive outbreak of inflation. 

''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.''

''Treasuries 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.''

''Buy the rumor, sell the fact is a tempting play for the USD, but we are wary that the messaging at this meeting will be more hawkish than usual. Neutral bias and reassess after.''

Meanwhile, the Bank of Canada's Deputy Governor Paul Beaudry said that inflation in Canada remains "too high" but is headed in the right direction. This followed an inflation report that missed the mark but the deputy governor remained adamant that the central bank needed to do whatever is needed to bring price increases back to target.

USD/CAD technical analysis

The weekly charts show the price is attempting to break out of the chennel. If the Fed disappoints the hawks, then the greenback could come under pressure and see USD/CAD snapping back into the channel from resistance towards prior support near a 50% retracement or even to a 61.8% ratio for the coming days. 

For the Fed event, the following hourly support and resistances are key:

Jerome Powell, Chairman of the Federal Reserve System, will be delivering his remarks on the monetary policy outlook at a press conference following the meeting of the Board of Governors. Powell's speech will start at 18:30 GMT.

Follow our live coverage of the Fed's policy announcements and the market reaction.

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

• The USD/JPY broke out of the 142.60-143.60 area on Wednesday, gaining some 0.43%.
• From a long-term perspective, the USD/JPY is still upward biased, further confirmed by the RSI’s remaining in bullish territory.
• Short term, the USD/JPY is also upward biased and could aim towards the 145.00 area if the Fed hikes 75 bps and keeps its hawkish stance.

The USD/JPY slightly advances for the third consecutive day, hitting a fresh weekly high at around 144.31, ahead of the US Federal Reserve monetary policy decision, where the US central bank is awaited to lift rates above the 3% threshold. Therefore, the USD/JPY is trading at 144.31, above the opening price by 0.41%, at the time of writing.

USD/JPY Price Analysis: Technical outlook

From a daily chart perspective, the USD/JPY remains upward biased, underpinned by the US 10-year Treasury bond yield movement. Worth noting that the Relative Strength Index (RSI) got a respite after reaching the YTD high at 144.99. though at the time of typing, RSI’s just crossed above its 7-day SMA, depicting that buyers are gathering momentum ahead of the US Fed decision.

Short term, the USD/JPY four-hour chart portrays the same scenario as the daily chart, upward biased. Once the USD/JPY hit the YTD high, it dived towards 141.50, September’s low, forming a base. Since then, the major began trading around the 141.50-144.90 area, but lately, stuck in the 142.60-143.60 range. However, during Wednesday’s session, the USD/JPY broke upward, opening the door for a test of the August 1998 high of 147.67.

Therefore, the USD/JPY’s first resistance would be the YTD high at 144.99. A break above will expose the R3 daily pivot at 145.09, followed by the 146.00 psychological level, ahead of August’s 1998 high at 147.67. On the flip side, the USD/JPY first support would be the R1 daily pivot at 144.12. A breach of the latter will expose the confluence of the daily pivot and the 20-EMA at 143.54, followed by the 50-EMA at 143.33, ahead of the S1 pivot at around 143.00.

USD/JPY Key Technical Levels

• The GBP/USD fell to a fresh 37-year high at around 1.1300.
• Most economists prepare for another hefty Fed hike alongside the update of the US economy projections.
• The Bank of England will meet on Thursday, and analysts estimate a 50 bps rate hike.

The GBP/USD refreshes 37-year lows during the North American session, tumbling 0.38%, ahead of the FOMC’s decision, as geopolitical tensions in Eastern Europe arise. A risk-off impulse in the FX complex keeps the greenback in the driver’s seat, reaching a two-decade high above the 111.00 mark, while most G8 currencies are dropping.

Earlier, the GBP/USD hit the daily high at 1.1384, but Russian President Vladimir Putin’s commentary spurred a flight to safety, sending the major sliding towards a fresh YTD low at 1.1304. At the time of writing, the GBP/USD is trading at 1.1333.

GBP/USD drops on buoyant US dollar ahead of the Fed and BoE’s decision

Sentiment remains upbeat ahead of the FOMC’s decision, with European and US equities rising. US Treasury bond yields remain depressed, except for the US 2-year yield, which crossed the 4% threshold during the day. Today, the US Federal Reserve is expected to raise the Fed funds rate (FFR) by 75 bps, to the 3-3.25% area, into restrictive territory, according to the last Summary of Economic Projections (SEP) revealed in June. Nevertheless, don’t discount a 100 bps move, with odds of lifting rates of that size at an 18% chance.

Alongside revealing the monetary policy statement, the Fed would update the SEP, which could give us some clues regarding Fed officials’ projections of US growth, unemployment, inflation, and interest rate levels. Regarding interest rates, most investors are waiting for the “dot-plot,” where all the policymakers delieate the future path for the Federal funds rate (FFR). A large part of Wall Street estimates a hawkish tilt towards finishing 2022 at around the 3.75-4% range and, by 2023, to move towards the 4-4.50% area.

The US Dollar Index, a measure of the greenback vs. six peers, is trading at two-decade-highs at around 111.000, up by 0.74%, breaching for the first time the 111.000 mark. Contrarily, US T-bond yields are getting a respite, with the US 10-year bond yield almost flat at 3.571%.

Elsewhere. the US economic docket revealed that Existing Home Sales for August dropped 0.4%, less than expectations for a 2.29% contraction estimated and also better than July’s 5.9% fall.

On Thursday, the Bank of England (BoE) will meet, and the consensus estimates the central Bank will hike 50 bps the Bank’s rate. At the same meeting, the BoE is expected to begin its Quantitative Tightening (QT), with outright sales from its GBP 838 billion gilt on its balance sheet at a pace of GBP 10 billion a quarter.

Also read: BoE Preview: Forecasts from 10 major banks, a close call between 50 bps and 75 bps

What to watch

The US economic docket will feature the US Federal Reserve monetary policy decision at 18:00 GMT, followed by Chair Jerome Powell’s press conference at 18:30 GMT.

GBP/USD Key Technical Levels

• Another leg lower in EUR/USD brings price near multi-year lows.
• Euro remains under pressure as traders await Fed’s decision.
• FOMC meeting set to trigger volatility across financial markets.

The EUR/USD dropped further during the American session and bottomed at 0.9865, the lowest level in two weeks, and just one pip above the YTD low. The pair remains near the lows as traders await the FOMC decision.

First Russian, then the dollar… now the Fed?

The euro was already hit by rising geopolitical tensions. Russian President Vladimir Putin announced earlier on Wednesday a partial mobilization to support the Ukraine war.

Despite the cautious tone among investors, yields in Europe and in the US kept rising. The US 10-year yield stands at 3.56% while the 2-year yield rose above 4.00% for the first time since 2007. In Germany, the 5 and 30-year curve inverted for the first time since 2008.

Economic data released on Wednesday showed a decline in US Existing Home Sales in August for the seventh month in a row. The 0.4% slide pushed the annual rate to 4.7 million, better-than-expectations of a 4.8 million reading.

Despite Putin and US data, attention is set on the FOMC that in a few minutes, at 18:00 GMT will announce its decision on monetary policy. The Fed will also release new macroeconomic projections from the FOMC staff and Chairman Powell will held a press conference.

The decision, the tone, the dot plot and Powell’s words are expected to have a significant impact on financial markets including the US dollar. The DXY arrives to the meeting trading at the strongest level since June 2002, above around 111.00.

Technical levels

• US dollar remains firm on a quiet session ahead of the Fed.
• Focus remains on the FOMC meeting; statement at 19:00 GMT.
• AUD/USD at the lowest level since May 2020.

The AUD/USD failed to recover ground and printed a fresh two-year low at 0.6652. It is hovering around the lows as market participants look at the Federal Reserve.

The combination of a stronger US dollar supported by higher US yields and a cautious tone across financial markets, keeps the AUD/USD under pressure.

Stocks in the Wall Street are up 040% on average, but risk sentiment does not look so positive, particularly after Russian President Putin speech announcing partial military mobilization to fight Ukraine war and mentioned and threatened with a nuclear response.

The focus is set on the Federal Reserve that will announce its decision at 18:00 GMT. A 75 bps rate hike is expected. Chairman Powell's press conference is at 18:30 GMT. A hawkish tone is priced in. US yields and the greenback have been rising prior to the event. The DXY is at multi-year highs above 111.00 and the 2-year yield is above 4.00% for the first time since 2007.

Economic data released on Wednesday showed the seventh consecutive monthly decline in US Existing Home Sales in August. The 0.4% slide pushed the annual rate to 4.7 million, better-than-expectations of a 4.8 million reading.

The AUD/USD continues under pressure. Below 0.6650, the next support might be seen at 0.6600 followed by 0.6580 and 0.6565. To alleviate the bearish pressure, the aussie needs to recover and remain above 0.6680. The next resistance is seen at 0.6730/35 followed by 0.6770.

Technical levels

• Gold gets a respite, bolstered by increasing tensions between Russia-Ukraine.
• The US Dollar Index, hits a two-decade high above 111.000, the highest since 2007.
• Gold Price Analysis: Downward biased, despite jumping from weekly lows, boosted by Putin’s commentary.

Gold price snaps two-days of consecutive losses and climbs, despite broad US dollar strength, courtesy of increasing tensions between Ukraine-Russia. Therefore, investors seeking safety, bolstered the yellow metal. At the time of writing, XAU/USD is trading at $1667.15 a troy ounce, above its opening price.

US equities are slightly up, ahead of the Fed’s decision. US Treasury bond yields are retreating from their YTD highs, augmenting the appetite for precious metals, after newswires reported that Russian President Vladimir Putin is preparing to deploy 300K additional troops towards “defending” the regions of Donbas and Luhansk.

Aside from this, traders are laser focus with the Fed’s decision. The US central bank is widely expected to raise rates by 75 bps, though there’s a slim 18% chance of going for a 100 bps. Alongside the monetary policy decision, Fed officials would update the Summary of Economic Projections (SEP), which would shed some light, regarding US growth, unemployment rate, and inflation measures.

Additionally to that, in the so-called “dot-plot” in which the eighteen policymakers delineate the Federal funds rate (FFR) for the foreseeable future, most economists are expecting a hawkish tilt, towards finishing 2022 at around the 3.75-4% range, and by 2023, to move towards the 4-4.50%.

In the meantime, the US Dollar Index, a gauge of the buck’s value vs. a basket of peers, is trading at two-decade-highs at around 111.000, up by 0.73%, breaching for the first time the 111.000 mark. Contrarily, US T-bond yields, are getting a respite, with the US 10-year bond yield, almost flat at 3.561%.

Of late as reported by Reuters, the US 2-year Treasury bond yield, surpassed the 4% threshold for the first time, since 2007, displaying expectations of an aggressive Fed.

Data wise, the US economic docket featured Existing Home Sales for August, dropping 0.4% less than estimates of a 2.29% contraction expected, and also better than July’s 5.9% fall. Analysts cited by Reuters commented that “High prices and Fed rate hikes will likely remain constraints for sales going forward.”

What to watch

Later, the US economic docket, will feature the US Federal Reserve monetary policy decision at 18:00 GMT, followed by the Chair Jerome Powell’s press conference, at 18:30 GMT.

Gold Price Analysis (XAU/USD): Technical outlook

From a technical analysis perspective, XAU/USD daily chart, illustrates the pair as downward biased, though it should be noted, that as price action reached lower-lows, the Relative Strength Index (RSI) does the opposite. This means that a positive divergence might be forming. However, gold’s early gains are mainly attributed to Putin’s commentary, meaning that once the Fed’s decision crosses newswires, noise would dissipate, giving a clear look of the yellow metal price action.

Resistance levels lie at the weekly high at $1679.51, followed by July 21 low at $1681, and then the $1700 mark. On the flip side, the XAU/USD first support would be the weekly low at $1659, followed by the YTD low at $1654, and then a fall towards $1600.

British Prime Minister Liz Truss said on Wednesday that they will be introducing low-tax investment zones across the UK, as reported by Reuters. "Alongside the tax statement that the Chancellor (finance minister) will lay out, he’ll also lay out a series of supply-side reforms to make our economy more productive over the long-term, in areas like financial services," Truss added.

Regarding a potential trade agreement with the US, Truss reiterated that they are open to negotiating a trade deal when the US is ready to do so. 

Market reaction

Following these comments, the British pound stays under bearish pressure. As of writing, the GBP/USD pair was trading at 1.1330, where it was down 0.45% on a daily basis.

The Bank of England (BoE) is set to announce its interest rate decision on Thursday, September 22 at 11:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 10 major banks.

The BoE is set to raise the key rate by another 50 bps to 2.25% but Governor Bailey could surprise with a 75 bps hike. The “Old Lady” is also expected to confirm the beginning of outright sales from its GBP838 billion gilt stockpile, at a pace of around 10 billion pounds a quarter.

Credit Suisse

“We are in the camp that sees only a 50 bps rate hike with also a low terminal rate of just 3.50%. Under that scenario, dramatic curve steepening could ensue which would keep GBP on the back foot vs USD longer-term.”

BofA

“We expect the BoE to vote 1-7-1 vote in favour of a 50 bps Bank Rate hike. We look for Silvana Tenreyro to support a 25 bps hike and Catharine Mann a 75 bps hike. We expect the BoE to continue guiding to continued hikes and to note the importance of future fiscal announcements. We point to downside risks to the sterling. Another 5% trade-weighted sterling fall from here, for instance, could in our view raise medium-term inflation another 40-50 bps. That would necessitate perhaps two more 25 bps rate hikes. A larger depreciation could have a bigger impact on the BoE's policy choices. We see the BoE as reactive rather than proactive on the currency. Potential sterling falls pose upside risks to our rate forecast.”

Danske Bank

“We expect BoE to hike the Bank Rate by another 50 bps but acknowledge that it is a close call between 50 bps and 75 bps. We expect further 50 bps hikes in both November and December followed by 25 bps in February. Hence, we lift the end point of our projection to 3.25% (prev. 2.50%). We expect fewer hikes than priced in markets as we emphasise the rising recession risk. In our base case, we expect EUR/GBP to rise upon announcement.”

Swedbank

“We believe that the BoE will hike by 75 bps in September, followed by a 50 bps hike in November and 25 bps in December, reaching 3.25%. After that, BoE will leave rates unchanged until end-2023, when we expect BoE to gradually lower its policy rate.”

TDS

“We expect the MPC to hike Bank Rate by 75 bps in September, and by 50 bps at each of its November and December meetings, reaching a terminal rate of 3.50% by year-end. We expect rate cuts from 2023H2. We also expect the MPC to approve the start of asset sales at a pace of GBP10 bn/qtr at this meeting. We don't think the BoE can do much to rescue the faltering GBP, reflecting the importance of global factors.”

ING

“We narrowly favour a 50 bps hike taking the Bank Rate to 2.25%, although 75 bps is clearly on the table and we would expect at least a couple of policymakers to vote for it. The announcement of an energy price cap from the government will drastically lower near-term CPI, reducing concerns about consumer inflation expectations becoming de-anchored and reducing the urgency to act even more aggressively. However, the hawks will be worried about the recent independent sterling weakness, and will also argue that the government’s support package could increase medium-term inflation given it reduces the risk of recession. That means it’s a close meeting to call, but if we’re right and the committee does move more cautiously than the Fed and ECB, then we expect another 50 bps move in November and at least another 25 bps in December. That would take Bank Rate to the 3% area.”

SocGen

“We expect the MPC to vote for another increase in Bank Rate of 50 bps, taking it to 2.25%, and confirm its plans to commence active gilt sales. Together with the run-off of maturing gilts from the APF portfolio, the total reduction in the stock of gilts should be GBP80 bn over one year.”

Commerzbank

“It is still unclear whether the BoE will deliver 50 or 75 bps but one way or the other we see little upside potential for sterling.”

Deutsche Bank

“We expect the MPC to vote for a second consecutive 50 bps hike, albeit along divisive lines, with dissents favouring both a 25 bps and a 75 bps move likely surfacing. On the balance sheet, the MPC should confirm the start of gilt sales from later on this month, totaling GBP10 bn per quarter. We expect the BoE’s terminal rate will be 4%, reached in May of next year.”

Wells Fargo

“We expect the BoE to raise its policy rate 50 bps to 2.25% and follow up thereafter with a 50 bps rate increase in November and a 25 bps increase in December. This would see the BoE's policy rate peak at 3.00% by the end of this year. We expect the BoE's policy rate to remain steady through much of 2023, before a modest 50 bps of easing from the UK central bank in Q4 next year. As the BoE raises interest rates less aggressively than what markets are pricing, the British pound should remain under pressure over the next few quarters, especially as the Fed looks to raise interest rates aggressively to combat elevated inflation in the United States.”

• Existing Home Sales in the US declined modestly in August. 
• US Dollar Index stays in positive territory above 110.50 after the data.

Existing Home Sales in the US declined for the seventh straight month in August to a seasonally adjusted annual rate of 4.8 million, the National Association of Realtors (NAR) reported on Thursday. Sales were down 0.4% and 19.9% on a monthly and yearly basis, respectively. 

"The median existing-home sales price rose 7.7% from one year ago to $389,500," the NAR further noted in its publication.

Market reaction

These figures don't seem to be having a significant impact on the dollar's performance against its major rivals. As of writing, the US Dollar Index was up 0.5% on the day at 110.75.

Jens Stoltenberg, NATO's Secretary General, told Reuters on Wednesday that Russian President Vladimir Putin's announcement of military mobilization and threat to use nuclear weapons was "dangerous and reckless rhetoric."

Additional takeaways

"Nuclear war should never be fought."

"NATO will make sure there is no misunderstaning in Moscow about seriousness of using nuclear weapons."

"So far no changes in Russia's nuclear posture."

"Putin's speech demonstrates war is not going according to his plans."

"Putin miscalculated on Ukraine, he made a big mistake."

"More troops will escalate conflict in Ukraine."

"Confident NATO allies will ratify membership of Sweden, Finland."

"Hope Ukraine war will end at negotiating table but Kyiv needs acceptable outcome."

"NATO will not engage in same kind of dangerous, reckless nuclear rhetoric as Russia's Putin."

"NATO needs to be prepared for the long haul in dealing with Putin."

It is hard to see short-term solution as long as Russia does not accept Ukraine as sovereign nation."

Market reaction

These comments don't seem to be having a significant impact on risk mood. As of writing, Wall Street's main indexes were up between 0.3% and 0.5%.

• USD/CAD hits a two-year high and now seems to have entered a bullish consolidation phase.
• An intraday move up in oil prices underpins the loonie and acts as a headwind for the major.
• Sustained USD buying continues to lend support as traders keenly await the FOMC decision.

The USD/CAD pair now seems to have entered a bullish consolidation phase and is seen oscillating in a range just below a two-year high touched earlier this Wednesday. The 1.3400 mark remains a key hurdle for spot prices as the focus remains glued to the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session.

The US central bank is expected to stick to its aggressive policy tightening path to tame inflation and deliver another supersized 75 bps rate hike at the end of a two-day policy meeting on Wednesday. This, in turn, pushes the US dollar to a fresh 20-year peak and turns out to be a key factor that continues to act as a tailwind for the USD/CAD pair.

That said, the risk-on impulse - as depicted by a generally positive tone around the equity markets - acts as a headwind for the safe-haven greenback ahead of the key central bank event risk. Apart from this, a goodish pickup in crude oil prices underpins the commodity-linked loonie and contributes to capping gains for the USD/CAD pair, at least for now.

Russian President Vladimir Putin announces a partial military mobilisation, raising geopolitical risks and worries about a tighter global oil supply. This, in turn, assists oil prices to gain some intraday positive traction. That said, concerns that a deeper global economic downturn will dent fuel demand keep a lid on any meaningful upside for the black liquid.

The fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside. Traders, however, prefer to wait for a more hawkish outlook from the Fed before positioning for an extension of the appreciating move. Hence, the focus will be on the updated economic projections, the dot plot and Fed Chair Jerome Powell's post-meeting press conference.

From a technical perspective, the recent strong move up witnessed over the past one-and-half week or so pauses near a resistance marked by the top end of a multi-month-old ascending channel. This further warrants some caution before placing aggressive bullish bets around the USD/CAD pair.

Technical levels to watch

• EUR/USD keeps the selling bias well in place on Wednesday.
• The dollar trades close to the earlier 20-year highs near 111.00.
• The Federal Reserve is predicted to raise rates by 75 bps.

EUR/USD maintains the bearish mood around the 0.9900 neighbourhood after briefly probing the 0.9880 region on Wednesday.

EUR/USD offered ahead of Fed’s decision

EUR/USD met a wave of selling orders soon after hitting fresh multi-session peaks around 1.0050 on Tuesday. Since then, it was a one way move to earlier 2-week lows in the 0.9885/80 band.

The sharp 2-day decline in the pair comes exclusively in response to the equally strong upside momentum in the greenback, which appears in turn bolstered by expectations of extra rate hikes by the Fed in the upcoming months.

What to look for around EUR

EUR/USD extends further the corrective decline to the area below 0.9900 ahead of the interest rate decision by the Federal Reserve. In the meantime, the pair’s very near-term price action is expected to be determined by developments from the FOMC event later on Wednesday.

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: 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 retreating 0.64% at 0.9904 and a breach of 0.9884 (weekly low September 21) would target 0.9863 (2022 low September 6) en route to 0.9859 (December 2002 low). On the other hand, the initial hurdle comes at 1.0091 (55-day SMA) seconded by 1.0197 (monthly high September 12) and finally 1.0297 (100-day SMA).

GBP/USD sank to a 37-year trough in the low 1.13s. Economists at Scotiabank expect the pair to suffer further losses.

Resistance aligns at 1.1350/75

“New cycle lows and a weak – so far – rebound which is struggling to regain the mid-1.13s leave the pound looking vulnerable to more losses in the short run.” 

“We spot resistance at 1.1350/75 and 1.1450/60.”

“Support is 1.1300/10, then the big figures below.”

“Foreign investors have been moving out of Gilts in recent months and may require more attractive yields before returning.”

The loonie withstands US dollar volatility to an extent. However, the USD/CAD pair has solid support at the 1.3340/50 region, economists at Scotiabank report.

Broader risks still point towards additional USD gains

“Intraday patterns suggest USD gains have stalled in the upper 1.33 area, with the CAD proving (surprisingly) resilient to the volatility which affected the other majors earlier in the session.” 

“USD support looks firm near 1.3340/50 (former resistance), however, and the CAD will need to regain 1.3225 (at least) to show any sort of technical strength in the short run.”

“Broader risks are still pointing towards additional USD gains (1.3651 is the 61.8% Fib of the 2020/21 USD decline).”

EUR/SD drops sharply on Russia news. Economists at Scotiabank expect the pair to challenge the early September low at 0.9865.

Ukraine tensions pick up

“Russia’s announcement that it will call up 300K reservists for the war in Ukraine and Putin’s nuclear saber-rattling in response to Western ‘blackmail’ sent a jolt across markets. The mobilization news effectively undoes some of the hopes for a calmer geopolitical backdrop that Ukraine’s recent offensive had prompted and suggests a long conflict lies ahead still.” 

“EUR weakness below the 0.9950 support zone that has held the market up over the past week leaves the EUR looking soft and vulnerable again, with the early Sep low at 0.9865 at risk.” 

“The broader downtrend persists and safe ground for the EUR (above 1.0130) remains distant.”

Riksbank’s surprise decision to hike rates by a total of 100 bps lifted the SEK initially vs. the EUR but it failed to hold these gains. This provides a worrisome signal for the Norges Bank, which is expected to announce a rate hike tomorrow and an unsettling precedent for the Bank of Japan, Swiss National Bank and the Bank of England, all of which are also expected to make policy announcements tomorrow, economists at Rabobank report.

USD/JPY set to head higher toward 1.47 in the coming months

“The latest escalation in the rhetoric from President Putin suggests that the SEK is likely to be on the back foot in the near-term irrespective of yesterday’s 100 bps rate hike.”

“The market is expecting the Norges Bank to announce a 50 bps rate hike tomorrow. In the current environment, we would expect that a 50 bps move will have little short-term impact in supporting the NOK. Amid poor liquidity for the NOK, many investors are likely to remain side-lined.”

“The market is looking for a 75 bps rate hike tomorrow which will likely enhance the CHF’s safe haven credentials.”

“GBP has less chance of being lifted by an aggressive rate hike tomorrow. In view of the UK’s record current account deficit, we view the pound as highly vulnerable and see risk of GBP/USD dropping to 1.08 on a six-month view and for EUR/GBP to edge higher in this time frame.” 

“The BoJ is the standout outlier insofar as it is expected to maintain loose monetary policy tomorrow and until it sees more progress in domestic wage inflation. We see risk of USD/JPY heading to 1.47 in the coming months.”

See: 

• BoJ Preview: Forecasts from 10 major banks, null chances to suddenly change course

• Norges Bank Preview: Forecasts from five major banks, set for another 50 bps

• USD/TRY clinches fresh all-time tops north of 18.30.
• The Fed is expected to hike rates by 75 bps later.
• The CBRT meets on Thursday amidst a divided consensus.

The Turkish lira depreciates further and helps USD/TRY escalate to new record highs around 18.32 on Wednesday.

USD/TRY remains bid ahead of FOMC, CBRT

USD/TRY maintains the optimism well and sound so far this week and manages to advance past the 18.30 region and print at the same time new all-time highs, always on the back of the intense rally in the dollar as well as the omnipresent poor outlook for the lira.

In the meantime, the pair is poised to extend the upside for the time being on the back of the tighter-for-longer stance from the Fed – which is likely to be confirmed later on Wednesday – and the absence of any serious measure from Ankara in order to quell the entrenched inflation.

On the latter, Tuesday’s comments from President Erdogan that inflation is not an “insurmountable economic threat” (and that it will start falling towards year-end) appear to have underpinned the investors’ generalized perception that there are no solid plans to bring inflation down.

On Thursday, the Turkish central bank (CBRT) meets and opinions among market participants remain divided on whether the central bank will make an impasse to evaluate the effects of the August rate cut, or it will emphasize the resumption of the easing cycle.

What to look for around TRY

USD/TRY maintains the underlying gradual upside well in place and looks to consolidate the recent breakout of the 18.30 zone.

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 0.10% at 18.3193 and faces the next hurdle at 18.3327 (all-time high September 21) seconded by 19.00 (round level). On the downside, a break below 17.9187 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low

The US Dollar Index is trading at fresh multi-decade highs near 110.80. Economists at Rabobank expec the greenback to remain on a strong foot.

USD strength is based on a combination of Fed hawkishness and risk aversion

“It has been our view for some time that USD strength is set to persist for some time, at least until the early months of next year. Given that we are no longer forecasting Fed rate cuts before 2024, there is now a strong argument that USD strength may persist for far longer.”

“USD strength is based on a combination of Fed hawkishness and risk aversion. The latter has drawn strength form concerns about the outlook for global growth. The headwinds for growth include risks of a US hard landing, slow growth in China, energy related recession in the Eurozone and widespread reduction in purchasing power due to inflation.”

“Currency weakness vs. the USD has been a contributary factor in the decisions of many central banks to announce aggressive rate rises this year. While rate hikes should provide some protection against currency weakness, they may also undermine growth prospects further and thus at some juncture they risk feeding safe haven USD demand further.”

• NZD/USD drops to its lowest level since April 2020 amid sustained USD buying interest.
• Retreating US bond yields, the risk-on mood caps the buck and limits losses for the pair.
• Investors now seem to move to the sidelines and await the crucial FOMC policy decision.

The NZD/USD pair recovers a few pips from its lowest level since April 2020 touched in the last hour and is currently placed in neutral territory, around the 0.5885 region. That said, any meaningful recovery still seems elusive as investors gear up for another supersized rate hike by the Federal Reserve.

The stronger US CPI report released last week reaffirmed expectations that the USD central bank will continue to tighten its monetary policy at a faster pace. This remains supportive of a strong follow-through US dollar move up to a fresh 20-year peak, which, in turn, should continue to act as a headwind for the NZD/USD pair.

That said, a softer tone surrounding the US Treasury bond yields and a generally positive risk tone keep a lid on any further gains for the safe-haven greenback. Apart from this, slightly oversold conditions on short-term charts offer some support to the risk-sensitive kiwi and help limit losses for the NZD/USD pair.

Apart from this, the intraday bounce could further be attributed to some repositioning trade ahead of the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session. The Fed is widely expected to stick to its aggressive policy tightening path and hike interest rates by at least 75 bps.

Apart from this, the focus will be on the updated economic projections and the dot plot. Furthermore, Fed Chair Jerome Powell's remarks at the post-meeting press conference will be looked upon for clues about future rate hikes. This, in turn, will influence the USD and provide a fresh directional impetus to the NZD/USD pair.

Technical levels to watch

Gold capitalized on safe-haven flows and climbed above $1,670 as investors seek refuge as Russian President Vladimir Putin announces military mobilization. But eyes are on the Federal Reserve. A hawkish hike is set to weigh on the yellow metal, strategists at TD Securities report.

FOMC to provide more hawkish signals

“Gold is catching a safe-haven bid as Russia has escalated the war in Ukraine with Putin declaring a partial mobilization in Russia and threatening use of nuclear weapons. Nonetheless, it is Fed day, where aggressive Fed expectations are being priced in.”

“The persistence of inflation continues to support an aggressive effort by the Fed, and we expect the FOMC to deliver its third consecutive 75 bps rate hike, bringing the policy stance decidedly above its estimate of the longer-run neutral level. 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.” 

“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. Indeed, gold and silver prices have tended to display a systematic underperformance when markets expect the real level of the Fed funds rate to rise above the neutral rate, as estimated by Laubach-Williams.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues

The euro remains heavy as Ukraine tensions pick up. The EUR/USD pair could plummet as low as the June 2002 low near 0.9305, economists at BBH report.

Ukraine is heating up again

“With the fundamentals deteriorating, we look for the euro to soon break below this month’s cycle low near 0.9865 and maintain our medium-term target at the June 2002 low near 0.9305.”

“Russian President Putin announced a partial mobilization of troops. This comes just after the announcement yesterday that the Russian-held areas of Donetsk and Luhansk will vote on joining Russia in the coming days. Ukraine and the West will not recognize these votes and so tensions are likely to remain high with no diplomatic solution in sight.  Thus, the fighting could easily become more widespread if Ukraine makes any effort to retake these regions.”

“Growing risk-off impulses suggest markets had become much too complacent about Ukraine in recent weeks.”

• USD/JPY gains some positive traction for the third straight day amid broad-based USD strength.
• The Fed-BoJ policy divergence, a positive risk tone undermines the JPY and remains supportive.
• Investors now eye the FOMC decision for a fresh impetus ahead of the BoJ meeting on Thursday.

The USD/JPY pair reverses an intraday dip to the 143.35 area and moves back into positive territory for the third straight day on Wednesday. The uptick lifts spot prices to a one-week high, around the 144.20 region during the mid-European session, and is sponsored by strong follow-through US dollar buying.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, hits a fresh 20-year high and remains well supported by hawkish Fed expectations. The stronger US CPI report for August all but confirmed that the US central bank will continue to tighten its monetary policy at a faster pace. The markets have fully priced in at least a 75 bps rate hike at the end of a two-day policy meeting on Wednesday.

In contrast, the Bank of Japan has been lagging in the process of policy normalisation and is committed to continuing with its monetary easing. This marks a big divergence in comparison to a more hawkish stance adopted by other major central banks, which, along with a generally positive tone around the equity markets, is weighing on the safe-haven Japanese yen. The combination of supporting factors continues to act as a tailwind for the USD/JPY pair higher.

The upside, however, remains capped as investors seem reluctant to place aggressive bets ahead of the key central bank event risks. The Fed will announce its policy decision later during the US session. This will be accompanied by the updated economic projections and the so-called dot plot. Apart from this, Fed Chair Jerome Powell's comments at the post-meeting press conference will be scrutinized for clues about the future rate-hike path.

This, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the USD/JPY pair ahead of the BoJ meeting on Thursday. In the meantime, the risk of a further escalation in the Russia-Ukraine conflict and growing worries about a deeper global economic downturn seem to lend some support to the JPY. This, in turn, could keep a lid on any further gains for the USD/JPY pair, at least for now.

Technical levels to watch

The Bank of Japan (BoJ) is scheduled to hold its next Monetary Policy Committee (MPC) meeting on Thursday, September 22 at 03:00 and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 10 major banks. 

The BoJ is widely anticipated to maintain the status quo, leaving rates at record lows of -0.1% and the yield curve control policy on hold. 

Standard Chartered

“We expect the central bank to keep the policy balance rate unchanged in September, unlike other central banks, which have rapidly raised rates on inflation concerns. The BoJ aims to sustainably achieve its price stability target of 2%. Inflation has been driven by supply shocks and a weak JPY; the central bank has repeatedly said that cost-push inflation is undesirable given the negative impact on the economy. Also, government debt is high at close to 260% of GDP. In such a scenario, rate hikes would weigh on the fiscal balance and hinder fiscal spending for economic growth.” 

Danske Bank

“While external factors, i.e. monetary policy in the US, is pressuring BoJ, inflation is still muted in Japan, although on the rise. That is why the BoJ clings to yield curve control and why we expect BoJ to stay put. Changes on FX intervention and/or YCC will have to be forced upon BoJ from the outside.”

SocGen

“We expect the BoJ to maintain its main monetary policy, i.e. yield curve control (YCC) and ETF purchases. However, the bank is set to end, as scheduled, a pandemic-relief funding scheme this month and also adjust the policy guidance that flags the COVID-19 pandemic as the top economic risk, because the funding needs of small and medium-sized enterprises have stabilised and the use of this scheme has decreased even as COVID-19 spreads again.”

Commerzbank

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

Deutsche Bank

“We expect the BoJ to remain the DM outlier by maintaining an easy policy stance while agreeing to end their special pandemic funds-supplying operation as scheduled at the end of the month. The policy divergence will continue to weigh on the yen which is around its weakest levels versus the dollar since the early 90s, but we do not expect that augur intervention, as fundamentals are driving the weakening and reduce the chance any intervention is effective.”

Citibank

“We expect the BoJ to keep monetary policy unchanged, having maintained its stance that monetary policy is not targeted at forex in the midst of sharp yen depreciation against the dollar. The policy statement may be revised to reflect the termination of pandemic supports but the team expects the downward bias on policy rates to be retained.”

Wells Fargo

“BoJ policymakers have left rates on hold and in negative territory for all of 2022 and are unlikely to deliver any policy adjustments when they meet this week. With growth and inflation dynamics still underwhelming, we believe policymakers will keep monetary policy settings accommodative in an effort to spark economic activity and see a sustained push higher in inflation. With the yen underperforming significantly over the course of this year, speculation has grown that authorities could intervene in FX markets to stabilize the currency. These responsibilities would fall to the Ministry of Finance (MOF), although we believe MOF policymakers are unlikely to announce any intervention next week or in the foreseeable future. A weaker currency could support Japan's export sector and the broader economy, while also leading to higher inflation as well. In our view, MOF policymakers will prioritize growth and inflation dynamics as opposed to a more stable currency.”

OCBC

“Our base case is for BoJ to stand pat but do not rule out risk of YCC tweaks at some stage.” 

MNI

“BoJ will stand pat on monetary policy in the face of continuing economic weakness. While officials are monitoring rising inflationary pressures due to higher food prices and while a slide in the yen to a 24-year low against the dollar could potentially raise political pressure on the Bank to act, the BoJ's board will likely maintain an easing bias given that the output gap is in negative territory. Fears over downside risks to the economy could even prompt the bank to tweak guidance for short- and long-term policy interest rates to remain at present or lower levels.”

Goldman Sachs

“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) 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.”

• EUR/USD remains under pressure and drops below 0.9900.
• The so far 2022 low awaits at 0.9863 (September 6).

EUR/USD deepens its weekly correction and breaches the key support at the 0.9900 mark on Wednesday.

The pair have embarked on a corrective decline and this carries the potential to extend further and revisit the 2022 low at 0.9863 (September 6). The loss of this area should put the December 2002 low at 0.9859 back on the radar prior to the October 2022 low at 0.9685.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0709.

EUR/USD daily chart

• DXY advances further and flirts with the 111.00 region.
• The FOMC event will put the ongoing bull run to the test.

DXY extends the auspicious start of the week and prints new 20-year highs just below the 111.00 mark on Wednesday.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 7-month support line near 106.70. That said, the surpass of the 2022 peak at 110.86 (September 21) should expose a quick move to the 111.00 barrier.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 101.87.

DXY daily chart

• EUR/JPY comes under downside pressure and breaches 142.00.
• Next on the upside turns up the 2022 top at 145.63.

EUR/JPY adds to Tuesday’s losses and briefly breaks below the 142.00 support midweek.

The cross appears within the multi-session range bound theme so far. The break above this stance could open the door to a potential visit to the 2022 high at 145.63 (September 12).

In the meantime, while above the 200-day SMA at 135.45, the prospects for the pair should remain constructive.

EUR/JPY daily chart

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest trade balance figures in Malaysia.

Key Quotes

“Malaysia’s external trade surprisingly posted stronger gains last month, in part due to year-ago low base effects. Export growth hit a 16-month high of 48.2% y/y in Aug (Jul: +38.0%, UOB est: +30.5%, Bloomberg est: +34.3%) as a result of a triple-digit gain in re-exports (+112.5%) versus a double digit gain in domestic exports (+34.8%). Imports posted the largest ever annual growth on record, at 67.6% (Jul: +41.8%, UOB est: +48.0%, Bloomberg est: +48.0%). This brought trade surplus higher to MYR16.9bn from MYR15.6bn in the preceding month.”

“Increased shipments of commodity-based and electrical & electronic (E&E) products amid stronger demand from almost all trading partners were key drivers of robust export growth in Aug. Exports of petroleum products, liquefied natural gas (LNG) and optical & scientific equipment registered the highest monthly value in the month. Exports to the ASEAN region, South Korea and Hong Kong improved by more than 50% while shipments to the US jumped the most in 15 months by 38.2%.”

“Given that Aug’s export reading defied our earlier expectations of a soft patch in the greater part of 2H22 and the 30.3% year-to-date export growth moved further apart from our full-year growth target of 18.0%, we now upgrade our export growth projection to 26.0% for 2022 with statistical base and commodity price effects remaining wildcards for the outlook. We expect the recent retreat in major commodity prices and lingering global uncertainties particularly a global recession risk to weigh on Malaysia’s export outlook going into 2023, leading to a modest export growth of 1.5% next year.”

• Silver regains positive traction on Wednesday and reverses a major part of the overnight losses.
• The technical set-up supports prospects for a breakout through a descending trend-line resistance.
• Sustained weakness below the $18.80-$18.75 region is needed to negate the constructive outlook.

Silver attracts fresh buying on Wednesday and continues gaining traction through the first half of the European session. The white metal reverses the previous day's modest losses and is currently trading near the daily peak, around mid-$19.00s.

Looking at the broader picture, the XAG/USD has been oscillating in a familiar range over the past one-and-half week or so and remains below a downward sloping trend-line extending from the May swing high. The said barrier, currently around the $19.75 region, should act as a key pivotal point and help determine the next leg of a directional move for the commodity.

Meanwhile, positive technical indicators on the daily chart support prospects for an eventual breakout through the aforementioned hurdle. The XAG/USD might then surpass the $20.00 psychological mark and test the 100-day SMA, around the $20.25 region. The momentum could further get extended towards the $20.50 intermediate resistance en route to the $21.00 mark.

On the flip side, any meaningful pullback might continue to find decent support near the $19.00 mark ahead of the $18.80-$18.75 region. A convincing break below will shift the near-term bias back in favour of bearish traders and make the XAG/USD vulnerable to accelerating the fall to the $18.45-$18.40 support. Spot prices could eventually drop to the $18.00 round figure.

Silver daily chart

Key levels to watch

• GBP/USD recovers a few pips from its lowest level since 1985 touched earlier this Wednesday.
• An intraday pullback in the US bond yields caps gains for the USD and offers support to the pair.
• The attempted bounce lacks bullish conviction ahead of the highly-anticipated FOMC decision.

The GBP/USD pair finds some support near the 1.1300 mark and recovers a few pips from its lowest level since 1985 touched earlier this Wednesday. The pair, however, keeps the red for the second successive day and is currently trading just below mid-1.1300s, down around 0.30% for the day.

A combination of factors assists the US dollar to gain strong follow-through traction, which, in turn, exerts downward pressure on the GBP/USD pair. Expectations that the Fed will deliver another supersized 75 bps at the end of a two-day policy meeting on Wednesday continue to act as a tailwind for the buck. Apart from this, the risk of a further escalation in the Russia-Ukraine conflict offers additional support to the safe-haven greenback.

In the latest development, Russian President Vladimir Putin announced a partial military mobilization. This comes amid growing recession fears and tempers investors' appetite for riskier assets, which is evident from the prevalent cautious mood around the equity markets. The British pound is further pressured by the bleak outlook for the UK economy. This, to a larger extent, overshadows the prospects for a 50 bps rate hike by the Bank of England.

The anti-risk flow, meanwhile, triggers a modest pullback in the US Treasury bond yields, which, in turn, is holding back the USD bulls from placing fresh bets. Adding to this, Britain unveils a package to help businesses, capping the cost of electricity and gas. The combination of factors helps ease the bearish pressure around the GBP/USD pair, though any meaningful recovery still seems elusive as the focus remains on the key central bank even risks.

The US central bank is scheduled to announce its policy decision later during the US session. Investors will further take cues from the updated economic projections, the so-called dot plot and Fed Chair Jerome Powell's comments at the post-meeting press conference. This will be followed by the BoE meeting on Thursday, which will play a key role in influencing sterling and help determine the next leg of a directional move for the GBP/USD pair.

Technical levels to watch

USD/CNH could prolong the upside bias and test 7.1000 once it leaves behind 7.0500, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we expected USD to ‘trade within a range of 6.9800/7.0220’. However, USD edged to a high of 7.0325. Despite the advance, upward momentum has not improved by much. That said, USD could continue to edge higher but it is unlikely to challenge the major resistance at 7.0500. Last week’s high near 7.0430 is already a strong resistance level. Support is at 7.0220 but only a breach of 7.0150 would indicate the current mild upward pressure has eased.”

Next 1-3 weeks: “Our update from Monday (19 Sep, spot at 6.9980) still stands. 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 6.9750 (‘strong support’ level was at 6.9660 yesterday) would indicate that the USD strength that started one week ago has run its course. Looking ahead, if 7.0500 is broken, the focus will shift to 7.1000.”

• Gold attracts some haven flows amid the risk of a further escalation in the Russia-Ukraine conflict.
• Retreating US bond yields also benefits the non-yielding metal, though the upside remains capped.
• Aggressive Fed rate hike bets underpin the USD and act as a headwind ahead of the FOMC decision.

Gold catches some bids during the early European session and climbs to a fresh daily high, around the $1,676 region, reversing a major part of the previous day's losses. The uptick is sponsored by reviving demand for safe-haven assets, though strong follow-through US dollar buying continues to cap gains for the XAU/USD.

Against the backdrop of concerns about a deeper global economic downturn, the risk of a further escalation in the Russia-Ukraine conflict drives some haven flows towards gold. In the latest development, Russian President Vladimir Putin announced partial military mobilization and tempers investors' appetite for riskier assets.

The anti-risk flow is reflected by an intraday pullback in the US Treasury bond yields, which is seen as another factor benefitting the non-yielding gold. That said, expectations that the Fed will stick to its aggressive policy tightening path and raise rates at a faster pace should act as a tailwind for the US bond yields.

In fact, the markets seem convinced that the US central bank will deliver another supersized 75 bps rate increase at the end of a two-day policy meeting on Wednesday. This remains supportive of the underlying bullish sentiment surrounding the USD, which might also contribute to keeping a lid on the dollar-denominated gold.

Furthermore, investors also seem reluctant to place aggressive bets and might prefer to move to the sidelines heading into the key central bank event risk. Market participants will look for fresh clues about the future rate-hike path. Hence, the focus will be on the updated economic projections and the so-called dot plot.

Apart from this, Fed Chair Jerome Powell's remarks at the post-meeting press conference will play a key role in influencing the near-term USD price dynamics. This, in turn, should help determine the next leg of a directional move for gold.

Technical levels to watch

• EUR/USD loses further momentum and breaches 0.9900.
• The FOMC event will be the salient event later in the NA session.
• Focus will also be on Powell and fresh economic projections.

Sellers continue to dictate the mood around the European currency and force EUR/USD to break below the 0.9900 mark to print new 2-week lows.

EUR/USD weaker ahead of the Fed, Powell

EUR/USD adds to Tuesday’s losses and slips back to the sub-0.9900 region for the first time since early September against the backdrop of the continuation of the upside pressure in the dollar.

Indeed, the sentiment around the greenback gathered extra pace on Wednesday and pushed the USD Index (DXY) to new 2-decade tops near 110.90 as investors continue to take positions ahead of the FOMC event due in the European evening.

The daily retracement in spot also comes in tandem with a knee-jerk in yields on both sides of the Atlantic following Tuesday’s fresh highs. It is worth recalling that the German 10-year Bund yields rose above 1.95% for the first time since January 2014, while its American counterpart also traded in levels last seen in February 2011 well past 3.50%.

The European calendar is empty on Wednesday, whereas weekly MBA Mortgage Applications and Existing Home Sales are due across the pond apart from the FOMC gathering.

What to look for around EUR

EUR/USD extends further the corrective decline to the area below 0.9900 ahead of the interest rate decision by the Federal Reserve. In the meantime, the size and extension of a potential deeper pullback – or rebound – is expected to be determined by developments from the FOMC event later on Wednesday.

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: 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 retreating 0.62% at 0.9907 and a breach of 0.9884 (weekly low September 21) would target 0.9863 (2022 low September 6) en route to 0.9859 (December 2002 low). On the other hand, the initial hurdle comes at 1.0091 (55-day SMA) seconded by 1.0197 (monthly high September 12) and finally 1.0297 (100-day SMA).

UK Business Department announced on Wednesday that said it would cap the cost of electricity and gas for businesses.

Key takeaways

Meanwhile, the country’s Finance Minister Kwasi Kwarteng said, "we have stepped in to stop businesses collapsing, protect jobs, and limit inflation."

Market reaction

GBP/USD has ignored these headlines, as it consolidates the quick slump to fresh 37-year lows of 1.1305, earlier on.

The pair is trading at 1.1342, down 0.32% on the day, as of writing.

• USD/CAD retreats from the 1.3400 neighbourhood or a two-year high set earlier this Wednesday.
• A sharp intraday rally in crude oil prices underpins the loonie and acts as a headwind for the pair.
• Retreating US bond yields is holding back the USD bulls from placing fresh bets and capping gains.
• Traders now seem to move to the sidelines and await the highly-anticipated FOMC policy decision.

The USD/CAD pair hits a two-year high on Wednesday, though struggles to capitalize on the move and retreats a few pips from the 1.3400 neighbourhood. The pair, however, manages to stick to its modest intraday gains and is trading around the 1.3375-1.3380 region during the early European session.

The US dollar gains strong follow-through traction for the second straight day and remains supported by hawkish Fed expectations. This, in turn, is seen as a key factor acting as a tailwind for the USD/CAD pair. The US central bank is widely anticipated to deliver another supersized 75 bps rate increase at the end of a two-day policy meeting on Wednesday. The markets have also priced in a small possibility of a full 100 bps hike, which, along with the prevalent cautious mood, continues to lend support to the safe-haven greenback.

The market sentiment remains fragile amid concerns about a deeper global economic downturn. That said, a modest pullback in the US Treasury bond yields is holding back the USD bulls from placing aggressive bets.  Apart from this, a sharp intraday rally in crude oil prices underpins the commodity-linked loonie and further contributes to capping gains for the USD/CAD pair. Investors also seem reluctant and prefer to move to the sidelines ahead of the highly-anticipated FOMC policy decision, scheduled later during the US session.

Investors will further take cues from the updated economic projections and the so-called dot plot. Furthermore, Fed Chair Jerome Powell's remarks at the post-meeting press conference will be scrutinized for clues about the future rate-hiking path. This will play a key role in driving the USD demand in the near term. Apart from this, oil price dynamics should help determine the next leg of a directional move for the USD/CAD pair. Heading into the key event risk, spot prices seem more likely to consolidate in a range.

Technical levels to watch

The big FOMC day has arrived. Economists at Société Générale believe that the EUR/USD pair could test the 0.9851 low of 6 September depending on the size of the US rate increase.

100 bps cannot be ruled out

“With the Fed likely to act decisively later today, it is not inconceivable that the path has been set for a new low in EUR/USD.”

“The pair is defending 0.99 but a retest of the 0.9851 low of 6 September could follow depending on the size of the US rate increase and the upgrade of the dot plots for 2023-2024.”

“We pencil in a third consecutive 75 bps increase in the fed funds rate today, but the upward surprise in core CPI last week means that 100 bps cannot be ruled out. Our house view is that the fed funds rate will plateau around 4.125% and that a rate cut is likely to be delayed until 2024. A more aggressive profile should in theory translate into a higher unemployment rate too. The pain trade if it materialises is likely to be negative stocks, further curve inversion (2y/10y to top -50 bps?) and dollar strength.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues

The bear market has been driven by multiple compression, making valuations look relatively compelling. Yet, expected weakness in earnings may limit the upside potential for stocks, economists at Charles Schwab report.

Fed remains engaged in one of the most aggressive rate-hiking cycles in history

“The indisputable reality today is that the Fed remains engaged in one of the most aggressive rate-hiking cycles in history. Confirmed by what we've seen this year, that has historically weighed on valuations.” 

“Growth-heavy stocks represent a much larger portion of the market today compared to the last era with inflation running above 8%. If higher interest rates continue to dent those stocks' value, and earnings growth slows, there is less upside for profit margins.”

“It isn't precision around the magnitude of the decline in multiples that matters. Rather, it's the direction; and as of now, that continues to point downward…consistent with the downward trajectory of earnings growth estimates.” 

“At the mid-June lows, stocks were discounting a lot of negative news. Recent weakness clearly reflects still-hot inflation and a ‘don't fight the Fed’ mentality. But still largely ahead is a further rerating of earnings estimates and likely continued volatility in stocks. Stay disciplined.”

No changes to the side-lined stance in USD/JPY, as it is expected to keep trading within the 141.40-144.70 range in the next few weeks.

Key Quotes

24-hour view: “Our expectations for USD to ‘trade with a downward bias’ was incorrect as it traded between 142.93 and 143.92 before closing on a firm note at 143.72 (+0.36%). Upward momentum has improved slightly and USD could rise above 144.00. In view of the mild upward pressure, USD is unlikely able to maintain a foothold above this level. Support is at 143.20 followed by 142.80.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (20 Sep, spot at 143.00). As highlighted, we continue to expect USD to trade sideways, likely within a range of 141.40/144.70. Looking ahead, as long as there is no clear break of 141.40, USD could attempt to move above 145.00 at a later stage.”

• The index extends the upside to the vicinity of the 111.00 barrier.
• The Federal Reserve is expected to hike rates by 75 bps.
• Focus will be on Chief Powell’s presser and updated economic projections.

The buying pressure around the greenback remains well and sound and lifts the USD Index (DXY) to new tops around 110.90 on Wednesday, an area last traded back in June 2002.

USD Index focused on Fed, Powell

It was a matter of “when” rather than “if” the index could revisit/surpass the area of cycle peaks north of the 110.00 hurdle.

Indeed, firmer expectations of another ¾-point rate hike by the Fed later on Wednesday along with the perception of a hawkish message from Chief Powell and revised economic projections, all lends extra wings to the buck and propels the index to the proximity of the 111.00 barrier.

In addition, US yields lose some traction and appear vacillating near recent multi-year peaks when it comes to the short end and the belly of the curve.

Other than the FOMC event, usual MBA Mortgage Applications are due along with Existing Home Sales and the weekly report on US crude oil inventories by the EIA.

What to look for around USD

The dollar pushes higher and prints new peaks just shy of the 111.00 hurdle on FOMC-day.

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: MBA Mortgage Applications, Existing Home Sales, FOMC Interest Rate decision, Powell press conference (Wednesday) – Initial Claims, CB Leading Index (Thursday) – Flash Manufacturing/Services PMIs, Powell speech (Friday).

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

USD Index relevant levels

Now, the index is advancing 0.51% at 110.75 and a breakout of 110.86 (2022 high September 21) would expose 111.00 (round level) and then 111.90 (weekly high September 6 2002). On the downside, the next contention emerges at 107.68 (monthly low September 13) followed by 107.58 (weekly low August 26) and finally 105.97 (100-day SMA).

The dollar has retained good momentum so far this week. In the opinion of economists at ING, the Federal Reserve can keep offering support.

Hawkish 75 bps Fed hike can keep dollar bid

“We expect a 75 bps rate hike by the Fed, accompanied by a hawkish tone and Dot Plot projections which may show a terminal rate around 4.25-4.50%. We think this could keep risk sentiment fragile and offer further support to the dollar.”

“With the relationship between short-term rate dynamics and most G10 pairs having waned lately, expect a big chunk of the market reaction to be driven by the reaction in global equities – here a still hawkish Fed may not be read as good news, and that is another reason why we expect the safe-haven dollar to remain bid.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues

The continuation of the downtrend could push AUD/USD to the 0.6600 region once 0.6640 is breached, suggest FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected AUD to ‘range-trade within a range of 0.6685/0.6750’ yesterday. AUD subsequently traded within a lower range than expected (0.6677/0.6747) before closing on a soft note at 0.6691 (-0.51%). Downward pressure has increased a tad and AUD could drop below 0.6670 but the next support at 0.6640 is unlikely to come under threat for now. Resistance is at 0.6715 followed by 0.6735.”

Next 1-3 weeks: “We turned negative on AUD one week ago on 14 Sep (spot at 0.6735). As AUD declined, in our most recent narrative from Monday (19 Sep, spot at 0.6725), we indicated that further AUD weakness is still likely but oversold conditions could lead to consolidation first. After consolidating for the past couple of days, shorter-term downward momentum is building again. In other words, AUD appears to be ready to resume its decline towards 0.6640. A break of this level would shift the focus to 0.6600. Overall, only a breach of 0.6770 (no change in ‘strong resistance’ level from yesterday) would indicate that AUD is unlikely to weaken further.”

Here is what you need to know on Wednesday, September 21:

Safe haven flows dominate the financial markets early Wednesday after Russian President Vladimir Putin announced partial military mobilization. The US Federal Reserve is widely expected to raise its policy rate by 75 basis points later in the day and investors will scrutinize the updated Summary of Economic Projections. The US economic calendar will feature Existing Home Sales data for August and market participants will keep a close eye on geopolitical developments as well.

Fed September Preview: Terminal rate projection is key.

In a televised address to the nation, Russia's Putin said that the West wants to destroy Russia and added they are ready to take necessary steps to defend the sovereignty. "I tell the West, we have lots of weapons to reply, it is not a bluff," Putin added. Russia's defence ministry explained that 300,000 reserves will be called and that they will receive military training before being deployed.

Reflecting the risk-averse market environment, US stock index futures are losing between 0.2% and 0.3%, the 10-year US Treasury bond yield is down 1% and the US Dollar Index is trading at fresh multi-decade highs near 110.80, rising 0.5% on the day.

The shared currency stays under heavy selling pressure in the early European morning and EUR/USD trades deep in negative territory near 0.9900. 

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

Pressured by broad-based dollar strength, GBP/USD slumped to its weakest level since 1985 at 1.1305 before rebounding toward 1.1350.

USD/JPY lost over 50 pips and erased its daily gains with the initial reaction to Putin's announcement. As of writing, the pair was trading flat on the day at 143.70.

Gold capitalized on safe-haven flows and climbed above $1,670 after having closed in negative territory on Tuesday.

Bitcoin lost more than 3% on Tuesday and struggled to stage a rebound. At the time of press, BTC/USD was trading virtually unchanged on the day at around $19,000. Ethereum failed to build on Monday's recovery gains and dropped toward $1,300 on Tuesday. ETH/USD was last seen posting modest gains at $1,330.

• AUD/USD drops to its lowest level since June 2020 amid sustained USD buying.
• Aggressive Fed rate hike bets, the risk-off mood continues to underpin the buck.
• Bearish traders take a breather as the focus remains glued to the FOMC decision.

The AUD/USD pair adds to the previous day's losses and continues losing ground for the second straight day on Wednesday. Spot prices drop to the lowest level since June 2020, though find some support just ahead of the mid-0.6600s.

The strong US dollar buying interest remains unabated through the early European session amid hawkish Fed expectations and turns out to be a key factor exerting downward pressure on the AUD/USD pair. In fact, the US central bank is expected to deliver another supersized 75 bps rate hike at the end of a two-day meeting on Wednesday.

The markets have also been pricing in a small probability of a full 100 bps increase, which, along with the prevalent risk-off mood, continues to boost the safe-haven buck. Concerns about a deeper global economic downturn temper investors' appetite for riskier assets and further contributes to driving flows away from the risk-sensitive aussie.

The anti-risk flow, meanwhile, triggers a modest pullback in the US Treasury bond yields and is holding back the USD bulls from placing aggressive bets. Traders also seem reluctant to place aggressive bets ahead of the key central bank event risk, which, in turn, offers some support to the AUD/USD pair and limits the downside, for the time being.

The fundamental backdrop, however, remains tilted firmly in favour of bearish traders and suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, any meaningful recovery attempt might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly amid the underlying USD bullish sentiment.

Technical levels to watch

European Central Bank (ECB) Vice President Luis de Guindos said on Wednesday, “inflation remains very very high.”

Key quotes

Market reaction

EUR/USD was last seen trading at 0.9901, down 0.63% on the day.

It is hard to see EUR/USD being driven by anything else than the Fed today. Economists at ING believe that the pair could challenge early-September 0.9900 lows after the US central bank announcement.

Overall environment for the euro remains quite challenging

“What is sure is that the overall environment for the euro remains quite challenging, and the latest reports that Germany is going ahead with a full nationalisation of Uniper - the largest buyer of Russian gas – are working against any relief rally in European sentiment at the moment.”

“We think the early-September 0.9900 lows can be tested in EUR/USD after the Fed announcement, and a break below that level may unlock further downside for the pair into the 0.9800 support.”

USD/IDR has continued to push higher in tandem with US yields. Economists at Credit Suisse raise their USD/IDR forecast range to 14,800-15,500 (from 14,500-15,200) previously and expect BI to intervene as spot approaches the "red line" of 15,000.

Bank Indonesia will eventually shift its USD/IDR intervention “red line” of 15,000 

“For now, BI will likely continue to intervene as USD/IDR approaches the ‘red line’ of 15,000. However, as USD momentum continues, we eventually expect this level to break. We expect BI to eventually shift its intervention level higher to 15,500.”

“We expect BI to hike the repo rate by 25 bps (to 4.00%) on 22 September. This ‘slow tightening’ by BI leaves USD/IDR subject to upward pressure as the Fed hikes more rapidly and BI shifts its intervention levels higher. As such, we raise our USD/IDR forecast range to 14,800-15,500 (from 14,500-15,200) previously.”

See – BI Preview: Forecasts from six major banks, hiking 25 bps to contain inflation expectations

The FOMC and incoming news on domestic policy proposals mean that the pound may remain volatile today. The GBP/USD pair could dip below 1.13, economists at ING note.

UK policy plans remain in focus for GBP

“In line with our view for a positive response by the dollar to the Fed announcement, we think cable could set new lows today (a move below 1.1300 possible), and the pound’s higher sensitivity to a potentially adverse reaction in equities compared to the euro suggests some upside risk for EUR/GBP (which could re-approach 0.8800).”

“Prime Minister Liz Truss’s policy plans remain very much in focus too, and recent reports that her government may push for tax cuts – including the stamp duty on home purchases – may ease some concerns about the clouded UK economic outlook, but also fuel doubts about the sustainability of expansionary fiscal policy while delivering a mammoth energy bill support package.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues

This week, Japan is likely to become the only major economy with a negative policy rate. Therefore, economists at Credit Suisse expect the USD/JPY pair to test the 150 level.

JPY vulnerable to further weakness in no-event BoJ outcome

“We do not expect a policy change at this week’s Bank of Japan meeting, given Governor Kuroda’s ongoing commitment to YCC policy.”

“The global trend in rates is a potent force that cannot be either ignored if Japan doesn’t want to risk unhinged JPY weakness, nor offset with empty threats of FX intervention. The big question then becomes how the BoJ messages a change in policy, for example a shift in the YCC target instrument from 10-year to 5-year JGBs. Our base case is that the BoJ rolls this problem to its end-Oct meeting, which leaves USD/JPY likely to test 150.00 by the end of the week if the Fed strikes a hawkish stance again even in the face of threats of direct unilateral FX intervention by Japan.”

EUR/SEK broke the 2022 highs yesterday. The next key resistance is found in the 2020 covid crash peaks (all above 11.00). However, economists at ING do not expect the pair to surpass the 11 level.

A return below 10.50 in early 2023 is still possible

“We do admit that SEK has quite a lot of negatives in the price at the moment, and a move above 11.00 in EUR/SEK is still not our base case at this stage, but we acknowledge downside risks have mounted for the krona due to the challenging economic and market conditions, and there is not much the Riksbank’s monetary policy can do to help in the near term.” 

“If anything, a U-turn (which was however ruled out by Governor Stefan Ingves yesterday) on FX purchases would likely ease some pressure on SEK.”

“A return below 10.50 in EUR/SEK in early 2023 is still possible, as the krona should be at the forefront of any recovery in global and European risk sentiment. But the timing and likelihood of such a scenario are surely uncertain for the time being.”

• USD/JPY struggles to capitalize on its modest intraday uptick on Wednesday to a one-week high.
• The anti-risk flow benefits the JPY and caps the upside amid a modest fall in the US bond yields.
• Strong follow-through USD buying offers some support ahead of the key FOMC policy decision.

The USD/JPY pair struggles to find acceptance above the 144.00 mark and retreats from a one-week high touched this Wednesday. The pair slides back below mid-143.00s during the early European session and is pressured by reviving demand for the safe-haven Japanese yen, though lacks follow-through selling.

The market sentiment remains fragile amid concerns that rapidly rising interest rates will lead to a deeper global economic downturn. Apart from this, headwinds stemming from China's zero-covid policy and the protracted Russia-Ukraine war have been fueling recession fears. This, in turn, tempers investors' appetite for riskier assets and is driving haven flows towards the JPY.

The anti-risk flow is reinforced by a modest pullback in the US Treasury bond yields, which is seen as another factor exerting some downward pressure on the USD/JPY pair. That said, a strong pickup in the US dollar demand, bolstered by hawkish Fed expectations, should continue to lend support to spot prices and help limit deeper losses ahead of the key central bank event risks.

The Federal Reserve is scheduled to announce its decision at the end of a two-day policy meeting on Wednesday and is widely expected to deliver another supersized 75 bps rate increase. The markets also seem convinced that the US central bank will stick to its aggressive rate=hiking cycle to tame inflation, which should act as a tailwind for the US bond yields and the greenback.

Hence, the focus will remain glued to 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 fresh clues about the future rate hike path. This, in turn, will play a key role in influencing the USD price dynamics and help determine the near-term trajectory for the USD/JPY pair.

This will be followed by the Bank of Japan meeting on Thursday. The Japanese central bank remains committed to maintaining ultra-low interest rates and dovish policy guidance. This marks a big divergence from a more hawkish stance adopted by other major central banks, which supports prospects for an extension of the USD/JPY pair's recent strong appreciating move.

Technical levels to watch

NZD/USD is below 0.59. Economists at ANZ Bank note that the pair could nosedive to the 2020 low of 0.5470 on a break under 0.5825.

Kiwi in a precarious spot

“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.”

“A break below 0.5825 will put it in ‘clear air’ all the way down to the 2020 low of 0.5470.”

USD/CAD is nearing the 1.34 level. Economists at Commerzbank expect the Canadian dollar to remain under pressure unless the Federal Reserve disappoints markets.

Bank of Canada’s frontloading seems to be having an effect

“The restrictive monetary policy seems to be having an effect slowly. The economic data of the past months is pointing toward falling economic activity and inflation fell more strongly in August than expected. Not only regarding the overall rate but also for core inflation measures price pressure seems to be falling.”

“The lower inflation rates are not really bad news for the FX market. In particular, it can probably be assumed that the BoC will nonetheless hike its key rate a little bit further. CAD nonetheless eased yesterday. The prospect that key rates in Canada might peak earlier than in the US probably weighed on CAD. Bad market sentiment may have exerted additional depreciation pressure on CAD.”

“The environment is likely to remain difficult for CAD unless the US central bank disappoints the markets today, in which case CAD might enjoy a breather.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues

The Bank of England (BoE) is set to announce its interest rate decision on Thursday. Economists at Credit Suisse lay out different scenarios and how could the British pound react.

BoE could dither yet again and let GBP continue its freefall

“As much as we think the BoE should be hiking in 75 or even 100 bps increments, the evidence thus far is of a central bank asleep at the wheel. In this context our end-Q3 GBP/USD target is currently at 1.1250 (assuming a 75 bps hike this week), and we are not rushing to change it towards a stronger GBP until there is evidence of a more robust approach by Governor Bailey and the MPC doves.”

“If 50 bps is what transpires, we suspect EUR/GBP 0.9000 and GBP/USD levels below 1.1000 could come quickly.”

“In order for GBP to rally, we would need to see the BoE use the excuse of the government’s massive fiscal easing to radically change its thus-far tepid stance and move to hikes of 75-100 bps magnitude, with a validation of the market’s terminal rate pricing in its commentary. In this scenario, we imagine GBP/USD could try to test the 1.1700 level again and EUR/GBP could slip back to 0.8500.”

FX option expiries for Sept 21 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9895-00 524m
• 0.9925-30 579m
• 0.9950-55 1.1b
• 0.9995-00 2.64b
• 1.0010-15 910m
• 1.0065 248m

- GBP/USD: GBP amounts        

• 1.1425 527m
• 1.1585 400m

- USD/JPY: USD amounts                     

• 142.50 620m
• 143.00 314m
• 143.70-75 379m
• 144.00 205m
• 145.00 527m

- AUD/USD: AUD amounts  

• 0.6650 205m
• 0.6750 775m

- EUR/CHF: EUR amounts

• 0.9600 396m
• 0.9700 305m
• 0.9750 484m  

- EUR/JPY: EUR amounts

• 142.00 493m

• GBP/USD takes offers to renew multi-day low, pokes four-month-old support line.
• MACD signals favor sellers targeting 61.8%, 78.6% FE.
• Two-month-old horizontal resistance challenges recovery moves.

GBP/USD remains pressured around the lowest level since 1985 as bears flirt with the short-term support line near 1.1310 heading into Wednesday’s London open.

In addition to the aforementioned support line, close to 1.1310, the 1.1300 threshold and the oversold RSI (14) also challenge the GBP/USD bears around the multi-year low.

However, the MACD signals and the Cable pair’s successful U-turn from the two-month-long horizontal hurdle, around 1.1750 by the press time, keep the pair sellers hopeful.

That said, the quote’s further downside hinges on its ability to conquer the nearby resistance support, as well as break the 1.1300 round figure.

Following that, the 61.8% and 78.6% Fibonacci Expansion (FE) of the GBP/USD pair’s August 17 to September 13 moves, respectively near 1.1280 and 1.1165, will be in focus.

Alternatively, the corrective bounce may aim for 1.1450 and 1.1600 resistances before challenging the aforementioned horizontal hurdle surrounding 1.1750.

If at all the GBP/USD buyers keep reins past 1.1750, the late August swing high near 1.1900 and the 1.2000 psychological magnet will be in focus.

Overall, GBP/USD remains on the bear’s radar but the downside appears limited.

GBP/USD: Daily chart

Trend: Limited downside expected

Sweden's Riksbank raised rates 100 bps with warnings of further hikes. However, the day ended disappointingly for SEK as it was unable to benefit. In the view of economists at Commerzbank, the market reaction is exaggerated.

Riksbank surprises, krona nonetheless weaker

“The Riksbank hiked the key rate by 100 bps to now 1.75% and signalled further rate hikes for the coming six months. The Riksbank raised its inflation projections significantly, which was overdue though since rates had always surprised on the upside since June.”

“The market should see it positively that the Riksbank is taking decisive action against inflation. Moreover, it seems sensible to be cautious regarding the GDP projections for 2023 in view of a looming energy crisis over the winter.” 

“Contrary to the Riksbank the ECB does not expect a fall in activity, which is likely to turn out to be an overly optimistic view and lead to a pause in the ECB’s rate cycle next year. The Riksbank on the other hand is considering weakening growth in its rate projections. For that reason, SEK should gain ground against the euro over the coming months, even if it is going to do so from weaker levels as the negative sentiment on the markets is currently putting considerable pressure on SEK.”

Looking at today’s Fed meeting, the market is pricing in around 79 bps of tightening, i.e. factoring in a modest chance of a 100 bps hike alongside near-certainty of a 75 bps one. Economists at Credit Suisse analyze how could the US dollar react to a 100 bps or 50 bps hike.

A 100 bps rate hike would be a immediate USD bullish outcome

“A 100 bps rate hike would be a more immediate USD bullish outcome if nothing else by forcing the market to consider whether other central banks can realistically keep up with upside-surprise Fed rate hikes of that magnitude.” 

“A 50 bps rate hike would be a huge USD-negative shock now that key ex-US central banks are hiking by more than that level. We ascribe a very low probability to this outcome.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues

Russian Defence Minister Sergei Shoigu said on Wednesday that “we are fighting not only with Ukraine but the Collective west.”

“Russia continues to progress in the Donetsk region,” Shoigu said.

Commenting on partial military mobilization, he said that 300,000 reserves will be called up and that the people called up will receive military training before being deployed.

German Economy Minister Robert Habeck said, “partial mobilization of Russian troops is a bad and wrong development,” adding that the “government is in consultations on next step.”

Market reaction

Risk trades are in a free fall on the latest Russian aggression, with the US dollar emerging as the outright winner across the fx space. The S&P 500 futures erases gains to now lose 0.15% on the day.

The market is quite certain that the Fed will hike the rate corridor for the Fed Funds rate by 75 bps. The reaction of the US dollar hinges on the publication of new “dots” and Chair Jay Powell's press conference, economists at Commerzbank report. 

Dots lyric and Powell prose

“In June the dots for late 2022 were largely between 3% and 3.75%. If they are revised moderately to the upside that is not a USD-positive surprise for the market but merely a confirmation of its own view. The money market is expecting Fed Funds rates of 4% for year-end 2022. That means a rise of the year-end 2022 dots has already been priced in.”

“Since the last dots were published the market is pricing in a higher maximum level for Fed key rates but one thing has not changed: the expectation that after that, interest rates will be reduced to the area just above 3% again. If the new dots were to suggest otherwise, that would very much constitute a USD-positive signal.”

“It is difficult for Powell to sound more hawkish than he did in Jackson Hole. I find it difficult to imagine more hawkish (and thus USD-positive) words.”

“Because Powell already sounded as hawkish as imaginable the risk increases that everything he says now will be interpreted (or misinterpreted) as less hawkish, as a change in direction and might have a more USD-negative effect.

“If the greenback is already trading at very high levels, it will get difficult to find arguments that would support it further.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues

• EUR/USD takes offers to refresh one-week low, down for the second consecutive day.
• Russian President Vladimir Putin talks about defending territories and Russia.
• Yields extend pullback from multi-day high but DXY approaches 20-year peak.
• Fed’s 0.75% rate hike may not impress bears but FOMC Statement, Powell can, ECBSpeak eyed too.

EUR/USD remains on the back foot for the second consecutive day as market’s risk-aversion intensifies during the Fed day. In addition to the market’s anxiety ahead of the Federal Open Market Committee (FOMC) meeting, escalating geopolitical fears from Russia also weigh on the major currency pair.

In his much-delayed TV address, Russian President Vladimir Putin said, “I tell the West, we have lots of weapons to reply, it is not a bluff.” Other than the direct threats to the west, Putin also mentioned that Russia is to take necessary steps to defend its sovereignty.

The same renew market’s fears of more geopolitical tension between the West and Moscow, which in turn is likely to hurt the Eurozone the most, due to its proximity to Ukraine and the latest sanctions on Russia. Elsewhere, headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appear to challenge the market’s risk appetite.

It’s worth noting that the risk-aversion propels the US Dollar Index (DXY) towards the yearly high marked earlier in the month, up 0.23% intraday near 110.41 at the latest. In doing so, the greenback’s gauge versus the six major currencies ignores the latest pullback in the US Treasury yields while respecting the hawkish Fed bets.

That said, the US 10-year Treasury yields retreat from the 11-year peak while the 2-year counterpart eased from the 15-year high. Also portraying the risk-aversion are the stock futures from the West and the Asia-Pacific equities.

Moving on, announcements from the ECB’s Non-Monetary Policy Meeting and comments from ECB Vice President Luis de Guindos could offer immediate directions to the EUR/USD pair.

However, major attention will be on how the Fed manages to keep the DXY bulls hopeful even after announcing the 0.75% rate hike, which is already priced in. For that matter, the Fed’s economic forecasts and a speech from Fed Chairman Jerome Powell will be crucial to watch.

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

Technical analysis

A clear downside break of the two-week-old support line, near 0.9950, appears necessary for the EUR/USD bears to aim for a yearly low surrounding 0.9860.

Russian President Vladimir Putin threatens the West on Wednesday, noting that “we have lots of weapons to reply, it is not a bluff.”

Additional quotes

Market reaction

A fresh risk-aversion wave seems to have hit markets on renewed geopolitical concerns, driving the US dollar 0.20% higher against its major rivals. The spot is currently trading at 110.45, with eyes on the Fed decision. Putin's decision of partial military mobilization in Ukraine could be viewed as an escalation by the West.

• EUR/JPY takes offers while breaking weekly triangle, retreats from 200-HMA.
• Downbeat RSI, bearish MACD signals also keep sellers hopeful.
•  Bears approach 142.30, bulls could aim for 61.8% FE past 143.70.

EUR/JPY takes offers to refresh intraday low around 142.62 as European traders braces for the Fed’s verdict on Wednesday.

In doing so, the cross-currency pair retreats from the 200-HMA while breaking a one-week-old symmetrical triangle to the downside.

Given the recently weaker RSI (14), not oversold, as well as the looming bull cross of the MACD, the EUR/JPY is likely to aim for the latest swing low near 142.30

Following that, the 61.8% Fibonacci retracement of September 05-12 upside, near 141.35, may offer an intermediate halt during the south run targeting the 140.00 psychological magnet.

Alternatively, buyers need to cross the immediate HMA hurdle surrounding 143.60, which in turn will allow the quote to aim for the stated triangle’s resistance line, near 143.70.

In a case where the quote remains firmer past 143.70, the latest peak surrounding 145.65 could lure the bulls ahead of directing them to the 61.8% Fibonacci Expansion (FE) of September 05-14 moves, close to 146.65.

EUR/JPY: Hourly chart

Trend: Further upside expected

Russian President Vladimir Putin said on Wednesday, “we are talking about defending territories and Russia.”

Additional comments

Meanwhile, the TASS news agency reported that Putin has announced a partial military mobilization in Ukraine.

Market reaction

The shared currency came under fresh selling pressure, with EUR/USD now losing 0.31% on the day to trade at 0.9939.

Meanwhile, the S&P 500 futures remain modestly flat on the above comments from Putin. The US dollar index, however, catches a fresh safe-haven bid.

• Oil prices oscillate around $84.00 as the focus shifts to the Fed monetary policy meeting.
• Rate hikes by G-7 central banks will cut the growth forecasts.
• OPEC+ production targets have been trimmed by 3.58 million barrels per day.

West Texas Intermediate (WTI), futures on NYMEX, are displaying a lackluster performance in the early European session. The oil prices are witnessing back-and-forth moves in a narrow range of $82.90-83.40 as investors are looking to create positions after the announcement of the interest rate decision by the Federal Reserve (Fed). The positions on oil prices would be more decisive post the Fed monetary policy meeting.

The black gold is facing severe pressure this week as central banks from the G-7 group are preparing for a fresh rate hike cycle. The central banks are forced to tighten their policies further as price pressures have not responded well to the pace adopted by them. No doubt, the rate hike announcements will also stem a gloomy outlook for the growth rate. The concept of squeezing liquidity from the market has forced the corporate to postpone their expansion plans and invest majorly in ultra-filtered investment opportunities only.

The mighty US dollar index (DXY) is aiming higher as the Fed will step up its interest rates at least by 75 basis points (bps). This will bring a sheer decline in liquidity as private players will dodge fetching money at 3-3.25% interest rates. It will trim the prospects for growth rates and eventually a decline in the oil demand vigorously.

Meanwhile, a decline in oil supplies by OPEC+ seems unable to provide a cushion on the downside. The OPEC+ production targets are shortened by 3.58 million barrels per day, which carries 3.5% of global demand. However, investors are focusing entirely on demand catalysts.

Considering advanced prints from CME Group for natural gas futures markets, open interest resumed the downtrend on Tuesday, this time shrinking by nearly 6K contracts. In the same line, volume dropped for the fourth straight day, this time by around 26.6K contracts.

Natural Gas looks underpinned around $7.50

Prices of natural gas dropped for yet another session on Tuesday amidst diminishing open interest and volume. That said, a deeper decline is not favoured and therefore the commodity could attempt a near term rebound. The $7.50 region, in the meantime, remains a tough support.

CME Group’s flash data for crude oil futures markets noted traders added around 2.8K contracts to their open interest positions on Tuesday following four consecutive daily pullbacks. Volume followed suit and went up by around 57.5K contracts after three daily drops in a row.

WTI: Next target emerges at $80.00

Prices of the WTI extended the leg lower on Tuesday amidst increasing open interest and volume. That said, crude oil prices could now accelerate losses and revisit the key support at the $80.00 mark per barrel sooner rather than later.

Gold price is licking its wounds but within a familiar range. As FXStreet’s Dhwani Mehta notes, XAU/USD awaits the Fed for a sustained move below $1,650.

The Fed is likely to maintain its pledge to fight inflation

“The next leg lower in gold remains at the mercy of the Fed’s projection of the terminal rate, in the face of the expected 75 bps increase. Should the US central bank project a terminal rate of above 5% in the coming years, then it could reinforce hawkish expectations and trigger a fresh rally in the dollar. The USD-priced gold is set to suffer, as the Fed is likely to maintain its pledge to fight inflation.”

“In the lead-up to the Fed showdown, XAU/USD has charted a bear pennant formation on the daily sticks. Sellers need a daily closing below the rising trendline support at $1,678 to confirm the downside break from the bear pennant. The bearish continuation pattern will revive the XAU/USD downtrend towards the $1,650 psychological. Additional declines could call for a test of the descending trendline support at $1,645.”

“On the flip side, any recovery attempts will need acceptance above the recent range highs near $1,680. The next upside barrier is aligned at around $1,700. Daily closing above the latter is critical to unleashing the further recovery towards the bearish 21-Daily Moving Average (DMA) at $1,707.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues

French Finance Minister Bruno Le Maire delivered some comments on the economic and inflation outlook during his appearance on Wednesday.

Key quotes

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, further downside pressure in GBP/USD is expected to meet a solid support around 1.1300 in the next weeks.

Key Quotes

24-hour view: “We expected GBP to ‘trade within a higher sideway-trading range of 1.1400/1.1480’ yesterday. However, after rising to a high of 1.1461, GBP dropped quickly to 1.1358 during late NY session. Downward momentum has improved, albeit not by much. From here, barring a break of 1.1430, GBP is likely to drop below 1.1350. The next support at 1.1300 is likely out of reach for today.”

Next 1-3 weeks: “We have held a negative GBP view for a week now. In our latest narrative from Monday (19 Sep, spot at 1.1435), we indicated that while the downside risk in GBP remains intact, oversold conditions could lead to 1 to 2 days of consolidation first. Shorter-term downward momentum is beginning to build and GBP appears to be ready to move out of its consolidation phase. That said, the major support at 1.1300 might not be easy to break. On the upside, a breach of 1.1490 (‘strong resistance’ level was at 1.1540 yesterday) would indicate that the weakness in GBP that started one week ago has stabilized.”

Open interest in gold futures markets remained choppy on Tuesday and shrank by around 1.6K contracts, partially reversing the previous daily build, according to preliminary readings from CME Group. Volume, instead, went up by around 6.7K contracts after two daily drops in a row.

Gold: The $1,660 region holds the downside… for now

Tuesday’s pullback in gold prices came in tandem with shrinking open interest, which hints at the likeliness that a deeper retracement is out of favour, at least in the very near term. Against this, decent contention remains around the $1,660 zone per ounce troy.

Norges Bank meets on Thursday, September 22 at 08:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks regarding the upcoming central bank's Interest Rate Decision. 

Norges Bank is expected to hike rates by 50 basis points to 2.25%. Furthermore, updated macro forecasts and expected rate path will be released this week.

Credit Suisse

“Weaker data reduce risks of an acceleration in the pace of Norges Bank tightening above 50 bps.”

Swedbank

“We believe Norges Bank is likely to continue hiking until it sees a sustained slowdown of inflation, or, alternatively, a profound decline in household consumption together with rising unemployment. We expect a 50 bps rate hike in September, followed by 25 bps rate hikes in November and December, reaching 2.75% at the end of this year.”

TDS

“While the recent inflation readings suggest that at least a 50 bps hike is warranted in September, we think that weak growth and slowing inflation expectations data mean that a 75 bps increase should be off the table. The Bank is already five hikes into its tightening cycle and just raised its policy rate into restrictive territory as of last meeting, albeit just barely. Therefore, we look for a 50 bps hike at the September meeting, followed by sequential 25 bps hikes to reach a terminal rate of 3.25% in 2023Q1.”

ING

“Norway’s central bank stepped up the pace of rate hikes in August, and core inflation has continued to push higher than Norges Bank’s most recent forecasts in June. The message from the August meeting was that the central bank is keen to continue front-loading tightening, and we expect another 50 bps hike. That would take the deposit rate to 2.25%, and we’d expect another 50 bps move in November.”

Commerzbank

“Norges Bank hiked its key rate by another 50 bps to 1.75% in August and signalled further rate hikes as well as an increase in the rate path in September. The market is pricing in 50 bps. That means Norges Bank would have to raise its rate path quite considerably and deliver a hawkish statement to support NOK additionally. The recent regional business survey illustrated that the risks for growth have risen though. Moreover, inflation might begin to peak soon. So it is not certain that Norges Bank will be much more restrictive than it was before. I fear it is more likely to refer to the downside risks for the economy, and I, therefore, see little upside potential for NOK.”

• Gold price extends pullback from 21-EMA inside a six-week-old bearish channel.
• Firmer yields, hawkish Fed bets keep XAU/USD bears hopeful.
• Fears emanating from China, Ukraine also favor the metal sellers.
• Recently firmer odds of Fed’s 1.0% rate hike appear interesting for gold sellers as 75 bps lift is priced-in.

Gold price (XAU/USD) remains sidelined as bulls and bears struggle ahead of the key Federal Reserve (Fed) monetary policy announcements. That said, the bullion prices remain pressured around the yearly low, down for the second consecutive day, as traders flirt with the $1,660 heading into Wednesday’s European session.

With Nouriel Roubini’s call for a “long and ugly” inflation drive, as well as the support for the 1.0% Fed rate hike, the market’s hawkish bets for the larger-than-expected rate increase jumped to 18%. The same allowed the US Treasury yield and the US dollar to remain firmer, before portraying the inaction ahead of the key Federal Open Market Committee (FOMC) meeting results.

That said, the US Dollar Index (DXY) renews a two-week top around 110.30 while the benchmark Treasury bond yields retreat from the multi-day high. It’s worth noting that the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top on Tuesday.

Other than the Fed-linked chatters, economic fears from China and Russia also weigh on the XAU/USD prices. A fresh covid-led lockdown in China’s steel hub of Tangshan joins the sour economic forecast from the Asian Development Bank (ADB), as well as the Sino-American tussles over Taiwan and phase one deal, which seems to portray hardships for the dragon nation.

Elsewhere, Russia’s plans for occupied regions and the Western agitations for the same also weigh on the XAU/USD prices. “Moscow-installed leaders in occupied areas of four Ukrainian regions plan to hold referendums on joining Russia in coming days, a challenge to the West that could sharply escalate the war and which drew condemnation from Ukraine and its allies,” said Reuters. On the same line are the headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appears to challenge the market’s risk appetite.

Amid these plays, the S&P 500 Futures remain pressured near the two-month low marked the previous day while stocks in the Asia-Pacific see the red.

Moving on, XAU/USD moves will depend upon how well the Fed manages to please traders as it will unveil the measures to tame inflation and ensure less economic damage at the same line.

Technical analysis

Gold price portrays the market’s bearish bias inside a downward-sloping trend channel since early August. Also keeping the XAU/USD sellers hopeful is the metal’s latest U-turn from the 21-EMA amid impending bear cross on the MACD.

It should, however, be noted that the RSI could enter the oversold territory and might test the metal sellers during the quote’s further downside targeting the stated channel’s bottom, around $1,645.

Alternatively, an upside break of the 21-EMA surrounding $1,672 is an open invitation to the gold buyers as the bearish channel’s top and the 200-EMA could test the advances around $1,713 and $1,720 respectively.

Gold: Four-hour chart

Trend: Further weakness expected

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang note a break above 1.0050 should alleviate the ongogin downside pressure around EUR/USD.

Key Quotes

24-hour view: “We expected EUR to ‘edge higher’ yesterday but we were of the view that ‘any advance is unlikely to challenge the major resistance at 1.0070’. We added, ‘there is another resistance at 1.0050’. EUR subsequently popped briefly to 1.0050 before selling off sharply to a low of 0.9953 during NY session. The rapid drop has gathered momentum and EUR is likely to decline today. That said, any weakness is unlikely to break the solid support at 0.9900 (there is another support at 0.9930). Resistance wise, a breach of 1.0025 (minor resistance is at 1.0000) would indicate the current downward pressure has eased.”

Next 1-3 weeks: “Our latest narrative was from last Wednesday (14 Sep, spot at 0.9980) where while EUR is under pressure, a sustained decline below the major support at 0.9900 appears unlikely. There is no change in our view for now. On the upside, a breach of 1.0050 (‘strong resistance’ level was at 1.0070 yesterday) would indicate that the current downward pressure has eased.”

• NZD/USD has printed a fresh two-year low at 0.5883 as investors await Fed policy.
• Investors have started incorporating the impact of hawkish Fed policy into risk-sensitive assets.
• Kiwi bulls failed to capitalize on upbeat Business NZ PMI data.

The NZD/USD pair has slipped below Tuesday’s low and has refreshed its two-year low at 0.5883 in the Tokyo session. The kiwi bulls look extremely weak and are expected to decline further as the US dollar index (DXY) is preparing for a fresh rally ahead of the interest rate decision by the Federal Reserve (Fed). The DXY has defended the momentum loss and is looking to resume its upside journey. The mighty DXY has refreshed its two-week high above 110.30.

In order to address the foremost priority of bringing price stability to the US economy, the Fed is going to hike the interest rates significantly. As per the CME FedWatch tool, the chances of announcing a 75 basis point (bps) rate hike are 82%. While a full percent rate hike alternative carries an 18% probability. As market participants are already incorporating the impact of higher interest rates in the risk-perceived and risk-averse assets, the focus is shifting towards interest rate guidance.

The survey from the Financial Times this week indicates that the interest rates will top around 4-5% in 2023. However, the aggressive approach will stay longer beyond 2023. An adaptation of a ‘neutral’ policy will be optimal if the Fed policymakers observe a series of slowdowns in the inflation rate.

Meanwhile, kiwi bulls have failed to capitalize on upbeat Business NZ PMI. The economic data landed at 58.6, much higher than the prior release of 54.4. The unchanged monetary policy by the People’s Bank of China (PBOC) weakened the kiwi bulls. A dovish stance on Prime Lending Rate (PLR) was expected by the PBOC amid commitment towards spurting growth outlook and inflation rate.

• USD/TRY bulls catch a breather after two-day uptrend.
• Turkish President Erdogan talks down threats emanating from inflation, suggesting longer period of CBRT inaction.
• Hawkish Fed bets, yields keep DXY on the front foot ahead of the FOMC.

USD/TRY pauses a two-day bull-run as it dribbles around 18.30 heading into Wednesday’s European session. In doing so, the Turkish lira (TRY) pair seesaws near the all-time high marked the previous day as traders await the key central bank decisions.

Among them, today’s Federal Open Market Committee (FOMC) Monetary Policy Meeting gains major attention after the recently hawkish Fed bets that tease 1.0% rate hike concerns. That said, the Fed’s 75 basis points (bps) rate hike bore 83% chance whereas nearly 17% odds are favoring a full 1.0% rate lift. Nouriel Roubini, a well-known global economist, joined the league of Fed hawks to favor such a strong rate hike on Tuesday.

At home, Turkish President Tayyip Erdogan said on Tuesday that inflation is not an "insurmountable economic threat," per Reuters. The news also quotes the Turkish leader as saying that inflation will begin to fall at the end of the year after it surged to more than 80% in August.

Comments Turkish President Erdogan confirms the latest neutral bias over the Central Bank of the Republic of Türkiye’s (CBRT) next move. The Turkish central bank has refrained from any rate moves even if the inflation refreshed the record high recently. On the contrary, the policymakers have adhered to qualitative moves that curb the money flow into the system to keep the tab on the price rise.

Amid these plays, the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top on Tuesday. For now, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high.

Looking forward, USD/TRY is likely to remain firmer as a wide difference between the monetary policies of the Fed and the CBRT. An intraday pullback, however, can’t be ruled out if the FOMC announcements disappoint the US dollar bulls.

Technical analysis

An upward slopping resistance line from June, near 18.55 by the press time, lures USD/TRY bulls unless the prices break a six-week-old support line surrounding 18.25.

• EUR/USD is aiming to scale lower towards the critical support of 0.9900 amid hawkish Fed bets.
• As per the CME FedWatch tool, more than 80% odds are favoring a 75 bps rate hike.
• Germany is exploring its all measures to create sufficient gas inventories for catering winter season.

The EUR/USD pair is auctioning around the critical support of 0.9960 in the Tokyo session. The asset is expected to deliver a downside break of the long-week consolidation formed in a range of 0.9946-1.0050. The major will face an intense sell-off as investors are placing bets on a bigger-than-expected rate hike now.

Earlier, investors were expecting a third consecutive rate hike by 75 basis points (bps) to step up the interest rates to 3-3.25%. Now, a full percent rate hike alternative has also joined the race to bring price stability sooner. Risk-perceived assets are surrendering their pullbacks and attracting offers from market participants.

The recent reading of the inflation rate at 8.3%, higher than the expectations of 8.1%, has dented the market sentiment. No doubt, the price pressures are declining but the rate of decline is not lucrative in comparison with the pace of hiking interest rates. Therefore, the odds of a 100 bps rate hike by the Fed have hogged the limelight.

On the Eurozone front, the German government is exploring its all measures to make sure that the administration must have sufficient energy inventories to cater to the elevated demand during the winter season. The government has promised to bail out the giant German gas importer Uniper but taking a 30% stake in the board. The company delivered extreme losses after Russia cut off gas supplies to Germany deliberately.  

Also, the European Central Bank (ECB) is providing hawkish guidance on interest rates so that higher inflation rates should not settle in the economic behavior.

• USD/CAD buyers attack four-month-old resistance line at the highest levels since October 2020.
• RSI conditions challenge buyers but bears need validation from previous resistance near 1.3280.
• Buyers can target October 2020 high during further upside.

USD/CAD struggles to extend the previous day’s run-up as buyers jostle with a short-term resistance line amid overbought RSI conditions during early Wednesday morning in Europe. That said, the Loonie pair seesaws around 1.3370-80 as bulls await the Fed’s verdict.

Given the overbought RSI (14), USD/CAD prices are likely to witness pullback from an upward sloping resistance line from May 12, close to 1.3380 by the press time.

However, the pair sellers will await a clear downside break of the previous resistance line from August 2021, close to 1.3280 at the latest.

Following that, tops marked in July and September of the current year, respectively around 1.3225 and 1.3205, could challenge the USD/CAD bears. It should be noted that a weekly ascending trend line near 1.3285 adds to the downside filters.

Alternatively, a daily closing beyond the 1.3380 hurdle could quickly propel the quote towards October 2020 high surrounding 1.3420.

Should the USD/CAD bulls ignore overbought RSI conditions and keep reins past 1.3420, a run-up towards June 2020 peak surrounding 1.3715 can’t be ruled out.

USD/CAD: Daily chart

Trend: Pullback expected

• USD/CHF is oscillating around 0.9650 as investors await Fed’s interest rate policy.
• Labor market conditions and retail demand are supportive of a full percent rate hike by the Fed.
• A 75 bps rate hike by the SNB will shift the interest rates into a positive trajectory.

The USD/CHF pair is displaying a balanced profile in a narrow range of 0.9625-0.9650 in the Tokyo session. The asset is expected to display a lackluster performance as the US dollar index (DXY) has turned subdued ahead of the monetary policy by the Federal Reserve (Fed). On a broader note, the asset has turned sideways after declining from 0.9680. A failed attempt to tap the two-week high at around 0.9700 pushed the asset lower.

It is worth noting that the DXY is displaying signs of momentum loss after a juggernaut rally. The DXY has been attempting to print a fresh two-week high above 110.30. However, the current structure indicates that the DXY will have to wait for more for the same as investors are looking to go light towards the mega event of monetary policy by the Fed.

As per the expectations, the Fed will announce a third consecutive rate hike by 75 basis points (bps). However, the Fed could push the rate with a 100 bps rate hike as labor market conditions and growth rate is highly supportive.

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

• Asia-Pacific shares print losses amid market’s fears of higher rates.
• Risk-negative headlines concerning China, Russia adds strength to the risk-off mood.
• Yields dribble around multi-year top, stock futures fade bounce off two-month low.
• Japan’s bond-buying announcement, RBA’s Bullock fail to gain major attention.

Equities in the Asia-Pacific region trace Wall Street’s losses as markets brace for the US Federal Reserve’s (Fed) monetary policy announcements. That said, the hopes of higher rates join the geopolitical tension surrounding China and Ukraine to weigh on the sentiment early Wednesday.

While portraying the mood, the MSCI’s Index of Asia-Pacific shares outside Japan drops 0.67% intraday by the press time, retreating towards the 26-month low marked the previous day. Also suggesting the sour sentiment is Japan’s Nikkei 225, down 1.20% around a two-week low. Nikkie’s losses could be linked to the Bank of Japan’s (BOJ) readiness for buying Japanese Government Bonds (JGBs). “BOJ offers to buy JGBs at fixed-rate with unlimited amount (Residual maturity of 5YR to 10YR) outright from September 22,” said Reuters.

Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. Joining the line is the news of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, which recently challenged the market sentiment and strengthened the safe-haven demand.

Furthermore, headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appear to challenge the market’s risk appetite. Additionally, Russia’s plans for occupied regions and the Western agitations for the same also weigh on the risk appetite. “Moscow-installed leaders in occupied areas of four Ukrainian regions plan to hold referendums on joining Russia in coming days, a challenge to the West that could sharply escalate the war and which drew condemnation from Ukraine and its allies,” said Reuters.

The same drowns stocks in China and Hong Kong by around 1.0% whereas Reserve Bank of Australia (RBA) Deputy Governor Guy Bullock’s readiness to ease the rate hike, if needed, couldn’t favor Aussie stock buyers as ASX drops 1.5% at the latest. Further, New Zealand’s NZX 50 prints nearly 1.0% intraday losses as we write.

On a broader front, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high. It should be noted that the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top on Tuesday.

Looking forward, a slew of central bankers are up for conveying their monetary policy decisions and most of them are likely to adhere to policy tightening, which in turn could exert downside pressure on equities.

Also read: S&P 500 Futures pare recent losses as yields retreat from multi-year high ahead of Fed

• GBP/USD is likely to display a vertical downside move after surrendering the critical support of 1.1360.
• Fed’s full percent rate hike will widen the Fed-BOJ policy divergence.
•  UK’s labor market and growth projections are not supportive of further policy tightening.

The GBP/USD pair is hovering around the critical support of 1.1360 in the Asian session. The asset is expected to witness a sheer downside after dropping below the above-mentioned support on expectations of widening Federal Reserve (Fed)-Bank of England (BOE) policy divergence.

The scheduled monetary policy meeting of the Fed on Wednesday is expected to conclude with a third consecutive 75 basis points (bps) rate hike or with a higher extent along with a hawkish guidance bleak growth outlook. Price pressures have failed to display meaningful exhaustion signals led by higher-than-expected August inflation print readings for both headline Consumer Price Index (CPI) and core CPI. Therefore, the Fed is left with no other option than to paddle up the pace of hiking interest rates.

Well, there is no denying the fact that the BOE will also hike its interest rates in its monetary policy meeting scheduled on Thursday. The UK households are also facing the headwinds of forced inflated payouts. Growth prospects and labor market conditions are not lucrative for tightening the policy. In spite of that BOE Governor Andrew Bailey will swallow the bitter gulp and is expected to announce a rate hike by 50 bps. The expectations of a higher rate hike extent by the Fed are supporting the greenback bulls.

This week, the UK economy will also report the S&P Global PMI. The Manufacturing and Services PMI are seen at 47.5 and 50 respectively. A mixed performance is expected by the UK economy on the PMI front.

• AUD/USD takes offers to refresh intraday low, bears attack two-year bottom marked last week.
• Clear downside break of two-month-old trend line keeps sellers hopeful.
• Four-month-old bearish channel’s bottom in focus, 10-DMA acts as additional upside barrier.

AUD/USD extends the previous day’s losses on the Fed day as it pokes the yearly low surrounding 0.6670 during early Wednesday morning in Europe.

In doing so, the AUD/USD pair not only stretches the previous day’s U-turn from the 10-DMA but also cheers a clear downside break of an upward sloping support line from mid-July, now resistance around 0.6710.

Adding to the strength of the bearish bias are the downbeat RSI and MACD, as well as a four-month-old descending trend channel formation.

That said, the quote is well on the way to testing the stated channel’s support line, around 0.6560. However, the 0.6600 round figure may offer an intermediate halt during the fall.

Also acting as a downside filter is the 61.8% Fibonacci Expansion (FE) of April-August moves, near 0.6535.

Meanwhile, recovery moves need not only cross the support-turned-resistance line around 0.6710 but also stay firmer past the 10-DMA, close to 0.6745 to convince buyers.

Overall, AUD/USD is on the bear’s radar ahead of the key Federal Open Market Committee (FOMC).

AUD/USD: Daily chart

Trend: Further weakness expected

• Gold price has gone dead cat as investors have sidelined ahead of the Fed policy.
• The DXY is aiming to print a fresh two-week high above 110.30.
• Investors should be prepared for a bumper rate hike by the Fed.

Gold price (XAU/USD) is displaying a lackluster performance as investors are awaiting the release of the monetary policy by the Federal Reserve (Fed). The precious metal is displaying a volatility contraction of around $1,666.00. While the downside seems favored as the US dollar index is aiming to print a fresh two-week high above 110.30.

The gold prices don’t deserve support a worth penny as investors are now expecting a bigger-than-prior rate hike pattern. The Fed is escalating its interest rates by 75 basis points (bps) over the past two monetary meetings.

Price pressures have not displayed a justified response to the current pace of hiking borrowing rates by the Fed. Therefore, the Fed is expected to think out of the box and tight other quantitative tools along with a third consecutive 75 bps rate hike or so for a full percent rate hike.

An announcement of a mega rate hike will trigger the risk-off market mood. This will strengthen the DXY further and the market participants will ditch the risk-perceived assets.

Gold technical analysis

Gold prices have turned sideways after delivering 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 $1,666.56 is acting as major resistance for the bulls. Also, the 50-EMA at $1,668.90 is declining, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) is on the verge of shifting into the bearish range of 20.00-40.00, which will trigger a fresh downside rally.

Gold hourly chart

• EUR/USD remains sidelined while paring the biggest daily loss in a week.
• ECB’s Lagarde couldn’t defend EUR/USD bulls as Nouriel Roubini backs 1.0% Fed rate hike.
• Yields dribble around multi-year high as fresh fears from Ukraine, China add to risk-aversion.
• ECB’s Non-Monetary Policy Meeting, comments from De Guindos to offer immediate directions ahead of Fed showdown.

EUR/USD flashes mild losses around 0.9960 as it prints the market’s cautious mood ahead of the Federal Open Market Committee (FOMC). That said, the major currency pair dropped the most in one week the previous day as hawkish Fed bets superseded upbeat comments from the European Central Bank (ECB) officials.

ECB President Christine Lagarde conveyed her support for the higher rates during her latest speech. The policymaker also mentioned, “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.”

On the same line, ECB Governing Council member Madis Muller said on Tuesday, “rates are far from the level that would slow the economy.” ECB’s Muller added that “interest rates are still low in a historical context.”

Elsewhere, Russia’s plans for occupied regions and the Western agitations for the same also weigh on the EUR/USD prices. “Moscow-installed leaders in occupied areas of four Ukrainian regions plan to hold referendums on joining Russia in coming days, a challenge to the West that could sharply escalate the war and which drew condemnation from Ukraine and its allies,” said Reuters.

On the other hand, the Fed’s 75 basis points (bps) rate hike bore 83% chance at the latest but the chatters over the 1.0% rate lift seemed to have favored the risk-aversion and exerted downside pressure on the EUR/USD. Nouriel Roubini, a well-known global economist, joined the league of Fed hawks on Tuesday.

Furthermore, fears surrounding China and Russia were also underpinning the US dollar’s safe-haven demand. Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. Joining the line is the news of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, which recently challenged the market sentiment and strengthened the safe-haven demand. Furthermore, headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appear to challenge the market’s risk appetite.

It should be noted that the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top on Tuesday. For now, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high.

Looking forward, announcements from the ECB’s Non-Monetary Policy Meeting and comments from ECB Vice President Luis de Guindos could offer immediate directions to the EUR/USD pair. However, attention will be on how the Fed manages to avoid recession and still try to tame inflation, which in turn highlights today’s economic forecasts and a speech from Fed Chairman Jerome Powell as more important events than the interest rate announcement.

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

Technical analysis

Although the 50-SMA on the four-hour chart restricts immediate EUR/USD upside near 1.0030, sellers need validation from the two-week-old support line, near 0.9950, to aim for the yearly low surrounding 0.9860.

Reserve Bank of Australia (RBA) Deputy Governor Deputy Governor Michele Bullock is speaking about the monetary policy and economic outlook in his Q&A session, following his speech at an event hosted by Bloomberg, in Sydney.

Key quotes

Market reaction

AUD/USD is holding the lower ground near 0.6680 on the dovish commentary from the RBA official. The spot is down 0.10% so far.

• USD/CNH takes the bids to refresh multi-day high during three-day uptrend.
• China’s covid update joins economic fears, Sino-American tussles to weigh on CNH prices.
• US dollar cheers hawkish Fed bets ahead of the FOMC.

USD/CNH portrays the market’s pessimism surrounding China, as well as the hawkish expectations from the US Federal Reserve (Fed) during early Wednesday. In doing so, the offshore Chinese Yuan (CNH) pair takes the bids to poke the July 2020 high during the three-day uptrend, close to 7.0450 at the latest.

News of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, shared by Reuters, recently propelled the USD/CNH prices. On the same line could be the People’s Bank of China’s (PBOC) inaction, marked the previous day. Furthermore, the latest comments from an ex-PBOC advisor Yu Yongding also fuel the pair prices. “China should seek to stabilize growth through expansionary fiscal and monetary policies given the challenges in the global economy,” said the ex-PBOC official.

Also, Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. That said, the ADP trims China’s growth forecasts to 3.3% this year, versus the previously trimmed forecast of 4.0% from 5.0% in April.

Elsewhere, the Fed’s 75 basis points (bps) rate hike bore 83% chance and there are market hawkish among the 17%, including Nouriel Roubini, a well-known global economist, who expects a full one percent rate increase from the US central bank. Such hawkish expectations joined strong yields to propel the DXY the previous day.

That said, the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top on Tuesday. For now, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high.

Moving on, risk catalysts surrounding the Sino-American ties and covid may entertain the USD/CNH traders. However, the attention will be on how the Fed manages to avoid recession and still try to tame inflation, which in turn highlights today’s economic forecasts and a speech from Fed Chairman Jerome Powell as more important events than the interest rate announcement.

Technical analysis

A two-week-old resistance line near 7.0620 challenges immediate USD/CNH upside. It should, however, be noted that the sellers remain far from the sight unless breaking a six-week-old support line, at 6.9600 by the press time.

“China should maintain maximum yuan flexibility and continue to manage cross-border capital flows instead of overly worrying about short-term weakness against the US dollar,” the China Finance 40 Forum carried a story, citing former People's Bank of China advisor Yu Yongding.

Additional takeaways

Dismissed “the importance of the yuan breaking through 7 against the US dollar.“

“China should seek to stabilize growth through expansionary fiscal and monetary policies given the challenges in the global economy.”

Related reads

• ADB: Rate hikes, Ukraine war, China woes dim Asia growth outlook

• USD/CNH renews 26-month high around 7.0500 as pre-Fed jitters intensify

• AUD/USD holds lower ground near yaerly bottom even as RBA Deputy Governor Bullock shows readiness for higher rates.
• Australia’s lack of need for capital injection, despite RBA’s heavy bond buying favor buyers.
• Pessimism surrounding China, hawkish Fed bets keep bears hopeful.
• Pre-Fed anxiety to restrict immediate moves, risk catalysts may entertain intraday traders.

AUD/USD struggles to justify comments from the Reserve Bank of Australia (RBA) official amid the pre-Fed jitters during early Wednesday. In doing so, the Aussie pair grinds lower around the two-year bottom marked the last week, close to 0.6680 by the press time.

RBA Deputy Governor Guy Bullock said, “Negative equity position will not affect RBA’s ability to do its job.” His comments were in line with the previous day’s RBA Minutes that showed the policymakers’ readiness for higher rates but also mentioned, “Interest rates have increased quite quickly and were getting closer to normal settings.”

Other than the RBA chatters, fears of the faster Fed rate hike and hawkish statements from the Federal Open Market Committee (FOMC) also weigh on the AUD/USD prices. Recently, Reuters mentioned that the Fed started a two-day meeting on Tuesday, with rate futures traders pricing in an 83% chance of a 75 basis-point hike and a 17% probability of a 100 bps tightening.

In addition to the hawkish Fed bets, headlines concerning China and Russia also exert downside pressure on the AUD/USD prices. Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. Joining the line is the news of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, which recently challenged the market sentiment and strengthened the safe-haven demand. Furthermore, headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appear to challenge the market’s risk appetite.

Against this backdrop, the S&P 500 Futures lick its wounds near 3,875 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high. That said, the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top during the pre-Fed cautious mood.

Moving on, risk catalysts may try to entertain AUD/USD traders amid likely inaction during the pre-Fed anxiety. On a broader front, the Fed’s hawkish rate action needs validation from the upbeat economic forecasts and positive speech from Fed Chairman Jerome Powell to renew the Aussie pair’s upside moves.

Technical analysis

Unless crossing the 10-DMA resistance, around 0.6750 by the press time, the AUD/USD pair becomes vulnerable to drop towards a one-month-old descending support line, close to 0.6470 at the latest.

Reserve Bank of Australia (RBA) Deputy Governor Deputy Governor Michele Bullock is speaking at an event hosted by Bloomberg, in Sydney. She is addressing the bond review report. 

Key quotes

Market reaction

At the time of writing, AUD/USD is trading at 0.6688, down 0.05% on the day.

• ND/USD bears are taking on territory below 0.5900 and eye the 0.5850s.
• The weekly M-formation is compelling and a significant correction could be coming soon. 

As per the prior analysis, NZD/USD Price Analysis: Bulls are making their moves but resistance looms, the price indeed made its moves into the resistance but failures have seen the bears pounce and take the bird down into fresh bearish cycle lows.

NZD/USD prior analysis

It was stated that the 4-hour chart's creeping correction to the 50% mean reversion mark made for a bearish outlook going forward.

''Should resistances start to play in, there will be prospects for a downside continuation for the week ahead.''

NZD/USD update

NZD/USD weekly chart

Meanwhile, from a weekly perspective, the price would be expected to correct at some stage soon but perhaps not until a challenge of the 0.5850s. The M-formation is a reversion pattern that could see the price correct towards at least the prior lows near what would be a 38.2% Fibonacci retracement from the aforementioned 0.5850s. 

• USD/JPY stays defensive after two-day uptrend, seesaws around the short-term key hurdle.
• BOJ’s bond-buying announcement caps upside moves ahead of Fed.
• Convergence of 50-SMA, two-week-old ascending trend line restricts immediate downside.
• Double tops around 145.00 appear a tough nut to crack for the bulls.

USD/JPY treads water around 143.75 as bulls take a breather after a two-day uptrend to Wednesday’s Asian session.

The yen pair’s latest hesitance to rise further could be linked to the Bank of Japan’s (BOJ) readiness for buying Japanese Government Bonds (JGBs). “BOJ offers to buy JGBs at fixed-rate with unlimited amount (Residual maturity of 5YR to 10YR) outright from September 22,” said Reuters.

Technically, the pair’s ability to stay firmer past the short-term key support confluence including the 50-SMA and a fortnight-long rising trend line, around 143.20-15, keeps the USD/JPY buyers hopeful. Also favoring the bulls is the firmer RSI (14), not overbought.

It should be noted, however, that the double tops marked near 145.00 challenge the pair’s immediate upside before directing buyers towards the 61.8% Fibonacci Expansion (FE) of the August 30 to September 09 moves, close to 145.85.

Alternatively, a downside break of 143.15 is an open invitation to the USD/JPY bears as the 100-SMA and the September 09 swing low, respectively around 142.10 and 141.50, will challenge the quote’s further downside.

Following that, the 50% Fibonacci retracement level of August 23 to September 07 upside, near 140.40, will precede the 140.00 threshold to limit the USD/JPY downside.

USD/JPY: Four-hour chart

Trend: Limited upside expected

• USD/CAD remains on the front foot around the highest levels since October 2020.
• Downbeat Canadian inflation contrasted mostly firmer US housing data, risk-off to favor bulls.
• Yields dribble around multi-year high to underpin USD strength ahead of Fed.
• Fears that aggressive rate hikes will curb demand weigh on oil prices.

USD/CAD grinds higher past 1.3350, close to 1.3370 at the latest, as bulls brace for the Fed showdown during early Wednesday. That said, fears of aggressive Fed rate hikes and downbeat prices of Canada’s key export item WTI crude oil propelled the quote towards the highest levels since October 2020 the previous day, taking rounds to the multi-day high of late.

WTI crude oil prints a three-day downtrend as it refreshes an intraday low near $83.40 by the press time. “The OPEC+ producer grouping - the Organization of the Petroleum Exporting Countries and associates including Russia - is now falling a record 3.58 million barrels per day short of its targets, or about 3.5% of global demand. The shortfall highlights underlying tightness of supply in the market, even as recession fears drag prices lower,” reported Reuters.

On the other hand, the US Dollar Index (DXY) prints mild gains around 110.25 as it pokes the two-decade high marked earlier in the month. In doing so, the greenback’s gauge versus the six major currencies cheers hawkish Fed bets and fears emanating from China and Russia.

While the Fed’s 75 basis points (bps) rate hike bore 83% chance, the latest chatters over the 1.0% rate lift seemed to have favored the risk-aversion. Nouriel Roubini, a well-known global economist, joined the league of Fed hawks on Tuesday. “The Fed started a two-day meeting on Tuesday, with rate futures traders pricing in an 83% chance of a 75 basis-point hike and a 17% probability of a 100 bps of tightening,” said Reuters.

The downbeat inflation in Canada and mixed US housing numbers are also the reason for the USD/CAD strength. That said, Canada’s Annual Consumer Price Index (CPI) declined to 7.0% versus 7.3% expected and 7.6% prior readings. Alternatively, the US 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.

On the other hand, Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. Joining the line is the news of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, which recently challenged the market sentiment and strengthened the safe-haven demand. Furthermore, headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appear to challenge the market’s risk appetite.

Amid these plays, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high. That said, the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top during the pre-Fed cautious mood.

Looking forward, the attention will be on how the Fed manages to avoid recession and still try to tame inflation, which in turn highlights today’s economic forecasts and a speech from Fed Chairman Jerome Powell as more important events than the interest rate announcement.

Technical analysis

Unless declining below a 13-month-old resistance line, around 1.3285 by the press time, USD/CAD remains on the way to October 2020 high near 1.3420.

• Oil prices are juggling below 61.8% Fibo retracement at $87.00.
• Declining 20-and 50-period EMAs signal more weakness ahead.
• A bearish range shift by the RSI (14) will trigger the downside momentum.

West Texas Intermediate (WTI), futures on NYMEX, has demolished the firmer rebound move, recorded on Monday. The black gold picked significant bids below $82.00 and moved higher, however, the pullback move concluded sooner and the asset resumed its downside journey. The oil prices are hovering around $83.00 and are expected to surrender the same.

On a daily scale, the asset has successfully established below the 61.8% Fibonacci retracement (placed from 2 December 2021 low at $62.34 to March 12 high at $126.51) at $87.00. Usually, an establishment below 61.8% Fibo retracement indicates the completion of the entire swing on the downside ahead.

The 20-and 50-period Exponential Moving Averages (EMAs) at $87.00 and $91.25 respectively are declining, which adds to the downside filters.

Also, the Relative Strength Index (RSI) (14) is on the verge of shifting into the bearish range of 20.00-40.00, which will pace up the downside momentum.

A slippage below the monthly low at $80.96 will drag the asset towards 29 December 2021 high at $77.20, followed by 9 December 2021 high at $73.17.

On the contrary, the asset will regain strength if it oversteps the round-level resistance of $90.00. This will send the oil prices towards a 50% Fibo retracement at $94.32 and the psychological resistance at $100.00.

WTI daily chart

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.9536 vs. the estimated 6.9539.

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.

The Bank of Japan has announced an unscheduled bond-buying operation to Buy ¥150B Of 5-10-year JGB's And ¥100B Of 10-25-year JGB's. 

Unlike its peers, the BoJ is determined to keep borrowing costs low to support the economy. Under the yield curve control, the central bank guides the 10-year yield around 0% and allows it to move 25 basis points on either side of zero. The bank has been offering to buy unlimited amounts of 10-year bonds to keep the yield below the target every day since April while other central banks tighten their policy to contain inflation. The yen continues to remain weak as a consequence and is under pressure on the news in Tokyo, trading near 143.80 vs. the greenback.

Reuters reports that Australian Treasurer Jim Chalmers said the government would not have to inject new capital into the country's central bank to cover losses suffered on its pandemic-era bond-buying program.

''Asked by reporters about the losses, Chalmers said the Reserve Bank of Australia (RBA) had indicated a cash injection would not be needed and it would rebuild its finances internally over time.

The RBA earlier indicated it had taken a large loss on the A$300 billion ($200.94 billion) of government bonds bought during the pandemic, which would likely put it into negative equity.''

• Market sentiment remains dicey as traders await the key central bank decisions.
• S&P 500 Futures pare the biggest daily loss in a week.
• US 2-year Treasury yields ease from 15-year top, 10-year counterpart slips from 11-year high.
• Hopes of positive surprise from Fed weigh on sentiment, Asia-linked woes also challenge the mood.

The risk profile remains sluggish, after a bearish play, as markets brace for the hawkish central bank actions on early Wednesday. In addition to expectations of higher rates, pessimism surrounding China and Russia also favors the cautious mood.

While portraying the sentiment, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high. That said, the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top during the pre-Fed cautious mood.

With the Fed’s 75 basis points (bps) rate hike already priced in, the latest chatters over the 1.0% rate lift seemed to have favored the risk-aversion. Nouriel Roubini, a well-known global economist, joined the league of Fed hawks on Tuesday. “The Fed started a two-day meeting on Tuesday, with rate futures traders pricing in an 83% chance of a 75 basis-point hike and a 17% probability of a 100 bps of tightening,” said Reuters.

Recently, Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. On the same line is the news of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, which recently challenged the market sentiment and strengthened the safe-haven demand. Furthermore, headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appear to challenge the market’s risk appetite.

On Tuesday, mostly upbeat US housing data seemed to have propelled the yields and weighed on the market sentiment, in addition to the hawkish Fed bets and the geopolitical catalysts mentioned above. 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.

Looking forward, traders will keep their eyes on the Federal Open Market Committee (FOMC) showdown as 0.75% rate hike is already given and a positive surprise is brewing. In addition to the rate moves, the economic forecasts and Fed Chair Powell’s speech will also be crucial for clear directions. Additionally, headlines surrounding China and Russia, as well as ECBSpeak are also among the catalysts that will entertain traders for the day.

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

• GBP/USD bulls stay the course in the correction into the Fed. 
• The bears could be lurking above a key hourly area for the day ahead. 

As per the prior analysis from the New York session on Tuesday, GBP/USD Price Analysis: Bulls move in from critical hourly support, the bears are potentially lurking higher up as the price corrects from the well-extablished lows as the following update will show. 

GBP/USD prior analysis

From an hourly perspective, it was stated that the price had run into a familiar support area and was expected to correct higher with the price imbalance between 1.1380 and close to 1.40 the figure eyed. 

GBP/USD update

The area of mitigation could see the bears move in, making for a resistance zone for the day ahead. If this were to play out, then the daily chart's downside potential is for an extension of the broader bear cycle:

The bears will be focused especially on the 2020 low of 1.1410.

• EUR/GBP is juggling around 0.8760 as the focus shifts to BOE interest rate policy.
• The BOE is bound to hike interest rates despite bleak growth and a weak labor market.
• The German government is bailing out Uniper to make sure enough gas supply during winter season.

The EUR/GBP pair is displaying topsy-turvy moves in a narrow range of 0.8758-0.8767 range as investors are awaiting the announcement of the interest rate decision by the Bank of England (BOE). Earlier, the asset rebounded sharply after dropping to near 0.8724. The confident buying action seems a responsive one and the asst will scale higher after overstepping the critical hurdle of 0.8787.

The potential trigger for a decisive break in the cross will be the BOE’s monetary policy. Inflationary pressures surprisingly decline for August after remaining above the double-digit figure despite soaring energy bulls for the UK households. However, the decline in the August inflation rate doesn’t advocate the BOE policymakers to soften their approach. The BOE has to swallow the bitter gulp and announce a rate hike by 50 basis points (bps) despite no support from growth prospects and the labor market.

However, the BOE could not let settle the higher price rise index into economic behavior as earnings data is not supportive in offsetting the forced inflated payouts by the households.

Meanwhile, Eurozone economy is working hard to revive itself from a deepened energy crisis. The German government has decided to bail out the natural gas importer Uniper to ensure sufficient gas supplies in the winter season.

While Russian leader Vladimir Putin has stated that the gas supply will start to Europe if the trading bloc lifts sanctions on Nord Stream pipeline 2. Germany is needed to make sure enough gas inventories to cater to the elevated demand during the winter season. However, the western sanctions on Russia are not expected to get lifted.

• Gold price remains pressured around yearly low inside immediate trading range.
• Risk-aversion amplifies as markets approach multiple central bank decision.
• Firmer yields, downbeat stocks underpin USD’s safe-haven demand and weigh on XAU/USD price.
• Chatters over Fed’s 1.0% rate hike, geopolitical woes constitute sour sentiment.

Gold price (XAU/USD) portrays the pre-Fed anxiety as bears flirt with $1,665 inside an immediate trading range during Wednesday’s Asian session. That said, the hawkish Fed bets join geopolitical fears to exert downside pressure on the metal. However, the market’s consolidation ahead of the key central bank announcements seems to probe the bears, as well as the already priced 0.75% Fed rate hike.

“The Fed started a two-day meeting on Tuesday, with rate futures traders pricing in an 83% chance of a 75 basis-point hike and a 17% probability of a 100 bps of tightening,” said Reuters. The news joins increasing calls for a positive surprise to weigh on the XAU/USD price. The global economist Nouriel Roubini joined the league of supporters for the Fed’s 1.0% rate hike and favored the metal bears the previous day.

Also, news of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, recently challenged the market sentiment and strengthened the US dollar’s safe-haven demand. On the same line could be the news suggesting US Senators’ demand for secondary sanctions on Russian oil.

Furthermore, the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China, reported Reuters. The news exerts downside pressure on the sentiment and the XAU/USD.

Talking about the US data, mostly upbeat US housing data seemed to have propelled the yields to favor DXY bulls. 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, the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top during the pre-Fed cautious mood. With this, the Wall Street benchmarks closed in the red while the S&P 500 Futures remain indecisive at the latest.

While the market’s indecision is mostly linked to the pre-Fed anxiety, various other central banks are also on the calendar to move the markets and gold prices. However, the attention will be on how all of them manage to avoid recession and still try to tame inflation. If the Fed convinces optimists of their capacity, the odds of an XAU/USD rebound can’t be ruled.

Technical analysis

Gold price holds captive inside a one-week-old $20 trading range as traders brace for the Fed. However, the yellow metal’s latest U-turn from the 100-HMA joins bearish MACD signals and downbeat RSI (14) to suggest the seller’s dominance.

That said, the stated range’s bottom, surrounding $1,660, defends the intraday buyers before directing XAU/USD towards refreshing the yearly low, currently around $1,654.

In that case, the 61.8% and 78.6% Fibonacci Expansion (FE) levels of September 14-16 moves, near $1,647 and $1,638 respectively, could lure the gold bears.

Alternatively, the 100-HMA restricts immediate upside near $1,672 before the aforementioned range’s top, close to $1,680.

It’s worth noting that the XAU/USD run-up beyond $1,680 needs validation from September 14 peak surrounding $1,710 to convince buyers.

Gold: Hourly chart

Trend: Further weakness expected

• AUD/USD is trapped in familiar ranges on the lower timeframes.
• Bears are lurking an eye a downside daily extension. 

As per the prior analysis, AUD/USD Price Analysis: Bearish bias persists as bears take control at key daily support, and AUD/USD Price Analysis: Bulls look to 0.6750 but bears are lurking, where it was stated that AUD/USD showed no sign of correcting on a longer-term time frame basis, threatening a break of key support, the price has indeed been rejected by resistance and the focus stays with the downside. 

AUD/USD prior analysis

AUD/USD update

The resistance has held and a downside extension is on the cards for the days ahead. However, we have some meanwhile consolidation occurring on the lower timeframes as the following hourly chart shows:

The W-formation is a reversion pattern that would be expected to draw in the price before it breaks upside resistance. This is leaving the shorter-term outlook stuck in a range as markets get set for the Federal Reserve.

The Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China, reported Reuters.

Key updates

Also read: Forex Today: Dollar stronger but within range

• EUR/USD dribbles around short-term support line after dropping the most in a week.
• Sustained trading below 50-SMA, downbeat oscillators favor sellers.
• Bulls need validation from six-week-old resistance line to retake control.

EUR/USD treads water around a two-week-old support line as it seesaws around 0.9970 during Wednesday’s Asian session, after falling the most in a week the previous day. In doing so, the major currency pair portrays the pre-Fed anxiety while keeping the bears hopeful by staying below 50-SMA in the last one week.

In addition to the sustained trading below the 50-SMA, bearish MACD signals and the downbeat RSI (14), not oversold, also keeps the EUR/USD sellers hopeful.

However, a clear downside break of the two-week-old support line, near 0.9950, becomes necessary for the pair sellers to regain control. In that case, a south-run towards the yearly low near 0.9860 appears imminent.

In a case where EUR/USD remains bearish past 0.9860, the odds of its gradual drop towards the September 2002 bottom near 0.9600 can’t be ruled out.

On the contrary, 50-SMA and the 200-SMA restrict short-term EUR/USD rebound around 1.0030 and 1.0060 in that order.

Following that, a downward sloping resistance line from August 10, close to 1.0150 at the latest, will be crucial for the bulls to watch before retaking control.

EUR/USD: Four-hour chart

Trend: Further weakness expected

• USD/JPY has slipped back into the long-week consolidation of 142.55-143.80 range.
• Investors should be prepared for a bigger-than-expected rate hike by the Fed.
• An improvement in Japan’s National CPI has strengthened the odds of a ‘neutral’ stance by the BOJ.

The USD/JPY pair has sensed barricades while attempting to cross the round-level resistance of 144.00. The attempt was also meant to deliver an upside break of the long-week consolidation formed in a 142.55-143.80 range. A failure in the breakout of the same has shifted the pair back inside the woods and a subdued performance is expected from the asset ahead.

The potential trigger for Wednesday will be the interest rate decision by the Federal Reserve (Fed). The central bank is expected to deliver a third consecutive 75 basis points (bps) rate hike. However, the space is huge for a bigger-than-expected rate hike as retail demand is upbeat and labor market conditions are extremely tight in the US economy. So bets over a full percent rate hike are also soaring and could turn out as a winner.

Apart from that, the outlook on growth prospects, interest rate peak, and especially on inflation rate will be keenly watched. Markets have discounted all the alternative decisions to be taken by the Fed. Post the Fed meeting, investors will prepare for a further decisive move.

On the Tokyo front, a decent improvement in Japan’s National Consumer Price Index (CPI) data has accelerated further projections and odds of a shift in policy stance by the Bank of Japan (BOJ). Statistics Bureau of Japan reported the National CPI at 3%, higher than the forecasts and the prior release of 2.6%. Also, the core CPI that excludes food and oil prices has improved to 1.6% that the former figure of 1.2% but remained lower than the expectations of 1.7%.

• US Dollar Index grinds higher around multi-year top after rising the most in a week.
• Strong yields, geopolitical fears underpin the US dollar’s run-up.
• Chatters over a surprise 1.0% rate hike also favor bullish momentum.
• Two-month-old resistance line gains attention as 21-DMA restricts short-term downside.

US Dollar Index (DXY) gears up for another hawkish play of the Fed during Wednesday, taking rounds to 110.30 after rising the most in a week to the recently flashed two-decade high the previous day. In addition to the pre-Fed anxiety and the hawkish calls for the US central bank decision, geopolitical headlines and strong yields also underpin the strength of the greenback gauge versus the six major currencies.

“The Fed started a two-day meeting on Tuesday, with rate futures traders pricing in an 83% chance of a 75 basis-point hike and a 17% probability of a 100 bps of tightening,” said Reuters. The news joins increasing calls for a positive surprise to add strength to the DXY. The global economist Nouriel Roubini joined the league of supporters for the Fed’s 1.0% rate hike and favored the US dollar bulls.

A snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, recently challenged the market sentiment and strengthened the US dollar’s safe-haven demand. On the same line could be the news suggesting US Senators’ demand for secondary sanctions on Russian oil.

Previously, mostly upbeat US housing data seemed to have propelled the yields to favor DXY bulls. 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.

It should be noted that the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top during the pre-Fed cautious mood. With this, the Wall Street benchmarks closed in the red while the S&P 500 Futures remain indecisive at the latest.

Looking forward, the second-tier US housing data may entertain DXY traders but major attention will be given to the Federal Open Market Committee (FOMC) showdown as 0.75% rate hike is already priced-in. In addition to the rate moves, the economic forecasts and Fed Chair Powell’s speech will also be crucial for clear directions.

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

Technical analysis

A clear rebound from the 21-DMA, around 109.40, directs the DXY towards an upward sloping resistance line from July 14, close to 111.20 at the latest.