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• USD/CHF seesaws around daily tops after snapping four-day uptrend.
• Sour sentiment joins firmer US data, hawkish Fedspeak to propel US dollar but CHF’s safe-haven appeal tests buyers.
• Bears need SNB’s signals for further rate hikes to defend the latest entry, bulls can cheer Powell’s hawkish remarks.

USD/CHF changes hands around 0.9920, after reversing the recent losses, as traders seek fresh clues during Wednesday’s Asian session. In doing so, the Swiss currency (CHF) pair also portrays the market’s anxiety ahead of the key events.

Tuesday’s pullback could be linked to the risk-off mood, as well as a light calendar in Switzerland. The same contrasts with the US dollar’s broad upside move amid firmer data and hawkish Fedspeak.

The US Dollar Index (DXY) remained mildly bid around the two-decade high as US Durable Goods Orders declined by 0.2% in August versus the market forecasts of -0.4% and the revised down prior reading of -0.1%. Additionally, US CB Consumer Confidence improved for the second consecutive month to 108.00 for September versus 104.5 expected and 103.20 prior.

Despite the upbeat data, Chicago Fed President Charles Evans said, “At some point, it will be appropriate to slow the pace of rate increases and hold rates for a while to assess the impact on the economy." However, markets cared more for St. Louis Federal Reserve Bank President James Bullard who mentioned that they have a serious inflation problem in the US, as reported by Reuters. "More rate rises to come in future meetings." Additionally, Minneapolis Fed President Neel Kashkari said the central bank is moving "very aggressively," and there is a high risk of "overdoing it." 

Elsewhere, Multiple leaks in Russia’s gas pipeline in the Baltic Sea raise woes that the Eurozone’s energy supply problems are likely to be permanent. The same intensify fears of recession inside the bloc, especially amid an absence of impressive data and inflation fears. That said, Reuters quoted European Commission Chief Ursula von der Leyen on Tuesday saying, “The leaks of the Nord Stream pipelines were caused by sabotage, and warned of the "strongest possible response" should active European energy infrastructure be attacked.” This adds to the market’s fears of more geopolitical tension between the West and Russia.

Also weighing on the sentiment could be the multiple rating agencies, including Moody’s, as well as the international institutions like the International Monetary Fund (IMF), which criticized the UK government’s latest approach.

Amid these plays, Wall Street closed mixed but the yields remained firmer and underpinned the US dollar’s safe-haven demand.

To sum up, the risk-aversion wave keeps the pair buyers hopeful but the CHF’s safe-haven status challenges its upside momentum. That said, the Swiss National Bank’s (SNB) Quarterly Bulletin and a speech from Fed Chairman Jerome Powell will be important to watch for fresh impulse as the SNB has recently been aggressive in rate hikes and any such signs may help the bears. On the contrary, Fed Chair Powell’s hawkish comments should be enough to wake up bull.

Technical analysis

USD/CHF bulls remain hopeful unless witnessing a decisive downside break of the previous resistance line from mid-July, around 0.9845.

• NZD/USD has printed a fresh two-year low at 0.5619 on expectations of a hawkish Fed Powell’s speech.
• The current pace of hiking interest rates by the Fed is expected to slow down ahead.
• Kiwi’s Buildings Permit data is seen lower at 2% vs. the prior release of 5%.

The NZD/USD pair has slipped below the most traded auction area, which is placed in a range of 0.5624-0.5722 in the Asian session. The asset has refreshed its two-year low at 0.5619 and is expected to display more weakness amid negative market sentiment. The major is expected to find a cushion around 0.5476 as the speech from Federal Reserve (Fed) chair Jerome Powell will spook the sentiment of the market participants further.

As the Fed is bound to curtail the galloping inflationary pressures, the discussion will be more on hiking interest rates at the ongoing pace. The current pace of hiking interest rates is firmer and will continue this year.

Considering the deviation in current rates of 3-3.25% and the optimal terminal rate at 4.6%, the Fed is required to elevate its interest rates further to 1.35% by the conclusion of 2023. Two monetary policies are still to be announced in 2022 scheduled in November and December. A continuation of the current pace of hiking will cover the deviation in 2022 only. Therefore, the Fed is expected to slow down its current pace of hiking interest rates and will make gradual steps from now.

Meanwhile, the US dollar index (DXY) has recaptured its elevated arena after lower-than-expected US Durable Goods Orders data. The decline in demand for Durable Goods was recorded lower at 0.2% than the expectations of a decline of 0.4%. There is no denying the fact that accelerated interest rates will have their consequences on durables demand, so a lesser-than-expected decline is healthy for the economy.

On the kiwi front, the release of the monthly Building Permits data will be a key trigger. The economic data is expected to trim to 2% against the prior print of 5%. A lower-than-expected figure will weaken the antipodean.

• GBP/JPY trims some Monday losses and hovers above the 155.00 figure.
• The daily chart portrays the pair as downward biased, though a “bullish-harami” candle pattern could open the door for a re-test of the 200-day EMA.
• If the GBP/JPY clears the 154.00 figure, it could send the pair towards the daily low at 148.53.

The GBP/JPY recovered some ground on Tuesday courtesy of a slight improvement in sentiment, though, in the end, US equities finished in the red, while Asian bourses are set for a lower open as risk aversion got back. At the time of writing, the GBP/JPY is trading at 155.12

GBP/JPY Price Analysis: Technical outlook

The GBP/JPY daily chart shows the pair remains bearish-biased once it cleared the 200-day EMA. Tuesday’s price action completed a “bullish harami” candle pattern, suggesting that the GBP/JPY might be headed upwards. Nevertheless, due to Monday’s volatile trading session, the GBP/JPY could trim some of its losses but would need to surpass some resistance levels on its way north.

Therefore, the GBP/JPY’s first resistance would be the September 27 daily high at 156.36. The break above will expose the September 26 high at 157.22, followed by the 200-day EMA at 160.30. If buyers surpass the latter, that would shift the bias to neutral and open the door for further gains.

On the flip side, the GBP/JPY’s first support will be the September 27 daily low at 154.07. Once cleared, the next demand zone would be the January 24 daily low at 152.90, followed by a re-test of the YTD low at 148.53, ahead of the September 2020 cycle high of 142.70.

GBP/JPY Key Technical Analysis

• USD/CAD grinds higher around two-year low, stays inside bullish chart formation.
• MACD signals hint at further grinding, one-week-old support challenge bears.
• Buyers could aim for 1.3850-55 resistance area on confirming the pennant formation.

USD/CAD remains sidelined around the 27-month high marked earlier in the week, steadies near 1.3730 during Wednesday’s Asian session. In doing so, the Loonie pair portrays the trader’s indecision amid a bullish chart pattern and bearish MACD signals.

Also keeping the quote on the buyer’s radar is the one-week-old ascending trend line.

However, the upside momentum needs validation from the pennant’s upper line, at 1.3770 by the press time.

Following that, an upward trajectory towards the yearly top near 1.3810 and then to the lows marked during April 2020, around 1.3850-55, can’t be ruled out.

Meanwhile, pullback remains unattractive beyond the stated pennant’s support line, close to 1.3720 at the latest.

Even if the quote drops below 1.3720, the 1.3700 threshold and an upward sloping support line from September 20, around 1.3660, will be crucial to challenge the USD/CAD bears.

In a case where the pair remains bearish past 1.3660, the odds favoring its slump to the last Thursday’s peak around 1.3545 can’t be ruled out.

USD/CAD: Hourly chart

Trend: Further upside expected

• EUR/JPY has turned sideways around 139.00 as the focus has shifted to BOJ policy minutes.
• A deliberate attempt to harm the Nord Stream 1 pipeline will accelerate chaos in the German energy market.
• ECB’s Lane has warned about a decline in corporate profits and wages in crushing price pressures.

The EUR/JPY pair is displaying a lackluster performance in the early Tokyo session as the cross is hovering around 139.00. The asset is expected to re-test the critical support of 137.36, recorded on Monday as the German energy crisis is deepening after a deliberate action to harm the active infrastructure of the Nord Stream 1 pipeline to Germany. Broadly, the asset is witnessing topsy-turvy moves in a narrow range of 138.63-139.54 for the past two trading sessions.

On Tuesday, European Commission chief Ursula von der Leyen cited that the leaks of the Nord Stream pipelines were a result of sabotage, and warned of the "strongest possible response" should active European energy infrastructure be attacked. He further added that any deliberate attempt to demolish an active European energy infrastructure is ‘unacceptable’. The group behind the toxic attempt will face retaliation.

Apart from that, the comments from ECB’s Chief Economist Philip Lane have also dampened the sentiment of Eurozone investors. ECB’s Lane has warned of a decline in corporate profits and a drop in wages in the fight against galloping inflation. However, the inflation rate will start decreasing significantly in 2023, with further decreases in 2024.

Going forward, the yen investors will react to the release of the Bank of Japan (BOJ)’s policy minutes. This will provide a detailed view of the rationale behind the continuation of a dovish stance by the BOJ. Meanwhile, BOJ’s unscheduled bond-buying program has not impacted the yen prices much unlike the prior pattern in which investors used to punish the yen on an occurrence of the same. It seems that the impact of BOJ’s intervention in the currency markets will stay for longer.

• Gold price defends corrective bounce off yearly low, sidelined of late.
• Risk-aversion intensified as Russian gas pipeline leak joins pessimism in the UK.
• Firmer US data, hawkish Fedspeak and stronger yields adds strength to the bearish bias for XAU/USD.
• Bullish candlestick can play its role if Fed’s Powell resists praising hawks.

Gold price (XAU/USD) struggles to find acceptance at around $1,630, despite bullish technical signals, as fears of the European energy crisis join firmer yields to propel the US dollar. That said, the cautious mood ahead of a speech from Fed Chairman Jerome Powell also weigh on the metal prices during early Wednesday in Asia.

Multiple leaks in Russia’s gas pipeline in the Baltic Sea raise woes that the Eurozone’s energy supply problems are likely to be permanent. The same intensify fears of recession inside the bloc, especially amid an absence of impressive data and inflation fears. That said, Reuters quoted European Commission Chief Ursula von der Leyen on Tuesday saying, “The leaks of the Nord Stream pipelines were caused by sabotage, and warned of the "strongest possible response" should active European energy infrastructure be attacked.” This adds to the market’s fears of more geopolitical tension between the West and Russia.

On the same line could be the multiple rating agencies, including Moody’s, as well as the international institutions like the International Monetary Fund (IMF), which criticized the UK government’s latest approach.

Furthermore, firmer US Durable Goods Orders and CB Consumer Confidence data joined hawkish Fedspeak to impress the greenback buyers. US Durable Goods Orders declined by 0.2% in August versus the market forecasts of -0.4% and the revised down prior reading of -0.1%. Additionally, US CB Consumer Confidence improved for the second consecutive month to 108.00 for September versus 104.5 expected and 103.20 prior.

"At some point, it will be appropriate to slow the pace of rate increases and hold rates for a while to assess the impact on the economy," Chicago Fed President Charles Evans said on Tuesday, as reported by Reuters. St. Louis Federal Reserve Bank President James Bullard said on Tuesday that they have a serious inflation problem in the US, as reported by Reuters. "More rate rises to come in future meetings." Minneapolis Fed President Neel Kashkari said the central bank is moving "very aggressively," and there is a high risk of "overdoing it." 

It’s worth noting that the rally in the global bond yields, led by the UK’s gilt, joined downbeat equities to add strength to the bearish bias for the XAU/USD.

Looking forward, a light calendar could keep the metal pressured amid fears for the bloc, the UK  and the market’s rush for risk safety. However, speeches from ECB President Christine Lagarde and Fed Chair Jerome Powell may entertain the pair buyers if they speak about matters relating to the monetary policy.

Technical analysis

Gold price prints mild gains around the two-year low marked the previous day as a bullish candlestick, inverted hammer, joins oversold RSI (14).

The recovery moves, however, need validation from a convergence of the 10-DMA and a two-week-old resistance line, around $1,655, to convince the XAU/USD buyers. Also challenging the metal buyers could be the bearish MACD signals.

Meanwhile, a downside break of the latest bottom surrounding $1,620 will defy the bullish signs and can direct the metal initially towards the $1,600 threshold before directing the bears to the lower line of the broad bearish channel stretched from March, near $1,572 by the press time.

Overall, the gold price may witness a corrective bounce but the trend reversal has a long way to go.

Gold: Daily chart

Trend: Limited upside expected

• Inside candle formation has bolstered the odds of a pullback move.
• Declining 10-and-20-EMAs still favor a downside bias.
• The RSI (14) is displaying signs of an oversold situation that could trigger a pullback.

The GBP/USD pair has turned sideways after a strong rebound from a fresh multi-decade low of 1.3565 on Monday. The cable is displaying back-and-forth moves in a range of 1.0661-1.0832 and is displaying a volatility contraction phase. This could result in a further decline in the asset as institutional investors might be distributing more inventories.

On the daily scale, the formation of an Inside candlestick pattern has cleared and the downside momentum has paused for a while. The above-mentioned candlestick formation indicates a volatility contraction amid exhaustion on the downside. A pullback move will get strengthened if the cable manages to overstep Monday’s high at 1.0931. The downward sloping trendline placed from June 14 low at 1.1934 will act as a major barricade for the counter.

Meanwhile, the declining 10-and 20-period Exponential Moving Averages (EMAs) at 1.1040 and 1.1267 respectively favor more weakness.

However, the Relative Strength Index (RSI) (14) is oscillating in an oversold territory around 17.00, which indicates that a pullback move cannot be ruled out. Even for a further downside, the momentum oscillator needs to cool down for once.

A break above Monday’s high at 1.0931 will activate the Inside Candle formation and will send the cable towards the round-level resistance at 1.1000, followed by 10-EMA at 1.1120.

On the flip side, the cable will lose significance further if drops below Monday’s low at 1.0339, which will drag the asset towards the round-level support at 1.0200. A slippage below the latter will direct the cable towards parity.

GBP/USD daily chart

European Commission chief Ursula von der Leyen on Tuesday said the leaks of the Nord Stream pipelines were caused by sabotage, and warned of the "strongest possible response" should active European energy infrastructure be attacked.

Key quotes

Market reaction

The news intensifies fears of more EU-Russia tussle ahead and hence exerts downside pressure on the EUR/USD prices, holding lower ground near the 20-year low.

Also read: EUR/USD braces for fresh multi-year low around 0.9600, ECB’s Lagarde, Fed’s Powell eyed

• As volatility decreased on Tuesday, EUR/GBP fell below 0.9000, which witnessed the cross jumping to a new one-and-a-half year high.
• The EUR/GBP formed a “bearish harami” candle pattern, which suggests sellers are gathering momentum.
• A break below 0.8896 would open the door towards the 0.8700 region; otherwise, a re-test of the 0.9000 figure is on the cards.

The EUR/GBP  tumbles below the 0.9000 mark for the first time in the week after hitting a weekly high at 0.9254 on Tuesday, courtesy of growing fears about the UK’s “mini-budget” presented by the new UK Chancellor of the Exchequer Kwasi Kwarteng. However, investors’ worries have eased, and at the time of writing, the EUR/GBP is trading at 0.8938, slightly above its opening price.

EUR/GBP Price Analysis: Technical outlook

The EUR/GBP remains neutral to upward biased, though, after Monday’s monstrous 400-pip rally, which printed a fresh one-year and-half high at 0.9254, the pair was subject to a mean reversion move. Therefore, the EUR/GBP reversed some of its gains on Tuesday. Even though the EUR/GBP formed a “bearish harami” candle pattern, a break below the September 26 low at 0.8851 is needed to extend its losses further.

Therefore, the EUR/GBP’s first support would be the September 27 daily low at 0.8896. Once cleared, the next support would be the 0.8851 cycle low mentioned above, followed by a drop towards the September 19 daily high-turned-support at 0.8787.

Contrarily, if the EUR/GBP breaks above 0.9000, a re-test of the 0.9100 figure is on the cards, ahead of 0.9200, followed by the YTD high at 0.9254.

EUR/GBP Key Technical Levels

The International Monetary Fund (IMF) openly criticized Britain's new economic strategy on Tuesday, following another slide in bond markets that forced the Bank of England (BOE) to promise a "significant" response to stabilize the economy, reported Reuters.

Key quotes

FX implications

The news increases the market’s fears of recession, especially in the UK and weighs on the GBP/USD prices. That said, the quote remains pressured around 1.0720 by the press time of early Wednesday morning in Asia.

• EUR/USD teases two-decade low marked earlier in the week, pressured of late.
• Multiple leaks in Russia’s Nord Stream gas pipeline renewed fears of Europe energy crisis.
• Firmer US data, hawkish Fedspeak joined upbeat yields to weigh on prices.
• Second-tier economics to decorate calendar but risk catalysts are the key, bears may cheer hawkish comments from Powell.

EUR/USD holds lower grounds around the yearly bottom marked on Monday, despite picking up bids to 0.9600 during Wednesday’s Asian session, as risk-aversion intensifies. Also exerting downside pressure on the major currency pair could be the fears of more pain in terms of the energy supplies to the old continent, as well as the firmer US data.

Multiple leaks in Russia’s gas pipeline in the Baltic Sea raise woes that the Eurozone’s energy supply problems are likely to be permanent. The same intensify fears of recession inside the bloc, especially amid an absence of impressive data and inflation fears.

With this, the hawkish comments from the European Central Bank (ECB) policymakers failed to impress EUR/USD bulls. ECB Vice President Luis de Guindos said on Tuesday that they will continue to raise rates over the coming months and added that the number and size of the hikes will be determined by the data, as reported by Reuters. "We are facing an overlapped succession of shocks that have changed the context in a significant way," ECB Governing Council member Mario Centeno said and noted that the interest rate increase cycle will continue.

On the other hand, firmer US Durable Goods Orders and CB Consumer Confidence data joined hawkish Fedspeak to impress the greenback buyers. US Durable Goods Orders declined by 0.2% in August versus the market forecasts of -0.4% and the revised down prior reading of -0.1%. The Nondefense Capital Goods Orders ex Aircraft, however, improved by 1.3% during the stated period compared to 0.2% expected and 0.3% previous readouts.  Further, US CB Consumer Confidence improved to 108.00 for September versus 104.5 expected and 103.20 prior. Consumer confidence has now improved for two consecutive months, bolstered by fuel prices falling to their lowest level since the beginning of the year.

"At some point, it will be appropriate to slow the pace of rate increases and hold rates for a while to assess the impact on the economy," Chicago Fed President Charles Evans said on Tuesday, as reported by Reuters. St. Louis Federal Reserve Bank President James Bullard said on Tuesday that they have a serious inflation problem in the US, as reported by Reuters. "More rate rises to come in future meetings." Minneapolis Fed President Neel Kashkari said the central bank is moving "very aggressively," and there is a high risk of "overdoing it." 

It’s worth noting that the rally in the global bond yields, led by the UK’s gilt, joined downbeat equities to add strength to the bearish bias for the EUR/USD pair.

Moving on, a lack of major data/events could keep the EUR/USD weakness continued amid the prevailing fears for the bloc and the market’s rush for risk safety. However, speeches from ECB President Christine Lagarde and Fed Chair Jerome Powell may entertain the pair buyers if they speak about matters relating to the monetary policy.

Technical analysis

EUR/USD sellers poke the year 2001 peak surrounding 0.9590 to aim for the support line of a six-month-old bearish channel, at 0.9475 by the press time.

• AUD/USD is likely to drop to near 0.6400 after the demolition of a less-confident pullback.
• A lower-than-expected decline in the demand for US Consumer Durables supported the DXY.
• The roadmap of hiking interest rates for the remaining 2022 will be keenly watched.

The AUD/USD pair is displaying a less-confident pullback after dropping to a fresh two-year low at 0.6414. The asset is not witnessing any signs of exhaustion in the downside bias and the pullback move will be crushed sooner by the market participants. The pair is expected to decline further towards the round-level support of 0.6400 ahead of the speech from Federal Reserve (Fed) chair Jerome Powell.

Fed Powell’s speech is expected to remain extremely hawkish in order to fulfill its primary objective of crushing the price rise index and retrieve it to the desired level of 2%. What’s interesting will be the guidance on interest rates for the remaining 2022. The Fed sees interest rates to top at 4.6% from the current level of 3-3.25%. Bigger rate hike announcements in the remaining year will decline the margin for achieving the targeted rates and the world economy will see a slowdown in the pace of rate hikes later.

Apart from that, the US dollar index (DXY) is performing firmer on a lower-than-expected decline in the US Durable Goods Orders data. The decline in demand for Durable Goods landed at 0.2%, lower than the expectations of a decline of 0.4%. As the Fed is sticking to its path of hiking interest rates, a decline in demand for consumer durables cannot be ruled out. So a lower-than-expected reading cheered the DXY investors.

On the Australian front, investors are looking forward to the monthly Retail Sales data, which is expected to improve by 0.4% against the prior release of 1.3%. It seems that the retail demand is still in an increasing mode but is accelerating at a decreasing rate. A higher-than-expected Retail Demand will support the aussie bulls.

• Silver price gains 0.22% on Tuesday, following a loss of 2.82%.
• Fed officials reiterated their commitment to tackling inflation; most expect the FFR at around 4.50/4.75% and acknowledged a possible recession.
• XAG/USD Price Analysis: Failure to conquer the 20-day EMA was the reason for sellers to move in and send prices towards their lows.

Silver price is recovering some ground as Wall Street closes with substantial losses. Market sentiment continues to deteriorate as US Fed policymakers emphasize the need for more rate hikes, even if it spurs a deceleration in the economy. At the time of writing, the XAG/USD is trading at $18.38 a troy ounce after hitting a daily high at $18.78, up by 0.38%.

During the day, the XAG/USD began trading near the day’s lows before rallying to the daily high. However, as US Treasury bond yields, particularly the 10-year benchmark note rate, knocked on the 4% threshold, investors seeking safety bought the greenback, a headwind for the white metal.

Fed officials crossing newswires during the day reinforced the central bank’s stance. St. Louis Fed President James Bullard said he expects the Federal funds rate (FFR) to edge towards the 4.50% threshold. At the same time, his colleague and Chicago’s Fed President, Charles Evans, estimates the FFR to end at around the 4.50/4.75% mark.

Later, the Minnesota Fed President Neil Kashkari, in a Wall Street Journal interview, said that “There’s a lot of tightening in the pipeline” and added that even though there are risks of overdoing, “we are moving at an appropriately aggressive pace,” Kashkari said. Of late, the Philadelphia Fed President Patrick Harket said, “We will do what it takes to get inflation under control.” If there is a recession, it would be a shallow one.

Data-wise, the US economic calendar featured August’s Durable Good Orders, which contracted 0.2% but were better than the 0.3% shrinkage estimated, while New Home Sales for the same period jumped by 0.685M, exceeding forecasts of 0.5M.

Later, the CB Consumer Confidence improved in September for the second consecutive month, up at 108 vs. forecasts of 104.6.

XAG/USD Price Analysis: Technical outlook

Given the abovementioned fundamental backdrop, the white metal price is clinging to its early gains but well below the daily highs. Failure to reclaim the 20-day EMA at around $18.83 a troy ounce triggered sell orders, while the Relative Strength Index (RSI) is still aiming downwards, further cementing the XAG/USD downward bias. If XAG/USD closes below yesterday’s low at $18.32, that could open the door for further losses, exposing the $18.00 figure ahead of the 2022 year-to-date low at $17.56.

XAG/USD Key Technical Levels

• NZD/USD is pressured in a risk-off environment. 
• US dollar and stocks dominant the bird.

NZD/USD is back to flat on the day while the price ranged between a low of 0.5624 and a high of 0.5721. The bird is a high beta currency and is being dictated by the stock markets in the absence of domestic data.

Meanwhile, markets were once again volatile on Tuesday leading to a mixed close in US stocks after hitting fresh 2022 lows in midday trade. US data was showing that consumer confidence was growing above expectations and new-home sales logged an unexpected rise. Elsewhere, Fed speakers were the driver. St. Louis Fed President James Bullard and Chicago Fed President Charles Evan advocated more interest rate hikes even at the risk of slowing economic growth.

Later in the day, Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said in a WSJ Live interview that central bankers are united in their determination to do what needs to be done to bring inflation down, and financial markets understand that. "There's a lot of tightening in the pipeline," Kashkari said.

The benchmark S&P 500 erased gains of up to 1.7% by early afternoon trading to hit lows last seen in late November 2020 and was down some 0.2% by the close. The US dollar, as measured by the DXY index, is back to trading in the 114 area but is currently under pressure below the highs of the day of 114.47.

In terms of the kiwi, ''as to where we go from here – sentiment seems split two ways – with some saying this is an extreme move that will be unwound, and others saying that the rampant inflation/fiscal unsustainability “tinderbox” of market discontent was just waiting for a spark, and recent moves reflect markets belatedly re-pricing risk,'' analysts at ANZ Bank said. ''We think it’s more of the latter, and don’t expect the going to get any easier, or for volatility to die down, anytime soon.''

• Gold is attempting to recover but the bears are lurking below $1,640.
• A 61.8% resistance ratio could be the catalyst for the next bearish impulse.  

The gold price is higher on the day as we head into the close of Wall Street. The yellow metal gained ground on Tuesday as bulls moved in at the lowest levels in more than two years scored on the back of a surging US dollar and bond yields that are both making multi-year highs. At the time of writing, the gold price is trading 0.38% higher having climbed from a low of $1,621.91 and reaching a high of $1,642.45 after falling a day earlier to the lowest since March 2020.

The gold price is trading below pandemic-era levels and as rates markets are now pricing the potential for higher interest rates to persist for some time, while a steady stream of Fedspeak is likely to hammer this point home, analysts at TD Securities argue that gold prices could still have further to fall in the next stage of the hiking cycle.

''Indeed, the increase in inflation's persistence suggests that a restrictive regime may last longer than historical precedents, which argues for a more pronounced weakness. The combination of surging real rates and USD, continued outflows from money managers and ETF holdings are all adding pressure on family offices and prop shops to finally capitulate on their length,'' the analysts explained. 

A chorus of Fed speakers advocated more interest rate hikes even at the risk of slowing economic growth on Tuesday. Late in the day, a voter in 2023, Philadelphia Federal Reserve President Patrick Harker on Friday said he believes the US central bank can bring down inflation without triggering a deep recession and hefty unemployment.

"We don't want to do this in a way that squashes the job market right now," Harker told Bloomberg TV from Jackson, Wyoming, where Fed officials have gathered for a conference. "If there is a recession, it would be shallow," he said.

Federal Reserve policymakers St. Louis Fed President James Bullard and Chicago Fed President Charles Evan advocated more interest rate hikes even at the risk of slowing economic growth. Later in the day, Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said in a WSJ Live interview that central bankers are united in their determination to do what needs to be done to bring inflation down, and financial markets understand that. "There's a lot of tightening in the pipeline," Kashkari said.

Meanwhile, the benchmark S&P 500 erased gains of up to 1.7% by early afternoon trading to hit lows last seen in late November 2020. It is headed for a negative close. The US dollar, as measured by the DXY index, is back to trading in the 114 area below 114.47 as the highs of the day.

Gold technical analysis

The price has corrected to a 4-hour resistance in a 61.8% ratio correction. This could lead to another test of the lows and a subsequent lower low if $1,621.20 gives way to the bears.

What you need to take care of on Wednesday, September 28:

Dollar buying paused early Tuesday but resumed following the release of better-than-expected US data, also helped by the poor performance of Wall Street. In addition, fears of a worldwide recession keep leading the market sentiment.

During the European morning, European Central Bank President Christine Lagarde and US Federal Reserve chief Jerome Powell attended an event about the opportunities and challenges of the tokenisation of finance. There was little reference to monetary policy, and they passed unnoticed. Both are scheduled to participate in different events on Wednesday, none directly linked to monetary policies.

US Federal Reserve officials tried to pour cold water into the dollar's recent strength. Fed's Charles Evans said he was getting concerned about going too far, too fast with rate hikes but added that his outlook is in line with the Fed's median assessment of rates at 4.25-4.50% at the end of 2022 and at 4.6% end of next year. Neel Kashkari said the central bank is moving "very aggressively," and there is a high risk of "overdoing it." Finally, James Bullard noted that inflation is a "serious" problem in the US.

US government bond yields started the day retreating from multi-year highs, picking up after the US opening. Hawkish comments from US policymakers on Monday sent yields to multi-year highs, and the yield on the 10-year Treasury note extended to 3.99% on Tuesday. The 2-year note currently yields 4.30%, slightly below its previous close.

The EUR/USD pair finished the day right below the 0.9600 mark, trading not far from the multi-year low posted at 0.9549. A steeper EU energy crisis adds pressure as early in the day, several leaks were detected in the Nord Stream pipelines, interrupting gas transportation from Russia to the EU.

The GBP/USD pair stabilized around 1.0700. Bank of England Chief Economist Huw Pill said that "normalizing monetary policy is not a race between countries and markets are sometimes uncomfortable with that," adding that it is hard not to draw conclusions that they will need significant monetary policy response.  

AUD/USD finished the day in the 0.6420 price zone, while USD/CAD settled at 1.3725. The dollar advanced against safe-haven currencies, with USD/CHF now trading at around 0.9920 and USD/JPY at 144.85.

Gold eased and trades just below $1,630 a troy ounce. Crude oil prices ticked higher, and WTI now changes hands at $78.50 a barrel.

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• The USD/CHF cuts some of its Tuesday’s losses, down 0.18% during the session.
• Once the USD/CHF broke above the 0.9900 figure, it paved the way for a parity re-test.
• An inverse head-and-shoulders in the USD/CHF daily targets 1.0370.

The USD/CHF is trimming some of the day’s earlier losses, bouncing off daily lows around 0.9849 and climbing above the 0.9900 figure, for the second consecutive day, as sentiment shifts negative, with the S&P 500 hitting a new two-year low during the day. At the time of writing, the USD/CHF is trading at 0.9913, slightly down by 0.18%.

USD/CHF Price Analysis: Technical outlook

The USD/CHF daily chart portrays the major as upward biased, further cementing its bias once it clears the July 14 swing high at 0.9886. Earlier in the day, USD/CHF sellers tried to reclaim the latter, but buying pressure overcame sellers, and the USD/CHF edged above the 0.9900 threshold. It should also be noted that an inverse head-and-shoulders chart pattern is emerging, which could pave the way for further gains.

If the USD/CHF breaks above parity, that could put in play the YTD high at 1.0064. Once cleared, the next resistance level would be the 1.0100 figure, followed by the May 2019 swing high at 1.0226, ahead of the inverse head-and-shoulders target at 1.0369.

USD/CHF Key Technical Levels

 A voter in 2023, Philadelphia Federal Reserve President Patrick Harker on Friday said he believes the US central bank can bring down inflation without triggering a deep recession and hefty unemployment.

"We don't want to do this in a way that squashes the job market right now," Harker told Bloomberg TV from Jackson, Wyoming, where Fed officials have gathered for a conference.

"If there is a recession, it would be shallow," he said.

Key notes

''We need to move methodically toward a clearly restrictive stance.''
    
''We will do what it takes to get inflation under control.''
    
''If there is a recession it would be shallow in my view.''
    
''Restrictive is clearly above 3%, how much more than that we'll have to see.''
    
''Not in the camp of unemployment needing to rise to 5% to get inflation under control.''
    
''We cannot let inflation expectations get unanchored, does not think they are now.''

US dollar and stocks update

Meanwhile, US stocks have attempted to turn around but remain pressured in a risk-off environment. An early rally in stocks faltered after Federal Reserve policymakers St. Louis Fed President James Bullard and Chicago Fed President Charles Evan advocated more interest rate hikes even at the risk of slowing economic growth.

Later in the day, Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said in a WSJ Live interview that central bankers are united in their determination to do what needs to be done to bring inflation down, and financial markets understand that. "There's a lot of tightening in the pipeline," Kashkari said.

The benchmark S&P 500 erased gains of up to 1.7% by early afternoon trading to hit lows last seen in late November 2020.

The US dollar, as measured by the DXY index, is back to trading in the 114 area but is currently under pressure below the highs of the day of 114.47.

• WTI attempts to recover despite hawkish rhetoric from Fed officials. 
• Analysts note that risks from structural supply issues are still present.

West Texas Intermediate crude oil was up 3.4% at $78.86bbl in afternoon trade during the New York session. The energy sector has been relieved a little by a slightly softer US dollar on Tuesday that eased off a 20-year high.

Additionally, oil producers suspended some production from Gulf of Mexico platforms threatened by the approach of Hurricane Ian. Nevertheless, DXY, an index that measures the greenback vs. a basket of currencies, has been attempting to recover in the US session on the back of firmly hawkish Federal Reserve speakers. The index has traded between a low of 113.332 and 114.472 on the day so far and is back to trading towards the highs of the days currently.

Federal Reserve policymakers St. Louis Fed President James Bullard and Chicago Fed President Charles Evan advocated more interest rate hikes even at the risk of slowing economic growth while Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said in a WSJ Live interview that central bankers are united in their determination to do what needs to be done to bring inflation down, and financial markets understand that. "There's a lot of tightening in the pipeline," Kashkari said.

Overall, tighter monetary policy leads to weaker demand for crude oil and fuel products and has been partly to blame for the drop in Brent and WTI which both recently reached their lowest levels since January. The volatility in the price of oil has been leading to speculation that OPEC+ may be pushed to cut production when it meets next week to set monthly quotas.

''Risks from structural supply issues are still present, and the previously expected Iranian supply, which eroded supply risk premia, is now looking less likely. For now, in this current macro risk-off environment, these supply concerns appear to be largely ignored while demand expectations are at the low,'' analysts at TD Securities argued. ''A repricing of these market expectations will be required to lift crude prices out of their current funk. In this sense, attention is shifting toward potential OPEC cuts, given the cartel has shown to be nimble in their support of the global oil market.''

"The price slide ratchets up the pressure on OPEC+ - there are already calls on the market for greater production cuts of up to 1 million barrels per day," Commerzbank said in a note with respect to OPEC.

Elsewhere, the first hurricane of the season, Ian, in producing areas of the Gulf of Mexico is affecting supply. Reuters at the start of the week had reported that BP and Chevron were closing some platforms Ian approached Florida's west coast. ''The storm is the first this year to disrupt oil and gas production in the U.S. Gulf of Mexico, which accounts for about 15% of the nation's crude oil and 5% of dry natural gas production.''

Meanwhile, the European Union is reportedly struggling to reach an agreement on a price cap on Russian oil, with countries such as Cyprus and Hungary expressing opposition. ''A deal now looks unlikely despite earlier expectations that one will materialize this week'', ANZ Bank reported.

In general, the analysts at TD Securities explained that ''persistent demand worries have dampened sentiment in a low liquidity environment, and global macro risk-off has further driven the deterioration in recent sentiment. Fundamentally, the weakness may have been exaggerated in the immediate term, as physical demand indicators have not been declining at such a rapid pace''

"At the same time,'' the analysts continued, ''the high-frequency US demand data from the EIA, which has been extremely weak, has come under increasing scrutiny amid large adjustment factors and inconsistency with mobility and flight data. Furthermore, heading into the winter, demand may marginally improve relative to the weakness being priced in as Chinese run rates could rise to meet fuel export quotas, while re-opening and improved mobility, along with potential winter gas-oil substitution, could offer support.''

WTI H4 H&S in the making

As illustrated, the price is basing on $76.23 lows and could be in the process of firming the right-hand shoulder of an inverse head and shoulders, a bullish pattern that could lead to a significant breakout below $80.29 recent highs over the coming days. 

• USD/CAD edges up but remains below the YTD highs at around 1.3730s, forming a doji.
• US economic data was positive, supportive of the Fed’s current policy stance.
• The US CB Consumer Confidence improved, supported by declining energy prices.

The USD/CAD edges higher during the North American session, but slightly below the YTD high at 1.3808, due to a risk-on impulse, which put a lid on the greenback’s rise. However, late in the day, as shown by the US Dollar Index, it recovered some ground back above the 114.00 thresholds, underpinned by further Fed hawkish commentary.

At the time of writing, the USD/CAD is trading at 1.3734, up 0.02%, after bottoming at around 1.3639 earlier in the session.

US economic data revealed during the day was better-than-expected, justifying the need for further rate increases. The US Department of Commerce reported that Durable Good Orders for August fell 0.2% but were better than the 0.3% contraction estimated. At the same time, the US Census Bureau revealed that New Home Sales for the same period jumped by 0.685M, exceeding forecasts of 0.5M.

Of late, the CB Consumer Confidence improved in September for the second consecutive month, up at 108 vs. forecasts of 104.6. Lyn Franco, Senior Director of Economic Indicators at the Conference Board, said, “Consumer confidence improved in September for the second consecutive month, supported in particular by jobs, wages, and declining gas prices.”

Elsewhere, other Fed policymakers crossing newswires, led by Chicago’s Fed Evans, said that rates need to get to the 4.50/4.75% range, higher than he initially thought. Evans added that a “recession-like” scenario is not seen and echoed his colleague, Susan Collins, saying that the job market should ease to curb inflationary pressures.

Later, the St. Louis Fed James Bullard said that the US has “a serious problem of inflation,” while adding that he expects rates to finish in 2022 at around 4.5%, which would slow down the economy and curb inflation down.

The lack of reported Canadian economic data left traders adrift to the US dollar dynamics and market sentiment. On Wednesday, the US economic docket will feature Pending Home Sales, and further Fed policymakers will be speaking, with Bostic, Bullard, Bowman Barking, and Evans, crossing newswires.

USD/CAD Key Technical Levels

Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday has crossed the wires as a chorus of Fed officials speak out to the public this week.

He has said US central bankers are united in their determination to do what needs to be done to bring inflation down, and financial markets understand that.

"There's a lot of tightening in the pipeline," Kashkari said in a WSJ Live interview.

"We are committed to restoring price stability, but we also recognize, given these lags, there is the risk of overdoing it on the front end, and so I think we are moving at an appropriately aggressive pace."

Key notes

Markets understand what Fed is doing.
    
Fed policymakers united and committed to bringing down inflation.
    
How much we need to do will be determined partly by the supply side.
    
We are committed to restoring price stability, and markets understand that.
    
We are moving very aggressively.
    
There is a lot of tightening in the pipeline.
    
There is the risk of overdoing it.
    
We are moving at an appropriately aggressive pace.
    
We need to see progress, not seeing it yet.
        
That makes me concerned that we have more work to do.
    
We need to keep tightening policy until we see compelling evidence that underlying inflation has peaked, heading down.
    
Then we need to sit there and pause.
    
Will not repeat the past mistakes of cutting rates once the economy weakens.
    
The policy stance is tight now.
    
Not sure the policy is tight enough.
    
High inflation is driven partly by the surge in demand, supply issues, and Russia's Ukraine invasion.

Has no interest in forecasting stock markets. 

US dollar and stocks update

Meanwhile, US stocks have attempted to turn around but remain pressured in a risk-off environment. An early rally in stocks faltered after Federal Reserve policymakers St. Louis Fed President James Bullard and Chicago Fed President Charles Evan advocated more interest rate hikes even at the risk of slowing economic growth.

The benchmark S&P 500  erased gains of up to 1.7% by early afternoon trading to hit lows last seen in late November 2020.

The US dollar, as measured by the DXY index, is back to trading near the highs of the day of 114.47.

The reasons for the recent pound's sell-off are still on the table, so the currency remains extremely vulvnerable according to analysts at Rabobank. They point out the risk of GBP/USD hitting parity has firmed up. 

Key Quotes: 

“There has been a loose discussion in the market about the prospect of GBP/USD hitting parity for some months. This risk has firmed up in the wake of Friday’s tax giveaways from UK Chancellor Kwarteng, with both market pricing and some forecasters’ predictions now suggesting a tangible risk of GBP falling below 1.00. Of course, broad-based USD strength is an important element behind the softness of cable. In our view there will be no let-up in USD dominance for some months to come. The greenback continues to benefit from the hawkish position of the USD.”

“GBP/USD has edged higher in early European hours this morning, suggesting the extreme cheapening of UK assets over the past couple of sessions is attracting some interest. That said, the causes of the selloff in both gilts and in GBP have not been addressed and this suggests that the pound remains an extremely vulnerable currency.”

“In response to market turmoil, various UK lenders have confirmed that they are withdrawing a range of new home loans as deals are re-priced.  Higher mortgage rates and higher prices of imported goods such as food and energy will increase the pain of the cost of living crisis for many UK households and threatens to undo any benefit from PM Truss’s tax breaks.  This provides an opportunity for the Labour opposition which is currently holding its annual conference.  As the 2024 general election nears, the pressure on Truss to appeal to voters will increase.  Already speculation is appearing that she may not be able to hold on to office for very long.  Political uncertainty in itself is a negative currency factor.”
 

Data released on Tuesday in the US showed a more pronounced than expected improvement in Consumer Sentiment in September. According to analysts at Wells Fargo, falling gasoline prices and a still-tight labor market are the main reasons for the rebound. They warn that as inflation persists and the Federal Reserve lifts rates to combat it, they don’t see confidence approaching pre-pandemic levels.

Key Quotes: 

“The near five-point gain in consumer confidence in September lifted the index to 108.0. This marks the highest level in five months, and in conjunction with the sizable gain in August, puts the index 12.7 points higher than where it stood just two months ago.”

“The state of the labor market is of particular interest for the Confidence survey. Most measures of labor demand have shown some signs of topping out, with job openings and hiring plans moving sideways in recent months.”

“Still-elevated inflation and the aggressive tightening path from the Federal Reserve to combat it will likely weigh on consumers financial prospects. The recent gain in confidence may be supportive of spending in the near-term, but as long as inflation persists and risks of recession remain confidence is unlikely to return to pre-pandemic levels.”
 

According to analysts from Danske Bank, bond yield in Europe and in the US will top in 2022 and decline slightly in 2023. They expect long yields to continue rising over the next three months as amid high inflation, central bank tightening and concern about a growing government bond supply increases.

Key Quotes: 

“10Y Bund yields are now trading around 2.1% compared with -0.18% at the start of 2022. During the same period, 10Y US Treasury yields have risen from 1.5% to around 3.85%.”

“Overall, we now expect 10Y US Treasury yields to rise by around 25bp to 4.05% in the course of the next 3 months. We expect 10Y Bund yields to increase to 2.35% on a 3-month horizon. That equates to a EUR 10Y swap rate of 3.20%.”

“Our baseline scenario is a recession in both Europe and the US. Hence, with central banks likely bringing forward rate hikes to H2 22, we expect markets to increasingly price inflation to come under control. Lower commodity prices point in the same direction. We therefore continue to see yields peaking in 2022 and declining slightly in 2023.”
 

• The USD/JPY oscillates around Tuesday’s open, above the 144.70 mark.
• The major remains upward biased but approaching the 20-day EMA, which, once cleared, could pave the way for further downside.
• Short term, the USD/JPY is downward biased, as a double-top emerged in the 1-hour chart.

The USD/JPY fluctuates around the week’s high 144.78, amidst a risk-on impulse, as portrayed by US equities sustaining decent gains following the sell-off of the last couple of trading sessions, courtesy of an upbeat sentiment. At the time of writing, the USD/JPY is trading at 144.80, almost flat.

USD/JPY Price Analysis: Technical outlook

The USD/JPY is range-bound in the 142.00-145.00 range following last week’s intervention. Even though the major remains upward biased, and the 20-day EMA is closing to price action, which means that a break below the latter would exert downward pressure on the pair in the near term.

Short term, the USD/JPY one-hour chart shows that a double-top chart pattern is emerging at around the 144.60-75 area, which could pave the way for further losses. Nevertheless, the 20 and the 50-EMAs, meandering around 144.51 and 144.16, respectively, would be difficult to surpass. But once cleared, a fall towards the S1 daily pivot at around 143.70 is on the cards.

On the flip side, the USD/JPY’s first resistance would be the 145.00 figure, the line in the sand imposed by the Bank of Japan, last week’s intervention. Break above will expose the YTD high at 145.90, ahead of the 146.00 figure.

USD/JPY Key Technical Levels

• US dollar recovers after September Consumer Confidence data.
• Stocks move off highs as US 10-year yield hits fresh highs.
• EUR/USD unable to sustain recovery, holds above lows.

The EUR/USD dropped further after the beginning of the American session and hit levels under 0.9600. It is hovering at 0.9620/25, around the 20-hour SMA without a clear intraday direction. A stronger US dollar weakened the recovery of pair.

Dollar cheers US data

Following the release of better-than-expected US Consumer Confidence data, the greenback started to recover from intraday losses across the board. The economic figures pushed US yields higher. The US 10-year yield climbed to 3.97%, hitting the highest since 2010.

At the same time, stocks in the US trimmed gains. The Dow Jones pulled back more than 300 points, and is down by 0.07% while the S&P 500 rises by 0.08%. Stock indices continue to be unable to sustain a rebound suggesting that fear and concerns are still present among market participants, which favors the greenback as investors look for a safe haven.

Comments from European Central Bank officials point to more rate hikes. De Guindos mentioned data will determine the trajectory. At the same time, in the US, Bullard warned they have a serious inflation problem.

The 0.9600 zone holds the key for the moment

If the euro manages to recover above 0.9630 it could gain momentum for another test of 0.9660, the last protection for 0.9700. On the flip side, a consolidation below 0.9600 would expose the cycle low at 0.9548 (Sep 26 low).

Technical levels

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

"After releases from the National Association of Realtors and the US Census Bureau, the nowcast of third-quarter gross private domestic investment growth decreased from -7.4% to -7.6%," the Atlanta Fed further explained in its publication.

Market reaction

The US Dollar Index largely ignored this report and was last seen trading in negative territory below 114.00.

• AUD/USD oscillates around 0.6440s, ahead of 2022 lows reached around 0.6436.
• Fed’s Evans: Expects the Federal funds rate (FFR) to be around 4.50-4.75%.
• Fed’s Bullard: Recession risks had risen but attributed to external shocks; expects the FFR to be at 4.50% by the end of 2022.

The AUD/USD is extending its losses during the day, down by 0.17%, bouncing off the YTD lows of 0.6436, reached on Monday, as markets calmed. Risk-aversion triggered by a bold move of the new UK government spurred a global bond sell-off, alongside broad GBP weakness, consequently bolstering the greenback, a headwind for risk-sensitive currencies. At the time of writing, the AUD/USD is trading at 0.6442, below its opening price.

AUD/USD drops by a minimal margin amidst a risk-on sentiment

As the North American session progresses, US equities are trading in the green. Fed officials led by Chicago’s Fed President Charles Evans and the St. Louis Fed James Bullard crossed newswires on Tuesday.

Charles Evans said that the Fed needs to hike rates to the 4.50-4.75% range, more aggressive than he previously thought, further cementing the central bank’s commitment to curb inflation. He did not see a “recession-like” scenario and echoed Boston’s Collins comments that the unemployment rate should rise to ease inflationary pressures.

Of late, the St. Louis Fed President James Bullard said that they have “a serious problem of inflation in the US,” while adding that risks of a recession had risen, but said that it could be caused by external factors, like Europe and China, pulling the world into a slowdown. He added that raising rates to around 4.5% by the year’s end would slow the economy and quell inflation.

Data-wise, the US economic calendar featured Durable Good Orders for August, which dropped 0.2% MoM, less than the estimated 0.3% contraction. Later, the CB Consumer Confidence jumped in September for the second consecutive month, up at 108 vs. estimates of 104.6.

Lyn Franco, Senior Director of Economic Indicators at the Conference Board, said, “Consumer confidence improved in September for the second consecutive month, supported in particular by jobs, wages, and declining gas prices.” Franco added, “Meanwhile, purchasing intentions were mixed, with intentions to buy automobiles and big-ticket appliances up, while home purchasing intentions fell.”

At the same time, the US Census Bureau reported that New Home Sales for August unexpectedly rose by 0.685M, higher than estimates of 0.5M. Sources cited by Bloomberg said, “The housing market has felt the biggest impact from higher borrowing costs; so, although I’ll gladly welcome an increase in sales, we know that the bigger picture shows slowing activity.”

AUD/USD Key Technical Levels

Bank of England (BOE) Chief Economist Huw Pill said on Tuesday that they will not sell gilts into a dysfunctional market, as reported by Reuters.

"We are not running faster than elsewhere in reducing our balance sheet but our process is different," Pill further explained. "As long as the market is an orderly repricing of fundamentals, quantitative tightening can continue."

Market reaction

The British pound gathered strength following these comments. As of writing, the GBP/USD pair was trading at 1.0780, where it was up 0.9% on a daily basis.

Gold plunged on Monday to a new two and a half year low around $1,620. A combination of factors are set to add further downside pressure on the yellow metal, strategists at TD Securities report.

Higher interest rates to persist for some time

“With the yellow metal trading below pandemic-era levels, a small number of family offices and proprietary trading shops are increasingly feeling the pressure to finally capitulate on their massively bloated and complacent length in gold.” 

“Rates markets are now pricing the potential for higher interest rates to persist for some time, and a steady stream of Fedspeak is likely to hammer this point home. In this sense, our analysis suggests gold prices could still have further to fall in the next stage of the hiking cycle.” 

“The increase in inflation's persistence suggests that a restrictive regime may last longer than historical precedents, which argues for a more pronounced weakness.”

USD/CAD has climbed above the 1.37 level. In the view of economists at the Bank of Montreal, the pair could reach in the next few weeks.

Loonie to gradually recover in 2023

“Currencies have a long and storied history of overshooting, and we suspect the loonie is at risk of a more intense short-term sell-off. A test of the 1.40 is certainly a risk in the weeks ahead.”

“Ultimately, we expect the US dollar to lose some of its formidable steam around the turn of the year as the end of Fed hikes comes into view. And, we thus expect the Canadian dollar to gradually recover in 2023, albeit ending next year lower than we previously expected at around 1.30.”

The yuan has seen its weakest valuation against the US dollar since 2008. Economists at Rabobank expect the USD/CNY to peak at 7.35 by the second quarter of 2023.

Limited further upward potential for USD/CNY

“Suppressed demand from the West will put further pressure on China’s export growth engine. However, a lot of bad news is already priced in and therefore we see limited further upward potential for USD/CNY.”

“We expect USD/CNY to reach 7.25 at the end of this year while gradually rising further to 7.35 at the end of Q2 next year. From then on we see room for the yuan to regain some strength which should bring USD/CNY back to 7 at the end of 2023 since we expect a recovery starting in the second half of 2023.”

"Normalizing monetary policy is not a race between countries and markets are sometimes uncomfortable with that," Bank of England (BOE) Chief Economist Huw Pill said on Tuesday. 

Pill further argued that the UK government's fiscal response to the economic slowdown would free the monetary policy to address longer-term inflation dynamics. 

Market reaction

These comments don't seem to be having a noticeable impact on the British pound's performance against its rivals. As of writing, the GBP/USD pair was trading at 1.0760, where it was up 0.7% on a daily basis.

The US dollar ratcheting higher while the negative revisions for earnings appear set to accelerate to the downside. Thus, strategists at Morgan Stanley expect the S&P 500 Index to decline towards the 3,000 level.

Every 1% change in USD has a 0.5% impact on S&P 500 earnings growth

“On a year-over-year basis, the US dollar is now up 21% and still rising. Based on our analysis that every 1% change in the dollar has a 0.5% impact on S&P 500 earnings growth, fourth quarter S&P 500 earnings will face an approximate 10% headwind to growth all else equal.”

“The bear market in stocks will not be over until the S&P 500 reaches the range of our base and bear targets, i.e. 3,000 to 3,400 later this fall.”

• Consumer sentiment in the US continued to improve in September.
• US Dollar Index rebounded to the 114.00 area with the initial reaction to the data.

The data published by the Conference Board showed on Tuesday that the Consumer Confidence Index rose to 108.00 in September from 103.6 in August (revised from 103.2).

Further details of the publication revealed that the Consumer Present Situation Index climbed to 149.6 from 145.3 and the Consumer Expectation Index rose to 80.3 from 75.8. Finally, the 1-year Consumer Inflation Rate Expectations declined to 6.8% from 7%.

Market reaction

With the initial reaction, the US Dollar Index extended its recovery and was last seen posting small daily losses at 114.02.

• GBP/USD gains some positive traction on Tuesday, though the uptick lacks bullish conviction.
• Concerns about the UK’s ballooning public debt act as a headwind for the British pound.
• Aggressive Fed rate hike bets help limit the USD corrective slide and contribute to capping.

The GBP/USD pair trims a part of its intraday gains and retreats to mid-1.0700s during the early North American session, though is still up over 0.50% for the day.

The new UK government's mini-budget announcement last week as well as the plan to subsidise energy bills for households and businesses sparked concern about spiralling public debt. This is evident from a fresh slump in the UK fixed-income market, which pushes the 30-year yield to its highest level since 2007. Furthermore, the fiscal package is expected to fuel already high inflation and create additional economic headwinds, which, in turn, is seen as acting as a headwind for the British pound.

That said, a modest US dollar weakness continues to lend support to the GBP/USD pair amid speculations that the Bank of England could intervene in the FX market to stabilise the domestic currency. The risk-on impulse, as depicted by the strong rally in the equity markets, turns out to be a key factor undermining the safe-haven greenback. That said, rising US Treasury bond yields, bolstered by expectations for a more aggressive policy tightening by the Fed limits any meaningful USD corrective pullback.

The mixed fundamental backdrop warrants some caution for aggressive traders and before placing fresh directional bets around the GBP/USD pair. From a technical perspective, the lack of strong buying interest, especially after the recent free-fall to an all-time low, suggests that the near-term bearish trend might still be far from being over. Hence, any further move up could be seen as a selling opportunity amid the lack of confidence in the UK government’s ability to manage the ballooning debt.

Technical levels to watch

Rising real rates and strong US dollar are crimping investment demand for gold. Strategists at ANZ Bank expect the yellow metal to hover around $1,620 by the end of the year.

Macroeconomic backdrop for gold remains challenging

“In the short-term, a combination of rising yields and strong USD will tarnish investment demand for gold.”

“With the US Fed continuing on its aggressive tightening path, we expect more outflows from gold ETFs, and further price downside to $1,620 by the end of the year.”

St. Louis Federal Reserve Bank President James Bullard said on Tuesday that they have a serious inflation problem in the US, as reported by Reuters.

"The credibility of inflation targeting regime is at risk," Bullard added and argued that they must no recreate the volatile 1970s era. "The labor market is very strong, this gives us room to take care of inflation as soon as we can."

Market reaction

These comments were largely ignored by market participants and the US Dollar Index was last seen losing 0.3% on the day at 113.76.

Additional takeaways

"US policy rate arguably now in restrictive territory."

"More rate rises to come in future meetings."

"Strict comparisons with Volcker are inappropriate now."

"Likely peak for policy rate is around 4.5%."

Bank of England (BOE) Chief Economist Huw Pill noted on Tuesday that they saw a significant repricing of financial assets following the finance minister's statement, as reported by Reuters.

Additional takeaways

"Repricing must be seen as part of a global trend."

"Repricing reflects normalisation after a decade of easy policy."

"There is clearly a UK-specific element to repricing."

"We are monitoring UK component very closely."

"Important change in asset prices is seen as repricing."

"BoE must ensure orderly and well-functioning markets."

"MPC is not indifferent to repricing of financial assets."

"Changes in asset prices have big impact on UK macro developments."

"We must fact market moves into outlook for monetary policy."

"MPC views market developments through price stability lens."

"MPC has very good understanding of price stability goal."

"Hard not to draw conclusion that we will need significant monetary policy response."

"These are quite challenging times for pursuing CPI target."

"Market developments must also be seen in context of last week's fiscal news, energy prices."

"In my view, fiscal announcement will act as stimulus."

"Best for monetary policy to take a lower frequency, more considered approach."

"Monetary policy has limitations for fine-tuning short-term developments."

"In the mean time, we are relying on communication in run-up to November meeting."

"This approach relies on respect for BoE independence."

Market reaction

GBP/USD edged slightly higher from daily highs after these comments and was last seen gaining 0.6% on the day at 1.0750. 

European Central Bank (ECB) Vice President Luis de Guindos said on Tuesday that they will continue to raise rates over the coming months and added that the number and size of the hikes will be determined by the data, as reported by Reuters.

"For 2023, growth will be very low, below 1% in the base case," de Guindos added. "Higher interest rates will have a clear impact on corporate solvency."

Market reaction

The EUR/USD pair continues to trade in positive territory above 0.9600 after these comments.

• USD/CAD attracts some dip-buying near the 1.3630 region, though lacks follow-through.
• Positive oil prices underpin the loonie and act as a headwind amid overbought RSI (14).
• The set-up favours bullish traders and supports prospects for a further appreciating move.

The USD/CAD pair recovers a major part of its intraday losses and climbs back above the 1.3700 mark during the early North American session.

Expectations for a more aggressive policy tightening by the Federal Reserve assist the US dollar to attract some dip-buying and offers some support to the USD/CAD pair. That said, the risk-on impulse, along with a softer tone surrounding the US Treasury bond yields, seems to cap gains for the safe-haven buck. Furthermore, a goodish recovery in crude oil prices is seen underpinning the commodity-linked loonie and acting as a headwind for the major.

From a technical perspective, the overnight strong move up to the highest level since May 2020 pushed spot prices through the top end of a two-week-old ascending channel. This could be seen as a key trigger for bullish traders. That said, RSI (14) on the daily chart is flashing extremely overbought conditions and warrants some caution, making it prudent to wait for some near-term consolidation before positioning for any further appreciating move.

Nevertheless, the set-up still suggests that the path of least resistance for the USD/CAD pair is to the upside. Hence, a move back towards the 1.3745-1.3750 intermediate hurdle, en route to the 1.3800 round-figure mark, remains a distinct possibility. Some follow-through buying should pave the way for additional gains and an extension of the recent strong rally witnessed over the past two weeks or so.

On the flip side, the daily swing low, around the 1.3630 region, now seems to protect the immediate downside. Any further slide below the 1.3600 mark could be seen as a buying opportunity and find decent support near the lower end of the aforementioned trend channel, currently around the 1.3565 region. A convincing break below will negate the positive outlook and set the stage for a deeper corrective fall.

USD/CAD 4-hour chart

Key levels to watch

• EUR/USD gathers some upside traction above 0.9600.
• Another test of the YTD low near 0.9550 stays on the cards.

EUR/USD meets some fresh buying interest and reclaims the area beyond the 0.9600 mark on Tuesday.

Rising bets for extra weakness in the European currency remain well on the table with the immediate target at the 2022 low at 0.9552 (September 26). A deeper drop could challenge the round level at 0.9500 ahead of the weekly low at 0.9411 (June 17 2002).

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0676.

EUR/USD daily chart

• House prices in the US declined in July.
• US Dollar Index stays in negative territory below 114.00.

The monthly data published by the US Federal Housing Finance Agency showed on Tuesday that the Housing Price Index fell by 0.7% on a monthly basis in July. This print followed June's increase of 0.1% and came in lower than the market expectation of +0.7%.

Meanwhile, the S&P/Case-Shiller Home Price Index arrived at 16.1% on a yearly basis in July, compared to analysts' estimate of 17%.

Market reaction

These numbers don't seem to be impacting the dollar's market valuation in a significant way. As of writing, the US Dollar Index was down 0.3% on the day at 113.78.

• DXY gives away part of Monday’s intense move above 114.00.
• Corrective move is expected to persist in the near term.

DXY comes under pressure and sheds some ground following recent cycle highs near 114.50 (September 26).

In the meantime, extra losses appear favoured in the current context of overbought levels and could extend further in the very near term at least.

That said, occasional bouts of weakness could be deemed as buying opportunities with the immediate target now emerging at the round level at 115.00 ahead of the May 2002 high at 115.32.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 7-month support line near 106.90.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 102.21.

DXY daily chart

FX option expiries for September 27 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9700 813m
• 0.9750 442m
• 0.9775 250m
• 0.9875 213m
• 0.9965-75 510m

- USD/JPY: USD amounts                     

• 144.00 274m

- USD/CHF: USD amounts        

• 0.9700 690m

EUR/CHF: EUR amounts        

• 0.9520 390m
• 0.9565 235m
• 0.9700 200m

- AUD/USD: AUD amounts  

• 0.6500 220m
• 0.6625 359m

• Gold stages a goodish bounce from its lowest level since April 2020 touched earlier this Tuesday.
• A modest pullback in the US bond yields prompts USD profit-taking and underpins the XAU/USD.
• Aggressive Fed rate hike bets, the risk-on impulse might keep a lid on the safe-haven commodity.

Gold attracts some buyers near the $1,620 area and stages a goodish rebound from its lowest level since April 2020 touched earlier this Tuesday. The XAU/USD maintains its bid tone through the mid-European session and is currently placed around the $1,640 level, up over 1% for the day.

The US dollar pauses its recent blowout rally and eases from a fresh two-decade high touched on Monday amid some profit-taking on the back of a modest pullback in the US Treasury bond yields. This, in turn, is seen as a key factor offering support to the dollar-denominated gold. The USD bulls remain on the defensive following the release of the rather unimpressive US Durable Goods Orders data for August.

Despite a weaker USD, the XAU/USD lacks bullish conviction amid the prospects for aggressive policy tightening by global central banks, including the Federal Reserve. In fact, the US central bank last week signalled that it will hike interest rates at a faster pace at its upcoming meetings to tame surging inflation. This might continue to act as a tailwind for the US bond yields and the USD.

It is worth recalling that the yield on the rate-sensitive two-year US government bond rose to over a 15-year peak and the benchmark 10-year Treasury note to the highest level since April 2010 on Monday. This supports prospects for the emergence of some USD dip-buying. Apart from this, the risk-on impulse might further contribute to keeping a lid on any meaningful upside for the non-yielding gold.

Even from a technical perspective, Friday's breakdown below a one-week-old trading range support, around the $1,654 area, favours bearish traders. This, in turn, suggests that any subsequent move up might still be seen as a selling opportunity. Next on tap is the release of the Conference Board's Consumer Confidence Index, New Home Sales data and the Richmond Manufacturing Index from the US.

The data might do little to provide a fresh impetus. Nevertheless, the XAU/USD, for now, seems to have snapped a two-day losing streak and remains at the mercy of USD price dynamics. Apart from this, US bond yields and the broader market risk sentiment could allow traders to grab short-term opportunities around gold.

Technical levels to watch

• Durable Goods Orders in the US fell less than expected in August.
• US Dollar Index stays in negative territory at around 113.50 after the data.

Durable Goods Orders in the US declined by 0.2%, or by $0.6 billion, on a monthly basis in August to $272.7 billion, the monthly data published by the US Census Bureau revealed on Tuesday. This reading came in better than the market expectation for a decrease of 0.4%. 

"Excluding transportation, new orders increased 0.2%," the publication read. "Excluding defense, new orders decreased 0.9%. Transportation equipment, also down two consecutive months, drove the decrease, $1.0 billion or 1.1% to $92.0 billion." 

Market reaction

The US Dollar Index showed no immediate reaction to these figures and was last seen losing 0.4% on the day at 113.62.

EUR/USD is trading near 0.9630. Economists at BBH expect the pair to dip under 0.9555 towards the psychological 0.90 mark.

ECB President Lagarde is sounding less hawkish

“EUR/USD made a new cycle low yesterday near 0.9555. It should test that low soon and move on to the target at the psychological 0.90 level.”

“Lagarde said that the bank will consider Quantitative Tightening (QT) once interest rate normalization is completed. We think the ECB is being more cautious because it has to worry about fragmentation risks. Bottom line: a bit more dovish than anticipated. Lastly, Lagarde pledged that Outright Monetary Transactions  (OMT or QE) is available if its Transmission Protection Instrument (TPI) fails. This is not exactly a strong vote of confidence in its newly created TPI.”

On Monday, gold price fell to $1,620. The strong US dollar is the main culprit of the yellow metal’s woes, strategists at Commerzbank note

Gold appears to have lost its role as a safe haven to the USD

“Once again, it is the firm US dollar, which on a trade-weighted basis achieved a 20-year high, that is weighing extremely heavily on its price, as are the significantly higher bond yields.”

“Gold appears to have lost its role as a safe haven to the USD, which thanks to the Fed rate hikes is promising considerable returns again, at least in nominal terms.”

“A glance at the gold price in euros reveals that the slide in the gold price is attributable first and foremost to the strength of the USD: gold in euros has actually risen slightly of late, and at around €1,700 per troy ounce is trading back at its early September level.”

On the first day of the last week of September, crude oil extended last week’s losses. Economists at Société Générale expect Brent to head towards $77.50, then $73.00 on a drop under $83.00.

An initial rebound is on the cards

“Daily MACD is anchored within negative territory which denotes steady downward momentum.”

“An initial bounce is not ruled out, however, $93.50 should provide resistance.”

“Brent is close to downside projections of $83.00. Next potential supports are at the lower band of a descending channel at $77.50 and $73.00.”

The UK government is confident in its economic strategy, British Finance Minister Kwasi Kwarteng said on Tuesday.

Kwarteng further added that they will have a credible plan to reduce debt-to-GDP. 

On Monday, Kwarteg announced that they will introduce a "Medium-Term Fiscal Plan" on November 23 alongside updated projections on growth and borrowing.

Market reaction

These comments were largely ignored by the market participants and the GBP/USD pair was last seen trading at 1.0805, where it was up more than 1% on a daily basis. 

• EUR/JPY trades mildly on the defensive near 139.00.
• Further consolidation could be on the cards in the near term.

EUR/JPY struggles to extend the rebound further north of the daily highs around 139.50 on Tuesday.

Despite the bounce off recent lows, further decline should not be ruled out just yet, particularly against prospects for further weakness in the euro and the spectre of more FX intervention by the BoJ/MoF.

That said, a deeper pullback to the 200-day SMA, today at 135.66, still appears in the pipeline in the very near term at least.

EUR/JPY daily charts

"Inflation will be higher and less temporary than I thought one year ago," European Central Bank (ECB) Governing Council member Mario Centeno acknowledged on Tuesday, as reported by Reuters.

"We are facing an overlapped succession of shocks that have changed the context in a significant way," Centeno added and noted that the interest rate increase cycly will continue.

Market reaction

These comments don't seem to be having a significant impact on the shared currency's performance against its rivals. As of writing, the EUR/USD pair was up 0.2% on a daily basis at 0.9625.

US durable goods orders overview

Tuesday's US economic docket highlights the release of Durable Goods Orders data for August. The US Census Bureau will publish the monthly report at 12:30 GMT and is expected to show that headline orders declined for the second straight month, by 0.4%. Orders excluding transportation items, which tend to have a broader impact, are anticipated to grow by a modest 0.2% in August, matching the previous month's reading.

How could it affect EUR/USD?

Ahead of the key data, retreating US Treasury bond yields, along with the risk-on impulse, prompt some profit-taking around the safe-haven US dollar. That said, growing acceptance that the Federal Reserve will tighten its monetary policy at a faster pace to tame inflation continues to act as a tailwind for the greenback. A stronger-than-expected report will reaffirm hawkish Fed expectations and lift the US bond yields higher, along with the USD.

Conversely, a weaker report will further fuel concerns about a global economic downturn and weigh on investors' sentiment, offering some support to the greenback's safe-haven status. The fundamental backdrop remains tilted firmly in favour of the USD bulls and suggests that the path of least resistance for the EUR/USD pair is to the downside.

Eren Sengezer, Editor at FXStreet outlines important technical levels to trade the major: “The near-term technical outlook shows that EUR/USD is still technically oversold despite the rebound witnessed during the Asian trading hours. In case 0.9600 holds as the end-point of the one-week-old downtrend, the pair needs to flip 0.9650 (descending trend line) into support before targeting 0.9700 (Fibonacci 23.6% retracement level, 20-period SMA).”

“On the downside, 0.9600 (psychological level, static level) forms initial support before 0.9550 (September 26 low) and 0.9500 (psychological level),” Eren adds further.

Key Notes

 •  EUR/USD Forecast: Additional recovery gains likely as long as 0.9600 holds

 •  EUR/USD: 0.90 could be in reach on a dip under 0.95 – Nordea

 •  EUR/USD: Intraday rallies to stall in the 0.9700 area – ING

About US durable goods orders

The Durable Goods Orders, released by the US Census Bureau, measures the cost of orders received by manufacturers for durable goods, which means goods planned to last for three years or more, such as motor vehicles and appliances. As those durable products often involve large investments they are sensitive to the US economic situation. The final figure shows the state of US production activity. Generally speaking, a high reading is bullish for the USD.

"At some point, it will be appropriate to slow the pace of rate increases and hold rates for a while to assess the impact on the economy," Chicago Fed President Charles Evans said on Tuesday, as reported by Reuters.

Additional takeaways

"Reduction in balance sheet equivalent to 35-50 basis points of policy restraint."

"My outlook roughly in line with the fed median assessment of rates at 4.25-4.50% at the end of 2022; 4.6% end of next year."

"Not looking at recession-like numbers in softening of the labor market ahead."

"Our actions will result in below-trend growth and softening of labor market."

"Failing to restore price stability would result in far greater costs."

"Many of the risks to Fed's outlook appear to be on the downside."

"Fed must be watchful, adjust policy if changes in economic circumstances dictate."

"I expect modest increases in GDP over second half of this year."

"Signs unusual strength in labor demand may be waning; supply chain issues improving."

"I expect inflation to cool substantially over next couple of years."

"Labor force participation rate not far from long-term trend."

"Measures of longer-horizon inflation expectations remain well anchored."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen losing 0.5% on the day at 113.56.

EUR/GBP is now trading around 0.89. Economists at Danske Bank remain cautiously optimistic that the pair will head lower, targeting 0.85 in 12 months.

EUR/GBP to remain elevated in the near-term

“We expect EUR/GBP to remain elevated in the near-term given the 1) uncertainty as to regards the size and persistence of a structural shift in UK fiscal policy, 2) the global investment environment characterised by high-risk aversion and 3) declining commodities support EUR/GBP.”

“Looking forward, the positive USD environment is usually benefitting GBP relative to EUR. We thus forecast the cross to remain elevated at 0.86 in 3M, before falling to 0.85 in 12M on the back of a stronger USD.”

Senior Economist at UOB Group Alvin Liew assesses the latest Industrial Production figures in Singapore.

Key Takeaways

“Singapore’s industrial production (IP) came in above expectations as it rose by 2.0% m/m SA, which translated to a growth of 0.5% y/y in Aug, (from the upwardly revised Jul readings of -2.1% m/m, 0.8% y/y). Excluding the volatile biomedical manufacturing, IP actually contracted by -2.9% m/m, 1.2% y/y% y/y in Aug (from an upwardly revised -0.9% m/m, 3.1% y/y in Jul).”

“While the Aug IP beat expectations, it was due to a rebound in pharmaceutical production (6.4% y/y). Other main sources of IP growth were from the continued expansions in transport engineering (32.8% y/y), general manufacturing (18.8% y/y), and precision engineering (2.9% y/y), offsetting the declines in electronics output (-7.8% y/y) and chemicals (-11.2% y/y).”

“Accounting for the Aug’s increase, Singapore’s IP expanded 4.4% in the first eight months of 2022. The latest dip in Aug electronics PMI (to 49.6, first contraction after two years of continuous expansion, and the lowest reading since Jul 2020) painted a consistent picture from what we saw in the latest NODX and manufacturing data, a start of the electronics downcycle. We continue to be cautiously positive on the outlook for transport engineering, general manufacturing, and precision engineering, to support overall IP growth but we see a weaker electronics performance and slowing demand from North Asian and key developed economies that could increasingly weigh on NODX momentum and manufacturing demand. We keep our Singapore manufacturing growth forecast at 4.5% in 2022 (from 13.2% in 2021) but we expect the sector to contract by 3.7% in 2023 due to the faltering outlook for electronics and weaker external demand. In the same vein, our 2022 GDP growth forecasts are also unchanged at 3.5% but the faltering 2023 manufacturing outlook indicates the downside risk to our GDP growth projection next year.’

The European Commission said on Tuesday there was no impact on security following the gas leaks reported at the Nord Stream pipeline, as reported by Reuters.

"At this stage, it's very premature to speculate on what the causes are," a Commission spokesman told reporters. The member states are looking into this issue, we will remain in close contact with them, but it's really not the moment to speculate."

Earlier in the day, Nord Stream AG announced that they have detected damages at three lines of the Nord Steam pipeline system and added that it was impossible to estimate when the transportation infrastructure would be restored.

Market reaction

This headline doesn't seem to be having a significant impact on market sentiment. As of writing, the Euro Stoxx 600 Index was up 0.3% on a daily basis.

• USD/CHF corrects from a multi-month low touched on Monday amid modest USD weakness.
• Retreating US bond yields is seen as a key factor that prompts profit-taking around the USD.
• Aggressive Fed rate hike bets should act as a tailwind for the buck and limit losses for the pair.

The USD/CHF pair comes under some selling pressure on Tuesday and erodes a major part of the overnight gains to the highest level since June 16. The pair remains on the defensive through the first half of the European session and is currently placed just below the 0.9900 mark, near the lower end of its daily range. 

The US dollar bulls took a brief pause following the recent strong runup to a two-decade high and opted to take some profits off the table amid a modest pullback in the US Treasury bond yields. This, in turn, is seen exerting some downward pressure on the USD/CHF pair, though a combination of factors should help limit any meaningful downside.

The risk-on impulse - as depicted by a positive tone around the equity markets - could undermine demand for the safe-haven Swiss franc. Furthermore, a more hawkish stance adopted by the Federal Reserve should act as a tailwind for the US bond yields, which, in turn, should offer some support to the greenback and the USD/CHF pair, at least for now.

It is worth recalling that the US central bank signalled last week that it will likely undertake more aggressive increases at its upcoming meetings to cap inflation. This supports prospects for the emergence of some dip-buying around the USD/CHF pair. Market participants now look forward to Fed Chair Jerome Powell's speech for a fresh impetus.

Apart from this, traders on Tuesday will take cues from the US economic docket - featuring Durable Goods Orders, the Conference Board's Consumer Confidence Index, New Home Sales and the Richmond Manufacturing Index. This, along with the US bond yields, will influence the USD and provide some meaningful trading impetus to the USD/CHF pair.

Technical levels to watch

The USD/JPY uptrend has paused after approaching 146. The pair could suffer a deeper fall on a break under key support 0f 139.40, analysts at Société Générale report.

Above 146, next resistance seen at 148

“Negatively diverging daily MACD points towards receding upward momentum.”

“July's high of 139.40 is a crucial support. In case the pair fails to defend, there could be a risk of a short-term downtrend.”

“Beyond 146, next potential hurdles are located at projections of 148/150.”

Silver (XAG/USD) extends recovery. However, economists at ANZ Bank expect the precious metal to remain below the $20 level for the rest of the year.

Silver is still vulnerable

“Indian imports are hitting record high levels, while demand from the solar sector is offsetting weaker demand from the electronics sector. Nearly 50% of the increase in demand (+27Moz/y) for industrial silver this year comes from the solar sector.”

“According to the Silver Institute’s estimates, the market remains under-supplied by 75Moz this year, though we see a modest deficit of 32Moz. Nonetheless, silver is still vulnerable to any economic slowdown and gold price correction.” 

“We expect silver to trade below $20 towards the end of the year.”

• AUD/USD stages a modest bounce from its lowest level since May 2020, though lacks follow-through.
• Retreating US bond yields, the risk-on impulse weighs on the USD and benefits the risk-sensitive aussie.
• Aggressive Fed rate hike bets act as a tailwind for the greenback and cap the major amid recession fears.

The AUD/USD pair gains some positive traction on Tuesday and snaps a two-day losing streak to its lowest level since May 2020. The pair maintains its bid tone through the first half of the European session and is currently placed just below the 0.6500 psychological mark, up over 0.50% for the day.

Retreating US Treasury bond yields trigger a modest US dollar retracement slide from a two-decade high touched the previous day, which, in turn, is seen offering some support to the AUD/USD pair. Apart from this, the risk-on impulse - as depicted by a positive tone around the equity markets - undermines the safe-haven buck and further benefits the risk-sensitive aussie. The uptick, however, lacks bullish conviction, warranting some caution before positioning for any meaningful gains.

Growing worries about a deeper global economic downturn, along with the risk of a further escalation in the Russia-Ukraine conflict, could keep a lid on any optimistic move in the markets. Furthermore, a more hawkish stance adopted by the Federal Reserve should act as a tailwind for the buck and contribute to capping the AUD/USD pair.  It is worth recalling that the US central bank signalled last week that it will likely undertake more aggressive increases at its upcoming meetings to cap inflation.

Furthermore, a duo of FOMC members reiterated on Monday that the priority remains controlling domestic inflation. This should act as a tailwind for the US bond yields and support prospects for the emergence of some USD dip-buying, suggesting that the path of least resistance for the AUD/USD pair is to the downside. Market participants now look forward to Fed Chair Jerome Powell's speech at an event in Paris for some impetus ahead of the US macro data, due later during the early North American session.

Tuesday's US economic docket features Durable Goods Order, the Conference Board's Consumer Confidence Index, New Home Sales and the Richmond Manufacturing Index. This, along with the US bond yields, will influence the USD price dynamics and produce short-term trading opportunities around the AUD/USD pair. Traders will further take cues from the broader risk sentiment ahead of the Australian monthly Retail Sales data, scheduled during the Asian session on Wednesday.

Technical levels to watch

Money managers decreased their long position in the gold market for the sixth consecutive week. Strategists at Société Générale expect the yellow metal to continue seeing scarce demand.

There is nothing new under the golden sun

“Gold’s bearish streak continued with a flow of USD3.1 bn, the sixth weekly bearish flow in a row for bullion.” 

“A US Fed rate hike supports the dollar, which in turn makes gold less affordable for non-US buyers, thus reducing demand.”

“The Indian rupee and the Chinese renminbi depreciated 0.77% and 1.27% respectively against the dollar during the period. This is expected to weigh further on demand as India and China are two important gold markets.”

Economist at UOB Group Lee Sue Ann comments on the announcement of the Growth Plan by Chancellor K.Kwarteng.

Key Takeaways

“UK Chancellor Kwasi Kwarteng unveiled his Growth Plan last Fri (23 Sep) with the aim of tackling high energy costs and inflation and delivering higher productivity and wages. His package of tax cuts was the biggest since 1972.”

“There is significant uncertainty surrounding the combined impact of the fiscal measures proposed, alongside higher interest rates and a slowing economy. Financial markets have thus reacted strongly and negatively to the government’s break with fiscal orthodoxy. GBP plunged by the most since Mar 2020, reaching the lowest in 37 years against the USD. UK gilts also suffered their biggest collapse since Mar 2020, with bond yields surging.”

“The obvious implication is that interest rates are likely to be higher for longer, with speculation even of a possible inter-meeting rate hike by the Bank of England (BOE), which we are not ruling out. We now look for the BOE to increase rates to 4.25% by year-end and 5.25% by end-1Q23.”

• EUR/USD gathers some upside traction beyond 0.9600.
• Renewed weakness in the dollar allows the pair to recover.
• ECB Lagarde, De Guindos speaks later in the session.

The single currency seems to have met bargain hunters and now picks up pace and mtotivates EUR/USD to revisit the 0.9670 region on turnaround Tuesday.

EUR/USD now looks to Lagarde, US data

After five consecutive daily pullbacks, including fresh cycle lows in the mid-0.9500s recorded on Monday, EUR/USD manages to gather some steam and advance past the 0.9600 barrier helped by the renewed selling bias in the dollar.

In the meantime, German 10-year bund yields now recedes from earlier peaks around 2.16%, an area last traded back in December 2011. In the same line, US yields face some weakness following Monday’s multi-year peaks.

In the euro calendar, ECB Chair C.Lagarde will speak in an online event, while Vice-President L. De Guindos will participate in a discussion panel.

Across the pond, the Conference Board will publish the Consumer Confidence gauge seconded by Durable Goods Orders and housing data.

What to look for around EUR

EUR/USD remains under heavy pressure against the backdrop of the unabated rally in the greenback. The pair dropped to levels last seen in June 2002 around 0.9550, although it managed to attempt a mild bounce since then.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The latter has been exacerbated further following the latest rate hike by the Fed and the persevering hawkish message from Powell and the rest of his rate-setters peers.

Furthermore, the 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 – adds to the sour sentiment around the euro

Key events in the euro area this week: ECB Lagarde (Tuesday) – Germany GfK Consumer Confidence, ECB Lagarde (Wednesday) – EMU Final Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Thursday) – EU Emergency Energy Meeting, Germany Retail Sales, France, Italy, EMU Flash Inflation Rate, Germany Unemployment Change, Unemployment Rate (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.13% at 0.9620 and a break above 1.0050 (weekly high September 20) would target 1.0197 (monthly high September 12) en route to 1.0262 (100-day SMA). On the downside, initial support lines up at 0.9552 (2022 low September 26) ahead of 0.9411 (weekly low June 17 2002) and finally 0.9386 (weekly low June 10 2002).

Risk-sensitive currencies such as the Norwegian krone and the Swedish krona are very vulnerable. Therefore, economists at Nordea see EUR/NOK and EUR/SEK at 10.50 and 11 by year-end, respectively. 

Overshooting is likely

“We believe both the SEK and the NOK will remain weak in the short term, as they are very vulnerable to negative risk sentiment.”

“We see EUR/SEK around 11 and EUR/NOK around 10.50 towards year-end, but overshooting is likely and the risk is to the upside for both crosses during periods of market stress, especially against the USD (we see USD/SEK around 11,50 and USD/NOK at 11 around year-end).”

• USD/JPY edges lower on Tuesday and snaps a two-day winning streak amid a modest USD pullback.
• Retreating US bond yields turn out to be a key factor prompting some profit-taking around the buck.
• The risk-on impulse, the Fed-BoJ policy divergence undermines the safe-haven JPY and limits losses.

The USD/JPY pair struggles to capitalize on its gains recorded over the past two trading sessions and meets with some supply on Tuesday. The pair remains on the defensive through the early part of the European session and is currently trading around the 144.25-144.30 area.

The US dollar eases from a new two-decade high touched the previous day and turns out to be a key factor exerting downward pressure on the USD/JPY pair. Bearish traders further take cues from a modest pullback in the US Treasury bond yields, which prompts traders to take some profits off their USD bullish positions. That said, a combination of factors extends some support to the pair and helps limit the downside.

Despite the Japanese government's intervention in the FX market, a big divergence in the monetary policy stance adopted by the Bank of Japan continues to weigh on the  Japanese yen. Adding to this, the risk-on impulse, as depicted by a positive tone around the equity markets, further undermines the safe-haven JPY. This, in turn, assists the USD/JPY pair to hold its neck above the 144.00 mark, at least for the time being.

Furthermore, the prospects for a more aggressive policy tightening by the Federal Reserve favour the USD bulls. The fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside and supports prospects for the emergence of some dip-buying. Market participants now look forward to Fed Chair Jerome Powell's speech at an event in Paris for some impetus ahead of the US macro data.

Tuesday's US economic docket features the release of Durable Goods Orders, the Conference Board's Consumer Confidence Index, New Home Sales and the Richmond Manufacturing Index. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader risk sentiment to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch

There has been a loose discussion in the market about the prospect of GBP/USD hitting parity for some months. Economists at ING believe that the pair could break under 1.00 this year.

EUR/GBP can make a run towards the March 2020 high of 0.95

“At this stage, we think UK authorities will probably just have to let sterling find its right level. The UK has a reserve currency so it can always issue debt – it’s just a question of the right price.”

“We are still bullish on the dollar this year as Fed leads the deflationary charge and global growth slows. That means GBP/USD is now vulnerable to a break of parity later this year, while – quite unexpectedly – EUR/GBP can make a run towards the March 2020 high of 0.95, with outside risk to the 2008 high of 0.98.”

Economists at Nordea believe EUR/USD will fall to 0.95. A break below here would open up further losses to 0.90.

Lower current account points toward lower EUR/USD

“While we currently see EUR/USD at 0.95 towards year-end, the pair is not far from that level and could easily come below. If this happens, and there is a good chance it will, then the room will open for EUR/USD moving as low as 0.90.”

“The energy price shock has and will continue to impact the industrial sector, leading to a negative terms-of-trade shock for the eurozone. Goods that were previously produced in Europe will now have to be imported from countries elsewhere where energy prices have not risen as much as in Europe. Worsening terms of trade argue for a weaker euro ahead.”

“For the euro’s fortunes to turn around, the energy crisis will need to be resolved. This will take time.”

Here is what you need to know on Tuesday, September 27:

The positive shift witnessed in risk sentiment makes it difficult for the greenback to continue to outperform its rivals early Tuesday and the US Dollar Index retreats toward 113.00 following Monday's volatile action. US stock index futures are up more than 1% in the early European session and the 10-year US Treasury bond yield is down 2% on the day. August Durable Goods Orders and New Home Sales will be featured in the US economic docket later in the day. The Conference Board's September Consumer Confidence data will also be looked upon for fresh impetus.

US Consumer Confidence Preview: Near-term relief or more risk aversion?

During the Asian trading hours on Tuesday, Reuters reported that some of China's big fund managers and brokers were asked to help stabilize the stock market. The Shanghai Composite Index gained more than 1% on the day following this development. On a negative note, Russian Security Council’s Deputy Chairman Medvedev said that they had the right to use nuclear weapons if necessary and noted that they were not bluffing. Despite this comment, however, the Euro Stoxx 600 and Germany's DAX 30 indexes both gain around 1.2% in the early European morning.

After having lost more than 50 pips on Monday, EUR/USD trades in positive territory above 0.9650 early Tuesday. European Central Bank (ECB) Chief Economist Philip Lane said that the sizeable rate increases should make it clear to businesses and workers that demand conditions will be less favourable. Later in the session, ECB President Christine Lagarde will speak on financial stability challenges related to the digitalisation of financial services at an event organized by the Bank of France.

GBP/USD managed to erase the large losses it suffered at the beginning of the week and closed little changed below 1.0800 on Monday. In response to the British pound's significant depreciation, the Bank of England said that they are monitoring developments in financial markets very closely.  "As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the government’s announcements and the fall in sterling," the BoE stated. Although these comments had no significant impact on the GBP's valuation, GBP/USD manages to trade in positive territory above 1.0800 on Tuesday.

USD/JPY gained nearly 100 pips amid rising US T-bond yields on Monday but struggled to preserve its bullish momentum. As of writing, the pair was fluctuating in a narrow range above 144.00.

Gold is taking advantage of retreating US yields and gains nearly 1% on the day near $1,640. 

Bitcoin rose more than 2% on Monday and gathered further bullish momentum on Tuesday. At the time of press, BTC/USD was up 5% on the day at $20,200. Ethereum rises toward $1,400 and is up 3.5% on a daily basis.

GBP/USD has recovered the 1.08 level. Nonetheless, economists at ING expect the pair to ease back lower towards 1.0350.

GBP/USD could trace out something like a 1.07-1.09 range today

“FX markets feel like the dollar is going into early 1980s over-drive territory and barring a stark reversal in hawkish Fed expectations or slowing growth dynamics, we would say cable could retest 1.0350 over the next month.”

“On a day in which the dollar is consolidating, GBP/USD could trace out something like a 1.07-1.09 range.”

• GBP/USD gains some traction on Tuesday amid a modest USD pullback from a 20-year high.
• Worries about the ballooning UK debt could act as a headwind for sterling and cap the upside.
• Aggressive Fed rate hike bets should limit the USD losses and warrant some caution for bulls.

The GBP/USD pair attracts some buying on Tuesday and maintains its bid tone, above the 1.0800 mark through the early European session.

A combination of factors triggers a modest US dollar pullback from a new two-decade high touched the previous day, which, in turn, is seen acting as a tailwind for the GBP/USD pair. The risk-on impulse, along with retreating US Treasury bond yields, prompt traders to take some profits off their bullish positions around the safe-haven greenback.

The British pound, on the other hand, draws some support from the overnight special statement from the Bank of England, saying that it will not hesitate to change interest rates as necessary. The BoE added that it is monitoring developments in financial markets very closely, especially after the recent free-fall in the GBP/USD pair to an all-time low.

Despite the aforementioned supporting factors, the GBP/USD pair, so far, has been struggling to gain any meaningful traction. The lack of confidence in the UK government’s ability to manage the ballooning debt, especially after the announcement of a mini-budget on Friday, continues to act as a headwind for sterling and capping the upside.

Furthermore, the prospects for a more aggressive policy tightening by the Federal Reserve should limit any deeper fall for the US bond yields and offer some support to the greenback. This might further contribute to keeping a lid on any meaningful gains for the GBP/USD pair, warranting some caution for aggressive bullish traders.

There isn't any major market-moving UK economic released due on Tuesday, leaving the GBP/USD pair at the mercy of the USD price dynamics. Hence, the focus now shifts to Fed Chair Jerome Powell's speech at an event in Paris. This, along with the US macro data, will drive the USD demand and provide some impetus to the GBP/USD pair.

Technical levels to watch

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang note extra gains in USD/CNH need to clear the 2020 top at 7.1960 in the near term.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘the risk is for USD strength but the 2020 high of 7.1960 is unlikely to come into view for today’. We added, ‘there is another resistance at 7.1800’. Our view was not wrong as USD rose to a high of 7.1772. Conditions are deeply overbought but USD could test 7.1800 first before the risk of a pullback would increase. The 7.1960 level is still unlikely to come into view for now. Support is at 7.1520 followed by 7.1420.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (26 Sep, spot at 7.1510). As highlighted, all eyes are on the 2020 high of 7.1960 now. A breach of this major and long-term resistance could lead to an upward acceleration. Overall, only a break of 7.0950 (‘strong support’ level was at 7.0750 yesterday) would indicate that the USD strength that started more than a week ago has come to an end.”

The kiwi has fallen 13% since its peak in August, dropping below the 0.57 level. Subsequently, economists at Westpac have revised lower their forecast for the NZD/USD pair.

New Zealand dollar to lift against the USD in 2023

“We have lowered our forecast for the NZ dollar by year’s end from 0.63 to 0.58.” 

“We still expect the New Zealand dollar to lift against the US dollar in 2023 but have lowered our forecast for the end of 2023 from 0.68 to 0.65.”

The strength of the US dollar has seen most other G10 currencies reach historic lows in recent months. In the view of economists at ANZ Bank, the pace and speed of tightening monetary policy among major central banks are biased towards US dollar dominance in 2022 and the first half 2023.

DXY will likely peak at 115 in the first half of 2023

“In the near-term, with real yields deeply negative, we see little prospect for any immediate relief from USD strength. On this basis, we expect to see the USD overshoot from fair value in response to monetary policy tightening.”

“The US dollar will continue to attract safe haven bids as we expect global recessionary fears to deepen in the coming months. In line with our stronger US dollar view, the US Dollar Index (DXY) will likely peak at 115 in the first half of 2023.”

“We have revised our forecasts for major currencies to bottom out vs the US Dollar in the first half of 2023, as follows: AUD (0.64), NZD (0.57), EUR (0.95), GBP (1.10) and JPY (150).”

• The index gives away part of the recent advance to the 114.50 region.
• US yields correct lower in tandem with the selling bias in the dollar.
• CB Consumer Confidence, Durable Goods Orders, Fedspeak next on tap.

Following Monday’s new highs in the mid-114.00s, the USD Index (DXY) comes under some moderate selling pressure and revisits the 103.30 zone on turnaround Tuesday.

USD Index focuses on data

The index so far reverses two consecutive daily retracements and returns to the 103.30 zone on Tuesday, trimming part of the strong uptick seen on Monday on the back of the renewed improvement in the risk complex.

The daily pullback in US yields from recent multi-year tops also adds to the corrective decline in the dollar, showing some recovery in prices of bonds.

In the US data space, Durable Goods Orders and the Consumer Confidence print gauged by the Conference Board will take centre stage seconded by House Price Index and New Home Sales. In addition, Chicago Fed C.Evans (2023 voter, centrist) is also due to speak.

What to look for around USD

The upside bias in the dollar remains everything but exhausted and it has been fuelled further by the recent FOMC event and comments by Chair Powell. Despite the current correction, there seems to be scope for extra gains in the greenback in the short-term horizon.

Propping up 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 also appears bolstered 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: Durable Goods Orders, House Price Index, New Home Sales, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications Advanced Trade Balance (Wednesday) – Final Q2 GDP Grow Rate, Initial Claims (Thursday) – PCE/Core PCE, Personal Income/Spending. Final Michigan Consumer Sentiment (Friday).

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

USD Index relevant levels

Now, the index is retreating 0.57% at 113.45 and faces immediate contention at 109.35 (weekly low September 20) followed by 108.23 (55-day SMA) and finally 107.68 (monthly low September 13). On the other hand, a breakout of 114.52 (2022 high September 26) would expose 115.00 (round level) and then 115.32 (May 2002 high).

Sustained advance in USD/JPY looks likely above the 145.00 region, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the bias for USD is on the upside’. We added, ‘A sustained rise above 144.50 is unlikely’. USD subsequently rose to 144.78 before closing at 144.75. USD pulled back from the high in early Asia trade and upward pressure appears to have eased somewhat. That said, there is room for USD to rise to 145.00 first before a more sustained pullback is likely. For today, the next resistance at 145.50 is unlikely to come under challenge. On the downside, a breach of 143.80 (minor support is at 144.00) would indicate USD is unlikely to advance further.”

Next 1-3 weeks: “Our latest narrative was from last Friday (23 Sep, spot 142.20) where we held the view that USD could trade between 139.00 and 144.50.  Yesterday, USD rose to a high of 144.78. Upward momentum is beginning to build but USD has to close above 145.00 before a sustained advance is likely. The odds for USD to close above 145.00 are not high but they would remain intact as long as 142.80 (‘strong support’ level) is not breached.”

Analysts at TD Securities look to the broad trade-weighted GBP for guidance for key levels. In their view, GBP/USD is stretched around 1.0450ish.

A twin deficit meets a crisis of confidence

“With the Bank of England already behind the curve, an emergency meeting or larger hikes won't do much besides a knee-jerk GBP bounce.”

“The UK already ran one of the G10's highest current account deficits before the terms of trade shock, leaving GBP doubly exposed to capital flight and too little (real) yield pickup.”

“Given lows seen in the trade-weighted broad GBP index over the past ten years, GBP/USD could stabilize around 1.0450 in the months ahead, though the nature of the fiscal surprise suggests a risk of a further 15% decline in the currency before accounting for a confidence crisis.”

EUR/USD touched a new low for the year near 0.9550. Economists at ING expect the 0.97 level to cap any rally.

One-way traffic until Fed changes course

“Events in Ukraine have only managed to cement the Fed's inflationary concern while hitting Europe's growth prospects. In short, do not expect a turn in EUR/USD until the Fed's work is done – and that doesn't look like it's happening until 1Q23 at the earliest.”

“Expect intraday EUR/USD rallies to stall in the 0.9700 region again and we doubt much hawkish ECB speak makes much difference here.”

• EUR/JPY has sensed selling pressure around 139.50 as the German energy crisis deepens.

• Two leaks have been detected in the Nord Stream 1 pipeline.

• The impact of BOJ’s unscheduled bond-buying program has started fading away.

The EUR/JPY pair has faced firmer barricades around 139.50 in the European session. A modest advancement towards the intraday high at around 139.50 has terminated now and the yen bulls are taking over the driving seat. The cross may phase out its entire losses and will test Monday's low at 137.36.

The shared currency bulls have picked significant offers as Denmark's Energy Minister has confirmed two Leaks on Nord Stream 1 pipeline. This is going to mark more dents on the energy inventories in an already vulnerable German energy market. The German energy market is going through weak energy stockpiles after Russia cut off energy supplies from Nord Stream 1 pipeline under the Baltic Sea. Apart from that, the upcoming demand from the winter season is making the energy crisis much worse.

In today’s session, investors will focus on the speech from European Central Bank (ECB) President Christine Lagarde. ECB policymaker is expected to dictate the likely monetary policy action to combat the galloping inflation.

Meanwhile, comments from ECB’s Chief Economist Philip Lane have also dampened the sentiment of Eurozone investors. ECB’s Lane has warned of a decline in corporate profits and a drop in wages in the fight against galloping inflation. However, the inflation rate will start decreasing significantly in 2023, with further decreases in 2024.

On the Tokyo front, the Bank of Japan (BOJ) announced an unscheduled bond-buying program. The central bank is offering to buy JPY 250 billion worth of Japanese Government Bonds (JGBs). The announcement weakened the yen bulls in the Asian session, however, the impact is getting faded now.

• USD/TRY remains on the front foot at all-time high during three-day uptrend.
• CBRT documents hints at further rate cuts, DXY retreats from 20-year high.
• Fed’s Powell, US data can entertain intraday traders, bulls are likely to keep reins.

USD/TRY shrugs off the US dollar pullback to stay on the front foot and refresh the all-time high near 18.48 heading into Tuesday’s European session. In doing so, the Turkish lira (TRY) seems to cheer hints of more rate cuts from the Central Bank of the Republic of Türkiye (CBRT).

Reuters quotes an official document from the CBRT, published Monday, to mention that Turkey's central bank lowered its reference interest rate by nearly 140 basis points to 13.96% for October in a move aimed at further cutting rates on corporate loans. The news also mentioned, “Last month, the central bank unveiled new required bond holdings for lenders meant to address the widening gap between the bank's policy rate and lending rates.”

Ankara is already going through a lot these days due to the CBRT’s resistance to rate hikes and nearly 80% inflation, not to forget broad geopolitical tension. That said, the latest moves from the central banks add weakness to the TRY.

On the other hand, the US Dollar Index (DXY) retreats from the 20-year high, down 0.45% intraday near 113.60 by the press time, as softer yields join downbeat US data and inflation expectations.

US Treasury yields retreat from the multi-year high while the S&P 500 Futures also print mild gains by the press time. That said, US 10-year Treasury yields rose to the highest levels in 12 years while the 2-year bond coupons refreshed the 15-year top as traders rushed to the risk safety.

Further, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29.

Elsewhere, the US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low on Monday. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

Given the fundamental weakness in Turkey, vis-à-vis the US, the USD/TRY pair can continue to remain firmer. However, US CB Consumer Confidence for September and Durable Goods Orders for August will join today’s speech from Fed Chair Jerome Powell to direct short-term moves.

Technical analysis

A two-month-old ascending resistance line challenges USD/TRY bulls around 18.50 amid the overbought RSI conditions. The anticipated pullback moves, however, remain elusive unless breaking an upward sloping trend line support near 18.28.

• USD/CAD retreats further from over a two-year high and snaps a five-day winning streak.
• Recovery in oil prices underpins the loonie and exerts pressure amid a modest USD slide.
• Recession fears, aggressive Fed rate hike bets to act as a tailwind for the buck and the pair.

The USD/CAD pair comes under heavy selling pressure on Tuesday and moves further away from levels just above the 1.3800 mark - the highest since June 2020 touched the previous day. The pair, for now, seems to have snapped a five-day winning streak and fell below mid-1.2600s during the early European session.

Crude oil prices stage a modest recovery from a multi-month low amid hurricane-led supply disruptions and underpin the commodity-linked loonie. The US dollar, on the other hand, pauses its recent blowout rally to a two-decade high and turns out to be another factor exerting some downward pressure on the USD/CAd pair.

The risk-on impulse, as depicted by a generally positive tone around the equity markets, prompts some profit-taking around the safe-haven greenback. Apart from this, retreating US Treasury bond yields further seem to weigh on the buck, though a more hawkish stance adopted by the Federal Reserve should help limit losses.

In fact, the US central bank signalled last week that it will likely undertake more aggressive rate hikes at its upcoming meetings to tame inflation. Adding to this, a duo of FOMC members reiterated on Monday that the priority remains controlling domestic inflation. This should act as a tailwind for the US bond yields.

Furthermore, worries that a deeper economic downturn will dent fuel demand should keep a lid on any meaningful upside for oil prices. Apart from this, the risk of a further escalation in the Russia-Ukraine conflict supports prospects for the emergence of some dip-buying around the safe-haven buck and the USD/CAD pair.

Market participants now look forward to Fed Chair Jerome Powell's speech at an event in Paris, which might influence the USD. Traders will further take cues from the US economic docket - featuring Durable Goods Orders, the Conference Board’s Consumer Confidence Index, New Home Sales and Richmond Manufacturing Index.

This, along with the US bond yields and the broader risk sentiment, will drive the USD demand. Apart from this, oil price dynamics might further contribute to producing short-term trading opportunities. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside.

Technical levels to watch

The Japanese yen tumbled to a low of 145.90 against the US dollar. In response, the Ministry of Finance intervened. However, economists at ANZ Bank the yen is set to suffer further weakness, leading the USD/JPY pair towards 150.

The likelihood of further intervention is low

“The MoF intervened for the first time in two decades. In our view, the move may help to stabilise JPY in the short term, but will not prevent further yen weakness.”

“The recent MoF intervention seems to be triggered by the pace of yen weakening rather than policymakers targetting specific levels in the currency. Therefore, as long as the yen weakens gradually, and in an orderly fashion, the likelihood of further intervention is low in our view.”

“We expect USD/JPY weakness to peak at 150 as the differential between USD and JPY yields continue to widen while the US Fed continues its aggressive hiking path and BoJ stands pat.”

Russia's Medvedev: We have the right to use nuclear weapons if necessary

More to come

Economists at Danske Bank continue to expect EUR/CHF to move downward in the coming months. The pair is forecast at 0.93 on a 12-month view.

Swiss National Bank to hike by 75 bps in December

“We expect the SNB to hike by 75 bps in December to curtail underlying inflation pressures bringing the policy rate to 1.25%.”

“With the SNB broadly following the ECB, we see relative rates as an inferior driver for the cross.”

“We continue to forecast the cross to move lower on the back of fundamentals and a tighter global investment environment.”

“We continue to forecast EUR/CHF at 0.93 in 12M.”

GBP/USD has suffered a substantial drop. Economists at ANZ Bank expect the British pound to remain under downside pressure for the time being.

EUR/GBP to remain within historical ranges

“We expect the GBP to remain under pressure as it trades close to a 40-year low amid USD strength in the near-term.” 

“EUR/GBP will continue to remain within historical ranges, primarily led by volatility in the EUR.”

“Over the medium-term, the end of the two-year fiscal plan on energy prices, coupled with a USD reversal, may lead to some recovery in the GBP.”

The upward pressure on USD/CAD has resumed over the last month. Economists at Danske Bank continue to pencil in more topside.

Forecast: 1.34 (1M), 1.35 (3M), 1.36 (6M), 1.36 (12M)

“Looking ahead, we continue to pencil in more topside driven by both broad-based USD strength, shaky global asset markets, tighter global financial conditions and a Bank of Canada delivering less tightening than the Fed.”

“A much improved global growth outlook and/or more dovish central banks mark the biggest downside risk factor to our forecast. On the other hand, a sharp global recession could send USD/CAD considerably higher than in our base case.”

“We now have USD/CAD at 1.34 in 1M (from 1.30), 1.35 in 3M (from 1.33), 1.36 in 6M (1.34) and 1.36 in 12M (1.34).”

EUR/USD has glimpsed below the 0.96 mark. Economists at ANZ Bank expect the pair to bottom out in the first half of 2023 at 0.95.

Downside pressure to continue

“Sentiment remains weak amid gas price volatility as Europe prepares itself for winter with limited gas supplies. This is set to dampen the euro area’s (already weak) economic prospects, given the lack of a long-term solution to the current energy crisis.”

“We view any recovery in the euro area to be challenging and uncertain into Q2 2023, once the winter season is past.”

We have updated our forecasts for the EUR to bottom at 0.95 in Q2 2023.”

USD/JPY has continued its move higher as the global pressure for higher yields and the global energy crunch has weighed on the yen. But economists at Danske Bank expect the pair to turn back lower over the coming months.

JPY headwinds remain in place

“The key driver of USD/JPY remains the outlook for the global economy and US treasury yields.”

“With the US labour market still in shape, we are not convinced global inflation pressures are yet turning and thus, in the short run, JPY headwinds will probably remain in place. Looking further ahead, we do expect the pressure on JPY will wear off.”

“We forecast the cross at 142 (1M), 142 (3M), 142 (6M), 130 (12M).”

• Gold price rebounds from two-year low as risk-aversion ebbs amid sluggish markets.
• Softer yields, US inflation expectations underpin XAU/USD’s corrective bounce.
• Sustained trading beyond $1,645 appears necessary for bulls to keep reins.

Gold price (XAU/USD) extends bounce off a 29-month low as buyers cheer the US dollar pullback near $1,635 during early Tuesday. That said, the US Dollar Index (DXY) retreats from the 20-year high, down 0.40% intraday near 113.68 by the press time, as softer yields join downbeat US data and inflation expectations. Also adding strength to the XAU/USD rebound could be the market’s hope of central bank intervention, considering the latest moves from the Bank of Japan (BOJ) and the People’s Bank of China (PBOC). Additionally, Germany’s capacity to channel more fuel for winter and the Fed policymakers’ fears of defending the US dollar amid the meddling from the other central banks also propel the gold prices, via the US dollar’s weakness.

That said, the speech from US Fed Chairman Jerome Powell and the US data comprising CB Consumer Confidence for September and Durable Goods Orders for August will be important for immediate direction. Also, headlines from the UK and concerning recession could offer additional hints to the XAU/USD traders.

Also read: Gold Price Forecast: XAU/USD seems poised to break below $1,600 amid Fed rate hike jitters

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price approaches the $1,646 resistance confluence comprising the middle band of the hourly Bollinger and the pivot point one month S2.

That said, a convergence of the previous week’s low and Fibonacci 61.8% on one day restricts immediate upside near the $1,640 mark.

It should also be noted that Fibonacci 23.6% on one week, around $1,652, acts as the last defense for the XAU/USD bears.

On the contrary, the middle band of the hourly Bollinger, Fibonacci 38.2% one-day and SMA5 4H high $1,631 as the immediate support.

Following that, the previous low on the 4H joins the Fibonacci 23.6% one-day to highlight the $1,627 as the key support.

Overall, gold is likely to remain weak unless staying successfully beyond $1,645.

Here is how it looks on the tool

About Technical Confluences Detector

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

GBP/USD is down 21% on a year-to-date basis. In the opinion of economists at ANZ Bank, policy credibility is key to GBP stability.

UK policy setters need to get ahead of market anxiety

“The volatility serves as a salutary reminder of the need to deliver credible policy, particularly in the current climate of high inflation and asset price weakness.”

“We expect policy rates to rise materially further (4.0%) but think the market’s view of 6.0% rates is too high. Sterling may therefore take some time to settle, while the government needs to boost fiscal credibility.” 

“An inter-meeting Bank of England (BoE) rate hike could be seen as a panic measure and make volatility worse. Defending a given exchange rate level is not feasible beyond the very short-term.”

• NZD/USD has scaled above 0.5700 as a rebound move has turned into a reversal.

• Kiwi bulls have crossed above the 10-and-20-EMA vigorously.

• The RSI (14) has delivered a range shift in a 40.00-60.00 territory.

The NZD/USD pair has extended its gains after overstepping the immediate hurdle of 0.5692 in the early European session. The asset has refreshed its intraday high above 0.5700 and is expected to advance further as the upside momentum seems upbeat amid weakness in the US dollar index (DXY).

On an hourly scale, the kiwi bulls have attempted to enter into the prior balanced area in a 0.5700-0.5760 range. The balance area indicates a region where most of the auction activity took place. This is also recognized as a mark-down inventory distribution phase, which facilitated market participants to initiate shorts after the establishment of a bearish bias.

The asset has crossed the 10-and 20-period Exponential Moving Averages (EMAs) at 0.5677 and 0.5682 respectively. It is worth noting that the 10-EMA is still below the 20-EMA, which indicates that the upside momentum is extremely strong.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bearish territory of 20.00-40.00. This indicates that the kiwi bulls are not bearish for the time being.

A decisive break above the aforementioned balance area will send the asset towards the round-level resistance at 0.5800, followed by Friday’s high at 0.5888.

On the contrary, the kiwi bulls could lose their control if the asset drops below Monday’s low at 0.5625. An occurrence of the same will drag the asset towards the 23 March 2020 low and the psychological support at 0.5586 and 0.5500 respectively.

NZD/USD hourly chart

The US dollar continues to move higher. Economists at Commerzbank believe that a strong greenback is fundamentally justified.

Strong, stronger, too strong?

“The outlook for the US dollar remains positive. Yes, the significant rate hikes are beginning to have an effect, as today’s housing market data in particular is likely to underline. But order intake and consumer confidence are also likely to illustrate that the real economic environment remains relatively robust.”

“Further rate hikes will be required to get a grip on inflation. The Fed’s determination is the most important factor supporting the dollar.”

“It cannot be overlooked that the dollar is trading at record levels on a trade-weighted basis. However, current exchange rate levels are fundamentally justified.”

Gold gains positive traction on Tuesday and snaps a two-day losing streak to over a two-year low. The upside potential, however, seems limited, FXStreet’s Haresh Menghani report.

XAU/USD seems poised to break below $1,600

“The fundamental backdrop suggests that the path of least resistance for the metal is to the downside. The attempted recovery move runs the risk of fizzling out rather quickly.”

“Any subsequent move up is more likely to confront resistance near a one-week-old trading range support breakpoint, around the $1,654-$1,656 region. Sustained strength might trigger a short-covering move towards the $1,675-$1,676 supply zone. Some follow-through buying will negate any near-term negative bias and pave the way for additional gains, allowing bulls to aim back to reclaim the $1,700 round-figure mark.”

“The YTD low, around the $1,620 area, now seems to protect the immediate downside ahead of the $1,620-$1,590 region. A break below here will be seen as a fresh trigger for bearish traders and drag gold towards the $1,567-$1,565 support zone. The downward trajectory could extend towards the $1,530-$1,528 region, below which the XAU/USD might turn vulnerable to challenge the $1,500 psychological mark.”

• EUR/USD grinds higher inside a three-day-old symmetrical triangle, keeps bounce off 20-year low.
• RSI, MACD hints at further recovery but one-week-old resistance line adds to the upside filters.
• Sellers could quickly jump back on the table if witnessing a clear break of 0.9600.

EUR/USD renews intraday high around 0.9650, snapping a five-day downtrend, as buyers keep reins inside a short-term triangle heading into Tuesday’s European session. That said, the major currency pair takes rounds to 0.9660 by the press time.

Given the MACD and RSI conditions favor the quote’s rebound from the two-decade low, EUR/USD buyers are likely to overcome the immediate hurdle surrounding 0.9660, including the stated triangle’s upper line.

However, a downward sloping resistance line from September 20, close to 0.9710 at the latest, holds the key to the pair’s further advances.

In a case where the EUR/USD buyers keep reins past 0.9710, the odds of witnessing a run-up towards the 50% Fibonacci retracement level of September 20-25 downside, around 0.9810 can’t be ruled out.

Alternatively, pullback moves need validation from the 0.9600 round figure, also including the stated triangle’s bottom.

Following that, a south-run towards refreshing the multi-year low is more likely. In that case, the latest trough near 0.9550 may act as the next rest for the EUR/USD bears before a six-month-old descending support line, around 0.9470 by the press time.

EUR/USD: Hourly chart

Trend: Limited upside expected

CME Group’s flash data for natural gas futures markets noted open interest increased for the second session in a row on Monday, this time by around 1.3K contracts. Volume, instead, shrank for the second consecutive session, now by around 132.7K contracts, the largest single-day drop since August 12.

Natural Gas now looks supported around $6.50

Monday’s drop and rebound from the $6.50 region was on the back of rising open interest, which reinforces the continuation of the bullish move in prices of natural gas in the very near term. In the meantime, decent contention seems to have now emerged around $6.50.

• Asian stocks have rebounded as the DXY has turned subdued ahead of US Durable Goods data.

• World Bank has cut growth projections for China amid Covid-19 issues and a real estate crunch.

• The BOJ has announced an unscheduled bond-buying program.

Markets in the Asian domain have rebounded as the US dollar index (DXY) has weakened after failing to sustain above the critical hurdle of 115.00. The DXY is witnessing pressure amid lower consensus for the US Durable Goods Orders data. As per the preliminary estimates, the apparels durables data will tumble by 1.1%.

At the press time, Japan’s Nikkei225 gained 0.50%, ChinaA50 added 0.27% while Hang Seng dropped more than 1%.

Chinese equities are getting support despite a decline in the growth projections by the World Bank. The giant lender believes that China’s longer zero-tolerance approach towards Covid-19 and the real estate crisis have trimmed its growth rate. Demand for steel, base metals, cement, and other building materials has declined firmly. Also, the eastern developing economies will perform better as much business will shift to them.

In today’s session, the US Durable Goods Orders data will be of utmost importance. The economic data will remain subdued as higher interest rates by the Federal Reserve (Fed) and soaring core Consumer Price Index (CPI) numbers have forced individuals to postpone their current purchasing plans.

Meanwhile, the Bank of Japan (BOJ) has announced an unscheduled bond-buying program. The central bank is offering to buy JPY 250 billion worth of Japanese Government Bonds (JGBs).

On the oil front, oil prices have displayed a less-confident rebound after dropping to nearly $75.00. The pullback move seems a result of a subdued performance by the DXY. The oil prices will continue to remain on the tenterhooks as fears of the global recession are skyrocketing.

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang suggest NZD/USD could attempt some consolidation in the very near term.

Key Quotes

24-hour view: “We expected NZD to weaken further yesterday but we were of the view that ‘the next support at 0.5640 is unlikely to come into view for now’. Our view for NZD to weaken was not wrong even though NZD took out 0.5640 and dropped to 0.5627 before rebounding. The rebound amidst oversold conditions and slowing momentum suggests NZD is unlikely to weaken further. For today, NZD is more likely to trade between 0.5645 and 0.5730.”

Next 1-3 weeks: “We turned negative in NZD about 2 weeks ago. As NZD dropped in line with our expectations, in our latest narrative from yesterday (26 Sep, spot at 0.5730), we indicated that NZD is expected to continue to weaken, possibly to 0.5640. Our view was not wrong even though we did not expect NZD to breach 0.5640 so quickly (low of 0.5627 in NY). Further weakness is not ruled out but oversold short-term conditions could lead to a couple of days of consolidation first. As long as 0.5800 (‘strong resistance’ level was at 0.5815 yesterday) is not breached, NZD is likely to weaken further. That said, the chance of a clear break of 0.5600 is not high for now.”

“Our interest rate hikes will slow demand in the economy,” said European Central Bank (ECB) Chief Economist Philip Lane.

More to come

Considering preliminary readings from CME Group for crude oil futures markets, traders trimmed their open interest positions by nearly 3K contracts following four daily builds in a row at the beginning of the week. In the same line, volume dropped the most since September 15, this time by more than 186K contracts.

WTI: Next on the upside comes $80.00

Prices of the WTI retreated to the vicinity of the $76.00 mark on Monday against the backdrop of shrinking open interest and volume. That said, further decline seems unlikely for the time being and the door now looks open to a probable rebound with the immediate hurdle at the $80.00 mark per barrel.

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, GBP/USD risks a probable drop to the parity zone.

Key Quotes

24-hour view: “While we expected GBP to weaken further yesterday, we were of the view that ‘1.0300 is likely out of reach for now’. However, GBP did not weaken further as it rebounded strongly to a high of 1.0934 before dropping back down to close at 1.0690 (-1.50%). The strong downward pressure has eased a tad and GBP is unlikely to revisit yesterday’s low of 1.0327. For today, GBP could continue to trade in a choppy manner and likely within a wide range of 1.0600/1.0900.”

Next 1-3 weeks: “Our view from yesterday (26 Sep, spot at 1.0600) still stands. As indicated, in view of the impulsive downward acceleration, a further decline in GBP to 1.0000 is not ruled out. That said, deeply oversold short-term conditions suggest GBP could trade above yesterday’s low of 1.0327 for a few days first. On the upside, a break of 1.1000 (no change in ‘strong resistance’ level from yesterday) would indicate that the weakness in GBP from about 2 weeks ago has stabilized.”

• WTI rebounds from eight-month low as markets pare recent losses.
• Fears of slowdown in demand, higher supply joined firmer US dollar to favor bears earlier.
• Comments from Iraq, pullback in DXY join cautious optimism to underpin corrective bounce.
• Recovery remains elusive as central banks stay hawkish, economic slowdown looms.

WTI crude oil portrays a corrective bounce amid Tuesday’s quiet Asian session, around $77.10 by the press time of the pre-European session.

In addition to the lack of data/events during early Tuesday, the US dollar’s pullback and hopes of avoiding the recession seem to have favored the energy benchmark’s recovery from the lowest levels since January 2020.

That said, the US Dollar Index (DXY) retreats from the 20-year high, down 0.40% intraday near 113.68 by the press time, as softer yields join downbeat US data and inflation expectations.

That said, US Treasury yields retreat from the multi-year high while the S&P 500 Futures also print mild gains by the press time. That said, US 10-year Treasury yields rose to the highest levels in 12 years while the 2-year bond coupons refreshed the 15-year top as traders rushed to the risk safety. Further, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Further, the US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low on Monday. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

Elsewhere, Iraq Oil Minister Ihsan Abdul Jabbar on Monday said the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, are monitoring the oil price situation, wanting to have a balance in the markets, per Reuters.

Moving on, weekly prints of the American Petroleum Institute’s (API) Crude Oil Stock data, previous 1.035M, will join the US CB Consumer Confidence for September and Durable Goods Orders for August to determine short-term WTI moves.

Overall, oil prices are likely to remain amid economic fears and a firmer US dollar.

Technical analysis

WTI bulls need to cross the previous support line from May 11, around $77.60 at the latest, to keep buyers hopeful.

Open interest in gold futures markets resumed the downside and shrank by just 834 contracts on Monday, according to advanced prints from CME Group. Volume followed suit and dropped by around 28.4K contracts after four consecutive daily builds.

Gold appears supported around $1,620

Gold prices started the week on the defensive amidst shrinking open interest and volume, hinting at the likeliness that further losses look not favoured and therefore a potential rebound could be in the offing. In the meantime, decent contention has so far emerged around the $1,620 level per ounce troy.

• An ongoing inventory adjustment process has activated investors for a decisive move.

• Overlapping 10-and-20-EMAs are still favoring a consolidation ahead.

• The RSI (14) has witnessed some signs of exhaustion in the upside bias.

The USD/JPY pair has slipped to near 144.27 in the Tokyo session after failing to sustain above the critical resistance of 144.50. The asset is continuously facing barricades above 144.50 despite multiple attempts. On a broader note, the asset is advancing sharply higher after hitting a low of 140.35.

Considering the four-hour scale, the major is auctioning in an inventory adjustment process. It is critical to state that the adjustment process is an accumulation or distribution. Odds favor an inventory distribution as the asset is displaying signs of momentum loss.

The asset price is overlapping with the 20-and 50-period Exponential Moving Averages (EMAs), which indicates a consolidation ahead.

Scrutiny of the condition of the Relative Strength Index (RSI) (14) displays that the oscillator is struggling to shift into the bullish range of 60.00-80.00. This has come after the momentum oscillators displayed a range shift sign vertically to a bearish range of 20.00-40.00 from the bullish range.

For a decisive bearish reversal, the asset is required to drop below Thursday’s low at 140.35. An occurrence of the same will drag the asset towards the August 30 low at 138.05 followed by the August 23 low at 135.81.

Alternatively, the greenback bulls could drive the asset higher after overstepping Thursday’s high at 145.90, which will drive the asset towards the August 1998 high at 147.67. A breach of the latter will send the major towards the psychological resistance of 150.00.

USD/JPY four-hour chart

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, EUR/USD still risks a deeper pullback in the near term.

Key Quotes

24-hour view: “After EUR plunged below 0.9600 and snapped back up, we highlighted yesterday that while ‘the weakness in EUR has not stabilized, 0.9500 is unlikely to come under threat for now’. EUR subsequently rose to 0.9709 before dropping back down to close at 0.9606 (0.87%). Downward pressure has eased slightly and this combined with oversold conditions suggests EUR is likely to consolidate for today, expected to be between 0.9560 and 0.9700.”

Next 1-3weeks: “There is no change in our view from yesterday (26 Sep, spot at 0.9630). As highlighted, the impulsive and outsized drop from last Friday suggests EUR could continue to weaken, possibly to 0.9500. Overall, the weakness in EUR from about 2 weeks ago is intact as long as EUR does not breach 0.9770 (‘strong resistance’ level was at 0.9810 yesterday).”

• Silver price jumps back beyond 61.8% Fibonacci retracement, off from two-week low.
• RSI, MACD suggests further upside towards weekly resistance line.
• Convergence of 200-SMA, previous support line from early September challenge bulls.
• Sellers should break $18.30 before retaking the control.

Silver price (XAG/USD) extends recovery from a fortnight low to $18.55 during early Tuesday morning in Europe.

In doing so, the bright metal regains its place beyond the 61.8% Fibonacci retracement level of September 01-12 upside, after a brief fall the previous day.

Given the receding bearish bias of the MACD and the recently improving RSI (14) from the oversold territory, the XAG/USD prices are likely to approach a downward sloping resistance line from Friday, close to $18.70 at the latest.

However, a confluence of the 200-SMA and the support-turned-resistance line from September 01, close to $19.10, appears a tough nut to crack for the metal sellers.

If at all the silver price rallies beyond $19.10, the upside momentum won’t hesitate to challenge the monthly peak near $20.00.

Alternatively, the 61.8% Fibonacci retracement level of $18.50 acts as immediate support for the metal traders to watch for fresh impulse.

Also acting as the downside filter is the broad horizontal support around $18.30-35, established on August 30.

Silver: Four-hour chart

Trend: Limited recovery expected

Goldman Sachs Group Inc. downgraded equities to underweight in its global allocation over the next three months while remaining overweight cash, saying rising real yields and the prospect of a recession suggest the rout has further to run, per Bloomberg.

Key quotes

Also read: Forex Today: Panic took over financial markets

• GBP/USD picks up bids to refresh intraday high, extends bounce off all-time low.
• US dollar pares recent gains amid sluggish session, softer data, inflation expectations add strength to the DXY pullback.
• BOE resists taming GBP strength, UK policymakers refrain from reversing any measures announced recently.
• US data, Fedspeak will be crucial for directions, bears are likely to keep reins amid pessimism surrounding UK.

GBP/USD reverses the previous day’s heavy losses as it bounces off the all-time low to 1.0780 during early Tuesday morning in Europe. In doing so, the Cable pair renews intraday high while also snapping the five-day downtrend.

The quote’s latest gains could be linked to the hopes from the UK Chancellor (Finance Minister) Kwasi Kwarteng that he will be able to restore investor confidence via his medium-term budget, after sending sent sterling and government bonds into freefall the previous day. Also, expectations that the Bank of England (BOE) won’t need to intervene to defend the British Pound (GBP) add strength to the GBP/USD rebound. “The threshold for the Bank of England intervening in the foreign-exchange market to stabilize the pound is high,” said the HSBC Bank.

British finance minister Kwasi Kwarteng will set out a "Medium-Term Fiscal Plan" on Nov. 23, alongside growth and borrowing forecasts from the Office for Budget Responsibility, Britain's finance ministry said on Monday. The news also quotes the British Finance Ministry as saying, "The Fiscal Plan will set out further details on the government's fiscal rules, including ensuring that debt falls as a share of GDP in the medium-term."

On the other hand, the US Dollar Index (DXY) retreats from the 20-year high, down 0.40% intraday near 113.68 by the press time, as softer yields join downbeat US data and inflation expectations.

That said, US Treasury yields retreat from the multi-year high while the S&P 500 Futures also print mild gains by the press time. That said, US 10-year Treasury yields rose to the highest levels in 12 years while the 2-year bond coupons refreshed the 15-year top as traders rushed to the risk safety. Further, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Further, the US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low on Monday. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

It should be noted that the scathing response to the UK Chancellor Kwarteng’s mini-budget triggered fears of more pain for the British economy and dragged the cable to an all-time low, backed by the hawkish Fedspeak. Adding to the downside fears was the BOE’s inaction afterward.

To sum up, GBP/USD is likely to extend the latest corrective bounce but the upside potential is limited ahead of the US CB Consumer Confidence for September and Durable Goods Orders for August. Also important to watch are headlines from Britain.

Also read: US Consumer Confidence Preview: Near-term relief or more risk aversion?

Technical analysis

GBP/USD rebound needs validation from the 1.1000 psychological mark to aim for the previous support line from May, around 1.1270-80 by the press time. Otherwise, a pullback towards the year 1985 bottom close to 1.0520 and then to the recent low near 1.0340 can’t be ruled out.

• AUD/USD has faced hurdles around 0.6500 amid Harris-Albanese chatters.

• World Bank has cut growth forecasts for China and has hiked same for eastern developing nations.

• A lower-than-expected US Durable Goods data will bring more correction in the DXY.

The AUD/USD pair is witnessing a mild correction after hitting a high of 0.6495 in the early Tokyo session. Earlier, the asset rebounded firmly after dropping to near 0.6437 as the risk-off profile was heightened. As investors have started shrugging off the negative market sentiment, commodity-linked currencies have displayed a pullback move. Also, lower consensus for the US Durable Goods Orders data has weakened the US dollar index (DXY).

Meanwhile, a mix of news wires on China’s growth projections, and communication between Australian Prime Minister Anthony Albanese and US Vice President Kamala Harris has sidelined the aussie investors.

World Bank has cut growth projections for China considering its longer zero-tolerance approach towards Covid-19 and real estate crisis as reported by Wall Street Journal. Covid-19 restrictions suspended the movement of men, materials, and machines, which resulted in lower production outputs. While, the real estate crunch trimmed demand for base metals, steel, and other building materials dramatically. WSJ further added that developing economies in East Asia would grow faster than China this year for the first time since 1990.

Australian Albanese has congratulated US Harris on the passage of the Inflation Reduction Act. This came after US Harris announced that the economy will work on peace and security in the Indo-Pacific region with Australia.

In today’s session, the US consumer durables data will hog the limelight. The economic data is expected to decline by 1.1% as individuals are postponing their demand for durable goods amid sky-rocketing core price rise index and soaring interest rates. A lower-than-expected reading would shift the DXY into a corrective mode.

• Gold prices need stabilization above $1,630.00 for an upside towards $1,650.00.

• The DXY is displaying a lackluster performance amid lower consensus for Consumer Durables data.

• Fed Powell will dictate the roadmap of hiking interest rates for the remaining 2022.

Gold price (XAU/USD) has extended its gains to near $1,630.00 after rebounding from $1,621.14 on Monday. The precious metal is eyeing an establishment above $,1630.00 as the US dollar index (DXY) is displaying a vulnerable performance right from the opening tick.

The DXY is facing signs of exhaustion amid lower consensus for the US Durable Goods Orders data. As per the consensus, investors will find a decline in the economic data by 1.1% against a decline of 0.1% recorded in precious reading. Thanks to the soaring core Consumer Price Index (CPI) and accelerating interest rates, which have trimmed the demand for durable goods. As the Federal Reserve (Fed) has pushed interest rates to 3-3.75%, households will face higher interest obligations. Therefore, individuals are preferring to postpone the demand rather than liabiling themselves for higher payouts. Also, a higher inflation rate has trimmed the confidence of consumers broadly.

Apart from that, the speech from Fed chair Jerome Powell will also remain in focus, which is due on Wednesday. Fed Powell will provide the roadmap for hiking interest rates for the remaining 2022.

Gold technical analysis

Gold prices have bounced back sharply from $1,621.14 after a negative divergence formation on an hourly scale. A loss in downside momentum was observed when the precious metal printed a lower low while the momentum oscillator Relative Strength Index (RSI) (14) made a higher low.

The asset has crossed the 20-period Exponential Moving Average (EMA) at $1,629.43 and is oscillating the 50-EMA around $1,632.35. The horizontal resistance is placed from Monday’s high at $1,649.83.

Gold hourly chart

• EUR/USD prints the first daily gains in six around 20-year low.
• Markets consolidate recent moves amid light calendar, mixed headlines.
• Hawkish central bankers, energy crisis keeps bears hopeful despite immediate rebound.
• US CB Consumer Confidence, Durable Goods Orders, ECB’s De Guindos should also be eyed for fresh impulse.

EUR/USD picks up bids to add strength to the early Asian session rebound near 0.9650. Even so, the major currency pair remains sidelined as traders await the key catalysts while paring the latest losses at the two-decade low on Tuesday.

The major currency pair’s latest gains could be linked to the softer US data and downbeat inflation expectations, as well as the light calendar during the early day. Also keeping the pair buyers hopeful are the latest hawkish comments from the European Central Bank (ECB) officials and hopes of easing the energy crisis as the bloc plan to delay enforcing a price cap on Russian oil imports, per Bloomberg.

ECB President Christine Lagarde said on Monday, per Reuters, that the depreciation of the euro has also added to the build-up of inflationary pressures. “We expect to raise interest rates further over the next several meetings,” added ECB’s Lagarde. The policymaker also mentioned that they will decide whether further policy action is needed once they reach the neutral rate

Before that, ECB Governing Council member Yannis Stournaras said, “In my opinion, the ECB must maintain the basic principles of gradualism and flexibility as the problem it faces is different than that faced by the Fed in the US.” On the same line, ECB Vice President Luis de Guindos said that future rate hikes will depend on incoming macroeconomic data.

It should be noted, however, that Germany’s Economist from the IFO conveyed economic fears after witnessing downbeat prints for September and noted that retail business expectations are at historic lows. “A big minus on all fronts, almost all sectors of the economy are in the minus, the German economy is facing a recession,” stated the IFO Economist.

On the other hand, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Even so, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.

That said, the US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low on Monday. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

Against this backdrop, the yields pause the rally and the S&P 500 Futures also print mild gains around the monthly low.

Moving on, a speech from ECB President Lagarde and Vice President Luis De Guindos will join the US CB Consumer Confidence for September and Durable Goods Orders for August to direct short-term EUR/USD moves. However, the economic fears surrounding the old continent and the Fed versus the ECB divergence may keep the bears hopeful.

Also read: US Consumer Confidence Preview: Near-term relief or more risk aversion?

Technical analysis

EUR/USD stays bearish inside a six-month-old downward sloping trend channel, currently between 0.94875 and 1.0000.

During Tuesday’s Asian session, Reuters came out with the news quoting anonymous source saying, “Some of China's fund managers, brokers called by regulators to help stabilize stock market ahead of the 20^th party congress.”

The two sources also mentioned that regulators ask financial institutions to avoid trading activities that may cause big fluctuations in the securities market.

The instructions were give through the so-called "window guidance", with no written documents, one of the sources said per Reuters.

Market reaction

The news fails to witness any major reaction from the markets as the consolidation move continues. USD/CNH, however, hesitates in extending the pullback from two-year high.

Also read: USD/CNH struggles to cheer softer DXY above 7.0000 on pessimism surrounding China

Japanese Chief Cabinet Secretary Hirokazu Matsuno said on Tuesday, “Lodged severe protest to Russian ambassador to Japan,” while also adding that he told Japan needs to take "equivalent steps" after Russia's detention of Japanese consulate.

Key quotes

On a different page, Japanese Finance Minister Shunichi Suzuki mentioned that they will continue to monitor the forex market.

Also read: BoJ announces unscheduled bond buying operation

• USD/CNH bulls take a breather around 16-month high after six-day uptrend.
• DXY retreats amid sluggish session, light calendar in Asia.
• World Bank’s downbeat economic forecasts for China precede downbeat data from Beijing to favor CNH bears.
• US data, risk catalysts can entertain traders, bulls are likely to keep the reins.

USD/CNH pares the first daily loss in seven around 7.6150 as it fails to cheer a pullback in the US dollar amid downbeat catalysts surrounding China. In doing so, the offshore Chinese currency (CNH) pair also portrays the market’s anxiety ahead of the key US data.

“Economic growth in East Asia and the Pacific will weaken sharply in 2022 due to China's slowdown, but the pace of expansion will pick up next year, the World Bank said on Tuesday,” per Reuters. The news Also mentioned that the Washington-based lender said in a report it expected 2022 growth in the East Asia and Pacific region, which includes China, to slow to 3.2%, down from its 5.0% forecast in April, and the previous year's growth of 7.2%. The weaker forecast was due mainly to a sharp slowdown in China, caused by its strict zero-COVID rules that have disrupted industrial production, domestic sales and exports, the World Bank said.

On the same line, China’s Industrial Profits YTD dropped to -2.1% in August versus -1.1% prior. Also, China's central bank stepped up cash injection towards the quarter-end by making the biggest daily offering in seven months on Tuesday, per Reuters, which in turn favor USD/CNH buyers.

That said, US Dollar Index (DXY) retreats from the fresh 20-year high marked the previous day as traders recalibrate emanating from the GBP/USD’s slump to the all-time low. Also weighing on the US dollar are the upbeat Treasury yields.

That said, US Treasury yields retreat from the multi-year high while the S&P 500 Futures also print mild gains by the press time. That said, US 10-year Treasury yields rose to the highest levels in 12 years while the 2-year bond coupons refreshed the 15-year top as traders rushed to the risk safety. Further, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.

Furthermore, the recent softer US data and inflation expectations should have also weighed on the USD/CNH prices.

Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Further, the US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low on Monday. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

However, the fears of more central bank intervention, even as the People’s Bank of China (PBOC) announced reserve-related moves the previous day, keep the USD/CNH buyers hopeful. That said, the US CB Consumer Confidence for September and Durable Goods Orders for August will be crucial to watch for intraday guidance.

Also read: US Consumer Confidence Preview: Near-term relief or more risk aversion?

Technical analysis

USD/CNH remains on the bull’s radar unless breaking a two-week-old support line, around 7.0900 by the press time.

• GBP/JPY licks its wounds with mild gains around 14-month low.
• BOE refrained from any action but BOJ announced unchanged bond buying to tame JPY weakness.
• US Treasury bond yields retreat after refreshing multi-year high.
• Bears are likely to keep the reins amid fears of more central bank meddling.

GBP/JPY consolidates the previous day’s losses around 155.60 as traders seek more clues amid the mixed performance of the Bank of England (BOE) and the Bank of Japan (BOJ). That said, the cross-currency pair snapped a four-day uptrend during Tuesday’s Asian session after the latest BOJ bond-buying announcement.

Early on Tuesday, the Bank of Japan (BOJ) announced an unscheduled monetary policy operation to defend the Japanese yen and tame the Japanese Government Bond (JGB) yields.

“The operations, which followed a rise in global yields overnight, were consistent with remarks by BOJ Governor Haruhiko Kuroda on Monday that the BOJ will not raise interest rates and will maintain an easy policy to support the economy,” stated the NewsRoom via Reuters. The news also mentioned that the BOJ offered to buy JPY150 billion of JGBs with a remaining life of 5 to 10 years and JPY100 billion of JGBs with a remaining life of 10 to 25 years.

Elsewhere, the BOE refrained from taking any immediate actions and weighed on the GBP, Before the latest rebound in the GBP/JPY. That said, when asked whether the government is planning to change the measures set out in the mini-budget, British Prime Minister Lis Truss' spokesman responded by simply saying "no," as reported by Reuters. The diplomat also mentioned that it is important that BOE independence remains while adding that we don’t comment on interest rates.

On the other hand, the BOE stated that they are monitoring developments in financial markets very closely in light of the significant repricing of the financial assets. The BoE further noted that they welcome the government’s commitment to sustainable economic growth and the role of the Office for Budget Responsibility.

Elsewhere, The UK Times stated that Labour has surged to its largest poll lead over the Conservatives in more than two decades, with voters turning against (UK Chancellor) Kwasi Kwarteng’s tax-cutting budget. A YouGov poll for The Times today puts Labour 17 points clear of the Tories — a level of support not seen since Tony Blair won his landslide victory in 2001.

Amid these plays, US Treasury yields retreat from the multi-year high while the S&P 500 Futures also print mild gains by the press time. That said, US 10-year Treasury yields rose to the highest levels in 12 years while the 2-year bond coupons refreshed the 15-year top as traders rushed to the risk safety. Further, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.

Moving on, a light calendar can allow a bit more consolidation of the GBP/JPY losses. However, the bearish bias is less likely to fade.

Technical analysis

Although the 200-DMA restricts GBP/JPY upside around 160.35-40, a 1.5-year-old horizontal support area near 148.45-55 appears a tough nut to crack for the bears.

• USD/CAD bears could be about to move in from weekly resistance.
• The daily chart's harmonic pattern is bearish.

USD/CAD is reaching into a key resistance area and a correction could be imminent on the longer term charts as the following analysis will illustrate across the weelkly and daily charts.

USD/CAD weekly chart

The price has run into a weekly chart's resistance area and while there is every possibility that the rally will continue, the following will draw the bear's attention:

USD/CAD daily chart

The harmonic pattern is bearish and the price that is meeting resistance would be anticipated to turn lower in a correction that could see a 50% mean reversion play out that has a confluence with the prior resistance of November 2020.

• A hammer candlestick formation indicates that pound bulls are trying to make a comeback.

• Declining 10-and20- EMAs still favors a downside bias.

• An oversold situation by the RSI (14) cannot be ruled out.

The GBP/USD pair has advanced firmly after dropping to near 1.0356 as a responsive buying action kicked in. In the Asian session, the cable delivered an upside break of the consolidation formed in a narrow range of 1.0633-1.0724. The asset is expected to extend its gains above 1.0800 and will march towards 1.0900 ahead.

On a daily scale, the formation of a long Hammer candlestick pattern has triggered the chances of a pullback ahead. The formation of the above-mentioned single candlestick pattern indicates an activation of a ‘value bet’ phenomenon after an asset decline like a house of cards. Also, the downward sloping trendline placed from June 14 low at 1.1934 will act as a major barricade for the counter.

The 10-and-20-period Exponential Moving Averages (EMAs) at 1.1120 and 1.1335 are declining sharply, which adds to the downside filters.

Also, the Relative Strength Index (RSI) is oscillating in a bearish range of 20.00-40.00 for a longer period. Therefore, an oversold situation cannot be ruled out.

A break above Monday’s high at 1.0931 will activate the Hammer formation and will send the cable towards the round-level resistance at 1.1000, followed by 10-EMA at 1.1120.

On the flip side, the cable will lose significance further if drops below Monday’s low at 1.0339, which will drag the asset towards the round-level support at 1.0200. A slippage below the latter will direct the cable towards parity.

GBP/USD daily chart

• USD/CHF takes offers to refresh intraday low, snaps four-day uptrend near three-month high.
• Overbought RSI, short-term resistance line direct sellers towards previous resistance line from July.
• Bulls have a bumpy road to refresh the yearly high.

USD/CHF renews intraday low around 0.9910 as it prints the first daily loss in five during Tuesday’s Asian session.

In doing so, the Swiss currency (CHF) pair reverses from a downward sloping resistance line from May. Also adding strength to the corrective move could be the overbought RSI conditions.

With this, the quote is on the way to the resistance-turned-support line from July, around 0.9850. However, July’s peak of 0.9885 may probe the intraday sellers of the USD/CHF pair.

It should be noted, however, that the 61.8% Fibonacci retracement of the pair’s May-August downturn, near the 0.9800 threshold, could also test the bears before directing them toward the 100-DMA support level near 0.9685.

Alternatively, recovery moves need to cross the aforementioned resistance line, at 0.9950 by the press time, to recall the USD/CHF buyers.

Following that, the 1.0000 psychological magnet and multiple hurdles around 1.0050 can test the bulls before highlighting the yearly peak of 1.0065.

Overall, USD/CHF is likely to witness further downside but the bears are far from taking control.

USD/CHF: Daily chart

Trend: Limited weakness expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.0722 vs. the previous fix of 7.0298 and the previous close of 7.1344.

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 and offers to buy jpy250bln worth of JGB and includes JPY150bln 5-10 year, JPY100bln 10-25 year.

“China’s economic output will lag behind the rest of Asia for the first time since 1990, according to new World Bank forecasts that highlight the damage wrought by Xi Jinping’s zero-Covid policies and the meltdown of the world’s biggest property market,” said the Financial Times (FT).

“The World Bank has revised down its forecast for gross domestic product growth in the planet’s second-largest economy to 2.8 per cent compared with 8.1 per cent last year, and down from its prediction made in April of between 4 and 5%,” per the FT news that rolled out on early Tuesday.

Key quotes

Also read: AUD/USD bears take a breather at two-year low near 0.6450, risk-aversion, US data eyed

• NZD/USD picks up bids to refresh intraday high, snaps two-day downtrend near the multi-month low.
• RBNZ’s Orr signals little bit more to do, NZ FinMin sees gradually easing inflation.
• A pause in the risk-off mood also favor corrective pullback amid a quiet session.
• US data, risk catalysts will be crucial for fresh impulse as buyers are far from taking control.

NZD/USD consolidates recent losses around the lowest level since March 2020, up 0.75% intraday near 0.5680, as it snaps a two-day downside during Tuesday’s Asian session.

The quote’s latest rebound could be linked to the light calendar, as well as comments made by Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr and New Zealand's Finance Minister (FinMin) Grant Robertson.

Earlier in the day, RBNZ’s Orr said that the central bank still had some work to do but the tightening cycle was already very mature. After him, "The global economy is a tough place to be at the moment. There are still issues coming out of Europe, obviously, with the war in Ukraine, issues in China," NZ FinMin Robertson said in an interview on state-owned TVNZ, per Reuters.

Also helping the NZD/USD buyers could be the recently softer US data and inflation expectations that raised questions on the hawkish Fedspeak.

That said, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Further, the US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low on Monday. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

With this, US Treasury yields retreat from the multi-year high while the S&P 500 Futures also print mild gains by the press time.

However, the market’s anxiety remains intact amid fears of multiple central banks’ actions to tame the heavy slump of respective currencies like the GBP/USD.

Also important will be US CB Consumer Confidence for September and Durable Goods Orders for August.

Also read: US Consumer Confidence Preview: Near-term relief or more risk aversion?

Technical analysis

Although oversold RSI triggered the NZD/USD pair’s rebound, the support-turned-resistance line from May 12, around 0.5900 by the press time, holds the key to the buyer’s conviction.

• EUR/GBP is declining towards 0.8900 as the cross has weakened after surrendering 0.9000.

• Eurozone Consumer Confidence is dropping continuously for the past year.

• UK’s GDP is expected to remain steady this week.

The EUR/GBP pair has witnessed a vertical fall after facing barricades around 0.9000 in the early Tokyo session. On a broader note, the cross is declining after failing to sustain above the crucial resistance of 0.9200. The asset is expected to decline further to near 0.8900 ahead of the European Central Bank (ECB) President Christine Lagarde’s speech.

ECB’s Lagarde will likely dictate the likely monetary policy action ahead. ECB policymaker is expected to continue its hawkish stance on interest rate guidance as price pressures are escalating and are needed to be contained sooner. Energy prices are soaring sharply and are impacting the consumption expenditure of households.

On Monday, ECB Governing Council member and German central bank head Joachim Nagel said that decisive rate hikes are needed amid rising risks of inflation expectations getting de-anchored. Nagel favored a decisive action to bring down the inflation rate to 2%.

Apart from the ECB Lagarde’s speech, investors will also focus on the Eurozone Consumer Confidence data, which will release on Thursday. The sentiment data is seen steady at -28.8. Investors should be aware of the fact that the sentiment data is declining consecutively for the past few months.

Meanwhile, pound bulls are focusing on the Gross Domestic Product (GDP) data release, which is due on Friday. The growth rate is expected to decline by 0.1% in line with the prior release. While the annual data will grow by 2.9% similar to the previous reading.

• US Dollar Index renews intraday low, snaps two-day uptrend near the multi-year top.
• Risk-aversion ebbs amid a light calendar, pre-data anxiety.
• Fears of recession, central bank intervention joins firmer yields to propel DXY.
• Firmer prints of the US CB Consumer Confidence, Durable Goods Orders could amplify US dollar strength.

US Dollar Index (DXY) takes offers to refresh its intraday low near 113.70 as it consolidates the latest gains around the two-decade high, marked the previous day, during Tuesday’s Asian session.

In doing so, the greenback’s gauge versus the six major currencies portrays the market’s indecision amid a light calendar as well as anxiety ahead of the key US data. Also challenging the US dollar bulls could be the recent softer US data and inflation expectations.

That said, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Further, the US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low on Monday. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

The DXY rallied to the highest levels since May 2002 on Monday as risk-aversion intensified after the GBP/USD pair’s slump to the all-time low. The sour sentiment also took clues from the firmer yields and the hawkish Fedspeak, as well as the fears that many central banks need to intervene to defend their respective currencies.

The US 10-year Treasury yields rose to the highest levels in 12 years while the 2-year bond coupons refreshed the 15-year top as traders rushed to the risk safety. Further, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.

Against this backdrop, Wall Street closed in the red but the S&P 500 Futures print mild gains at the latest.

Moving on, today’s US CB Consumer Confidence for September and Durable Goods Orders for August will be crucial to watch for immediate directions. However, major attention will be given to the risk catalysts for clear guidance. Overall, the DXY is likely to remain firmer unless the scheduled data prints a major disappointment, which is less anticipated.

Also read: US Consumer Confidence Preview: Near-term relief or more risk aversion?

Technical analysis

Although the failure to cross the May 2002 high of 115.32 joins the overbought RSI conditions to consolidate the latest DXY moves, the bulls remain hopeful unless witnessing sustained trading below the year 2001 bottom surrounding 111.30.

• AUD/USD is on the verge of a test of key weekly support.
• AUD/USD bulls could be about to make their moves.

The Australian dollar hit fresh multi-year lows at the start of the week as investors moved into the safe-haven greenback after Britain's historic tax cuts plan added to market volatility. This has sent the high beta currency to a low of 0.6437 vs. the greenback, the lowest since May 2020. The following illustrates the prospects of a test of 0.64 the figure or a prolonged correction from here prior to the next significant move to the downside.

AUD/USD weekly chart

There are significant prospects of a correction at this juncture, as per the structure highlighted on the chart above and below. 

AUD/USD daily chart

A Fibonacci scale drawn on the latest bearish leg on the daily chart shows prospects of a correction towards the 38.2% ratio ahead of a 50% mean reversion back to test the daily support.

• USD/JPY is expecting a downside break of the crucial support of 144.50.

• Higher interest obligations are a major reason behind a decline in demand for durable goods.

• The BOJ needs to turn neutral to keep the impact of intervention in currency markets steady.

The USD/JPY pair is displaying signs of momentum loss after displaying a juggernaut rally to near 144.70. A failure in smashing the psychological resistance of 145.00 has set the stage for a correction in the counter. The pair has attempted multiple times to hit 145.00 but has failed amid lower consensus for the US Durable Goods Orders data.

According to the forecasts, the economic data will drop by 1.1% against a drop of 0.1% in the prior reading. Soaring price pressures have forced households to make significant changes in their consumption pattern and have compelled them to postpone their demand for durable goods.

Escalating price rise index for durable goods and higher interest obligations due to monetary policy tightening by the Federal Reserve (Fed) has resulted in a decline in the demand for durable goods. Also, households are catering to their needs for essentials first due to higher payouts amid a higher inflation rate.

It is worth noting that the Bank of Japan (BOJ)’s intervention in the currency markets strengthened the Japanese yen against G-7 currencies except the US dollar index (DXY). The reason could be the heightened negative risk profile in which investors underpinned the greenback against yen. Market veterans believe that the impact of intervention won’t sustain for longer and the BOJ is needed to shift its stance and ditch the prudent approach.

On the economic data front, the Statistics Bureau of Japan will report the Unemployment Rate, which is seen lower at 2.5% vs. The prior release of 2.6%. While the Job/Applicants Ratio will improve to 1.30 from the former figure of 1.29.

US inflation expectations remain pressured on Monday, despite the latest rush to risk safety, which in turn propelled the US Treasury bond yields.

The inflation precursors as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

Behind the moves could be the mixed US statistics and the hawkish Fedspeak. That said, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Even so, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.

Moving on, the softer US inflation expectations may test the US Dollar Index (DXY) bulls who keep the reins at a 20-year high of late.

Also read: Forex Today: Panic took over financial markets