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Late on Wednesday, Morgan Stanley (MS) conveyed its bearish bias on the EUR/USD pair, targeting the 0.9300 level. The US bank highlights stagflation and geopolitical concerns as the key catalysts favoring their view.

Key quotes

EUR/USD fades bounce off yearly low

The bank report joins hands with the market’s latest cautious move to trim the EUR/USD pair’s biggest daily gains in six months.

Also read: EUR/USD struggles to extend rebound beyond 0.9700, German Inflation, US GDP eyed

• NZD/USD fades recovery moves from a two-year low.
• Convergence of previous resistance line, 100-HMA challenges sellers.
• RSI retreat favor pullback in prices but bullish MACD, 0.5700 breakout keeps buyers hopeful.

NZD/USD retreats to 0.5718 while snapping a two-day uptrend during Thursday’s quiet Asian session. In doing so, the Kiwi pair reverses the previous day’s bounce off the yearly bottom as the RSI (14) eases from the overbought region.

Even so, the quote keeps Wednesday’s upside break of the 0.5700 resistance confluence comprising the 100-HMA and a downward sloping trend line from September 13, now acting as immediate support.

Also adding strength to the 0.5700 support level is the 23.6% Fibonacci retracement of September 13-28 moves. It should be noted that the bullish MACD signals also keep the NZD/USD buyers hopeful.

That said, the 50-HMA acts as the last defense of the pair buyers around 0.5660, a break of which won’t hesitate to recall the bears targeting the fresh yearly low, currently near 0.5565.

Meanwhile, recovery moves need to cross the latest swing high surrounding 0.5740 to recall the NZD/USD buyers. Following that, the September 22 swing low near 0.5800 will be in focus.

However, the traders can doubt the recovery unless the pair remains below the 61.8% Fibonacci retracement level of 0.5935.

NZD/USD: Hourly chart

Trend: Further upside expected

• EUR/JPY is comfortably established above 140.00 after hawkish guidance by ECB Lagarde.
• German energy market regulators are preparing stockpiles ahead of the winter season.
• Japan’s labor market data is expected to remain upbeat ahead.

The EUR/JPY pair has established above the psychological resistance of 140.00 as the risk-on market profile favored risk-sensitive currencies. The asset has turned sideways and is awaiting more market participants for making bullish bets. On Wednesday, the shared currency bulls rebound firmly after dropping to near 138.00. The cross delivered an upside break of the four-day long consolidation formed in a 137.38-139.53 range.

It seems that investors have shrugged-off uncertainty over the energy stockpiles ahead of the winter season, which soars the energy demand to run electrical appliances. Earlier, the Eurozone bulls were facing tremendous pressure after reporting a deliberate attack on the infrastructure of the Nord Stream 1 pipeline.  German administration is preparing sufficient energy stockpiles ahead of the winter season and a decline in the same will deepen the energy crisis further.

Also, the speech from European Central Bank (ECB) President Christine Lagarde strengthened the shared continent bulls. ECB Lagarde sees rate hikes by 125 basis points (bps) in upcoming several meetings.

Going forward, investors will focus on the Eurozone Consumer Confidence data. As per the preliminary estimates, the sentiment data will remain steady at -28.8. It is worth noting that the economic data is getting more vulnerable over the past year.

On the Tokyo front, investors have shrugged off the impact of the Bank of Japan (BOJ)’s intervention in the currency markets to support the depreciating yen. The market participants believe that the impact of intervention remains short-lived, therefore, only restrictive measures could be a tailwind for the Japanese yen.

This week, the Japanese employment data will hog the limelight. The Unemployment Rate is expected to decline to 2.5% vs. the prior release of 2.6%. While the Jobs/Applicants Ratio will improve to 1.30 against the 1.29 reported earlier.  

• EUR/GBP picks up bids to reverse the post BOE pullback.
• Hawkish ECB jostled with the BOE’s bond-buying plan but failed to recall the bears.
• Looming economic fears for the UK join hawkish ECBspeak to keep buyers hopeful.
• German inflation may allow traders to witness further upside with firmer HICP numbers.

EUR/GBP prints mild gains around 0.8950 during Thursday’s Asian session, after a volatile day that ended on a positive note.

The cross-currency pair’s latest gains could be linked to the regional currency’s comparative strength considering the hawkish comments from the European Central Bank (ECB). However, softer yields and hopes of the UK’s more efforts to restrict trader confidence could challenge the pair bears.

That said, the Bank of England (BOE) announced a bond-buying program to defend the British Pound (GBP) on Wednesday. The details suggest that the BOE will buy bonds with a maturity of over 20 years and up to 5 billion sterling worth per auction initially. On the other hand, ECB President Christine Lagarde reiterated on Wednesday that they will continue to raise rates in the next several meetings, as reported by Reuters. There were several other ECB Governing Council members namely Olli Rehn, Peter Kazimir, and Robert Holzmann who openly favored a 0.75% rate hike in the next meeting.

Elsewhere, the US 10-year Treasury bond yields slumped the most in six months and allowed equities to consolidate recent losses, which in turn propelled the EUR and drowned the US dollar.

Looking forward, preliminary readings of Germany’s Harmonized Index of Consumer Prices (HICP) for September, expected 10% YoY versus 8.8% prior, will be important to watch for fresh impulse. Also important will be the ECBSpeak and the comments from various BOE policymakers. Above all, risk catalysts are crucial to determine short-term EUR/GBP moves.

Considering the less likely immediate end of the UK’s financial problems, the EUR/GBP prices are likely to remain firmer and can rise further if the Germany data offers a positive surprise.

Technical analysis

A three-day-old bullish triangle restricts immediate EUR/GBP moves between 0.9030 and 0.8850.

• USD/CAD bears have moved in but there could be prospects of a bullish correction. 
• A retest of the NY open's range could be in order for the day ahead.

The chart below chart illustrates the key levels that include the opening hour's range of the New York session that could see the price drawn to in the coming sessions for a retest where the lows of the range meet a 38.2% Fibonacci retracement near 1.3660.

USD/CAD H1 chart

On the way there, trapping breakout shorts, the price will need to break back above Tuesday's low of 1.3640. If this area were to hold, then there will be prospects of a deeper move through last week's high again of 1.3612 and Wednesday's low of 1.3602 to retest this week's low of 1.3559 that could be broken should month-end flows accelerate the squeeze on long dollar positions. 

USD/CAD weekly chart

If the price continues to deteriorate, as per the above thesis, then a 38.2% Fibonacci correction of the weekly bullish impulse aligns with around 1.35 the figure. This could be a feasible target should this week's low, so far, give out for a fresh low for the current week. Following the shake-out, there could be prospects of a surge higher again if markets commit to the US dollar again as fundamentals once again take over. 

• GBP/JPY recovered some ground on Wednesday and trimmed most of its weekly losses.
• However, if the GBP/JPY fails to reclaim 157.00, that would pave the way for sellers, and the pair could drop towards the 38.2% Fibonacci retracement at 154.67.
• A break above 157.00 might open the door for a rally towards the 61.8% Fibonacci at 158.40.

On Wednesday, the GBP/JPY finished the day with solid gains of 1%, as the Bank of England intervention bolstered UK bonds and alleviated the markets. However, as the Asian Pacific session takes over, the GBP/JPY is trading at 156.59, down 0.21%.

GBP/JPY Price Analysis: Technical outlook

The GBP/JPY daily chart portrays the pair as downward biases, as mentioned yesterday, “once it cleared the 200-EMA.” GBP/JPY’s Wednesday price action registered a daily high at 157.09, above the 50% Fibonacci retracement, drawn from the high/low of September 22 and 26, respectively, paving the way for a move towards the 61.8% retracement at 158.40. If the GBP/JPY breaks 158.00, then a move to the latter is on the cards, followed by the figure at 160.00, ahead of the 200-day EMA at 160-33

Otherwise, the GBP/JPY might be headed downwards, aligned with its current bias. Therefore, the GBP/JPY’s first support will be the 50% Fibonacci retracement at 156.53. Once cleared, the next support would be the 38.2% Fibonacci at 154.67, followed by the September 27 daily low at 154.07. A breach of the latter might send the GBP/JPY towards the January 24 daily low of 152.90.

GBP/JPY Key Technical Levels

• WTI snaps two-day uptrend, pares daily gains after rising the most since May.
• Bullish chart pattern, upside oscillators keep buyers hopeful but 100-SMA adds to the upside filters.
• Multiple supports to challenge bears above $75.00 level.

WTI crude oil prices fade the previous day’s upside momentum, the biggest in four months, as bulls take a breather at around $82.00 during Thursday’s Asian session. That said, the black gold retreats to $81.30 by the press time.

In doing so, the quote eased from the previous support line from September 07 while staying inside the monthly falling wedge bullish chart pattern.

Given the recently firmer RSI and the bullish MACD signals, the commodity prices are likely to extend the latest hurdle surrounding $82.00.

However, the quote’s further upside will hinge on the capacity to confirm the wedge formation with a clear break of $82.80, as well as cross the 100-SMA hurdle surrounding $83.55.

On the contrary, pullback moves may revisit the $80.00 threshold ahead of weekly horizontal support near $78.00.

In a case where the quote drops below $78.00 support, the latest multi-month low near $76.00 and the lower line of the stated wedge, around $75.20, could challenge the further downside of WTI crude oil.

WTI: Four-hour chart

Trend: Further upside expected

• USD/CHF is oscillating around 0.9750 after a sheer fall and is preparing for further drop ahead.
• A risk-on market profile has sent the DXY into a corrective mode.
• Swiss Real Retail Sales data is seen higher at 3.6% vs. the prior release of 2.4%.

The USD/CHF pair has sensed a sigh of relief after a continuous drop from a high above 0.9950. The asset is trying a develop a base around 0.9750 after a vertical fall, however, the downside seems to favor on cheerful market mood. The major is expected to decline further to near the round-level support of 0.9700 as the market sentiment turned positive after investors found the risk-perceived assets a ‘value bet’.

On Wednesday, the US dollar index (DXY) declined sharply below 113.00 after investors shrugged-off clouds of uncertainty about a further escalation in interest rates by the Federal Reserve (Fed). Investors have started realizing the fact that soaring inflation is attracting policy tightening measures from the Fed. And, the terminal rate is heading towards the optimal figure of 4.6% as discussed in September’s monetary policy meeting.

Atlanta Fed President Raphael Bostic started to cross wires on Wednesday stating that the baseline scenario right now includes a 75 basis points (bps) rate hike in November followed by a 50 bps increase in December, as reported by Reuters. Should that materialize, the pace of hiking interest rates will slow down vigorously.

In today’s session, the spotlight will be on US Gross Domestic Product (GDP) data. As per the consensus, the growth rate in the US economy has declined by 0.6% in the second quarter on an annualized basis. A weaker-than-expected release will weigh more pressure on the DXY.

Meanwhile, the Swiss franc bulls are awaiting the release of the Real Retail Sales data. The economic data is expected to improve by 3.6% vs. the prior improvement of 2.4% on an annual basis. This is going to delight the Swiss National Bank (SNB) to sound hawkish on interest rates in the fourth quarter monetary policy unhesitatingly.

• Gold price fades bounce off yearly low, pares the biggest daily jump since early March.
• XAU/USD buyers returned as yields slumped the most in six months, DXY printed biggest daily fall since March 2020.
• BOE, ECB managed to trigger DXY’s corrective pullback.
• Challenges to risk, hawkish Fedspeak keeps gold sellers hopeful, softer US GDP could help extend metal’s recovery.

Gold price (XAU/USD) retreats to $1,658, after posting the biggest daily jump in six months to recover from the two-year low, as buyers reassess the bullish move considering the presence of the risk-negative catalysts. That said, the metal’s hesitance in extending the latest rise could also be linked to the cautious mood ahead of final readings of the US Q2 Gross Domestic Product (GDP).

The quote began Wednesday on the back foot and refreshed the two-year low as the US dollar cheered the market’s rush for risk safety. However, the Bank of England’s (BOE) bond-buying plan to restore market confidence joined hawkish comments from the European Central Bank (ECB) policymakers to weigh on the US dollar and trigger the yields’ slump, which in turn pleased the XAU/USD bulls afterward.

That said, the Bank of England (BOE) announced a bond-buying program to defend the British Pound (GBP) on Wednesday. The details suggest that the BOE will buy bonds with a maturity of over 20 years and up to 5 billion sterling worth per auction initially. On the other hand, ECB President Christine Lagarde reiterated on Wednesday that they will continue to raise rates in the next several meetings, as reported by Reuters. There were several other ECB Governing Council members namely Olli Rehn, Peter Kazimir, and Robert Holzmann who openly favored a 0.75% rate hike in the next meeting.

Elsewhere, the US international trade deficit narrowed by $2.9 billion to $87.3 billion in August from $90.2 billion in July. Details suggest that the Exports dropped for the first time since January while Imports marked the fifth consecutive monthly decline. Further, Atlanta Fed President Raphael Bostic said on Wednesday that the baseline scenario right now includes a 75 basis points (bps) rate hike in November and a 50 bps increase in December, as reported by Reuters. Additionally, Chicago Federal Reserve President Charles Evans also emphasized the need to address inflation and tried to renew the US dollar buying but could not due to the softer yields.

That said, the US 10-year Treasury bond yields slumped the most in six months and allowed equities to consolidate recent losses, which in turn dragged the US Dollar Index (DXY) from the multi-year high.

It’s worth noting, however, that the market’s doubts over the BOE-led optimism and the fears of the European energy crisis could join the hawkish Fedspeak to renew the gold’s selling if today’s US GDP data offer a positive surprise.

Technical analysis

Gold price remains sidelined inside a short-term trend-widening bearish megaphone chart pattern.

The quote’s latest break of the $1,654-55 resistance confluence including the 50-SMA and a fortnight-old horizontal area, now support, directs XAU/USD buyers towards the stated formation’s upper line, at $1,669 by the press time.

It should, however, be noted that the bullish MACD signals and the RSI run-up is teasing the buyers and hence a clear upside break of the $1,669, also crossing the $1,670 hurdle, won’t hesitate to direct the bulls towards the previous weekly top surrounding $1,690.

Meanwhile, a downside break of $1,655-54 resistance-turned-support could quickly direct the gold bears towards $1,640 and the latest low near $1,615. Though, the support line of the aforementioned megaphone, close to $1,611, appears a tough nut to crack for the sellers afterward.

Gold: Four-hour chart

Trend: Limited upside expected

• Pound bulls have poked the crucial demand zone in a 1.0905-1.0931 range.
• A bull cross, represented by the 20 and 50-EMAs, adds to the upside filters.
• The RSI (14) has shifted into the bullish range of 60.00-80.00, which favors an upside momentum.

The GBP/USD pair is displaying topsy-turvy moves around the immediate hurdle of 1.0900 in the early Asian session. Earlier, the cable displayed a perpendicular upside move after sensing a responsive buying action from 1.0540. The asset is aiming to refresh its weekly high above 1.0931 as risk sentiment has turned positive.

On an hourly scale, the cable has poked the demand zone placed in a narrow range of 1.0905-1.0931. The asset is not displaying signs of exhaustion after a juggernaut rally but is preparing for an upside break ahead as investors are pouring funds amid the establishment of an upside bias.

A bull cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 1.0764 signals more upside ahead.

Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which has activated pound bulls for upside momentum.

A break above Monday’s high at 1.0931 will send the cable towards the round-level resistance at 1.1000, followed by Friday’s average price at 1.1100.

On the flip side, the cable will lose significance further if it 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 hourly chart

• EUR/USD steadies after bouncing off 20-year low, pares the biggest daily gains since early March.
• BOE’s re-stimulation act via bond buying joined hawkish ECBSpeak to trigger corrective bounce.
• German inflation will be eyed closely to confirm the 0.75% rate hike and favor buyers.
• Firmer prints of the Final Q2 US GDP could offer US dollar rebound as Fed policymakers remain optimistic.

EUR/USD bulls take a breather after posting the biggest daily jump in six months during the turnaround Wednesday. That said, the quote treads water around 0.9730-40 during the early Thursday morning in Asia.

The major currency pair began Wednesday on the back foot and refreshed the 20-year low amid broad US dollar strength as the market’s pessimism fuelled the US dollar. However, the Bank of England’s (BOE) bond-buying plan to restore market confidence joined hawkish comments from the European Central Bank (ECB) policymakers to please the EUR/USD bulls afterward.

That said, the Bank of England (BOE) announced a bond-buying program to defend the British Pound (GBP) on Wednesday. The details suggest that the BOE will buy bonds with a maturity of over 20 years and up to 5 billion sterling worth per auction initially.

On the other hand, ECB President Christine Lagarde reiterated on Wednesday that they will continue to raise rates in the next several meetings, as reported by Reuters. There were several other ECB Governing Council members namely Olli Rehn, Peter Kazimir and Robert Holzmann who openly favored a 0.75% rate hike in the next meeting.

Elsewhere, the US international trade deficit narrowed by $2.9 billion to $87.3 billion in August from $90.2 billion in July. Details suggest that the Exports dropped for the first time since January while Imports marked the fifth consecutive monthly decline. Further, Atlanta Fed President Raphael Bostic said on Wednesday that the baseline scenario right now includes a 75 basis points (bps) rate hike in November and a 50 bps increase in December, as reported by Reuters.

It should be noted that the European Commission President Ursula von der Leyen announced on Wednesday that they will propose new import bans on Russian products that will deprive Russia of another €7 billion in revenue, as reported by Reuters.

Amid these plays, the bond yields slumped and allowed equities to consolidate recent losses, which in turn dragged the US Dollar Index (DXY) from the multi-year high.

However, the hawkish Fed and the West versus Russia tussles, as well as likely inflation fears in the bloc, could keep the EUR/USD traders on their toes. As a result, today’s German inflation gauge and the final readings of the US Q2 Gross Domestic Product (GDP) will be crucial for immediate direction. That said, firmer numbers are likely to favor more to the US dollar than the EUR.

Technical analysis

Although an upside break of the one-week-old resistance line, now support near 0.9620, favors EUR/USD buyers, a convergence of the one-month-old previous support and the 50-SMA on the four-hour chart, near 0.9800, challenges the upside momentum.

• Silver prices recovered from weekly lows at $17.94 and gained almost $1 on Wednesday.
• The British pound crisis augmented the appetite for precious metals, a headwind for the greenback.
• US Fed officials emphasized that the US Federal funds rate (FFR) might peak at around 4% by the year’s end.

Silver price bounces off weekly lows at around $18.00 a troy ounce as the greenback plunges from YTD lows above the 114.00 figure, undermined by US Treasury bond yields sliding, amid a risk-on impulse as shown by US equity markets finishing in the green. At the time of writing, the XAG/USD is trading at $18.87 a troy ounce, 2.50% above its opening price.

XAG/USD pares weekly losses buyers eye $19.00

Recent developments in the financial markets finally triggered safe-haven flows toward precious metals. The British pound currency crisis, triggered by PM Liz Truss’s new government plagued with tax cuts, increased worries that inflation in the UK might get out of control. Therefore, the Bank of England stepped into the bond markets, buying 30-year gilts to ease investors’ fears, and postponed the Quantitative Tightening (QT) by the end of October.

The greenback’s fall from 20-year highs opened the door for the white metal recovery, despite US central bank hawkish rhetoric, led by Atlanta’s Fed President Raphael Bostic, who said that inflation is “too high” and he backed up a 75 bps rate hike in November and 50 in December.

Of late, the Chicago Fed President Charles Evans said that the Fed is increasing rates at a faster pace to tame “very high and persistent inflation” and expected the Federal funds rate (FFR) to peak around 4.50-4.75%.

The US Dollar Index, a gauge for the buck’s value against its peers, plunged 1.29%, down at 112.711, refreshing its weekly lows, undermined by the US 10-year T-bond yield, dropping 22 bps, at 3.737%.

Given the scenario mentioned above, the US dollar fall was a tailwind for XAG/USD price. Even though the white metal began trading around the $18,30s region and reached a daily low at $17.84, it bounced off and rallied sharply to current spot prices.

Data-wise, the US economic docket featured  August’s Pending Home Sales, which shrank 2% more than the 1.5% decrease estimated, contracting to its lowest level since 2011.

What to watch

The US economic calendar will feature the Gross Domestic Product (GDP) for the second quarter on its final reading, estimated at -0.6%, alongside the Initial Jobless Claims, for the week ended on September 24.

XAG/USD Key Technical Levels

• AUD/USD is marching towards 0.6600 amid upbeat market sentiment.
• The DXY has plummeted below 113.00 despite hawkish commentary from the Fed policymaker.
• Aussie dollar has benefitted from higher-than-expected monthly Retail Sales data.

The AUD/USD pair is witnessing a mark-up inventory accumulation phase after displaying a juggernaut rally to near 0.6530. The asset is expected to extend its recovery and will march towards the critical hurdle of 0.6600. Earlier, the commodity-linked currency rebounded firmly after dropping to near 0.6360. The major advanced vertically as investors shrugged off pessimism and poured funds into the risk-sensitive currencies.

The US dollar index (DXY) plummeted like there is no tomorrow after failing to sustain above the critical hurdle of 114.50. A failure in hitting the round-level resistance of 115.00 dragged the DXY sharply to near 112.71. This indicates that risk sentiment has turned positive for a while as a ‘value bet’ context doe risk-perceived assets kicked in.

Comments from Federal Reserve (Fed) policymakers are advocating a continuation of the current pace of hiking interest rates. Atlanta Fed President Raphael Bostic started to cross wires on Wednesday stating that the baseline scenario right now includes a 75 basis points (bps) rate hike in November followed by a 50 bps increase in December, as reported by Reuters. He further cited that the inflation thing is too high and has not responded well to the policy tightening measures.

Going forward, the US Gross Domestic Product (GDP) data will be keenly watched. The annualized data for the second quarter is expected to decline by 0.6%, similar to the prior reading.

On the Australian front, aussie dollar has benefitted from better-than-projected monthly Retail Sales data. The economic data landed at 0.6%, higher than the estimates of 0.4%, but lower than the prior release of 1.3%. As the Reserve Bank of Australia (RBA) is tightening its policy heavily to combat the galloping inflation, higher-than-expected Retail Sales data has delighted the central bank.

• NZD/USD bulls have moved in as the US dollar sells off into month end.
• The greenback and US yields were underwater on Wednesday and the high beta currencies took off.

NZD/USD rallied on Wednesday following a strong sell-off in the US dollar as the month-end approaches. NZD/USD rallied by some 1.8% from a low of 0.5564 to a high of 0.5733 the high.

This came on the back of the US dollar index melting through a cascade of market orders across the major currency complex from 114.778 to as low as 112.561 in a matter of half a day of trade between the late London session and New York opening hours. 

''The Kiwi is back above 0.57 this morning, having regained a touch of composure alongside a plethora other risk assets in the wake of the Bank of England’s decision to “temporarily” buy bonds and to delay plans for QT,'' analysts at ANZ Bank explained:

''It’s all a bit of a mess and very contradictory, and how long the calm/fresh optimism lasts remains to be seen. For one, this re-stimulation will lift, not quell UK inflation, and that’s bad for bonds and sterling. Prior to that, the US White House had said that it isn’t in favor of a new Plaza Accord-type deal to cap the USD’s strength. Those looking to politicians to end the dollar’s reign may be looking in the wrong place.''

''Amid opposing short and long-term influences, we think it pays to keep a very open mind, brace for volatility, and manage risk carefully,'' the analysts added.

What you need to take care of on Thursday, September 29:

The dollar stretched its rally throughout the first half of the day but changed course dramatically after Wall Street's opening. US government bond yields plummeted with that on the 10-year note, down roughly 20 bps, taking its toll on the American currency. The Dollar Index hit a record high of 114.78, later retreating towards the 112.60 price zone.

 Several US Federal Reserve officials were on the wires, repeating the well-known message of another 75 bps coming up next, aiming for a top to Fed funds rate between 4.25% and 4.75% in the first quarter of 2023.

The EUR/USD pair plummeted to a 22-year low of 0.9535, extending later its intraday recovery to 0.9750, trading a handful of pips below the latter at the end of the day. The EU energy crisis maintains local authorities on their toes, and the EU Commission released a paper assessing gas price measures.

Also, ECB President Christine Lagarde participated in a US-European GeoEconomics forum and said they would continue to hike rates in the next several meetings. Additionally, Governing Council member Peter Kazimir and Bank of Latvia Governor, and ECB governing council member, Martins Kazaks were on the wires supporting a 75 bps rate hike in the October meeting.

The GBP/USD pair was quite volatile amid back and forth from the Bank of England. It managed to settle at around 1.0880 amid the broad greenback's weakness.  The BOE decided to buy long-dated UK government bonds starting today to restore market conditions. It later confirmed that it could buy just £1.025 billion in the emergency QE operation, well below the planned £5 billion. Long-term yields plummeted with the announcement.  The central bank also postponed the first gilt sale operations, supposed to start next week,  to October 31 and proceed after that. The fiscal strategy was strong international criticism.

USD/JPY show little signs of life despite high volatility across the FX board, ending the day marginally lower at 114.10. Commodity-linked currencies beat the greenback, with AUD/USD trading at 0.6515 and USD/CAD at 1.3635. The USD/CHF pair also edged firmly lower, now hovering at around 0.9765.

Gold prices soared, and XAUUSD trades at $1,660 a troy ounce, its highest for the week. Crude oil prices recovered, and WTI settled at $82.00 a barrel.

Technically, the sharp downturns in major pairs seem corrective amid the last dollar's overbought conditions. However, the rallies need to continue in the upcoming session to confirm interim bottoms.

On Thursday, the focus will be on German inflation, expected to have raised by 9.4% YoY in September.

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• Gold has rallied hard through the high of the week.
• The US dollar has sunk from 20-year highs and has tripped a cascade of market orders across the board. 

The price of gold has soared on the back of a move by the bears in the US dollar on Wednesday. XAU/USD is rallying to $1,662.78 the high for the day so far after printing a fresh bear cycle low of $1,614.92 in mid-London morning trade. 

The jump in the gold price came about when the US dollar fell sharply from a 20-year high, easing pressure on gold in what has been described a month-end fixing model. There are still plenty of fundamentally sound reasons for a recovery in gold as it is seen as a safe haven at times of geopolitical tensions. Additionally, the US treasury yield also fell after climbing to the highest since January 2008. The yield on the US 10-year note was last seen down 24.2 basis points to 3.705%, after earlier touching 4.01%, the first rise above 4% in nearly 15 years while money markets girded for higher interest rates that could possibly remain for longer than anticipated.

However, in recent trade on Wednesday, US traders piled into the stock market as the yield on US Treasuries came off decade highs that in recent sessions made interest rate-sensitive companies less attractive to investors. The tumble in yields followed the Bank of England's intervention into the UK's gilt market when it said it would buy long-dated British bonds in a move aimed at restoring financial stability in the wake of the new UK Government’s mini-budget, which had triggered a sharp sell-off in UK gilts.

In turn, the greenback has crumbled from a fresh 20-year high scored ahead of the New York open at 114.778 before falling to the current low of 112.561. The move has dug into a lot of long positioning into other currencies vs. the US dollar this week which has led to a cascade of market orders being triggered along the way, propelling gold and the pound higher. 

''While this policy is under the umbrella of financial stability, it effectively amounts to undertaking temporary quantitative easing (ie policy easing), at a time when the Monetary Policy Committee is trying to contain rampant inflation,'' analysts at ANZ Bank said, adding, ''it’s therefore difficult to see how the BoE can deliver anything less than a 100bp rate hike at their November meeting.''

Nonetheless, analysts at TD Securities argue, ''we still see the risk of capitulation growing for the yellow metal. With prices 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 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 regard, we heard from Fed speakers Charles Evans again on Wednesday as well as Ralph Bostic. ''The Federal Reserve is raising interest rates expeditiously to address very high, persistent inflation, and will likely get US short-term borrowing costs to where they need to be by early next year,'' Evans said. ''Most Fed policymakers are penciling in a top Fed policy rate of 4.5% to 4.75% by end of next year, based on their projections published last week, and "by March we will be at that point," Evans added at an event on current economic conditions hosted by the London School of Economics. Meanwhile, Atlanta Fed President Raphael Bostic said on Wednesday that ''the lack of clear progress on inflation means the Federal Reserve needs "moderately restrictive" interest rates that should reach a level between 4.25% and 4.50% by the end of this year.''

The Federal Reserve has aggressively hiked interest rates by 3 percentage points this year, taking its target range to 3.00%-3.25%. It carried out its third consecutive 75 basis point increase last week and signaled that rates are likely to rise to the 4.25%-4.5% range by the end of the year.

Gold technical analysis

The gold price has shot through the week's high of $1,649 and now eyes Friday's high at $1,675. On the downside, a correction to Monday's highs will have a confluence with a 38.2% Fibonacci level that guards the price imbalances, the greyed areas on the hourly chart above. 

• USD/CAD nosedives below 1.3700, eyeing a break below 1.3600 as the US dollar falls.
• US Pending Home Sales for August disappointed investors, reflecting the Fed’s policy stance.
• Fed’s Bostic and Evans coincided that further rate hikes are needed, and both expected rates to peak around 4.25% by the end of 2022.

The USD/CAD plunges in the North American session after hitting a two-decade high at 1.3832 as the US dollar weakened, spurred by falling US bond yields, while US equities got a respite after the last six-day sell-off, which kept stocks nearby 2022 YTD low levels. Factors like the GBP’s currency crisis, alongside Europe’s energy woes, and hawkish Fed rhetoric, were the main reasons driving the markets.

Therefore, the USD/CAD is trading at 1.3622, well below its opening price, after hitting a daily high of 1.3832, down 0.74%.

US economic data revealed during the day flashed the impact of the Fed’s policy, as the National Association of Realtors revealed that Pending Home Sales for August. The figures showed a contraction f 2%, the lowest since 2011 and lower than 1.5% estimated by economists. According to Lawrence Yun, NAR’s chief economist, higher rates are weighing on the housing market, and she added, “Only when inflation calms down will we see mortgage rates begin to steady.”

In the meantime, Fed speakers led by Atlanta’s Fed Bostic said that inflation is “too high” and commented that his base case for the November meeting is to hike by 75 bps on December 50. At the time of typing, the Chicago Fed President, Charles Evans, said that the Fed is raising rates expeditiously to tackle very high and persistent inflation.

Evans added that he sees the Fed policy rate peaking at around 4.50-4.75%, while by the year’s end estimates, it would end at around 4.25-4.75%.

The lack of Canadian economic data left the Loonie adrift to US dollar dynamics and rising commodity prices. US crude oil prices were up 1.8% at $79,87 per barrel as production cuts spurred by Hurricane Ian, bolstering the Canadian dollar.

Elsewhere, the US Dollar Index, a gauge of the buck’s value vs. a basket of currencies, is plummeting sharply, more than 1.30%, down at 112.64, refreshing weekly lows.

USD/CAD Price Analysis: Technical outlook

Given the fundamental backdrop that the Fed might raise rates beyond what the Bank of Canada would do, it will likely keep the Loonie on the back foot. Therefore, the USD/CAD fall towards current exchange rates and beyond, probably the 38.2% Fibonacci retracement at 1.3500, would offer USD bulls opportunities to engage on the USD/CAD way towards a re-test of the YTD highs.

USD/CAD Key Technical Levels

 Chicago Federal Reserve President Charles Evans is starting to cross the wires by saying, so far, ''we need to address inflation.''  Yesterday, he said the Fed will need to raise interest rates by at least another percentage point this year, and came with a more aggressive stance than he has previously embraced.

More to come...

Reuters reports that the United States will not recognize Russian-annexed areas across Ukraine amid what the White House on Wednesday called "illegal and illegitimate" referendums that were manipulated by Moscow and would be challenged internationally.

"Based on our information, every aspect of this referanda process was pre-staged and orchestrated by the Kremlin," White House spokesperson Karine Jean-Pierre told reporters at a briefing, adding that Washington would rally opposition to recognizing the annexed territories, "including at the UN."

"Regardless of Russia's claims, this remains Ukrainian territory," she said.

Key notes

• White House says Russian-backed referenda in Ukraine were straight from the kremlin playbook.
• Says Ukraine referenda were manipulated and manufactured.  
• Says referendum in Ukraine were staged and orchestrated.
• Says these referenda are illegitimate and outrageous.
• Says referenda are pretext for Russia to try to annex Ukrainian territory.
• Says will work to impose additional economic costs on Russia.  
• Announces $1.1 billion package of weapons and equipment for Ukraine.
• Says if Russia moves forward with annexation, we will be prepared.
• Says the consequences of Russian annexation will be real and extraordinary.

Such rhetoric will not do risk sentiment any favors with already very nervous financial markets that have propelled the safe-haven dollar to a two-decade peak on Wednesday.

According to analysts at Wells Fargo, the EUR/USD pair could drop to 0.91 by the first quarter of next year. They point out that the European Central Bank will lag well behind the Federal Reserve and also consider that economic conditions in the Eurozone are worsening. 

Key Quotes: 

“The fact that some key foreign central banks are set to lag the Fed in terms of the pace of rate hikes, as well as fall short of the tightening currently priced into financial markets, should also weigh on foreign currencies and support the U.S. dollar for the time being. In fact, we have revised our forecast lower for the EUR/USD exchange rate to $0.9100 by end Q1-2023 and lowered our forecast for the GBP/USD exchange rate to $1.0200 over the same period. More broadly, we see the Fed's U.S. dollar index against the advanced foreign economies gaining around a further 5% over the next six months. That would lift this particular trade-weighted dollar index to new 22-year highs.”

“We now forecast a slightly deeper recession for the Eurozone region than previously. Elevated inflation, reduced consumer purchasing power, energy supply disruptions and central bank tightening are all factors that we see contributing to Eurozone contraction. Confidence surveys are also now more clearly pointing to a Eurozone slowdown. We now expect the Eurozone economy to contract a cumulative 1.25% between late 2022 and mid-2023.”

“We expect weakness in the euro to persist. High and rising inflation should continue to weigh on the consumer, and energy supply disruptions could more directly impact manufacturing activity. Confidence surveys are now clearly pointing to contraction, especially for Germany—the region's largest economy. While the European Central Bank should raise rates further, underwhelming Eurozone growth should see it lag well behind the Fed, another factor that could see the EUR/USD exchange rate reach $0.9100 by Q1-2023.”

• Bank of England buys gilts to stabilize the bond market.
• Pound strengthens after the initial impact of BoE announcement.
• EUR/GBP unable to hold firm above 0.9000.

The EUR/GBP is hovering around 0.8940 practically flat for the day after moments of extreme volatility following a surprise announcement from the Bank of England. The cross bottomed at 0.8838, the lowest in three days and then jumped to 0.9066, before pulling back. GBP/USD rose from 1.0535 to levels above 1.0900.

The Bank of England announced it will by long-term gilts and delayed the beginning of sales. The collapse in UK bonds forced action from the BoE to avoid more tensions across financial markets. The BoE said it purchased on Wednesday £1.025B of gilts.

The decision was a positive for equity markets and also made bond yields pullback across the globe. Still the situation in the UK is still complex. The blowup in UK bonds and the quick depreciation of the pound also triggered political instability to the new administration of PM Liz Truss. Her tax-cutting plan is being criticized.

Markets continue to digest BoE’s announcement. The current calm will likely be short-lived and EUR/GBP continues to look for the next equilibrium level. So far, that area appears to be under 0.9000. A close above could open the doors to more gains.

Technical levels

• GBP/USD bulls move in for a significant run on shorts. 
• The short squeeze could run as high as the 1.1050s. 

It has been another volatile day in the US session and GBP/USD has rallied from a low of 1.0538 to a high of 1.0911 so far in what has been a massive turnaround for the pair, surpassing the prior day's highs and now embarking on the highs of the week.

Sterling initially fell more than 1% against the dollar and euro on Wednesday after the Bank of England, worried about margin calls in the gilt market, said it would step in to calm the UK's frenzied bond markets. The pound was on track for its biggest monthly fall since October 2008, just after Lehman Brothers collapsed. However, the greenback has collapsed from multi-year highs of 114.778 to print a fresh low of 112.588 for the session so far as US yields sink with the benchmark 10-year yield losing over 5.4% at the time of writing. 

UK financial markets have been roiled by the moves by Finance Minister Kwasi Kwarteng who announced plans to slash taxes and ramp up borrowing. The fiscal statement - and Kwarteng's vow that there was more to come -sent global markets into panic mode and the pound crashing on Monday to a record low despite soaring gilt yields. However, the Old Lady's intervention appeared to calm the market when the yield on the 30-year benchmark gilt dropped by more than 50 basis points at one point despite the BoE only buying GBP1b concentrating on the July 2051 bond in the main.

Nevertheless, the aggressive fiscal program is likely to continue to weigh on the pound in febrile market conditions with attention now turning to a UK mortgage crisis as well as the energy crisis. "Mortgage deals for new customers now feature rates at around 5%-6% - a steep increase from the norm of around 2% for the last five years which is prompting rising concern of a collapse in the property market further down the line," Reuters reported on Wednesday.

 The housing market is the backbone of the UK economy, and a leading economic indicator closely liked to the UK's consumer spending all of which go into the value of the pound that to date, has fallen almost 22% against the dollar this year, the most since 2008, and more than 7% against the euro. Sterling dropped by more than 15% in 2016, when the Brexit vote took place. 

GBP/USD technical analysis

GBP/USD has rallied towards Monday's highs of 1.0931, taking out yesterday's highs of 1.0836 that could be retested in the coming hours that have a confluence of the 23.6% Fibonacci ratio. This level guards a deeper correction towards the 50% mean reversion area that has a confluence with the London structure around 1.0730. In such a move, the price will mitigate the price imbalances (greyed areas) of the strong bullish impulse. On the flip side, the 1.1050s and price imbalances can be targetted to the upside, completing a 61.8% Fibonacci retracement on the daily chart following the 50% mean reversion:

• USD/JPY stumbles below the 144.00 figure due to US bond yields dropping.
• A triple top in the USD/JPY one-hour chart exerted downward pressure on the major, which cleared the 20 and 50-EMAs.
• The USD/JPY triple top targets a fall to 143.30.

The USD/JPY drops from weekly highs around 144.90 due to improved market sentiment and also falling US bond yields, with the US 10-year T-note plunging 23 bps, from around 4.01% to 3.73%. At the time of writing, the USD/JPY is trading at 143.99, below its opening price by 0.57%.

USD/JPY Price Analysis: Technical outlook

The USD/JPY daily chart depicts the pair as neutral-downward biased once Tuesday’s price action printed a doji. Worth noting that the Relative Strength Index (RSI) keeps pushing downwards while price action is below the September 27 daily low at 144.05, exacerbating a fall towards the 143.00 figure and beyond.

In yesterday’s article, “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.” It should be noted that the USD/JPY initially edged towards the weekly high, forming a “triple top” instead of a “double top,” and fell below the 20 and 50-day EMAs, accelerating the USD/JPY fall below the 144.00 mark.

Therefore, the USD/JPY first support would be 50-EMA at 143.85, immediately followed by the S2 daily pivot at 143.74, ahead of the  200-EMA at 143.68. A break below will expose the S3 pivot point at 143.42 and the triple top target at 143.30.

USD/JPY Key Technical Levels

• EUR/USD climbs sharply by more than 1% due to a soft US dollar.
• The energy crisis in the Euro area keeps the shared currency under pressure.
• EUR/USD Price Analysis: Stills downward biased but subject to a mean reversion move towards 0.9800.

The EUR/USD bounces from two-decade lows reached during the European session, gaining some 1.34% in the day, spurred by an improvement in market sentiment and a weaker US dollar, despite the Fed’s hawkish rhetoric, opening the door for aggressive tightening by the end of the year.

The shared currency began trading nearby the day’s lows, just below the 0.9600 figure, and dived towards a fresh two-decade low at around 0.9538 before rallying sharply towards the daily high at 0.9726 before settling around current spot prices. At the time of writing, the EUR/USD is trading at 0.9722.

The energy crisis keeps the Eurozone under pressure. On Tuesday, news that the Nord Stream pipelines 1 and 2 showed leaks sent energy prices higher. Some countries’ officials said it could be sabotage, and even Danish PM Frederiksen said it was “hard to imagine that these are coincidences.” German officials expressed concern that a “targeted attack” had caused a sudden pressure loss.

Given the backdrop, Norway was looking to increase security around its infrastructure, according to Bloomberg.

Earlier, the EU’s economic calendar featured the GfK Consumer confidence, which tumbled to -42.5 heading into October, from a -36.8 September reading, well below analysts’ estimates. According to the GfK institute, improvement in consumer morale is closely tied to lowering inflation.

In the meantime, ECB officials have expressed the need for another 75 bps rate hike at its October meeting, led by ECB member Kazimir, Rehn, and uber-hawk Austria’s central bank governor Robert Holzmann.

Aside from this, the US economic docket featured US Pending Home Sales for August, which fell by seven months in a row, decreasing by 2%, exceeding the 1.5% contraction estimated. “The direction of mortgage rates -- upward or downward -- is the prime mover for home buying, and decade-high rates have deeply cut into contract signings,” Lawrence Yun, NAR’s chief economist, said.

Meanwhile, the Fed parade continues, with Atlanta’s Fed Bostic saying that the lack of progress in inflation means that the US central bank needs to get into restrictive territory, between 4.25 and 4.50%.

EUR/USD Price Analysis: Technical outlook

Given the fundamental backdrop, the EUR/USD remains downward biased, though recent price action suggests an upward correction is likely. Cementing the case is the Relative Strength Index (RSI) exiting oversold conditions, aiming upwards, crossing above its 7-day RSI’s SMA. Therefore, a test of the 0.9800 figure is on the cards, but the overall bias favors the greenback.

EUR/USD Key Technical Levels

• US dollar tumbles as bonds rise sharply.
• BoE buys bonds, triggers global rebound in stocks and commodities.
• USD/CHF accelerates correction from three-month highs.

The USD/CHF dropped sharply from the highest level in three months, near the parity area and bottomed at 0.9743, a one-week low. The pair remains below 0.9800 with a negative tone as the US dollar slides across the board.

The greenback weakened amid a rally in Treasuries and in equity markets. The announcement of the Bank of England buying gilts triggered sharp moves and activated a recovery in bonds. The BoE said it purchased on Wednesday £1.025B of gilts. US yields pulled back sharply from multi-year highs. The US 10-year yield dropped from above 4.00% to 3.76%.

The Swiss franc also rose versus the euro and the pound favored by the moves in the bond market.

Double top at 0.9960 and collapses

The USD/CHF rose earlier to test Monday’s top at 0.9965 and failed to break it, and then retreat sharply breaking below 0.9860, confirming a double top formation. The target of the formation is around 0.9730, near Wednesday’s low at 0.9744. A few pips below, awaits the 20-day Simple Moving Average at 0.9725.

A daily close under the 20-day SMA could change the bearish short-term bias to neutral or bearish. The US dollar needs to recovers levels above 0.9880 in order to strengthen again.

Technical levels

• GBP/USD is registering minimal gains in a volatile trading session as the BoE stepped in to calm investors.
• Due to dysfunctional market conditions, the BoE’s QT program will be delayed until the end of October.
• GBP/USD Price Analysis: Range-bound around 1.0550-1.0750, with traders ready to step in an upwards/downwards break.

The GBP/USD recovered some ground as the North American session progressed, switching to positive territory amidst the Bank of England’s (BoE) efforts to cap the fixed income market, buying long mature bonds, as traders’ confidence in the new UK government seems to falter.

At the time of writing, the GBP/USD is trading at 1.0748, above its opening price amidst a volatile trading session, after hitting a daily high/low of 1.0837/1.0537 as concerns over the UK economy increased.

The Bank of England entered the bond market on Wednesday to calm the markets, committing to buy GBP 65 Billion of long-dated gilts following the new Primer Minister Liz Truss’s “mini-budget” release, plagued with substantial tax cuts, aimed to stimulate the economy. At the same time, the BoE postponed the beginning of the Quantitative Tightening program for the end of October.

The result of the BoE’s intervention helped to drop yields in the 30-year bond rate falling 100 bps or 1 one percent, its most significant drop dating back to 1992. At the same time, the GBP/USD has recovered some ground so far, though it would likely remain fragile unless the government calms investors.

Elsewhere, the International Monetary Fund (IMF) expressed that the new UK government plan would likely increase inequality in the UK and could undermine the current monetary policy. Due to large inflationary readings, the IMF expressed that “we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy.”

Aside from this, the US economic calendar revealed US Pending Home Sales for August decreased by 2%, more than the expected 1.5% contraction, falling for the seventh straight month. “The direction of mortgage rates -- upward or downward -- is the prime mover for home buying, and decade-high rates have deeply cut into contract signings,” Lawrence Yun, NAR’s chief economist, said.

Also read: UK's Kwarteng won't resign, no reversal in policy – Sky News

GBP/USD Price Analysis: Technical outlook

The GBP/USD one-hour chart depicts the pair probed the R1 daily pivot around 1.0831, which is also the confluence of the 100-EMA, though the rally was quickly rejected, sending the exchange rate towards 1.0670. Of late, the Sterling reclaimed the daily pivot above the 1.0750 area, but solid resistance around the 1.0830-50 would be challenging to surpass for buyers aiming to reclaim the 200-EMA at around 1.1120. On the flip side, a break below the S2 daily pivot point at 1.0548 could pave the way for a YTD retest at 1.0356.

GBP/USD Key Technical Levels

Citing Treasury sources, Sky News Political Editor Beth Rigby tweeted out on Wednesday that British Finance Minister Kwai Kwarteng will not resign over the market reaction to the fiscal plan and added that there will no reversal of policy.

Meanwhile, ky News Economics Editor Ed Conway reported that the Bank of England announced the gilt market intervention amid growing fears overs insolvencies of pension funds by as early as this afternoon.

Market reaction

The GBP/USD pair showed no immediate reaction to this headline and was last seen posting small daily gains near 1.0750.

Gold stages a solid recovery from its lowest level since April 2020. Nonetheless, the upside potential for the yellow metal seems limited amid the prospects for a more aggressive policy tightening Federal Reserve, strategists at TD Securities report.

Risk of capitulation growing for gold

“Gold is seeing some relief as the UK's plan to buy long-end Gilts sees yields weaken, while the elevated rates volatility of late has also seen Fed pricing reduced to a terminal rate of 4.47% vs 4.7% just days ago. Nonetheless, we still see the risk of capitulation growing for the yellow metal.”

“Rates markets are 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. 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.”

Analysts at Credit Suisse extend their bearishness across the cyclical G10 FX spectrum for Q4. They now target 0.62 in AUD/USD (prev. 0.6550), 1.42 in USD/CAD (prev. 1.30), 10.70 in EUR/NOK (prev. 10.00) and 11.30 in EUR/SEK (prev. 10.80).

Extension of the bearish trend in Q4

“Looking ahead into Q4, our core view is that the theme of FX underperformance vs the USD has space to play out further in the cyclical G10 space. As such, we now set our Q4 targets at 0.62 in AUD/USD, 1.42 in USD/CAD, 1.17 in AUD/NZD, 0.53 in NZD/USD, 10.70 in EUR/NOK and 11.30 in EUR/SEK.” 

“Along with the theme of broad divergence vs the USD, we also anticipate realized volatility to stay elevated in Q4, which leads us to set wider trading range for these pairs. Specifically, we now see AUD/USD trading between 0.67 and 0.60 in Q4, we see USD/CAD in a 1.3250-1.43 range, AUD/NZD between 1.13 and 1.19, EUR/NOK in a 10.00-10.90 range and EUR/SEK between 10.65 and 11.40.”

Atlanta Fed President Raphael Bostic said on Wednesday that the baseline scenario right now includes a 75 basis points (bps) rate hike in November and a 50 bps increase in December, as reported by Reuters.

Additional takeaways

"Inflation is too high and not moving with enough speed back to target."

"Lack of progress means Fed will need to be moderately restrictive with rates in the 4.25% to 4.5% range by year's end."

"Supply-side improvements have not come in as fast as expected."

"Watching international events but feels like the US has considerable momentum, less susceptible to contagion."

"Some evidence of improvement on the demand side but it is preliminary."

"No evidence of dysfunction in Treasury market at this point."

"Beyond the housing market, signs of cooling demand include businesses reporting a steep decline in consumer discretionary purchases, easier hiring."

"Below trend growth, more rational labor markets, weak demand for a wider range of products would be signals of weakening inflation."

"Rents levelling off would be a really positive development for Fed."

"I do not believe a US recession is a foregone conclusion, expecting the unemployment rate to increase to only 4.1%."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen losing 0.1% on the day at 114.07.

European Commission President Ursula von der Leyen announced on Wednesday that they will propose new import bans on Russian products that will deprive Russia of another €7 billion in revenue, as reported by Reuters.

Additional takeaways

"We do not accept sham referenda or any kind of annexation in Ukraine."

"New individuals and entities targeted in sanctions."

"Will further restrict trade."

"New export ban to hit additional aviation items, electronic components, specific chemical substances."

"EU will prohibit EU nationals from sitting on governing bodies of Russian state-owned companies."

"New package of sanctions will lay out the legal basis for the oil price cap."

"Will add new categories to list individuals if they circumvent our sanctions."

Market reaction

The EUR/USD pair retreated from session highs following these comments and was last seen posting small daily gains at 0.9600.

The GBP's recent decline has been dramatic. Wider deficits and bigger debt burdens need to be financed by foreign inflows – which may require further FX adjustment, according to economists at HSBC.

UK’s structural concerns dominate

“The UK’s public finance position (in terms of relative debt dynamics) is going to worsen materially in the year ahead. The GBP does not enjoy any special privilege in terms of financing this burden.”

“The UK’s core balance has seen a large decline from a 2% of GDP surplus to an 8% of GDP deficit in the last two years (Bloomberg, 30 June 2022). This requires greater short-term capital inflows just to keep the GBP on an even keel.”

“If foreign investors fear an unsustainable debt burden being ‘paid for’ through inflation or FX depreciation, they may not be as willing to finance it in the first place. This points to the potential for an ever weaker currency valuation.”

• Gold stages a solid recovery from a two-and-half-year low touched earlier this Wednesday.
• A sharp pullback in the US bond yields prompts some USD profit-taking and offers support.
• The prospects for more aggressive central banks, the risk-on mood could cap the XAU/USD.

Gold rebounds swiftly from its lowest level since April 2020 touched earlier this Wednesday and turns positive for the second successive day. The momentum lifts the XAU/USD to a fresh weekly high, around the $1,652 region during the early North American session.

The UK gilt yields retreat sharply after the Bank of England said it would buy bonds at whatever scale is necessary to restore orderly market conditions. The spillover effect triggers a steep decline in the US Treasury bond yields, which forces the US dollar to surrender its early gains to a new two-decade high. This turns out to be a key factor that prompts aggressive intraday short-covering around the dollar-denominated gold.

The upside potential, however, seems limited amid the prospects for a more aggressive policy tightening by global central banks, including the Federal Reserve. Investors seem convinced that the US central bank will continue to hike interest rates at a faster pace to combat stubbornly high inflation. This could act as a tailwind for the US bond yields and favours the USD bulls, which, in turn, should cap gains for the non-yielding gold.

Apart from this, a positive turnaround in the global risk sentiment - as depicted by a strong recovery in the equity markets - should keep a lid on the safe-haven XAU/USD. Even from a technical perspective, last week's breakdown below a short-term trading range supports prospects for an extension of a multi-month-old downtrend. This makes it prudent to wait for strong follow-through buying before confirming that gold has formed a near-term bottom.

Market participants now look forward to speeches by influential FOMC members, including Chair Jerome Powell. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities around the XAU/USD. The fundamental backdrop, however, suggests that the intraday recovery runs the risk of fizzling out quickly.

Technical levels to watch

Economists at Rabobank see scope for further USD gains vs. the EUR and note that the EUR/USD pair could slide below the 0.95 level.

Concerns over growth to underpin the greenback

“Since the USD is a safe haven, concerns that the US could tip into recession next year are set to be USD supportive.”

“The USD is set to remain firm until the Fed are content that US inflation is falling and that inflation expectations are well anchored. That is likely to be some months away.”

“We remain USD bulls. We are targeting EUR/USD 0.9500 but see risk of break below this level.”

• USD/TRY finally trespasses the 18.50 region to a new record high.
• The rally in the dollar keeps the upside pressure well in place in the pair.
• Next on tap in Türkiye comes the Economic Confidence Index (Thursday).

Extra depreciation in the lira sustains another uptick in USD/TRY to the area above 18.50 on Wednesday.

USD/TRY now looks to CPI

USD/TRY extends the march north on the back of the unabated rally in the greenback, which in turn appears well underpinned by investors’ repricing of the Fed’s tightening plans.

Nothing scheduled data wise in Türkiye on Wednesday should leave the attention to Thursday’s release of the Economic Sentiment Index for the month of September ahead of the key publication of inflation figures gauged by the CPI on Monday.

On the latter, finmin N.Nebati said earlier in the week that inflation pressures will start to ease towards year-end. His comments fell in line with those from President Erdogan made in previous days, who said prices would drop to “reasonable” levels by February 2023.

It is worth recalling that Ankara’s hopes of taming inflation are based on an economic programme that prioritizes low interest rates to support exports, production and investment, all aimed at restoring the current account surplus.

What to look for around TRY

USD/TRY keeps its move upwards well and sound, surpassing the key 18.50 level to clinch another all-time peak on Wednesday.

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

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

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

Key events in Türkiye this week: Economic Confidence Index (Thursday) – Trade Balance (Friday).

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

USD/TRY key levels

So far, the pair is gaining 0.73% at 18.5119 and faces the next hurdle at 18.5375 (all-time high September 28) followed by 19.00 (round level). On the downside, a break below 18.0197 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low).

S&P 500 could hold its 200-week average and 2022 lows temporarily. Big picture though, analysts at Credit Suisse look for a fall to 3235/3195.

S&P 500 to hold the 200-week average at 3590 at first

“With the key 200-week average at 3590, we see scope for a fresh hold here near-term. This though will be seen as a temporary hold and a clear and closing break below 3590 in due course should reinforce the bear market, with support then seen next at the 50% retracement of the 2020/2021 uptrend and Q1 2020 pre-pandemic high at 3505/3494. Whilst we would look for better support to show here, a break can clear the way for a fall to our core target of a cluster of supports at 3235/3195.”

“Near-term resistance moves to the price gap from the end of last week at 3727/58, with 3907 ideally capping further strength if seen.”

• A combination of factors assists AUD/USD to rebound from over a two-year low.
• Retreating US bond yields prompts some USD profit-taking and offers support.
• A positive turnaround in the risk sentiment also benefits the risk-sensitive aussie.

The AUD/USD pair stages a goodish recovery from its lowest level since April 2020 touched earlier this Wednesday, albeit lacks bullish conviction. The pair is currently placed around the 0.6425-0.6430 area and remains at the mercy of the US dollar price dynamics.

The spillover effect from the Bank of England's intervention to prop up the gilt market triggers a sharp fall in the US Treasury bond yields. This, along with a positive turnaround in the global risk sentiment, forces the safe-haven USD to trim a part of its intraday gains to a new 20-year peak and benefits the risk-sensitive aussie.

That said, growing worries about a deeper economic downturn and the risk of a further escalation in the Russia-Ukraine conflict should keep a lid on any optimistic move in the markets. Apart from this, bets that the Fed will stick to its aggressive monetary policy tightening path continues to act as a tailwind for the buck and caps the AUD/USD pair.

From a technical perspective, the downfall on the first day of the week confirmed a bearish breakdown below downward sloping channel support extending from May. The said support breakpoint, around the 0.6500 psychological mark, should now act as a pivotal point. Any subsequent move up might face hurdle near the weekly high, around the 0.6535-0.6540 area.

A sustained strength beyond the latter could trigger a short-covering move and allow the AUD/USD pair to aim back to reclaim the 0.6600 round-figure mark. Some follow-through buying will suggest that spot prices have formed a bottom and pave the way for an extension of the recovery towards the next relevant barrier near the 0.6655-0.6670 supply zone.

On the flip side, weakness back below the 0.6400 mark will negate prospects for any meaningful upside and make the AUD/USD pair vulnerable to retesting the YTD low, around the 0.6365 region. The downward trajectory could further get extended towards the 0.6300 round figure, though the oversold RSI (14) on the daily chart warrants caution for bearish traders.

AUD/USD daily chart

Key levels to watch

• US international trade deficit narrowed by $29 billion in August.
• US Dollar Index clings to small daily gains above 114.00.

The data published by the US Census Bureau showed on Wednesday that the US international trade deficit declined by $2.9 billion to $87.3 billion in August from $90.2 billion in July. 

"Exports of goods for August were $179.8 billion, $1.7 billion less than July exports," the publication read. "Imports of goods for August were $267.1 billion, $4.6 billion less than July imports."

Moreover, the report revealed that the Wholesale Inventories rose by 1.3% in August, higher than the market expectation for an increase of 0.7%.

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen posting small daily gains at 114.25.

The Bank of England has unveiled the details surrounding the recently announced bond-buying programme.

Key takeaways

"Will buy bonds with maturity over 20 years."

"Will buy up to 5 billion sterling of bonds per auction initially."

"Parameters will be kept under review."

"First auction will be on Wednesday between 1400-1430 GMT."

"Subsequent auctions will be each weekday from 1315 GMT to 1345 GMT until October 14."

"Will buy gilts through competitive reverse auction."

"Will set reserve prices for gilts."

Market reaction

GBP/USD recovered from session lows with the initial reaction and was last seen losing 0.85% on the day at 1.0645.

• GBP/USD witnessed an intraday turnaround and tumbles nearly 300 pips from the daily high.
• The reaction to the BoE announcement to buy government bonds fizzles out rather quickly.
• Concerns about rising UK public debt act as a headwind for sterling amid a looming recession.
• Aggressive Fed rate hike bets, the risk-off mood boosts the USD and contributes to the slide.

The GBP/USD pair plunges nearly 300 pips from the daily high and slips below mid-1.0500s heading into the North American session on Wednesday, though lacks follow-through. The pair is currently placed just below the 1.0600 round-figure mark, still down over 1.25% for the day.

The British pound did get a minor lift after the Bank of England announced that it will start buying long-dated UK government bonds to help restore orderly market conditions. The UK central bank's 
intervention appeared to calm the market, sending the yield on the 30-year benchmark gilt down by more than 50 bps at one point. The initial market reaction, however, fades rather quickly, which is evident from the GBP/USD pair's dramatic intraday turnaround from the 1.0840 region.

The new UK government's historic tax cuts worth £45 billion, along with plans to subsidize energy bills, could stretch Britain's finances to their limits. Investors seem less confident about the government’s ability to manage the ballooning debt. Furthermore, the fiscal package threatens to derail the BoE's efforts to contain sky-high inflation and create additional economic headwinds. This, in turn, acts as a headwind for sterling and caps the upside for the GBP/USD pair.

The US dollar, on the other hand, hits a fresh two-decade high and continues to draw support from growing acceptance that the Fed will hike interest rates at a faster pace to tame inflation. The bets were reaffirmed by the overnight hawkish remarks by FOMC members. Apart from this, the prevalent risk-off environment - amid worries about a deeper global economic downturn - provides an additional lift to the safe-haven buck and contributes to the GBP/USD pair's sharp intraday downfall.

That said, a modest pullback in the US Treasury bond yields is holding back the USD bulls from placing fresh bets and lending some support to the GBP/USD pair. The fundamental backdrop, however, suggests that the path of least resistance for spot prices is to the downside. That said, sustained strength beyond the 1.0840 region, which now seems to have emerged as an immediate strong barrier, will negate the near-term bearish outlook and trigger an aggressive short-covering move.

Technical levels to watch

Sterling is underperforming again today despite plans for emergency Bank of England (BoE) bond purchases. Economists at BBH expect the GBP/USD pair to test the low of 1.0350.

BoE to carry out temporary purchases of long-dated gilts

“The BoE noted that to achieve its objective of maintaining financial stability, ‘the Bank will carry out temporary purchases of long-dated UK government bonds from 28 September. The purpose of these purchases will be to restore orderly market conditions.”

“Yet neither higher rates nor the emergency bond-buying plan have done anything for sterling. Market confidence, once lost, is always difficult to regain.” 

“We look for an eventual test of this week’s new all-time low near 1.0350.”

On Thursday, September 22, the Turkish central bank surprised markets on the dovish side by delivering a second consecutive policy rate cut of 100 bps. Analysts at Credit Suisse stick to the view that the lira will continue to weaken gradually for now as the central bank prioritizes a smooth FX path.

Smooth path for USD/TRY is a priority

“Our base case for USD/TRY remains one where the pair continues to rise relatively orderly.” 

“We expect a break above the 19.00 mark to occur in the first half of the Q4.”

“We assume that the central bank will use the latest increase in its gross reserves to meet the coming balance of payments financing needs as lira stability remains a priority.” 

“Further ad hoc measures aiming to engineer a smooth path of depreciation will probably be used as a second line of defence if needed – such as a new deposit scheme that incentive locals to keep their cash in lira.”

The Bank of England (BoE) made a surprise intermeeting policy announcement to address a dysfunctional Gilt market. Some stability may emerge for GBP near-term, but likely temporary, in the opinion of economists at TD Securities.

Consolidation likely to be shallow and temporary

“The BoE announced the start of a temporary QE programme to target long-dated Gilts, and delayed the start of its Gilt sales programme to the end of October. The MPC will need to take this abrupt shift into account when it sets policy in November.”

“Stability around 1.07 for cable would be a win but ultimately tactical, with 1.0520/1.0350 keys supports below and 1.0931 key resistance above.”

• EUR/USD drops for the seventh straight session and tests 0.9535.
• Below the 2022 low at 0.9535 comes the 0.9500 region.

EUR/USD extends the leg lower to the proximity of 0.9530 earlier on Wednesday, an area last traded back in June 2002.

Odds for extra weakness in the European currency remain well on the table so far 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 should remain unaltered while below the 200-day SMA at 1.0667.

EUR/USD daily chart

Gold has confirmed a major “double top.” Strategists at Credit Suisse expect further weakness.

Important resistance seen at the 55-DMA 

“Gold below $1,691/76 has confirmed a large ‘double top’, which turns the risks lower over at least the next 1-3 months, with the precious metal also now hovering clearly below both the 55-day and 200-day averages, currently seen at $1,726/1,827.” 

“We note that the next support is seen at $1,618/16, then $1,560 and eventually $1,451/40.”

“Only a convincing break above the 55-day average at $1,726 would ease the pressure on the precious metal, with next resistance then seen at the even more important 200-day average, currently at $1,827.”

• DXY keeps the rally well in place and flirts with 114.80.
• Extra gains should meet the next hurdle at the 115.00 level.

DXY keeps pushing higher and clinches new 2-decade peaks in the 114.75/80 band on Wednesday.

The index seems to ignore the current extreme overbought levels and could extend the march north to, initially, the round level at 115.00 prior to the May 2002 top 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 just above 107.00.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 102.30.

DXY daily chart

• EUR/JPY adds to Tuesday’s retracement and retests the 138.00 zone.
• Further decline could see the September low near 137.30 retested.

EUR/JPY extends the weekly corrective downside to the vicinity of 138.00 the figure on Wednesday.

Considering the ongoing price action, further weakness should not be ruled out, particularly against prospects for further weakness in the euro and the spectre of more FX intervention by the BoJ/MoF.

Against that, a breach of the September low at 137.36 (September 26) could put a visit to the 200-day SMA at 135.71 back on the radar in the short-term horizon.

EUR/JPY daily chart

EUR/USD turned south on Wednesday and tumbled to a new low at around 0.9550. A break below 0.9500 would clear the path for further losses towards the next support at the 0.9200/0.9150 region, economists at Société Générale report.

Bounce could remain short-lived

“EUR/USD has approached the lower limit of the descending channel since February at 0.9500. Defending this can result in a bounce, however, August low of 0.9860/0.9900 is likely to cap.”

“Below 0.9500, next potential support is at projections of 0.9200/0.9150.”

Economist at UOB Group Lee Sue Ann comments on the general elections results in Italy.

Key Takeaways

“Far-right leader Giorgia Meloni of Brothers of Italy has claimed victory in the Italian election held over the weekend (25 Sep) and is on course to become the first Italian female prime minister. Turnout was lower than in the 2018 elections, at a historic-low of 63.91%. According to the Interior Ministry, Meloni’s alliance, which also includes Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia, claimed about 43.8% of the votes.”

“Reaction in financial markets has been relatively muted. EUR/USD was little changed, plummeting briefly to 0.9565 in early Asian trade on Mon (26 Sep) before rebounding to close at 0.9606. Italian bonds fell on Mon, with the 10-year yield rising around 11bps to 4.470%, tracking the moves across the region. Milan’s FTSE MIB index rose slightly on Mon, bucking weaker stock markets in Europe on the news Meloni had a clear majority.”

“The election took place against the background of an energy crisis amid the ongoing Russia-Ukraine war, rocketing inflation and a likely recession in Europe, as well as questions about Italy’s future stance towards the EU. Based on previous experiences, the appointment of a cabinet is likely to take place no earlier than end-Oct. Of particular interest will be the appointment of ministers, particularly the finance minister position, which will be crucial in managing Italy’s economy.”

• GBP/USD struggles for a firm direction and witnesses good two-way price moves on Wednesday.
• The BoE announces temporary purchases of long-dated UK government bonds and offers support.
• Aggressive Fed rate hike bets remain supportive of relentless USD buying and act as a headwind.

The GBP/USD pair meets with a fresh supply on Wednesday and remains on the defensive through the first half of the European session. Spot prices, however, manage to rebound a few pips from the daily low and now seem to have stabilized around the 1.0700 round-figure mark.

The pair benefits from a minor lift after the BoE announced it would carry out temporary purchases of long-dated UK government bonds, though the immediate market reaction turns out to be short-lived. The fundamental backdrop suggests that the path of least resistance for the GBP/USD pair is to the downside. That said, oscillators on short-term charts are flashing extremely oversold conditions and holding back traders from placing fresh bearish bets.

Meanwhile, a combination of supporting factors lifts the US dollar to a fresh two-decade high, which, in turn, exerts some downward pressure on the GBP/USD pair. The overnight hawkish remarks by Fed officials reaffirm the prospects for a more aggressive policy tightening by the Fed and remain supportive of elevated US Treasury bond yields. In fact, the benchmark 10-year US Treasury note held steady near its highest level since April 2010, which, along with the prevalent risk-off mood, continues to underpin the safe-haven greenback.

The British pound, on the other hand, is weighed down by the lack of confidence in the UK government’s ability to manage the ballooning debt. This is reinforced by the recent sell-off in the UK fixed income market, pushing the 30-year gilt to its highest level since 2007. The concerns were sparked by the new UK government's mini-budget announcement last week and the plan to subsidise energy bills for households and businesses. This threatens to derail the Bank of England’s efforts to tame inflation and creates additional economic headwinds.

There isn’t any major market moving data due for release from the UK, while the US economic docket features the only release of Pending Home Sales data later during the early North American session. This, along with speeches by influential FOMC members, including Fed Chair Jerome Powell, and the US bond yields, might influence the USD price dynamics and allow traders to grab short-term opportunities around the GBP/USD pair.

Technical levels to watch

The Bank of England announced on Wednesday that it will carry out temporary purchases of long-dated UK government bonds from September 28, as reported by Reuters.

"The purpose of these purchases will be to restore orderly market conditions," the BoE explained.

Key takeaways from the announcement

"The purchases will be carried out on whatever scale is necessary to effect this outcome."

"BoE stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses."

"Financial Policy Committee noted the risks to UK financial stability from dysfunction in the gilt market."

"These purchases will be strictly time-limited."

"Auctions will take place from today until 14 October."

"The purchases will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided."

"MPC annual target of £80 billion stock reduction is unaffected." 

Market reaction

With the immediate reaction, the GBP/USD pair spiked to a daily high of 1.0840 but quickly reversed its direction. As of writing, the pair was down 0.8% on the day at 1.0645.

GBP/USD has lost its recovery momentum. Economists at ING expect the pair to edge lower towards the 1.05 mark.

EUR/GBP to stay constrained to a 0.8900-0.9000 range

“Comments yesterday from Bank of England (BoE) Chief Economist Huw Pill were consistent with Monday's statement that the BoE would respond to the mayhem in UK asset markets at their regular monetary policy meeting on 3 November. We doubt BoE speakers today (Jon Cunliffe and Swati Dhingra) will have too much more to add. That leaves GBP/USD at the mercy of the strong dollar and a bias back towards 1.05 this week.” 

“Events on the continent may keep EUR/GBP constrained to an 0.8900-0.9000 range.”

Analysts at Credit Suisse lower their EUR/CHF target to 0.9000 from 0.9400 as there are upside risks to the Swiss National Bank’s (SNB's) policy rate path.

SNB to remain hawkish

“We see upside risks to the SNB's policy rate path versus market pricing and believe that EUR/CHF will continue to drift lower.” 

“We lower our target to 0.9000 from 0.9400 for the end of Q4 and consider our view invalidated above 0.9950. The latter level could, for example, be triggered should the ECB hike interest rates more aggressively than currently priced, with the SNB deliberately falling behind the curve.”

• NZD/USD drops to over a two-year low and is pressured by a combination of factors.
• Aggressive Fed rate hike bets, a further rise in the US bond yields underpin the USD.
• The risk-off mood also contributes to driving flows away from the risk-sensitive kiwi.

The NZD/USD pair nosedives to its lowest level since March 2020 during the first half of trading on Wednesday, albeit manages to recover a few pips during the early European session. The pair is currently hovering below the 0.5600 mark, still down nearly 2% for the day, and remains at the mercy of the US dollar price dynamics.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, hits a fresh two-decade high amid expectations for a more aggressive policy tightening by the Fed. The bets were reaffirmed by the overnight hawkish remarks by Fed officials, which, in turn, allows the yield on the benchmark 10-year US government bond to stand tall near its highest level since April 2020.

Apart from this, the prevalent risk-off mood provides an additional boost to the safe-haven greenback and contributes to driving flows away from the risk-sensitive kiwi. Investors remain worried that rapidly rising borrowing costs will lead to a deeper global economic downturn. Furthermore, the risk of a further escalation in the Russia-Ukraine conflict takes its toll on the global risk sentiment.

The fundamental backdrop suggests that the path of least resistance for the NZD/USD pair is to the downside. That said, the extremely oversold RSI (14) on short-term charts is holding back bearish traders from positioning for an extension of the depreciating move. This, in turn, seems to be the only factor offering some support to spot prices, at least for the time being.

Market participants now look forward to the release of the US Pending Home Sales data, due later during the early North American session. Apart from this, speeches by influential FOMC members, including Fed Chair Jerome Powell, and the US bond yields will influence the USD price dynamics. This, along with the broader risk sentiment, should allow traders to grab short-term opportunities around the NZD/USD pair.

Technical levels to watch

Economist at UOB Group Ho Woei Chen, CFA, and Senior FX Strategist Peter Chia review the latest measured introduced by the PBoC.

Key Takeaways

“People’s Bank of China (PBoC) reintroduced the reserve requirement rule for banks’ forward sales of CNY by raising the required ratio back to 20% from 0%, starting from 28 Sep. This will increase the cost of FX purchases using forwards and thus reduce the incentive for bearish CNY bets and stabilising the FX market expectations.”

“This year, the central bank had also cut the reserve requirement ratio for foreign currency deposits (FC RRR) twice, by a total of 300bps. Of this, the latest 200bps cut to 6% took effect from 15 Sep. The series of steps are aimed at slowing the pace of CNY depreciation given a more aggressive Fed interest rate hike trajectory and weak growth prognosis in China.”

“Previous episodes where 20% risk reserve requirements were imposed in 2015/2016 and 2018 showed that it will not be enough to reverse the USD/CNY trend. The CNY will more likely continue to depreciate alongside other trading peers against the USD as the Fed is likely to continue its aggressive rate hikes in the coming quarter (4Q22). As such, we are of the view that USD/CNY is likely to sustain above 7.0 in the near future.”

European Central Bank (ECB) Governing Council member Robert Holzmann said on Wednesday that a 75 basis points hike in interest rates would be a good option for the October meeting, as reported by Reuters. The ECB official noted that a 100 bps increase would be "too much."

Holzmann further added that he was against price caps and argued that people should save energy. 

Market reaction

The shared currency failed to capitalize on these comments. As of writing, the EUR/USD pair was trading at 0.9555, where it was down 0.4% on a daily basis.

• EUR/USD extends the leg lower to the 0.9530 region.
• The dollar climbs to fresh cycle tops vs. its rival currencies.
• ECB Lagarde reiterated that further rate hikes are coming.

Bears remain well in control of the sentiment around the European currency and force EUR/USD to print new 2022 lows near 0.9530 on Wednesday.

EUR/USD drops to new lows near 0.9530

EUR/USD so far navigates the seventh consecutive session in the negative territory, down at the same time for third consecutive week and the fourth straight month.

The intense upside in the dollar keeps the pair and the risk complex in general under heightened pressure in response to the broad-based consensus among investors that the Federal Reserve will keep the current aggressive normalization process for longer than expected.

The daily decline in spot comes in tandem with another high in the German 10-year bund yields, which trade close to the 2.30% for the first time since November 2011. In the same line, US yields in the belly and the long end of the curve reach fresh multi-year peaks.

Earlier in the session, Chair Lagarde reiterated that the ECB is expected to raise rates further in the upcoming gatherings. Her colleague Holzmann hinted that the bank could even raise rates past the neutral level in case of need, while member Rehn opened the door to a significant rate increase in October.

In the euro calendar, confidence consumer gauges in Germany, France and Italy deteriorated from the previous readings at -42.5, 79 and 94.8, respectively.

Across the pond, MBA Mortgage Applications, flash Goods Trade Balance and Pending Home Sales are due seconded by speeches by FOMC’s R.Bostic, J.Bullard, M.Bowman, C.Evans  and Chief Powell

What to look for around EUR

EUR/USD remains under heavy pressure against the backdrop of the unabated rally in the greenback and recorded new lows near 0.9530 earlier in the session.

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: 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 retreating 0.40% at 0.9556 and faces the immediate contention at 0.9535 (2022 low September 28) ahead of 0.9411 (weekly low June 17 2002) and finally 0.9386 (weekly low June 10 2002). On the upside, a break above 1.0050 (weekly high September 20) would target 1.0197 (monthly high September 12) en route to 1.0253 (100-day SMA).

EUR/USD has plunged close to 0.9500. A break below here would trigger a substantial drop, economists at ING report.

Some consolidation may be due above 0.9500

“Traditional drivers of the EUR/USD such as two-year swap differentials and terms of trade are having no say in EUR/USD pricing right now. However, EUR/USD, at 0.9500, would be near the lower of a bearish channel that has contained this year's orderly descent in the dollar – so perhaps some consolidation may be due above 0.9500.”

“But one-week EUR/USD implied volatility is still changing hands at the highs of the year 15% – warning of fast markets if 0.9500 breaks.”

• USD/JPY struggles to gain any meaningful traction and remains confined in a range.
• A combination of factors underpins the JPY and acts as a headwind for the major.
• The Fed-BoJ policy divergence, relentless USD buying continue to extend support.

The USD/JPY pair extends its consolidative price move and remains confined in the 144.50-145.00 broader trading range through the early European session on Wednesday.

The Bank of Japan July policy meeting minutes released this Wednesday an agreement among policymakers about the need to scrutinize how the yen's recent sharp depreciation could impact inflation. This comes on the back of direct intervention by authorities to stem the rapid fall in the domestic currency and offers some support to the Japanese yen, which, in turn, acts as a headwind for the USD/JPY pair.

The BoJ, however, reiterated its commitment to stick to the ultra-lose policy stance. In contrast, Fed officials struck a more hawkish tone on Tuesday and reaffirmed expectations that the US central bank will hike interest rates at a faster pace to curb stubbornly high inflation. This marks a big Fed-BoJ policy divergence, which continues to undermine the JPY and offers some support to the USD/JPY pair.

The Fed's hawkish outlook, meanwhile, lifts the US dollar to a fresh two-decade high. Adding to this, a further rise in the US Treasury bond yields contributes to the strong bid tone around the greenback and limits the downside for the USD/JPY pair. The fundamental backdrop supports prospects for additional near-term gains, though failure to make it through the 145.00 psychological mark warrants caution.

Market participants now look forward to the release of the US Pending Home Sales data, due later during the early North American session. Traders will further take cues from speeches by influential FOMC members, including Fed Chair Jerome Powell. This, along with the US bond yields, will influence the USD. Apart from this, the broader risk sentiment should provide some impetus to the USD/JPY pair.

Technical levels to watch

European Central Bank (ECB) policymaker Peter Kazimir said on Wednesday that they have to be ruthless in tightening the monetary policy, as reported by Reuters.

Regarding the upcoming rate decision, Kazimir argued that a 75 basis points hikes in rates would be a "very good candidate" to keep the pace of tightening.

Market reaction

Despite these hawkish comments, the shared currency is struggling to gather strength. As of writing, the EUR/USD pair was trading at 0.9567, where it was down 0.25% on a daily basis.

Dollar regathers strength following short-lived correction. Economists at Commerzbank expect the greenback to remain strong.

EUR/USD to trend further to the downside

“The Fed central bankers continue to leave no doubt that fighting inflation with the help of aggressive rate hikes remains their top priority. Of course, they too see risks for the economy, but recent data publications give little cause to the financial markets to question the Fed’s determination.”

“Whichever way one looks at it: yes, it seems questionable how much further the dollar can appreciate from here. However, there are no alternatives at present.” 

“The USD strength may yet continue for a while, with EUR/USD trending further to the downside.”

"There is a case for taking a decision on another significant rate hike, be it 75 or 50 basis points or something else," European Central Bank (ECB) Governing Council member Olli Rehn told Reuters on Wednesday.

Additional takeaways

"ECB should reach neutral interest rate level by Christmas; frontloading hikes are still appropriate."

"No qualms about restrictive rate policy are inflation outlook would warrant it but that decision is for later."

"ECB should look into changing TLTRO terms."

"Muted wage growth still a key anchor for inflation."

Market reaction

The shared currency managed to erase some of the daily losses it suffered against the dollar after these remarks. As of writing, EUR/USD was down 0.2% on the day at 0.9575.

EUR/USD has seen its weakest level in over two decades at around 0.9550. Economists at Credit Suisse now target 0.9000 for the fourth quarter.

European Central Bank has few tools to cope with current threats

“EUR/USD has benefited from ECB rate hike aggression, but this failed to stop it falling in Q3. Deeper problems such as energy shortages, the risk of a new phase of the Russia/Ukraine conflict and even the possibility of an Italian debt debacle lurk as valid threats in Q4.”

“The ECB has few tools to cope with these threats, perhaps even the Italian one if that country’s new government tests the EU’s patience with new fiscal plans.”

“We can see EUR/USD moving towards 0.9000 in Q4.”

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, the ongoing rally could push USD/CNH to the 7.3000 region in the next few weeks.

Key Quotes

24-hourt view: “We highlighted yesterday that USD ‘could test 7.1800 first before the risk of a pullback would increase’. However, USD soared to 7.1915 before pulling back to close largely unchanged at 7.1799 (+0.06%). USD surged above the major resistance at 7.1965 in early Asia trade. The breach of the key resistance is likely to lead to further rapid rise. The levels to watch are at 7.2300 and 7.2500. On the downside, a break of 7.1850 (minor support is at 7.1960) would indicate that the upside risk has eased.”

Next 1-3 weeks: “On Monday (26 Sep, spot at 7.1510), we highlighted that all eyes are on the 2020 high of 7.1960. We indicated that a breach of this major and long-term resistance could lead to an upward acceleration. USD took out 7.1960 in early Asian trade and surged higher. The breach of the key resistance combined with strong upward momentum could carry USD higher to 7.2500, possibly 7.3000. Overall, only a break of 7.1400 (‘strong support’ level was at 7.0950 yesterday) would indicate that the USD strength that started two weeks ago has come to an end.”

• The index keeps the rally well in place near 115.00.
• US 10-year note yields surpass the 4.00% level.
• Trade Balance results, housing data, Powell next in the docket.

The rally in the greenback appears everything but abated and now pushes the USD Index (DXY) to fresh cycle highs in the 114.75/80 band.

USD Index in more than 20-year peaks

The index advances for the fourth consecutive session so far on Wednesday and navigates an area last traded back in mid-May 2002 near the 115.00 barrier.

The prevailing perception that the Federal Reserve is committed to hike rates until inflation pressures show compelling signs of losing traction continue to underpin the solid upside momentum around the buck.

Further legs for the dollar also come from the outstanding performance of US yields, where the 10-year note already surpasses the key 4.00% hurdle for the first time since mid-October 2008.

In the US data space, usual weekly MBA Mortgage Applications are due in the first turn seconded by advanced Goods Trade Balance results and Pending Home Sales.

In addition, Atlanta Fed R.Bostic (2024 voter, centrist), St. Louis Fed J.Bullard (voter, hawk), FOMC Governor M.Bowman (permanent voter, centrist) and Chicago Fed C.Evans (2023 voter, centrist) are all due to speak.

On top, Chair J.Powell will make Welcoming Remarks at the 2022 Community Banking Research Conference in St. Louis.

What to look for around USD

Bulls keep their pressure well and sound and lift the dollar to the highest level since May 2002 vs. its main competitors on Wednesday.

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: MBA Mortgage Applications Advanced Trade Balance, Pending Home Sales, Fed Powell (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 advancing 0.23% at 114.44 and a breakout of 114.76 (2022 high September 28) would expose 115.00 (round level) and then 115.32 (May 2002 high). On the downside, the next contention aligns at 108.36 (55-day SMA) seconded by 107.68 (monthly low September 13) and finally 107.58 (weekly low August 26).

• A combination of factors lifts USD/CAD back closer to the YTD peak on Wednesday.
• Aggressive Fed rate hike bets, rising US bond yields lift the USD to a new 20-year top.
• Bearish oil prices undermine the loonie and support prospects for additional gains.

The USD/CAD pair regains positive traction on Wednesday and climbs back closer to the YTD peak touched earlier this week. The momentum is supported by a combination of factors, with bulls now awaiting a sustained strength beyond the 1.3800 round-figure mark.

Growing acceptance that the Fed will tighten its monetary policy at a faster pace remains supportive of a further rise in the US Treasury bond yields and lifts the US dollar to a new two-decade high. Apart from this, a fresh leg down in crude oil prices undermines the commodity-linked loonie and acts as a tailwind for the USD/CAD pair.

The US central bank signalled last week that it will likely undertake more aggressive increases at its upcoming meetings to cap inflation. The overnight remarks by Fed officials reaffirms the Fed's hawkish outlook and lifts the yield on the benchmark 10-year US government bond to the 4% threshold for the first time since April 2010.

Investors, meanwhile, remain worried that Fed policy will push the economy into recession. This, along with the risk of a further escalation in the Russia-Ukraine conflict, takes its toll on the global risk sentiment. This is evident from a weaker tone around the equity markets and provides an additional lift to the safe-haven greenback.

The Canadian dollar, on the other hand, is pressured by the underlying bearish sentiment surrounding crude oil prices. Fears that a deeper economic downturn will dent fuel demand offset tight global supply concerns and continue to weigh on the black liquid. This, in turn, supports prospects for additional gains for the USD/CAD pair.

Market participants now look forward to the release of the US Pending Home Sales data, which, along with the US bond yields and the broader risk sentiment, will drive the USD demand. Apart from this, speeches by influential FOMC members, including Fed Chair Jerome Powell, and oil price dynamics should provide some impetus to the USD/CAD pair.

Technical levels to watch

European Central Bank President Christine Lagarde reiterated on Wednesday that they will continue to raise rates in the next several meetings, as reported by Reuters.

Additional takeaways

"I'm not challenging that we made some projection errors."

"I gave a little forward guidance by saying that after 125 bp hikes that there will be more hikes in the next several meetings."

"We are not at the neutral rate yet."

Market reaction

EUR/USD showed no immediate reaction to these comments and was last seen losing 0.35% on the day at 0.9558.

The US Dollar Index (DXY) is close to 115. Economists at ING note that there are no hurdles until the 120 mark.

The dollar continues to power ahead

“Whether it be US data surprising on the upside, the US Administration showing no concern at all with the strong dollar, or new chapters in the energy war in Europe, it looks like all systems are go for the dollar rally.”

“There is not much resistance until 120.” 

“Favour shallow consolidations and further gains in this powerful stage of the rally.”

“We doubt second-tier US data today, nor Fed speakers do much damage to the dollar.”

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang said USD/JPY needs to break above 145.00 to allow for a sustained advance in the next weeks.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘there is room for USD to rise to 145.00 first before a more sustained pullback is likely’. Our expectations did not materialize as USD rose to 144.90 before closing little changed at 144.76 (+0.01%). The underlying tone is still positive and we see room for USD to rise above 145.00. However, USD might not be able to maintain a foothold above this level. The next resistance at 145.50 is unlikely to come under threat. Support wise, a breach of 144.20 (minor support is at 144.50) would indicate the current upward pressure has eased.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (27 Sep, spot at 144.30). As highlighted, 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 143.40 (‘strong support’ level was at 142.80) is not breached.”

• AUD/USD dives to its lowest level since April 2020 amid another blowout USD rally.
• Aggressive Fed rate hike bets, elevated US bond yields continue to boost the buck.
• The risk-off mood also contributes to driving flows away from the risk-sensitive aussie.

The AUD/USD pair comes under renewed selling pressure on Wednesday and slides below the 0.6400 mark for the first time since April 2020. The pair maintains its offered tone through the early European session and is currently placed around the 0.6370-0.6365 region, down over 1.0% for the day.

A combination of supporting factors lifts the US dollar to a fresh two-decade high, which, in turn, is seen exerting downward pressure on the AUD/USD pair. The overnight hawkish remarks by Fed officials reaffirm the prospects for a more aggressive policy tightening by the Fed and remain supportive of a further rise in the US Treasury bond yields. This, along with the risk-off mood, continues to underpin the safe-haven buck.

In fact, Minneapolis Fed President Neel Kashkari said on Tuesday that policymakers are determined to do what is needed to bring inflation down. Adding to this, Chicago Fed President Charles Evans noted that the US central bank will need to raise interest rates to a range between 4.50% and 4.75%. The yield on the benchmark 10-year US government bond shot to 4% for the first time since April 2010 following the comments.

Investors, meanwhile, remain worried that Fed policy will push the economy into recession. Apart from this, the risk of a further escalation in the Russia-Ukraine conflict continues to take its toll on the global risk sentiment. This is evident from a generally weaker tone around the equity markets, which is driving flows towards the greenback and contributing to the selling bias surrounding the risk-sensitive aussie.

With the latest leg down, the AUD/USD pair confirms this week's bearish breakdown through the lower end of a multi-month-old descending channel. A subsequent fall and acceptance below the 0.6400 mark might have already set the stage for an extension of the downward trajectory. Hence, some follow-through weakness towards testing the next relevant support, around the 0.6300 mark, remains a distinct possibility.

Technical levels to watch

Here is what you need to know on Wednesday, September 28:

The greenback regathered its strength in the late American session on Tuesday and stretched higher during the Asian trading hours on Wednesday with the US Dollar Index touching a fresh multi-decade high of 114.70. The risk-averse market environment amid rising geopolitical tensions and growing fears over a global economic slowdown helps the dollar outperform its rivals mid-week. In the second half of the day, the US economic docket will feature Goods Trade Balance and Pending Home Sales data for August. European Central Bank President Christine Lagarde and FOMC Chairman Jerome Powell will also be delivering speeches.

Although Wall Street's main indexes opened decisively higher on Tuesday, they ended up closing the day little changed. The data from the US showed that consumer confidence continued to strengthen in September, helping the dollar find demand. In a report published on Tuesday, Reuters said that Chinese banks were planning to reintroduce the counter-cyclical factor in yuan mid-point fixing to limit the currency's depreciation. Despite this development, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1107 vs. the previous fix of 7.0722. Hence, the yuan has weakened to a record low against the US dollar following another weaker-than-expected fix.

Meanwhile, European Commission chief Ursula von der Leyen said late Tuesday the damage to Nord Stream pipelines was caused by sabotage and warned of the "strongest possible response" should active European energy infrastructure suffer more attacks.

EUR/USD turned south early Wednesday and was last seen trading at its weakest level in over two decades at around 0.9550. Earlier in the day, the data from Germany showed that the Gfk Consumer Confidence Index dropped to a new record low of -42.5 for October, highlighting the deteriorating sentiment due to rising energy prices.

GBP/USD managed to register modest gains on Tuesday but lost its recovery momentum on Wednesday. In a report published on Tuesday, the International Monetary Fund (IMF) voiced its criticism of the UK's mini-budget. "Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture," the IMF said. In the meantime, Bank of England (BOE) Chief Economist Huw Pill noted on Tuesday that they will not sell gilts into a dysfunctional market. "Hard not to draw the conclusion that we will need significant monetary policy response," Pill added. At the time of press, GBP/USD was down 0.7% on the day at 1.0655.

Despite the broad-based dollar strength, USD/JPY continues to fluctuate below 115.00. The risk-averse market environment helps the JPY stay resilient against its rivals and investors might be refraining from selling the currency following last week's unexpected intervention.

Despite having close modestly higher on Tuesday, gold came under renewed bearish pressure on Wednesday and fell toward $1,620. The benchmark 10-year US Treasury bond yield is up 1.5% on the day at 4%, weighing on XAU/USD.

Bitcoin failed to hold above $20,000 and reversed its direction late Tuesday. BTC/USD was last seen losing 2% on the day at $18,700. Similarly, Ethereum is losing over 3% on the day and trading below $1,300.

• Gold price remains pressured around the two-year low, reversing the previous day’s corrective bounce.
• Fears of recession, firmer yields underpin US dollar’s safe-haven demand and weigh on XAU/USD.
• Multiple key hurdles to the north, risk-off mood keeps sellers hopeful ahead of Fed Chair Powell’s speech.

Gold price (XAU/USD) returns to the bear’s list, after a brief absence the previous day, as the yellow pokes the two-year low marked earlier in the week. In doing so, the quote portrays the market’s rush towards risk safety, especially towards the US dollar, amid fears of economic slowdown. Also keeping the bullion bears hopeful were headlines suggesting more interest rate hikes from the global central banks, as well as downbeat macros from China, one of the key customers of gold. It’s worth noting that the pessimism surrounding Europe and the UK could keep the commodity directed towards the south. However, Fed Chair Jerome Powell’s speech may trigger another corrective rebound if the hawkish tone is missing.

Also read: Gold Price Forecast: XAU/USD remains vulnerable amid surging bond yields, USD

Gold Price: Key levels to watch

 The Technical Confluence Detector shows that the gold price stays decisively below multiple strong resistances with a smooth run towards the south.

That said, a convergence of the Pivot Point one day and one week S2, around $1,610, gains the major attention of the sellers.

On an immediate basis, the lower band of the hourly Bollinger, near $1,620, could limit the XAU/USD downside.

Alternatively, a joint of the Pivot Point one week S1, lower band of the daily Bollinger and SMA50 on 15-minute appears a tough nut to crack for the gold buyers, close to $1,628.

Following that, the SMA 10 on 4H joins the previous high on four-hour formation, as well as the middle band of the hourly Bollinger, to highlight $1,630 as adjacent resistance.

In a case where XAU/USD successfully crosses the $1,630 hurdle, the middle Bollinger band on 4H, the upper Bollinger band on the hourly and previous weekly low will lure the bulls around $1,641.

If at all the gold price rallies beyond the $1,641 hurdle, the odds of witnessing a run-up towards July’s peak near $1,680 can’t be ruled out.

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.

Bank Indonesia (BI) increased the pace of policy normalisation with a 50 bps hike in September when stabilising the rupiah became a key consideration. Economists at ANZ Bank forecast USD/IDR at 15,000 by the end of the year.

Terminal policy rate pencilled in at 5.75% by Q2 2023

“We expect the policy rate to peak at 5.75% in Q2 2023, or 75 bps above our forecast for the Fed funds rate. Also, BI has been tightening rupiah liquidity, coupled with modest FX intervention, to support the currency.”

“We forecast USD/IDR at 15,000 at end-2022 and 15,100 by mid-2023.”

EUR/GBP has seen a volatile week. The pair broke psychological resistance at 0.9000/58 before reversing back below this level. In the view of economists at Credit Suisse, a break above 0.9501 is needed to raise the prospect of a longer-term move higher.

Support at 0.8722/0.8691 to hold further weakness

“We look for support at 0.8722/0.8691 to try and hold further weakness for strength in due course back to 0.9269/0.9292.”

“Only above the 0.9501 high of 2020 though would be seen to mark a more significant break higher to clear the way for further strength over the long-term, with the 0.9803 high of 2008 then just the next resistance test.”

• EUR/GBP has rebounded firmly after dropping to near 0.8940 ahead of ECB Lagarde’s speech.
• European Commission is planning to a price cap on oil from Russia under a new sanctions package.
• UK’s GDP data is expected to remain in line with the prior readings.

The EUR/GBP pair has displayed a responsive buying move after dropping to near 0.8940 in the early European session. The asset is expected to defend the critical support of 0.8930 as a break below the same will strengthen the sterling bulls. In the Asian session, the cross witnessed a steep fall after testing the crucial hurdle of 0.8980.

Going forward, a lackluster performance is expected from the pair as investors are awaiting the speech from European Central Bank (ECB) President Christine Lagarde. The speech will provide cues above the likely monetary policy action. The already troublesome job of ECB policymakers is heating further as economic fundamentals are not supporting policy tightening measures. Also, commentary on the deepening energy crisis in Germany will be keenly watched.

News wires from Politico cited that the European Commission is planning to a price cap on oil from Russia under a new sanctions package.

On Tuesday, European Commission chief Ursula von der Leyen cited that the leaks of the Nord Stream pipeline were a result of sabotage, and warned of the "strongest possible response". 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.

This week, Eurozone Consumer Confidence also holds significant importance. As per the preliminary estimates, the sentiment data will remain steady at -28.8. It is worth noting that the economic data is getting more vulnerable over the past year.

Meanwhile, the show-stopper event will be UK’s Gross Domestic Product (GDP) data. The annual and quarterly data is expected to remain steady at 2.9% and -0.1% respectively.

The Reserve Bank of India (RBI) recently allowed USD/INR to rise past the psychological 80 mark. The rupee is expected to remain weak, according to economists at ANZ Bank.

USD strength to weigh on the rupee

“INR is over-valued from a peer perspective and domestic liquidity has been falling, making aggressive dollar sales difficult from a liquidity management point of view.”

“We see risks from further strength in the US dollar, which will weigh on the rupee.” 

“The RBI may continue to intervene, but the scale of dollar sales will have to be clipped.”

“We expect USD/INR at 82 by year-end.”

GBP/USD picks up bids to extend corrective bound off intraday low to regain 1.0700 during the initial hours of Wednesday’s European session. In doing so, the Cable traders struggle to justify the broad US dollar strength, as well as pessimism at home, amid mixed concerns in the options market.

One-month risk reversal (RR) on the British pound (GBP), a gauge of calls to puts, snapped a two-day downtrend with a 0.160 figure, per the latest data provided by Reuters.

On a weekly basis, however, the options market gauge stays negative for the second time in a row to -0.685, considering the weekly data from Reuters.

The positive reading indicates call options are drawing a higher premium (option price) than puts or bearish bets.

In other words, the options market probes the bears after witnessing a heavy fall in the last few days.

Also read: GBP/USD bears approach 1.0600 in search of fresh record low, UK’s fiscal plans, Fed’s Powell eyed

The South African central bank (SARB) hiked its key rate by 75 bps to 6.25% last week. ZAR was certainly unable to maintain its earlier gains against USD. The evolution of the currency is key to the next steps of the central bank, economists at Commerzbank report.

SARB will initially continue its rate hike cycle

“We expect that the SARB will initially continue its rate hike cycle. At the last meeting this year, due in November, a further 50 bps rate step seems most likely to us. Based on three-month futures contracts the market seems to be expecting a little more than that.”

“Whether the step will be larger or smaller and how many there will be after that is likely to also depend on how the rand can hold its ground. In a more restrictive global rates environment and with depressed market sentiment we expect it to get under further downside pressure for now.”

• German Gfk Consumer Confidence Index dropped to a new all-time low.
• EUR/USD trades in negative territory near 0.9550 after the data.

Consumer sentiment in Germany is seen hitting its weakest point in October with the Gfk Consumer Confidence Index slumping to a new all-time low of -42.5 from -36.8 in September. This reading came in weaker than the market expectation of -39. 

"Many households are currently forced to spend significantly more money on energy or set aside for significantly higher heating bills," GfK consumer expert Rolf Buerkl said and explained that would leaves less money available for making new purchases.

Market reaction

EUR/USD stays on the backfoot after this data and was last seen losing 0.35% on the day at 0.9558.

GBP/USD fell briefly below the key notable lows of 1985. Economists at Credit Suisse maintain their negative outlook and see scope for a “stress test” of parity.

GBP/USD will try to find a floor at 0.9895

“We stay bearish for a sustained move below 1.0463 for a test of the key parity psychological level. With Fibonacci projection support not far below at 0.9895, we would look for an attempt to find a floor here. Should weakness directly extend though, we would see support next at 0.9535.”

“Resistance at 1.1409/91 ideally caps, although only a close back above 1.1739 would raise the prospect of a potentially more important low.”

• Silver price remains pressured at multi-day low, breaks 11-week-old horizontal support.
• Bearish MACD signals, the absence of oversold RSI add strength to the downside bias.
• 50-DMA, three-month-long descending resistance line challenge buyers.

Silver price (XAG/USD) takes offers to refresh the three-week low, reversing the previous day’s corrective bounce, as bears poke $18.00 during early Wednesday morning in Europe.

In doing so, the bright metal breaks a horizontal area comprising multiple levels marked since early June amid bearish MACD signals. Also keeping the sellers hopeful is the downward sloping RSI (14) line, not oversold.

With this, the XAG/USD sellers are all set to challenge the yearly low marked earlier in the month around $17.55.

However, the likely oversold RSI and the 61.8% Fibonacci Expansion (FE) of the metal’s June-September moves, near $16.90, could challenge the silver bears afterward.

Meanwhile, recovery moves may have to stay firmer beyond the support-turned-resistance area surrounding $18.20-30.

Following that, a run-up towards the 50-DMA hurdle of $19.30 can’t be ruled out. Though, a downward sloping resistance line from early June, near $19.80, precedes the $20.00 threshold to test the XAG/USD buyers afterward.

Silver: Daily chart

Trend: Further downside expected

• EUR/USD bears are testing the waters before displaying their full strength.
• Downward-sloping 20-and 50-EMAs add to the downside filters.
• A slippage below 0.9540 will direct the greenback bulls towards a fresh two-decade low.

The EUR/USD pair is hovering around the critical support of 0.9540, which is a fresh two-decade low, printed on Monday. In the Asian session, the asset declined firmly after attempting to cross the round-level hurdle of 0.9600. The major is auctioning at a make or break level, therefore a volatility enhancement in the counter cannot be ruled out.

On an hourly scale, the shared currency bulls are testing the waters first at 0.9540 around and a follow-up selling pressure will send the pair into a negative trajectory. Also, the downward-sloping trendline from Tuesday’s high at 0.9671 will be a major barricade.

The 20-and 50-period Exponential Moving Averages (EMAs) at 0.9583 and 0.9622 respectively are sloping downwards, which adds to the downside filters.

Adding to that, the Relative Strength Index (RSI) (14) is oscillating in a bearish range of 20.00-40.00, which indicates more weakness ahead.

Should the asset drops below Wednesday’s low at 0.9542, the greenback bulls will drag the asset towards June 2002 low at 0.9313, followed by October 2001 high at 0.9241.

Investors could go for a contra bet if the asset oversteps Tuesday’s high at around 0.9670, which will drive the asset towards Friday’s high at 0.9852. A breach of the latter will send the major towards the round-level resistance at 0.9900.

EUR/USD hourly chart

Gold, so far, has been struggling to register any meaningful recovery. The lack of bullish conviction suggests that further losses are probable, FXStreet’s Haresh Menghani reports.

XAU/USD remains vulnerable

“A fall below the $1,620 area (YTD low), en route to the $1,600-$1,590 region, remains a distinct possibility. Some follow-through selling 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 aim to challenge the $1,500 psychological mark.”

“The overnight swing high, around the $1,640-$1,642 area, now seems to act as immediate resistance. This is followed by the trading range support breakpoint, around the $1,654-$1,656 region, which if cleared 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 towards the $1,700 mark.”

See – Gold Price Forecast: XAU/USD seen at $1,620 by year-end – ANZ

In light of advanced figures from CME Group for natural gas futures markets, open interest dropped for the second straight session on Tuesday, now by around 3.5K contracts. On the flip side, volume reversed two daily pullbacks and rose by around 102.3K contracts.

Natural Gas appears supported around $6.50

Tuesday’s downtick in prices of natural gas was in tandem with another drop in open interest, which hints at the idea that a deeper drop looks not favoured for the time being. In the meantime, the $6.50 region per MMBtu continues to support the commodity, an area reinforced by the 200-day SMA.

• USD/IDR jumps to 29-month high even as BI official accepts "triple intervention".
• Indonesia also seeks less exposure to the US dollar, considers diversifying loans to state-owned enterprises.
• Broad risk-off mood, firmer yields underpin US dollar gains.
• Fed Chair Powell eyed for further upside momentum, EU energy crisis eyed as well.

USD/IDR grinds higher around the 2.5-year high near $15,250 ahead of Wednesday’s European session. In doing so, the Indonesia rupiah (IDR) justifies the latest news from the Bank Indonesia (BI), as well as the risk-aversion wave.

Indonesia's central bank has continued with its "triple intervention" to guard against excessive falls in the rupiah exchange rate, with a focus on intervening in the domestic non-deliverable forward market, an official said on Wednesday, per Reuters. The news also quotes Edi Susianto, head of Bank Indonesia's monetary management department, while saying, “The central bank would also continue to conduct "operation twist" in the bond market with a focus on selling short-term bonds.”

It was also mentioned that the Asian nation might diversify its loan from the US dollar amid the latest jump in the greenback. “Indonesia is considering diversifying its loans for state-owned enterprises with foreign currencies other than the U.S. dollar, amid the declining rupiah,” mentioned Reuters.

Elsewhere, comments from the White House (WH) Economic Adviser Brian Deese and San Francisco Fed President Mary Daly, not to forget pessimism emanating from China and Europe, seemed to have weighed on the market sentiment. WH Economic Adviser Deese’s comments that he does not anticipate the need for the global accord to adjust currency values seemed to have pleased the US dollar bulls of late. The policymaker also stated, “I'm fundamentally optimistic about the US economy, which can emerge stronger than before the pandemic.”

While portraying the mood, the US Dollar Index (DXY) renews the 20-year high near 114.70 while the US 10-year Treasury yields jump to 4.0% for the first time since 2010. Amid these plays, the S&P 500 Futures drop 0.50% intraday to poke the 21-month low marked the previous day.

Technical analysis

The year 2018 swing high near $15,265 appears a tough nut to crack for the USD/IDR bulls amid overbought RSI. The bulls, however, remain hopeful unless the quote remains beyond the previous resistance line from April 2021, currently around $15,090.

• Asian indices have plunged as 10-year benchmark yields have touched a high of 4%.
• Japanese equities are plummeting as firms are set to report a weak quarterly result season.
• Investors should brace for a hawkish tone by the Fed Powell while delivering Wednesday’s speech.

Markets in the Asian domain are displaying a vulnerable performance as US Treasury yields have advanced sharply on expectations of further acceleration in the interest rates by the Federal Reserve (Fed). As the Federal Reserve (Fed) is preparing to reach the desired terminal rate of 4.6% sooner to achieve price stability in the economy, yields are gaining traction. The 10-year benchmark US Treasury yields have kissed 4% for the first time since 2010.

At the press time, Japan’s Nikkei225 plunged 2.11%, Hang Seng nosedived 2.82% while SZSE Component tumbled 1.46%.

Japanese equities have continued their falling spree as an unscheduled bond-buying program by the Bank of Japan (BOJ) could crush the upside momentum in Japanese yen. The depreciating yen is a major concern for the Japanese government as corporate margins are dropping led by increment in imported inputs prices. The third quarterly result season in the Japanese economy is at the gateway and major firms are expected to report pain in their EBITDA margins.

Meanwhile, Chinese indices are facing pressure after the World Bank slashed growth rates for 2023 due to ongoing zero tolerance toward Covid-19 and the real estate crisis. A slump in demand for real estate has also trimmed demand for steel, base metals, cement, and other building materials in the Chinese economy.

Going forward, the speech from Fed chair Jerome Powell will be of utmost importance. As price pressures are not displaying a promising decline, investors are expected ‘hawkish’ guidance on interest rates.

On the oil front, oil prices are witnessing subdued moves ahead of the release of the inventory data by the Energy Information Administration (EIA). The agency is displaying a build-up of stockpiles for the past three weeks and a similar pattern is expected this week. As per the consensus, the EIA will report a build-up of oil inventories by 0.333 million barrels for the past week.

The breakdown of 0.6400 could motivate AUD/USD to extend the decline to the 0.6360 region in the near term.

Key Quotes

24-hour view: “Yesterday, we expected AUD to ‘trade between 0.6435 and 0.6520’. AUD subsequently rose to 0.6513 before dropping to 0.6414. While the decline lacks momentum, there is room for AUD to dip to 0.6400 first before the risk of a rebound would increase. For today, the next support at 0.6360 is not expected to come under threat. On the upside, a break of 0.6495 (minor resistance is at 0.6470) would indicate that the current downward pressure has eased.”

Next 1-3 weeks: “We continue to hold the same view from Monday (26 Sep, spot at 0.6500) that AUD is likely to continue to weaken and the next level to watch is at 0.6400. Overall, only a breach of the ‘strong resistance’ level at 0.6555 (level was at 0.6600 yesterday) would indicate that the weakness in AUD that started 2 weeks ago (see annotations in the chart below) has stabilized. Looking ahead, the next support below 0.6400 is at 0.6360.”

• USD/CHF picks up bids to direct bulls towards the weekly top, also the highest since mid-June.
• Bullish channel, sustained break of monthly horizontal resistance area keeps buyers hopeful.
• Convergence of 100-SMA, a two-week-old resistance line challenges sellers.

USD/CHF adds more than what’s lost the previous day as it rises towards the weekly top, the same as the 3.5-month high, heading into Wednesday’s European session. That said, the Swiss currency (CHF) pair gains 0.30% intraday around 0.9950 by the press time.

The pair’s latest upside moves could be linked to the sustained break of a horizontal area comprising multiple levels marked since early September, near 0.9860-70.

Also keeping the bulls hopeful is the one-week-long ascending trend channel, currently between 1.0035 and 0.9885.

It should be noted that the USD/CHF pair’s declines past 0.9860 won’t be a clear sign of the bear’s return as a confluence of the 100-SMA and ascending trend line from September 13, around 0.9710, appears a tough nut to crack for them.

Even if the quote breaks the 0.9710 support confluence, the 0.9700 threshold and an upward sloping trend line from early August, close to 0.9530, will act as the last defense of the bears.

Meanwhile, the USD/CHF pair’s latest upside eyes the recent tops surrounding 0.9965 before heading towards the stated channel’s upper line near 1.0035.

If at all the quote rises past 1.0035, the yearly high near 1.0065 will be in focus.

USD/CHF: Four-hour chart

Trend: Limited upside expected

CME Group’s flash data for crude oil futures markets noted traders reduced their open interest positions by around 11.8K contracts on Tuesday, adding to the previous daily pullback. Volume, instead, remained choppy and went up by around 112.3K contracts.

WTI keeps targeting the 2022 low near $74.00

WTI prices attempted a mild rebound on Tuesday. The uptick, however, was accompanied by shrinking open interest, which removes strength from a potential continuation of the recovery and leaves the commodity vulnerable to extra losses in the very near term. Next on the downside now emerges the YTD low near the $74.00 mark per barrel (January 3).

Rising energy prices will pile more price pressure on consumers in emerging Europe, central Asia and North Africa, the European Bank for Reconstruction and Development said on Wednesday, while also trimming its 2023 growth forecast for the region.

Key quotes

Market implications

The news adds strength to the market’s risk-off mood and the US dollar, which in turn weigh on the EUR/USD prices. That said, the major currency pair remains pressured around the recently flashed 20-year low near 0.9550 by the press time.

Also read: EUR/USD renews 22-year low as yields propel DXY, focus on ECB vs. Fed drama, energy crisis

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang suggest further downside could see GBP/USD visiting the key parity region.

Key Quotes

24-hour view: “Yesterday, we held the view that GBP ‘could continue to trade in a choppy manner and likely within a wide range of 1.0600/1.0900’. However, GBP traded within a narrower range than expected (1.0651/1.0837). The underlying tone has softened and GBP is likely to edge lower for today. That said, a sustained decline below 1.0630 is unlikely. Resistance levels are at 1.0780 and 1.0830.”

Next 1-3 weeks: “On Monday (26 Sep, spot at 1.0600), we highlighted that in view of the impulsive downward acceleration from last Friday, a further decline in GBP to 1.0000 is not ruled out. There is no change in our view. However, deeply oversold short-term conditions suggest GBP could trade above Monday’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 2 weeks ago has stabilized.”

Open interest in gold futures markets shrank for the second session in a row on Tuesday, this time by around 9.1K contracts according to preliminary readings from CME Group. Volume followed suit and added to the previous drop, now by around 21.1K contracts.

Gold now looks to revisit $1,600

Tuesday’s uptick in gold prices was on the back of shrinking open interest and volume and hinted at the view that further upside seems unconvincing. That said, the resumption of the downtrend appears likely in the very near term and with the next support at the key $1,600 support.

• Gold prices are aiming to test $1,620.00 as 10-year benchmark US yields have touched 4%.
• As inflation has not responded well to soaring interest rates, Fed Powell will to its hawkish stance.
• A roadmap for hiking the interest rates in the remaining 2022 will be discussed by the Fed.

Gold price (XAU/USD) is oscillating around $1,625.00 after dropping below the consolidation range of $1,626.83-1,632.72 in the Asian session. The precious metal is continuously declining after facing barricades above $1,640.00. The yellow metal is expected to drop to near $1,620.00 amid soaring US Treasury yields. Also, the market participants will keep the bright metal on the tenterhooks ahead of the speech from Federal Reserve (Fed) chair Jerome Powell.

Considering the responsiveness of the decline in the price pressures vs. the pace of hiking interest rates by the central bank, Fed Powell will sound hawkish and provide a roadmap of further rate hikes in the remaining 2022. In 2023, the Fed will prefer to remain data-dependent. One thing is for sure the Fed will scale down the pace of hiking rates in 2023 as the deviation between current rates and the targeted terminal rate at 4.6% is low.

Meanwhile, the ongoing fight against inflationary pressures is fueling the US Treasury yields. The 10-year benchmark has touched a high of 4% for the first time since 2010. The yields have sensed selling pressure after hitting the critical but have opened room for further upside.

Gold technical analysis

Gold prices are displaying a volatility contraction amid auctioning in a bounded territory of $1,621.46-1,649.83 on an hourly scale. An explosion in the same will result in wider ticks and heavy volume. The horizontal resistance is plotted from Sep 16 low at $1,654.17.

The 50-period Exponential Moving Average (EMA) at around $1,640.00 has acted as a major barrier for the counter. Also, the Relative Strength Index (RSI) has dropped into the bearish range of 20.00-40.00, which will trigger a downside momentum.

Gold hourly chart

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, there is still room for EUR/USD to slip back to the 0.9500 region in the next few weeks.

Key Quotes

24-hour view: “EUR traded between 0.9567 and 0.9670 yesterday, narrower than our expected consolidation range of 0.9560/0.9700. Downward momentum is building again and the risk for today is on the downside. That said, EUR is unlikely to break clearly below 0.9530. On the upside, a breach of 0.9660 (minor resistance is at 0.9630) would indicate that EUR is unlikely to weaken to 0.9530.”

Next 1-3 weeks: “Our latest narrative from Monday (26 Sep, spot at 0.9630) still stands. 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 2 weeks ago is intact as long as EUR does not breach 0.9750 (‘strong resistance’ level was at 0.9770 yesterday).”

• USD/JPY grinds higher around 24-year top, probes three-day uptrend.
• BOJ Minutes highlights the need for vigilance on sharp yen moves.
• US 10-year Treasury bond yields rose to 12-year high, DXY renewed the highest levels since May 2002.
• No major data on calendar, Fed’s Powell may please bulls if managed to defend heavy rate hikes.

USD/JPY skates on thin ice in the last two days, taking rounds to 144.70 during early Wednesday morning in Europe. In doing so, the yen pair fails to tracks the firmer US Treasury yields and the US Dollar Index (DXY) while also paying a little heed to the risk-off mood. The reason could be linked to the Bank of Japan’s (BOJ) latest monetary policy meeting and the BOJ’s Japanese Government Bond (JGB) buying activity.

That said, the US Dollar Index (DXY) renews the 20-year high near 114.70 while the US 10-year Treasury yields jump to 4.0% for the first time since 2010.

Earlier in the day, BOJ released the Minute statement of the latest monetary policy meeting. As per the statement, the board members agreed that the inflationary impact of the yen's recent sharp moves must be closely scrutinised, but policymakers reiterated their resolve to keep policy loose even as the currency's rapid fall has unsettled financial markets, per Reuters.

On the other hand, the BOJ said it offered in the morning to lend 1.4628 trillion yen in Japanese government bonds (JGBs) as a secondary source of supply of some issues for settlement today under an agreement expiring on September 29.

Elsewhere, comments from the White House (WH) Economic Adviser Brian Deese and San Francisco Fed President Mary Daly, not to forget pessimism emanating from China and Europe, seemed to have weighed on the market sentiment. WH Economic Adviser Deese’s comments that he does not anticipate the need for the global accord to adjust currency values seemed to have pleased the US dollar bulls of late. The policymaker also stated, “I'm fundamentally optimistic about the US economy, which can emerge stronger than before the pandemic.”

On Tuesday, 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.

Amid these plays, the S&P 500 Futures drop 0.50% intraday to poke the 21-month low marked the previous day.

While the risk-off mood battles the BOJ’s defense of the yen, the USD/JPY traders may closely watch Fed Chairman Jerome Powell’s speech to overcome the immediate trading hurdle.

Technical analysis

A three-week-old descending resistance line around 145.00 is the immediate key hurdle that holds the gate for the USD/JPY pair’s run-up towards the fresh 24-year, currently around 145.90.

The Federal Reserve will hike its key interest rate to a much higher peak than predicted two weeks ago and the risks are skewed towards an even higher terminal rate, according to economists polled by Reuters.

Key findings

Also read: EUR/USD renews 22-year low as yields propel DXY, focus on ECB vs. Fed drama, energy crisis

• AUD/USD remains on the back foot around the lowest levels since May 2020.
• Clear break of three-month-old triangle, bearish MACD signals favor sellers.
• 78.6% Fibonacci Expansion probes further downside amid oversold RSI.
• Recovery remains elusive below 0.6700, 61.8% FE guards immediate recovery.

AUD/USD takes offers to refresh 28-month low around 0.6400, down for the fourth consecutive day to early Wednesday morning in Europe.

In doing so, the Aussie pair justifies the previous week’s downside break of the symmetrical triangle formation established in early June. Also favoring the sellers are the bearish MACD signals.

However, the oversold RSI (14) could challenge the AUD/USD bears as they approach the next key support around 0.6355, comprising the 78.6% Fibonacci Expansion (FE) of the pair’s April-August moves.

If at all the quote remains weak past 0.6355, the 0.6300 round figure and April 2020 low near 0.6250 may offer intermediate halts during the triangle’s theoretical target surrounding the 0.6100 threshold.

Alternatively, recovery moves may aim for the 61.8% FE level surrounding 0.6530 before eyeing the July 2022 bottom, the previous yearly low around 0.6680.

It’s worth noting, however, that the AUD/USD recovery remains unconvincing below the stated triangle’s support line, now resistance around the 0.6700 round figure.

Overall, AUD/USD bears are likely to keep reins even if the downside appears limited.

AUD/USD: Daily chart

Trend: Further downside expected

• Bears have been infused with fresh blood as the kiwi bulls have failed to defend the Tweezer Bottom.
• The downside-sloping trendline from 0.5790 will continue to act as a major barricade ahead.
• The NZD/USD pair is expected to print a fresh 13-year low at around 0.5470.

The NZD/USD pair has displayed a minor pullback move after refreshing its two-year low at 0.5565 in the Tokyo session. The pullback move doesn’t stem from an accumulation base and is expected to conclude sooner, which will trigger further downside in the asset. In early Asia, the asset displayed a bearish open-drive session, which dragged the asset firmly.  

A downside break of a Tweezer Bottom candlestick pattern indicates a fresh downside impulsive wave. Usually, a Tweezer Bottom formation is considered a reversal pattern, however, the market participants have taken the pullback move as an opportunity to create more shorts, indicating that smart money is coming in the counter.

The downward-sloping trendline from May 12 low at 0.6217 will act as a major barricade for the counter. Also, the declining 10-period Exponential Moving Average (EMA) at 0.5790 is signaling more weakness ahead.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in the bearish range of 20.00-40.00, which signifies that the downside momentum is intact.

The kiwi bulls could lose display more weakness if the asset drops below Wednesday’s low at 0.5565. An occurrence of the same will drag the asset towards the psychological support and March 2020 low at 0.5500 and 0.5469 respectively.

On the flip side, a decisive break above Monday’s high at 0.5755 will send the asset towards the round-level resistance at 0.5800, followed by Friday’s high at 0.5888.

NZD/USD daily chart

• USD/CAD is eyeing to recapture 1.3800 as DXY soars ahead of Fed Powell’s speech.
• The 10-year benchmark US Treasury yields have hit 4% for the first time since 2010.
• Weaker oil prices have crippled the loonie bulls against the greenback.

The USD/CAD pair is marching north to recapture a fresh two-year high around 1.3800 in the Tokyo session. The asset has resumed its upside journey after a minor correction to near 1.3640 and is expected to refresh its two-year high above 1.3800 in the coming sessions. The major concluded its corrective move after the release of upbeat US Consumer Confidence data.

The US Conference Board reported Consumer Confidence at 108.0 higher than the prior release of 103.6. This is a consecutive improvement in the sentiment data, which indicates that optimism is returning in consumers’ sentiment towards the economy. Also, it is a sign of robust retail demand. The soaring confidence of consumers in the US economy is going to delight the Federal Reserve (Fed) to announce more rate hikes unhesitatingly.

Meanwhile, the US dollar index (DXY) bulls are roaring it has refreshed its two-decade high at 114.68. The policy tightening cycle by the Fed to tame the galloping inflation has infused an adrenaline rush into the US Treasury yields. The 10-year benchmark US Treasury yields have touched 4% for the first time since 2010. Although yields failed to sustain at elevated levels, it has opened doors for more upside.

Going forward, the speech from Fed chair Jerome Powell will remain in focus. It is highly expected that the roadmap for further rate hikes in the remaining 2022 will be dictated.

Meanwhile, loonie bulls are underperforming amid broader weakness in oil prices. Soaring odds of a global recession have forced the market participants to a sell-off in the oil counter. It is worth noting that Canada is a leading exporter of oil to the US and falling oil prices will have a significant impact on Canada’s fiscal balance sheet.

• GBP/USD takes offers to refresh intraday low, reverses the previous day’s corrective bounce.
• Downbeat comments surrounding UK’s economic plans from WH Adviser Deese, IMF weigh on prices.
• Strong yields propel US dollar amid hawkish Fedspeak, firmer data.
• Statements from Fed, BOE policymakers could offer additional guidance, further downside expected.

GBP/USD remains on the back foot while reversing the previous day’s corrective bounce, taking offers near 1.0630 during early Wednesday morning in Europe. In doing so, the Cable pair respects the US dollar’s latest run-up amid the rush for risk safety, as well as downbeat economic prospects for the UK.

Recently, White House economic adviser Brian Deese said, per Reuters, that he was not surprised by the negative reaction of financial markets to Britain's fiscal plans and tax cuts, underscoring the need to maintain "fiscal prudence, fiscal discipline." Earlier in the day, 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.

It should be noted that the fears emanating from the Eurozone’s energy crisis and China’s dismal efforts to defend the yuan seemed to have recently propelled the US Treasury yields and the US dollar.  That said, the US Dollar Index (DXY) renews the 20-year high near 114.70 while the US 10-year Treasury yields jump to 4.0% for the first time since 2010.

The quote managed to rebound the previous day as British Finance Minister Kwasi Kwarteng mentioned that they will have a credible plan to reduce debt-to-GDP. On the same line could be the mixed Fedspeak and increasing odds of the Bank of England’s (BOE) heavy rate hike.

Looking forward, Deputy Governor for Financial Stability of the Bank of England, Sir Jon Cunliffe, is up for a speech and will be watched closely for clues about the BOE’s next move, amid chatters over a 1.0% rate hike. Further, Fed Chairman Jerome Powell will also speak and can entertain the GBP/USD traders.

Technical analysis

A sustained downtrend below the 5.5-year-old support line, now resistance around 1.0970, keeps the GBP/USD pair hopeful of a fresh all-time low, currently around 1.0340.

• EUR/USD takes offers to refresh multi-year low during seven-day downtrend.
• US Treasury yields rally to fresh cycle highs amid fears of economic slowdown, hawkish central banks.
• Energy crisis in Eurozone joins fears of more drama on the Russia-Ukraine issue to keep bears hopeful.
• Speeches from ECB’s Lagarde, Fed’s Powell eyed for further direction while keeping bearish bias.

EUR/USD stands on slippery grounds as it drops to the fresh low since June 2002 during early Wednesday morning in Europe, taking offers near 0.9550 by the press time.

The major currency pair’s latest weakness could be linked to the jump in the US Treasury yields amid broad economic fears. Also keeping the greenback firmer were the comments from the White House (WH) Economic Adviser Brian Deese and San Francisco Fed President Mary Daly, not to forget pessimism emanating from China and Europe.

WH Economic Adviser Deese’s comments that he does not anticipate the need for the global accord to adjust currency values seemed to have pleased the US dollar bulls of late. The policymaker also stated, “I'm fundamentally optimistic about the US economy, which can emerge stronger than before the pandemic.”

On the other hand, Reuters quotes the China Securities Journal to mention that the People’s Bank of China (PBOC) is likely to maintain liquidity injections via reverse repo operations to keep month-end liquidity reasonably ample and stabilize money market interest rates. The PBOC has injected net liquidity over the past seven trading days and the net injection of CNY173 billion on Tuesday was the highest since the end of February, the newspaper said.

It should be noted that the fears of more economic pain in the bloc, due to the Russian pipeline leakage in the Baltic Sea, seemed to have also contributed to the EUR/USD pair’s latest weakness.

Amid these plays, the US 10-year Treasury bond yields remain firmer at the highest levels since 2010, up three basis points (bps) near 4.0% at the latest. It’s worth noting that Wall Street closed mixed as traders remained unconvinced over the next step of major central bankers amid inflation woes. Further, the S&P 500 Futures drop 0.30% intraday to poke the 21-month low marked the previous day.

That said, EUR/USD remains pressured towards refreshing the multi-year low as risk-aversion joins firmer US fundamentals to favor the US dollar. However, the pair’s next moves hinge on the comments from Fed Chairman Jerome Powell and the European Central Bank (ECB) President Christine Lagarde.

Technical analysis

EUR/USD seller’s ability to break the year 2001 peak surrounding 0.9590 directs them to a six-month-old bearish channel, at 0.9475 by the press time.

• USD/CNH takes the bids to jump to the highest levels since 2008.
• PBOC’s successive increase in USD/CNY fix, fears of China’s economic slowdown favor pair buyers.
• Firmer US data, mixed Fedspeak and upbeat yields underpin the US dollar’s demand.
• Fed Chair Powell’s speech eyed for fresh impulse, buyers are likely to keep the reins.

USD/CNH is on the fire as it rallies to 7.2282 while printing the 14-year high during Wednesday’s Asian session. The latest moves from the People’s Bank of China (PBOC), global fears surrounding the dragon nation’s economic health and the technical breakout contributed to the offshore Chinese yuan’s (CNH) latest run-up.

The PBOC is likely to maintain liquidity injections via reverse repo operations to keep month-end liquidity reasonably ample and stabilize money market interest rates, the China Securities Journal reported, per Reuters. The PBOC has injected net liquidity over the past seven trading days and the net injection of CNY173 billion on Tuesday was the highest since the end of February, the newspaper said. With this, the fears of PBOC intervention to defend the CNH gain major attention and propel the USD/CNH pair.

On Tuesday, the World Bank’s (WB) downbeat economic forecasts for China and chatters that the dragon nation called key market players to defend the equities also printed vulnerabilities in the economy of the world’s biggest commodity user. That said, the World Bank said China was projected to grow 2.8% this year, a significant deceleration from its previous forecast of 5.0%, reported Reuters.

Elsewhere, fears emanating from the European energy crisis, upbeat US data and mixed Fedspeak seem to underpin the USD/CNH upside. Recently, comments from White House economic adviser Brian Deese tried to tame the bears but could not as San Francisco Fed President Mary Daly raised fears of economic slowdown.

Against this backdrop, the S&P 500 Futures drop 0.30% intraday to poke the 21-month low marked the previous day while the US 10-year Treasury bond yields remain firmer at the highest levels since 2011, up two basis points (bps) near 3.98% at the latest. It’s worth noting that Wall Street closed mixed as traders remained unconvinced over the next step of major central bankers amid inflation woes.

Looking forward, a speech from Fed Chair Jerome Powell may entertain the pair buyers if he speaks about matters relating to the monetary policy.

Technical analysis

A clear upside break of the 7.1960-70 hurdle comprising the tops marked in 2019 and 2020 keeps the USD/CNH buyers hopeful of approaching the 61.8% Fibonacci retracement level of its 2005-14 downturn, near 7.4200.

• Market sentiment remains sour as fears of recession, geopolitical tension escalate.
• Russian pipeline leak intensifies the European energy crisis, WH Adviser Deese signals more drama ahead.
• Hawkish Fedspeak, upbeat US data also sour the sentiment.

After a turnaround Tuesday, markets returned to the bear’s table as fears of economic slowdown and more geopolitical tension weigh on the mood during early Wednesday.

While portraying the mood, the S&P 500 Futures drop 0.30% intraday to poke the 21-month low marked the previous day while the US 10-year Treasury bond yields remain firmer at the highest levels since 2011, up two basis points (bps) near 3.98% at the latest. It’s worth noting that Wall Street closed mixed as traders remained unconvinced over the next step of major central bankers amid inflation woes.

A major gas spill in the Baltic Sea, due to multiple leaks in Russia’s gas pipeline, raises 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.

Further, the World Bank’s (WB) downbeat economic forecasts for China and chatters that the dragon nation called key market players to defend the equities also printed vulnerabilities in the economy of the world's biggest commodity user.

Elsewhere, 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.

It should be noted that the firmer US data and mixed Fedspeak also tried to tame the optimism of late. That said, 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.

On the other hand, 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."

Recently, comments from White House economic adviser Brian Deese tried to tame the bears but could not as San Francisco Fed President Mary Daly raised fears of economic slowdown.

Moving on, a light calendar could restrict immediate moves of the market but can keep the bears hopeful amid the aforementioned negatives. Even so, 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.

• AUD/JPY has slipped sharply below 93.00 despite higher-than-predicted Aussie Retail Sales data.
• Aussie monthly Retail Sales have advanced to 0.6% vs. the prediction of 0.4%.
• Investors have not reacted negatively to the unscheduled bond-buying program by the BOJ.

The AUD/JPY pair has slipped below 93.00 despite higher-than-forecasted Aussie’s monthly Retail Sales data. The economic data has landed at 0.6%, higher than the estimates of 0.4%, but lower than the prior release of 1.3%.

There is no denying the fact that the price pressures in the Aussie region are accelerating like there is no tomorrow. Lastly, the Australian Consumer Price Index (CPI) was recorded at 6.1% for the second quarter of CY2022. Now, higher-than-expected monthly Retail Sales data will delight the RBA in hiking the rate further unhesitatingly as robust retail demand is critical for escalating interest rates.

To tame the galloping inflation the Reserve Bank of Australia (RBA) is continuously working on policy tightening. RBA Governor Philip Lowe has already escalated the Official Cash Rate (OCR) to 2.35%.

On the Tokyo front, investors have reacted less to the minutes released by the Bank of Japan (BOJ) in the early Asian session. Also, investors have not reacted negatively to the unscheduled bond-buying program by the Bank of Japan (BOJ). Going forward, investors will focus on Japan’s employment data. The Unemployment Rate is expected to decline to 2.5% from the prior release of 2.6%. Also, the Jobs/Applicants Ratio will improve to 1.30 vs. 1.29 reported earlier.

• AUD/NZD remains on the front foot, reverses the previous day’s pullback from nine-year high.
• Australia Retail Sales came in better than forecast in August.
• Market sentiment dwindles amid recession woes, hawkish Fedspeak.
• Headlines from China, Europe becomes the key for near-term directions as bulls struggle of late.

AUD/NZD remains firmer around 1.1430, picking up bids of late, as Australia’s Retail Sales favored buyers during early Wednesday. In doing so, the cross-currency pair also ignores the downbeat headlines from China and fears of recession while poking the nine-year high, marked on Monday.

Australia’s Retail Sales rose 0.6% MoM versus 0.4% expected and 1.3% prior, which in turn allowed the Australia dollar (AUD) to cheer hopes of faster rate hikes from the Reserve Bank of Australia (RBA).

On the other hand, the latest comments made by Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr and New Zealand's Finance Minister (FinMin) Grant Robertson, on Tuesday, also favored the AUD/NZD buyers.

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.

Above all, fears emanating from European energy crisis and China’s zero-covid policy seem to challenge the AUD/NZD bulls. It should be noted that the World Bank’s (WB) downbeat economic forecasts for China and chatters that the dragon nation called key market players to defend the equities also printed vulnerabilities in the economy of the biggest customer of Australia.

Technical analysis

Overbought RSI conditions challenge the AUD/NZD bulls targeting the late 2013 peak surrounding 1.1660.

• AUD/USD is expecting more downside despite better-than-expected Aussie Retail Sales data.
• Aussie monthly Retail Sales figures have landed at 0.6% higher than the expectations of 0.4%.
• Fed Powell will sound hawkish as price pressures are extremely far from the desired rate of 2%.

The AUD/USD pair is expected to slip down to near 0.6400 despite the release of the lower-than-expected monthly Retail Sales data. The economic data has landed at 0.6%, higher than the estimates of 0.4%, but lower than the prior release of 1.3%.

In times, when inflationary pressures are skyrocketing in the Australian economy and the Reserve Bank of Australia (RBA) is continuously tightening its policy, higher Retail Sales data will delight the central bank. Investors should be aware of the fact that the RBA has already raised its Official Cash Rate (OCR) by 2.35%. This month the RBA elevated its OCR by 50 basis points for the fourth time.

Meanwhile, the US dollar index (DXY) is having a ball after the release of upbeat Consumer Confidence data. The US Conference Board reported the sentiment data at 108.0 higher than the prior release of 103.6. The soaring confidence of consumers in the US economy is going to delight the Federal Reserve (Fed) as it is a sign of robust demand by the individuals. This will support the Fed to announce more rate hikes unhesitatingly.

Going forward, the speech from Fed chair Jerome Powell will remain in limelight. Fed policymaker is expected to dictate the likely monetary policy action by the Fed for its scheduled monetary policy which will take place in the first week of November and mid of December. As price pressures have not responded in conjunction with the current pace of hiking interest rates by the Fed, the 'hawkish’ stance will be adopted by Fed’s Powell.

The primary gauge of Australia’s consumer spending, Retail Sales, has been released by the Australian Bureau of Statistics (ABS) as follows:

Australian Retail Sales (MoM) Aug: 0.6% which is better than the expected 0.4% and the previous 1.3%.

AUD/USD was offered into the data and took put the consolidative lows but is now stabilising on the data, testing the old lows as resistance around 0.6415.

Aussie Retail Sales

Retail Sales account for approximately 80% of total retail turnover in the country and, therefore, have a significant bearing on inflation and GDP. This leading indicator has a direct correlation with inflation and growth prospects, impacting the Reserve Bank of Australia’s (RBA) interest rates decision and AUD valuation. The stats bureau uses the forward factor method, ensuring that the seasonal factors are not distorted by COVID-19 impacts.

• WTI struggles to keep the previous day’s rebound from eight-month low.
• Sustained trading below key Fibonacci retracement level, downbeat oscillators favor bears.
• One-month-old descending resistance line adds to the upside filters.

WTI crude oil prices retreat to $78.00, after bouncing off the lowest levels since early January, as bears keep the reins during early Wednesday.

In doing so, the black gold justifies bearish MACD signals and the downbeat RSI while reversing the jump from the downward sloping support line from early July. Also keeping the commodity sellers hopeful is the sustained trading below the 61.8% Fibonacci retracement level of December 2021 to March 2022 upside, near $87.00.

That said, the quote is likely to retest the aforementioned support line, close to $75.20 at the latest.

Following that, the early December 2021 peak surrounding $73.20-15 could challenge the WTI bears before directing them to the previous key trough of $62.34.

Meanwhile, recovery moves remain elusive until staying below the monthly resistance line, around $83.40 at the latest.

Even so, the 61.8% golden ratio near $87.00 could challenge the oil buyers ahead of giving them control.

In that case, the late August swing high near $97.30 and the $100.00 psychological magnet will be in focus.

WTI: Daily chart

Trend: Bearish

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1107 vs. the previous fix of 7.0722 and the prior close of 7.1800 and vs. the estimate at 7.1095.

The yuan has weakened to a record low against the US dollar following another weaker than expected fix.

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 White House economic adviser Brian Deese spoke in recent trade.

He said that he is not surprised by the negative reaction of financial markets to Britain's fiscal plans, including tax cuts, and underscored the need to maintain "fiscal prudence, fiscal discipline."

Deese was speaking at an event hosted by the Economic Club of Washington.

He added that Britain's plans during a cycle of monetary tightening had put the monetary authorities in a position of potentially having to tighten even further.

Key notes

The US is in an unprecedented transition but has confidence in the resilience of the economy.
    
Europe is significantly more exposed to energy price volatility, which will continue to be a tough period for UK and EU.
    
Asked about Britain's economic plans, says it's important to focus on fiscal prudence and discipline.
    
I'm fundamentally optimistic about the US economy, which can emerge stronger than before the pandemic.
    
Does not anticipate the need for the global accord to adjust currency values.
    
Asked if he will stay on for two more years, says he has no plans to leave.

• Gold prices are displaying topsy-turvy moves at around $1,630.00 ahead of Fed Powell’s speech.
• Fed’s chosen approach for the remaining 2022 will set the grounds for the rate hike cycle of 2023.
• Upbeat Consumer Confidence and a lower-than-expected decline in durable goods demand strengthened DXY.

Gold price (XAU/USD) is displaying a dull performance as investors have sidelined ahead of the speech from Federal Reserve (Fed) chair Jerome Powell. The precious metal is juggling around $1,630.00 after a modest decline from the critical hurdle of $1,640.00. Exhaustion in the downside momentum has contracted asset’s volatility and topsy-turvy movements are expected ahead.

On Wednesday, the yellow metal will dance to the tunes of the speech from Fed Powell. Considering the ongoing situation, Fed Powell will sound ‘hawkish’ and will guide on further policy tightening. Things will be focused on the roadmap of rate hikes for the remaining 2022 as the chosen approach will set the grounds for 2023’s rate hike cycle.

Meanwhile, the US dollar index (DXY) is aiming to capture 115.00 for the first time in the past two decades. Lower-than-expected decline in the US Durable Goods Orders data and an upbeat Consumer Confidence have strengthened the DXY bulls. The decline in demand for Durable Goods was recorded at 0.2% against the expectations of a decline of 0.4%. While the Consumer Confidence improved to 108.0 vs. the prior release of 103.6.

Gold technical analysis

Gold prices have formed an Inverted Hammer candlestick pattern on the daily scale. There are two schools of thought for the aforementioned candlestick in which the traditional believes that the formation is a sign of reversal while the unconventional considers it bearish as sellers emerged while the settlement of the prices. Also, buyers didn’t carry positions overnight.

The horizontal resistance placed from September 16 low at $1,654.17 will act as a major hurdle for the counter.

The declining 10-period Exponential Moving Average (EMA) at $1,653.85 adds to the downside filters. While, the Relative Strength Index (RSI) (14) is oscillating in oversold territory below 30.00, which indicates that a pullback move cannot be ruled out.

Gold daily chart

• GBP/USD fades the previous day’s corrective bounce off the all-time low.
• IMF criticized the latest moves from British government, BOE.
• UK Chancellor Kwarteng remains optimistic, BOE’s Pill also tried to convince bulls but both failed.
• European energy crisis, firmer yields and US data also weigh on the prices ahead of speeches from Fed, BOE policymakers.

GBP/USD resumes a downtrend, after a brief pause on flashing the record low, as the cable bears cheer the UK’s economic hardships and the upbeat catalysts for the US dollar. That said, the quote refreshed intraday low to 1.0686 during Wednesday’s Asian session.

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.

Alternatively, "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. On the same line, British Finance Minister Kwasi Kwarteng also tried to placate GBP/USD bears while saying that they will have a credible plan to reduce debt-to-GDP.

Elsewhere, 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.

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." 

While portraying the mood, Wall Street closed mixed and yields were firmer, which in turn allowed the S&P 500 Futures remain sluggish around a three-month low.

Moving on, Deputy Governor for Financial Stability of the Bank of England Sir Jon Cunliffe is up for a speech and will be watched closely for clues about the BOE’s next move, amid chatters over a 1.0% rate hike. Further, Fed Chairman Jerome Powell will also speak and can entertain the GBP/USD traders.

Technical analysis

Unless crossing the 5.5-year-old support line, now resistance around 1.0970, the GBP/USD pair remains on the bear’s radar.

Federal Reserve's Mary Daly is crossing the wires.

She said she wants to bring inflation down, but not unnecessarily tip the economy into a downturn.
    
''It's important to navigate through a high inflation environment as carefully as we can,'' she said.
    
''We are resolute and committed to doing that.''

She joins a chorus of Fed speakers this week. We heard from St. Louis Fed President James Bullard and Chicago Fed President Charles Evan on Tuesday morning who 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.

Retail Sales Overview

Early Wednesday, the market sees preliminary readings of Australia's seasonally adjusted Retail Sales for August month at 01:30 GMT. Market consensus suggests a downbeat MoM print of 0.4% versus 1.3% prior readings, suggesting the lack of sustained improvement in economic activity after a surprise jump in July.

Given the recently mixed Aussie data and the Reserve Bank of Australia’s (RBA) cautious mood, today’s Aussie Retail Sales appear the key for the AUD/USD traders.

Ahead of the data, Westpac said,

How could it affect AUD/USD?

AUD/USD picks up bids to pare recent losses around the two-year low ahead of the key Aussie data. The reason could be linked to the light calendar and the traders’ preparations for the stated statistics. That said, Australia’s seasonally adjusted Retail Sales for June is expected to ease to 0.4% versus 1.3% prior, which in turn supports the latest pre-event rebound.

It should be noted that the RBA’s recent communication has been downbeat and could favor the AUD/USD bears if the actual Retail Sales outcome deteriorates in August. Also, the card spending data has already flashed signals favoring the pair’s further downside.

Technically, a clear downside break of the three-month-old symmetrical triangle hints at the AUD/USD pair’s south-run towards the 0.6100 threshold. During the fall, the 78.6% Fibonacci Expansion (FE) of April-August moves and the April 2020 low could test bears around 0.6365 and 0.6250 respectively. Alternatively, recovery remains elusive below 0.6710 support-turned-resistance.

Key Notes

AUD/USD bears eye 0.6100 on triangle break, focus on Aussie Retail Sales, Fed’s Powell

AUD/USD Forecast: Downward pressure intact despite fresh lows

About Australian Retail Sales

The Retail Sales released by the Australian Bureau of Statistics is a survey of goods sold by retailers is based on a sampling of retail stores of different types and sizes and it''s considered as an indicator of the pace of the Australian economy. It shows the performance of the retail sector over the short and mid-term. Positive economic growth anticipates bullish trends for the AUD, while a low reading is seen as negative or bearish.

• The DXY is expected to drop to near 114.00 amid a weak buying interest while testing the 114.50 hurdle.
• A lower-than-expected decline in the demand for US Durable Goods has supported the DXY.
• Fed Powell’s speech is likely to remain hawkish amid soaring price pressures.

The US dollar index (DXY) is on the verge of delivering a downside break of the consolidation formed in a narrow range of 114.27-114.10. The DXY is expected to decline towards the round-level support of 114.00 as the asset has failed to sustain above 114.40 after multiple attempts.

Subdued US Durable Goods Orders supported DXY

The DXY rebounded firmly on Tuesday after 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.

Fed Powell’s speech in focus

Crushing the galloping inflation is the foremost priority of the Federal Reserve (Fed). Therefore, investors should brace for a ‘hawkish’ tone from Fed chair Jerome Powell on interest rates. A roadmap of hiking interest rates for the remaining 2022 is expected to be dictated.

Two monetary policy meetings, scheduled in the first week of November and mid of December, will set the path for the 2023 rate cycle. As the Fed sees interest rates top around 4.6%, bigger rate hikes in 2022 will scale down the scope of jumbo rate hikes in 2023. Although, the Fed will keep the rates higher till it finds a slowdown in price pressures for several months.

• EUR/USD holds lower ground near the 20-year bottom, sidelined of late.
• Oversold RSI tests bears around January 2001 peak.
• Bearish MACD signals, clear break of previous support from July keep sellers hopeful.
• Six-month-old descending trend channel stays in focus amid risk-off mood, energy crisis in Europe.

EUR/USD flirts with the 0.9600 threshold after a six-day downtrend that refreshed the 20-year low. Even so, the major currency pair remains inside a bearish chart pattern and keeps the sellers hopeful during Wednesday’s Asian session.

That said, the six-week-old downward sloping trend channel joins the sour sentiment and challenges for the eurozone, in terms of the energy crisis, to weigh on the prices. Also keeping the sellers hopeful are the bearish MACD signals.

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

However, the oversold RSI (14) seems to challenge the EUR/USD bears around the early 2001 peak surrounding 0.9600.

Hence, the EUR/USD bears await sustained trading below 0.9600 to renew the multi-year low, currently around 0.9550. In doing so, the stated channel’s support line near 0.9465 will be in focus.

Alternatively, recovery moves remain elusive unless the price rises back beyond the previous support line from July 14, close to 0.9830 at the latest.

Even if the EUR/USD pair crosses the 0.9830 hurdle, it needs to pass through the upper line of the bearish channel, at 1.0025 to recall the buyers.

EUR/USD: Daily chart

Trend: Further downside expected

• USD/JPY offers a compelling bearish playbook on a 15-minute chart and a break of 144.56 could be on the cards.
• The daily chart's broadening formation is a bullish feature.

for the immediate future. This could open up a dominos effect with 144.05 next in line. 

USD/JPY bulls have taken the price towards the 145 area as the US dollar continues to attract a bid. On a longer-term basis, the price is technically bullish as per the following analysis pom the daily time frame. However, should the bulls fail to break higher immediately, there is going to be a significant risk of a strong correction to the downside in the coming sessions. 

USD/JPY daily chart

The broadening formation is bullish at this juncture but 147.00 or there abouts could be the most we will see from any upside extension. The first hurdle will be a break of the recent daily highs near 145.90.

USD/JPY M15 chart

The lower time frame structures are highlighted above on the 15-minute chart and a break of 144.56 could be on the cards for the immediate future. This could open up a dominos effect with 144.05 next in line. 

• AUD/USD remains depressed at 28-month low, prints a four-day downtrend.
• Market’s pessimism weighs on Aussie pair due to its risk-barometer status, links with China exert additional downside pressure.
• Australia’s Retail Sales for August, Fed Chair Powell’s speech will be watched for a corrective bounce.

AUD/USD justifies its risk-barometer status as it holds lower ground near the yearly bottom surrounding 0.6400 during Wednesday’s Asian session. In addition to the sour sentiment, technical breakdown and the anxiety ahead of the key Aussie data also weigh on the pair amid sluggish trading hours of the day.

That said, the quote dropped for the third consecutive day on Tuesday as headlines from Europe and firmer US data propelled the US dollar while China-linked news challenged Antipodeans.

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 other hand, 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." 

It should be noted that the World Bank’s (WB) downbeat economic forecasts for China and chatters that the dragon nation called key market players to defend the equities also printed vulnerabilities in the economy of the biggest customer of Australia.

Against this backdrop, Wall Street closed mixed but the yields remained firmer and underpinned the US dollar’s safe-haven demand.

Looking forward, Australia’s Retail Sales for August, expected 0.4% versus 1.3% prior, will be crucial to watch for immediate directions. Following that, a speech from Fed Chairman Jerome Powell will be important. Given the downbeat expectations from the data and hopes of hawkish Powell, the AUD/USD is likely to witness further downside, which in turn highlights the theoretical target of a triangle breakdown.

Technical analysis

A clear downside break of the three-month-old symmetrical triangle hints at the AUD/USD pair’s south-run towards the 0.6100 threshold. During the fall, the 78.6% Fibonacci Expansion (FE) of April-August moves and the April 2020 low could test bears around 0.6365 and 0.6250 respectively.

Alternatively, recovery remains elusive below 0.6710 support-turned-resistance.