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• EUR/GBP remains pressured around weekly low, snaps four-week uptrend.
• Bulls cheer strong comments from BOE’s Pill, failed to respect hawkish ECBspeak, record high German inflation.
• UK GDP will be eyed for confirming recession woes and can pare weekly losses of the pair.
• Record high inflation in Eurozone can add strength to the corrective bounce.

EUR/GBP holds lower ground near 0.8810 as it braces for the first weekly loss in five during Friday’s Asian session. The cross-currency pair’s latest weakness contrasts with the UK’s economic pessimism amid hawkish comments from the Bank of England (BOE) policymakers. In doing so, the quote also ignores the European Central Bank (ECB) members’ aggression.

BOE Economist Huw Pill amplified pessimism surrounding Britain as the policymaker said, “It’s hard to avoid the conclusion that fiscal easing announced will prompt a significant and necessary monetary policy response in November.” Recently,  UK Trade Secretary Kemi Badenoch stated that the chancellor is `working well' with the Bank of England.

On the other hand, most of the ECB policymakers, including Olli Rehn, Mario Centeno and Pablo Hernandez de Cos, have recently backed the idea of increasing the benchmark rate by 0.75%. “ECB policymakers voiced more support on Thursday for another big interest rate hike as inflation in the euro zone's biggest economy hit double digits, blasting past expectations and heralding another record reading for the bloc as a whole,” said Reuters in this regard.

It should be noted that Germany’s Consumer Price Index (CPI) rose to 10% in September compared to 7.9% in August and the market expectation of 9.4. Additionally, the Harmonised Index of Consumer Prices (HICP) for the nation, the European Central Bank's (ECB) preferred gauge of inflation, jumped to 10.9% during the stated month compared to 8.8% prior and 10% expected. Furthermore, Eurozone Economic Sentiment Indicator (ESI) declined to 93.7 in September versus the market expectation of 95 and 97.3 in August. Also, the Consumer Confidence for the said month matched -28.8 forecasts and prior readings.

Against this backdrop, the Wall Street benchmarks reversed all of the gains made on Wednesday while the Treasury yields recovered.

Moving on, the final readings of the UK’s second quarter (Q2) Gross Domestic Product (GDP) and the first impressions of Eurozone inflation data for September will be crucial for the EUR/GBP pair traders. As grim expectations from the scheduled data are favoring the pair buyers, any surprises can extend the latest weakness of the quote.

Technical analysis

A three-week-old ascending trend line joins the 21-DMA to highlight the 0.8750 level as crucial downside support for the EUR/GBP traders to watch during the pair’s further downside. Alternatively, the 10-DMA restricts immediate recovery moves near 0.8845.

• GBP/JPY has reacted much to the upbeat Japanese employment data.
• Japan’s jobless rate has matched the expectations at 2.5% while Job/Applicants has improved to 1.32.
• UK Truss is closely working with the BOE to stabilize financial markets.

The GBP/JPY pair dropped below 161.00 in the early Tokyo session after failing to sustain above the same. The intermittent hurdles seem to lack strength and will fade sooner just after the market participants will jump to capitalize on the minor correction.

Meanwhile, an upbeat Japan’s employment data has not made much impact on the cross.  The Unemployment Rate has remained in line with the estimates of 2.5% but lower than the prior release of 2.6%. While the Jobs/Applicants Ratio has improved to 1.32 vs. the projections of 1.30. 

This week, the cross has displayed a juggernaut rally from a low of 148.57 after the Bank of Japan (BOJ) announced an unscheduled bond-buying program.

The BOJ sees the necessity of infusing liquidity into the economy as the nation has still not revived from the consequences of the Covid-19 pandemic. Investors have been dumping the Japanese yen for a prolonged period amid its ultra-dovish monetary policy and now more leakage of liquidity has vanished after the impact of BOJ’s intervention in the currency markets. It seems that only a ‘neutral’ stance on interest rates could save the yen from further carnage.

On the UK front, the Bank of England (BOE) also announced a surprise bond-purchase program to stabilize financial markets. A 13-day bond-buying program has been announced in which the BOE will purchase GBP 5 billion worth of long-dated bonds each day. The surprise BOE move has still kept it solid against the yen bulls.

On Thursday, UK PM Liz Truss cited that they are working closely with the Bank of England. "We have seen difficult markets around the world, I am clear that the government has done the right thing,", as reported by Reuters.

In today’s session, the UK Gross Domestic Product (GDP) data will be of utmost importance. The annual and quarterly data is expected to remain steady at 2.9% and -0.1% respectively.

• AUD/JPY braces for the first weekly gain in three, grinds higher of late.
• Convergence of 50-day EMA, 13-day-old resistance line and previous support line challenge the upside moves.
• Bearish MACD signals, downbeat RSI favor sellers, bulls have a bumpy road ahead.

AUD/JPY grinds higher around 94.00, on the way to snapping a two-week downtrend, during Friday’s Asian session. In doing so, the cross-currency pair pays little heed to the downbeat oscillators while staying above the key Fibonacci retracement levels.

It’s worth noting that the RSI (14) and the MACD both flash bearish signals but a convergence of the 50-day EMA, the previous support line from May and a three-week-old resistance confluence, near 94.80, appears a tough nut to crack for the AUD/JPY bulls.

Also acting as an upside hurdle is June’s peak near 96.90, a break of which could quickly propel the pair prices towards the recently flashed multi-day high near 98.60.

Alternatively, 50% and 61.8% Fibonacci retracement of the AUD/JPY pair’s May-September upside, respectively near 93.00 and 91.60, could challenge the downside moves.

In a case where AUD/JPY remains bearish past 91.60, the odds of witnessing a south-run towards the 90.00 threshold can’t be ruled.

Above all, today’s release of China’s official and Caixin PMIs for September and the Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index for August, expected 4.7% YoY versus 4.6% prior, are crucial for AUD/JPY pair.

Also read: AUD/USD pierces 0.6500 hurdle ahead of China PMIs, US PCE Inflation

AUD/JPY: Daily chart

Trend: Limited upside expected

• During the week, the British pound has recovered 3.84% from the last week’s loss.
• The GBP/USD failure to clear 1.1200 sent the pair sliding toward current exchange rate levels.
• If it clears the 1.1050, it could pave the way towards the 38.2% Fibonacci retracement at around 1.0880s.

The GBP/USD rallies sharply, trimming some of the last week’s losses, closing to the 1.1200 figure after being at the brink of testing parity when the pound fell to its lowest at 1.0356. At the time of writing, the GBP/USD is trading at 1.1133, 0.25% above its opening price, as the Asian session begins.

GBP/USD Price Analysis: Technical outlook

From a daily chart perspective, the GBP/USD is downward biased, despite the astonishing recovery in the week. Due to last Friday’s 600 pip volatile session, a mean reversion move was expected. The Relative Strength Index (RSI), exited from oversold conditions at 41.59 but shifted almost horizontally, meaning buyers’ momentum is dissipating.

Given the previously mentioned scenario and the GBP/USD failure to clear the 61.8% Fibonacci retracement at 1.1210, a fall towards 1.1050, the 50% Fibonacci level, drawn from the high/low of 1.1738/1.0356, is on the cards.

Therefore, the GBP/USD first support would be the 1.1100 mark. Once cleared, the next support would be the 50% Fibonacci retracement at 1.1050, which, once hurdle, could pave the way for a re-test of the 38.2% Fibonacci retracement at 1.0884.

GBP/USD Key Technical Levels

• The smart money has been channelizing after a pullback move from 1.3600.
• USD/CAD is hovering around the 50-EMA, therefore, the explosion will be crucial.
• A bearish range shift by the RSI (14) will trigger a downside momentum.

The USD/CAD pair is declining firmly in the early Tokyo session after failing to cross the 1.3750 hurdles on Thursday. Broadly, the asset has turned sideways after a pullback move from 1.3600. The major is oscillating in a 1.3656-1.3756 range.

On an hourly scale, the asset witnessed a steep fall after sensing exhaustion in the uptrend. The major was on a spree of making higher highs while the momentum oscillator, Relative Strength Index (RSI) (14) made a lower high, which indicates a loss in the upside momentum. And, the downside bias got strengthened after dropping below Tuesday’s low at 1.3640.

It is worth noting that the pullback move after hitting a low of 1.3600 seems to conclude where investors have poured smart money by supporting the loonie bulls. The asset has formed a consolidation range around the 50-period Exponential Moving Average (EMA) at 1.3684 and a breakdown of the same will result in sheer weakness in the counter.

Also, the 200-EMA at 1.3564 is looking turn flat, which indicates a loss of momentum in the longer-term trend.

The RSI (14) has shifted into the 40.00-60.00 range and a breakdown into the bearish trajectory of 20.00-40.00 will trigger a downside momentum.

A decisive break below the round-level support placed at 1.3600, which is Wednesday’s low will drag the asset towards the psychological support at 1.3500, followed by September 19 high at 1.3344.

On the flip side, a break above Thursday’s high at 1.3755 will drive the asset towards Wednesday’s high at 1.3833. A breach of the latter will result in a fresh two-year high at 1.4000.

USD/CAD hourly chart

• WTI pares the first weekly gains in five as traders await more clues.
• Supply crunch fears from Russia, chatters over OPEC+ output cut favor buyers.
• Concerns surrounding economic slowdown, aggressive rate hikes challenge upside momentum.
• Risk catalysts are the key, China PMIs, US inflation may also entertain oil traders.

WTI crude oil prices remain pressured towards $81.00 after retreating from the weekly top surrounding $82.50 the previous day. In doing so, the black gold portrays the oil market’s indecision amid mixed clues while bracing for the first positive week in five.

Among the key catalysts recession woes and supply crunch fears gained the major attention while the US dollar weakness may have been ignored as traders brace for the key catalysts.

That said, Reuters quotes anonymous sources to report that the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+, have started to discuss a potential output cut for the next meeting. Also likely to have favored the oil buyers could be Russia’s readiness to annex more parts of Ukraine.

On the other hand, recession woes amplified as majority of the central banks remain aggressive despite the recently downbeat economics and supply crunch fears. Additionally, the chatters over China’s inability to tame recession woes and the UK’s fears of more economic pain due to the latest fiscal policies appear negative for the energy benchmark.

That said, the commodity traders are in dilemma and hence will pay close attention to the upcoming activity data for September from the world’s largest commodity user China. Following that, the Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index for August, expected 4.7% YoY versus 4.6% prior, will be important for fresh directions.

Also read: US August PCE Inflation Preview: Will it trigger a dollar correction?

Above all, risk catalysts and central bankers’ comments could direct the quote, mostly towards the south, amid a likely volatile Friday.

Technical analysis

WTI crude oil’s failure to cross the monthly resistance line, around $81.80 by the press time, joins challenges fundamental challenges to the price to tease sellers.

• Gold price picks up bids on confirming a bullish chart formation.
• Firmer yields, downbeat equities failed to tame XAU/USD buyers amid softer DXY.
• Geopolitical risks join recession woes, hawkish central bankers to probe gold buyers.
• Fed’s favorite inflation data can challenge the upside momentum on firmer readings.

Gold price (XAU/USD) braces for the first weekly gain in three as the metal buyers poke $1,663 after witnessing a confirmation of the falling wedge bullish chart pattern the previous day. In doing so, the yellow metal cheers softer US dollar but fails to respect the market’s grim conditions.

That said, US Dollar Index (DXY) marked another negative day to refresh the weekly low of around 111.95. The greenback’s gauge versus the major six currencies dropped after the final readings of the US Q2 Gross Domestic Product (GDP) confirmed the initial forecasts of -0.6%.

It should be noted that the firmer prints of the US Weekly Initial Jobless Claims, which dropped to 193K for the period ended on September 24, versus the 209K previous (revised from 213K) and the market expectation of 215K, also might have weighed on the DXY. The US Jobless Claims slumped to the lowest levels since April.

While respecting the data, St. Louis Federal Reserve Bank President James Bullard praised the slump in the weekly Initial Jobless Claims and mentioned, "We will push inflation to 2% in a reasonable compact time frame." Elsewhere, Federal Reserve Bank of Cleveland President Loretta Mester said on Thursday that they are not yet at a point where they could start thinking about stopping interest rate hikes, as reported by Reuters.

In addition to the hawkish Fedspeak, fears emanating from the UK, Russia and China also challenge the sentiment and the XAU/USD bulls but couldn’t chain the prices.

Comments from Bank of England Chief Economist Huw Pill amplified pessimism surrounding Britain as the policymaker said, “It’s hard to avoid the conclusion that fiscal easing announced will prompt a significant and necessary monetary policy response in November.” On the other hand, record high German inflation, Russia’s readiness to annex more parts of Ukraine and the chatters over China’s inability to tame recession woes were also challenging the risk appetite.

Amid these plays, the Wall Street benchmarks reversed all of the gains made on Wednesday while the Treasury yields recovered.

Given the recently surprising gold price strength, may be due to the quarter-end positioning, the traders will pay close attention to the Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index for September, expected 4.7% YoY versus 4.6% prior. Should the actual outcome arrives stronger, the XAU/USD prices may witness hardships in rising.

Also read: US August PCE Inflation Preview: Will it trigger a dollar correction?

Technical analysis

Contrary to the grim fundamentals, gold price confirms a three-week-old falling wedge bullish chart pattern recently. The yellow metal’s run-up also takes clues from the steady RSI (14) and an impending bull cross on the MACD, which in turn suggests further advances of the bullion.

That said, the 21-DMA hurdle surrounding $1,681 could challenge the immediate upside ahead of the seven-week-old resistance line, near $1,693.

In a case where the XAU/USD remains firmer past $1,693, it can aim for the theoretical target of the wedge breakout, i.e. near $1,780, wherein the monthly high and the late August peak, respectively around $1,75 and $1,765, can test the bulls.

Alternatively, pullback remains elusive beyond $1,647, a break of which could defy the bullish bias and drag the quote towards the $1,600 threshold.

It should be noted that a downward sloping support line from mid-May, around $1,568 by the press time, could restrict the XAU/USD weakness past $1,600.

Gold: Daily chart

Trend: Further upside expected

• USD/CHF is expected to fall to near 0.9700 as DXY has lost its appeal on weaker US GDP data.
• An expectation of a slowdown in the pace of hiking rates by the Fed is weakening the DXY.
• In today’s session, US Michigan CSI is seen to stabilize at 59.5.

The USD/CHF pair is eyeing more weakness in the Asian session amid a drop below the critical support of 0.9750. The asset is declining towards the round-level support of 0.9700 as the US dollar index (DXY) is going through severe pain on expectations of a slowdown in the pace of hiking interest rates by the Federal Reserve (Fed).

Currently, the Fed is busy preparing a monetary policy roadmap for the remaining 2022. Fed policymakers are of the view that bigger rate hikes are still in vision as price pressures have not shown a significant decline yet.

In case of bigger rate hike announcements in the first week of November and the mid of December when the Fed has scheduled policy meetings, the deviation from a terminal rate of 4.6% will remain extremely low. This will force the Fed to calm down the rate hike spree and stay with the rates for a longer period till the observation of a decline in inflationary pressures for several months.

Apart from that, weaker US Gross Domestic Product (GDP) data brought weakness to the DXY. The US Bureau of Economic Analysis reported a decline in the extent of economic activities consecutively by 0.6% on an annualized basis. Going forward, the US Michigan Consumer Sentiment Index (CSI) data will remain in focus. The sentiment data is expected to remain steady at 59.5.

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.

• AUD/USD picks up bids to cross the resistance line of a falling wedge bullish formation.
• US dollar pullback trimmed losses even as risk-aversion, downbeat equities weighed on prices.
• Softer Aussie inflation, geopolitical fears and hawkish Fedspeak keep bears hopeful.
• China’s PMI could please bears on downbeat outcome as recession woes intensify.

AUD/USD struggles to justify the market’s risk-off mood as it renews its intraday high around 0.6515, after reversing most of the previous day’s losses amid the US dollar’s pullback. The risk-barometer pair, however, stayed on the bear’s radar as fears emanating from China, Russia and the UK joined downbeat equities and softer inflation numbers at home.

US Dollar Index (DXY) marked another negative day to refresh the weekly low of around 111.95. The greenback’s gauge versus the major six currencies dropped after the final readings of the US Q2 Gross Domestic Product confirmed the initial forecasts of -0.6%.

It should be noted, however, that the US Weekly Initial Jobless Claims dropped to 193K for the period ended on September 24, versus the 209K previous (revised from 213K) and the market expectation of 215K.

Following the data, St. Louis Federal Reserve Bank President James Bullard praised the slump in the weekly Initial Jobless Claims and mentioned, "We will push inflation to 2% in a reasonable compact time frame." Elsewhere, Federal Reserve Bank of Cleveland President Loretta Mester said on Thursday that they are not yet at a point where they could start thinking about stopping interest rate hikes, as reported by Reuters.

At home, the first monthly CPI data from the Australian Bureau of Statistics (ABS), the headline price pressure eased in August to 6.8% from 7.0% in July. The same joins the Reserve Bank of Australia’s (RBA) recently cautious statements to challenge the AUD/USD buyers after the data release.

Elsewhere, the escalating energy crisis in Europe, Russia’s readiness to annex more parts of Ukraine and the chatters over China’s inability to tame recession woes were the extra challenges to the market sentiment, as well as to the AUD/USD pair.

Amid these plays, the Wall Street benchmarks reversed all of the gains made on Wednesday while the Treasury yields recovered.

Moving on, China is up for publishing the September month PMIs, the official one and also from Caixin, while the market forecasts aren’t that grim, the actual outcome will be crucial amid calls of recession in Australia’s biggest customer.

Technical analysis

A three-week-old falling wedge bullish chart pattern keeps AUD/USD buyers hopeful even if the RSI (14) and MACD joins the bearish fundamentals. That said, a successful upside break of the 0.6500 threshold appears necessary for the bulls whereas the 0.6440 and the latest multi-month low near 0.6365 can lure bears during the fresh downside.

• EUR/USD is marching towards 0.9900 as the current upside momentum is extremely strong.
• The DXY has surrendered 112.00 on a consecutive decline in the US GDP by 0.6%.
• German Retail Sales are expected to remain vulnerable ahead.

The EUR/USD pair is aiming to recapture the critical resistance of 0.9900 as it has comfortably established above 0.9800 and the upside momentum is extremely firmer. The asset extended its gains on Thursday after surpassing the hurdle of 0.9750 as the risk-on market profile strengthened further amid more weakness in the US dollar index (DXY).

The DXY concluded its pullback move and resumed its downside journey after failing to sustain above 113.00. The asset picked offers after the US Gross Domestic Product (GDP) data remained in line with the estimates and the prior release. The US economy has reported an annualized de-growth of 0.6% in the second quarter. Apart from that core Personal Consumption Expenditure (PCE) data expanded further by 4.7%, against the estimates and the prior release of 4.4%.

Federal Reserve (Fed) Bank of Cleveland President Loretta Mester cited on Thursday that they are not yet at a point where they could start thinking about stopping interest rate hikes, as reported by Reuters. If interest rates are set to rise further, the US economic fundamentals should be supportive to bear the consequences of policy tightening. And, a consecutive reading of a negative growth rate is not a measure of support for the US economy.

On the Eurozone front, German Retail Sales data will hog the limelight. The economic data is expected to decline firmly by 5.1% vs. the prior release of a decline of 2.6% on an annual basis. In times when price pressures are accelerating in the German region, a decline in Retail Sales data indicates an extreme vulnerability in the retail demand. A higher-than-expected decline in the economic data could dampen the mood of Eurozone investors.

As European Central Bank (ECB) President Christine Lagarde is looking to hike interest rates by 125 basis points in the coming monetary policy meetings, weaker demand will not let them hike rates unhesitatingly.

• Silver price stumbled on risk-aversion as traders turned to cash.
• Fed’s Bullard: Traders understood the Fed’s commitment to tackle inflation.
• NATO expressed that Nord Stream 1 and 2 pipeline attack was caused by sabotage.

Silver price slides for the second time in the week amid falling US Treasury bond yields as Fed officials’ “aggressive” tone, the Europe energy crisis, and UK’s mini-budget presented by Kwasi Kuarteng, UK’s finance minister under Liz Truss government, shifted sentiment sour. Therefore, the XAG/USD is trading at $18.81 a troy ounce, 0.40% below its opening price.

On Thursday, Fed officials led by Regional Fed Presidents, with Cleveland’s Mester and St. Louis Bullard, reiterated that the Federal Reserve is compromised to tackle inflation, even though it could trigger a recession. James Bullard said traders understood that the Fed was serious about achieving the price stability mandate and added the need for higher rates for a “longer period.”

In the meantime, Loreta Mester commented that inflation is the primary concern, added that there is no “case for slowing down,” and foresees rates to peak at around 4.6%.

At the time o typing, the San Francisco Fed Mary Daly said there’s no need to tap the US economy into a recession to curb inflation while adding that “additional interest rates are necessary and appropriate.”

In the meantime, NATO said that the leaks of the Nord Stream pipelines were caused by sabotage and noted that “NATO is committed to deter and defend against hybrid attacks,” and “any deliberate attack against Allies’ critical infrastructure would be met with a united and determined response.”

Although news of the Nord Stream 1 and 2 pipelines spurred a jump in energy prices, WTI and Brent’s crude oil sustained losses of 0.46% and 0.54%, respectively.

Aside from this, the UK’s new Prime Minister Liz Truss, doubled down on its tax-cut budget, saying that she was willing to take “controversial” decisions, though recent reports by the Guardian said that she would hold an emergency meeting with the Office for Budget Responsibility (OBR) on Friday.

Given the fundamental backdrop, XAG/USD prices slid as traders seeking safety preferred to liquidate its positions and braced for cash. Portraying the previously mentioned, US Treasuries remained contained during the session, while the US Dollar Index registered losses of 0.69%, down at 111.040.

Silver (XAG/USD) Key Technical Levels

• NZD/USD bears denied as the US dollar continues to bleed out.
• NZD/USD reaches fresh recovery highs for the week.

NZD/USD ended the day on the front foot as the US dollar continued to bleed out into month-end. The DXY index, which measures the greenback vs. a basket of currencies,  initially tracked gains in treasury yields as fresh data showed weekly claims fell to a 5-month, and PCE prices were revised higher in Q2. Hawkish remarks from Federal Reserve officials and the rejection of a possible currency agreement among major economies also supported the dollar. However, DXY was thrown back onto the backfoot and extended losses to below 112.00 to print a fresh low of 111.916. NZD/USD ended the day around 0.5270. 

The White House National Economic Council Director Brian Deese rejected the idea of another 1985-type currency accord to weaken the dollar and added that the US economy’s relative strength was a significant factor driving the dollar higher. In data, Gross Domestic Product in the US fell at an unrevised 0.6% annualized rate in the second quarter. In other data, Initial Jobless claims for state unemployment benefits dropped to 193,000, versus expectations of 215,000 applications for the latest week.

''The Kiwi is a tad stronger this morning, but having been led higher by EUR and GBP (which may incidentally turn out to be a dead cat bounce), it has underperformed on those crosses,'' analysts at ANZ Bank said, adding: ''nothing local is really driving the Kiwi at the moment, and instead it’s drifting like a cork in the tide.''

''That’s unlikely to change today either, but next week’s RBNZ MPR may provide a degree of support, especially if the RBNZ remain hawkish, which is appropriate given the inflation backdrop. But until then, the Kiwi is at the mercy of global forces, and the pull-back in the USD DXY looks a bit odd against geopolitical developments in Ukraine, given the strength of US jobless claims (pointing to bumper payrolls next week), hawkish Fedspeak, and the very real cracks in the UK that can’t be papered over.''

Reuters has reported that the San Francisco Fed chief Mary Daly said on Thursday, that the Federal Reserve needs to slow the US economy and take the heat out of the strong jobs market to bring down corrosively high inflation.

 "Navigating the economy toward a more sustainable path necessitates higher interest rates and a downshift in the pace of economic activity and the labor market," Daly said in remarks prepared for delivery to Boise State University in Idaho, a view also expressed last week by Fed Chair Jerome Powell and several Fed policymakers since.

"But for now, inducing a deep recession does not seem warranted by conditions, nor is it necessary to achieve our goals."

Key quotes

• Downshift in economic activity, labor market needed to bring down inflation.
• A deep recession isn't warranted or necessary.
• Additional interest rate increases are necessary and appropriate.
• 'Myriad of risks' narrows path to smooth landing, but do not close it.
• Already seeing effects of higher rates; full impact of policies will unfold over time. 
• Need to remain attentive to data; the costs of errors are high.
   

What you need to take care of on Friday, September 30:

Fears remain the same, but the market does not. The dollar ended the day unevenly across the FX board, despite Wall Street resuming its slump and trimming all Wednesday’s gains. Treasury yields remained stable, with the 10-year note yielding 3.75% and the 2-year note 4.17%.

Tensions between the Union and Moscow over gas deliveries escalated after the suspected sabotage of the Nord Stream pipelines. Germany launched a relief package in response to higher gas and electricity prices, while Hungary announced it would not support new energy sanctions on Russia.

Additionally, Bank of England Chief Economist Huw Pill noted that “it’s hard to avoid the conclusion that fiscal easing announced will prompt a significant and necessary monetary policy response in November,” following the controversial measures adopted by the government and the central bank in the last few days.

According to preliminary estimates, the German Harmonized Consumer Price Index rose at an annual pace of 10.9%. The EU will publish the first estimate of the Consumer Price Index on Friday, while the US will release the PCE Price Index, the Fed’s favorite inflation measure.

European currencies were firmly up, despite bad news that kept coming from the old continent. The EUR/USD pair flirts with 0.9800, while GBP/USD trades in the 1.1070 price zone. The USD/CHF pair is down to 0.9760.

The USD/JPY pair remains lifeless at around 144.30, while commodity-linked currencies shed some ground against their American rival. AUD/USD changes hands at 0.6490 while USD/CAD is just below 1.3700.

Spot gold trades near its weekly high in the $1,660 price zone, while crude oil prices saw little intraday change. The barrel of WTI currently stands at $81.50.

The focus will be on China early Friday. The country will publish the September official NBS Manufacturing PMI and the non-manufacturing index, while Caixin will publish the Manufacturing PMI. The sector is foreseen holding in contraction territory, while services output is expected to have contracted in the month. Worse-than-anticipated numbers may spur risk aversion and weigh on the pair.

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• USD/JPY marches firmly above 144.30, up by 0.16%.
• During the week, the USD/JPY has been unable to break the BoJ’s line on the sand at 145.00.
• The USD/JPY one-hour chart depicts the formation of a triple top, targeting a fall towards 143.00.

The USD/JPY is recouping on Thursday, following 0.47% Wednesday losses, courtesy of falling US Treasury bond yields, which weighed on the greenback. However, fundamental factors like US central bank officials reiterating the need for higher rates to tame inflation bolstered the USD/JPY. Therefore, the USD/JPY st trading at 144.37, above its opening price by 0.18%.

USD/JPY Price Analysis: Technical outlook

The USD/JPY has been unable to break above/below the September 22 Bank of Japan intervention in the Forex markets, with price action staying in the 140.34-145.90 range. Even though the weekly high meandered ten pips shy of the 145.00 figure, traders remain nervous about another BoJ incursion in the FX space. Worth noting that the USD/JPY is trading sideways while the Relative Strength Index (RSI) keeps heading south. Therefore, the likelihood of a test of the 20-day EMA ar 143.27 is on the cards.

The one-hour chart portrays the USD/JPY as neutral-to-downward biased. At the time of writing, the USD/JPY is testing the 100-EMA, which, once broken, could pave the way towards 143.90, the September 28 daily low. Once cleared, the next support would be the 200-EMA at 143.85, followed by the S1 daily pivot at 143.72, ahead of the triple top target at 143.00.

Contrarily, if the USD/JPY clears the 145.00 figure, expect a re-test of the YTD high at 145.90 unless Japanese authorities re-enter the markets.

USD/JPY Key Technical Levels

• Gold bulls in charge and eye mitigation towards $1,670 that guard $1,675 and $1,688.
• The US dollar continues to bleed out into month-end flows. 

The gold price has started to find support in the correction of the recent bullish impulse but is back to trading near flat on the day at around $1,660 following a run from a low of $1,641.57 to the day's high of $1,664.89. The US dollar continued to ease despite bond yields rising and concerns rising interest rates will lead to a global recession. Month-end flows could be the culprit that is moving out of a heavily committed play by long positioning of late. 

What would usually be weighing on the price of gold, bond yields have been moving up amid rising interest rates. The US 10-year note's yield was last seen higher by some 0.37% to 3.7510%. The high of the day, however, was at 3.868%. To date, rising yields have weighed on the unyielding precious metal. However, its safe-haven allure has kicked in as market turmoil has led to an unwind of the greenback late in the month, falling sharply from a 20-year high. The US DXY index, which measures the greenback vs. a basket of currencies dropped again on Thursday, making gold more affordable for international buyers. Trading at 112.20, the index is down 0.45% on the day, balancing above the lows of 112.104. 

However, as soft as the US dollar is in comparison to the recent highs, analysts at TD Securities still argue that ''The risk of capitulation remains prevalent for the yellow metal moving into an October with key labor market and inflation data on tap before the next Fed meeting.''

''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,'' the analysts explained.

''In this sense,'' they said,  ''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. The combination of surging real rates and USD, continued outflows from money managers and ETF holdings are all adding pressure on family offices and prop shops to finally capitulate on their length.''

Meanwhile, on the day, data showed that Gross Domestic Product in the US fell at an unrevised 0.6% annualized rate in the second quarter. In other data, Initial Jobless claims for state unemployment benefits dropped to 193,000, versus expectations of 215,000 applications for the latest week.

Gold technical analysis

As per the prior analysis, Gold Price Forecast: XAU/USD bulls bounce back to life as US dollar gets slammed, the price has continued higher and there could be more to come from the gold bulls before the week is out:

In the prior analysis above on the hourly chart, the price was expected to correct  to Monday's highs will have a confluence with a 38.2% Fibonacci level that guarded the price imbalances:

We have seen this play out as shown above. 

Meanwhile, the price then went on to make a W-formation that led to a continuation after the retest of the neckline, which is a typical scenario in the hourly W and M formations. They tend to act as reversion patterns and if the neckline holds, then a continuation can be expected. Traders can seek out optimal entries on the lower time frames, such as the 15 or 5 min charts in anticipation of a continuation trade:

Meanwhile, the price is correcting again and the Fibonaccis drawn on the latest bullish impulse are targeted. If support holds, then a continuation of the bullish trend would be anticipated for the forthcoming month-end sessions. The greyed area is a price imbalance that would be subsequently mitigated at around $1,670 guard $1,675 and $1,688:

• AUD/USD is trimming some of its Wednesday gains on Thursday.
• Mixed US economic data, a headwind for the Aussie, which tumbled despite broad US dollar weakness.
• US central bank restrictive monetary policy commentary continued, led by Mester and Bullard.
• Australia’s inflation eased ahead of the RBA’s October meeting.

The AUD/USD retraces from weekly highs reached on Wednesday, when the Aussie hit a weekly high at 0.6530, though positive US economic data, showing that the labor market remains robust, would not deter the Federal Reserve from continuing tightening monetary conditions. Therefore, the AUD/USD is falling..

At the time of writing, the AUD/USD is trading at 0.6474, after hitting a daily high of 0.6524, below its opening price, by a solid 0.74%.

Before Wall Street opened, US economic data released by the US Departments of Commerce and Labor flashed mixed signals regarding the current economic status of the US. According to the former, the US Gross Domestic Product (GDP) for the second quarter was confirmed at a 0.6% contraction, aligned with forecasts and the previous reading, confirming that the US economy is in a technical recession.

Contrarily, US Initial Jobless Claims for the past week, ending on September 24, decelerated at a 193K pace to a five-month low, crushing estimates of 215K. Worth noting that a smoother reading for claims, namely the four-week moving average, dropped for the fifth consecutive week to 207K.

In the meantime, Fed officials remained active during the day. Cleveland’s Fed Loretta Mester said Trade-offs with growth would become more relevant as inflation comes back down. She added that given inflation persistence, she “still puts more weight on being sure the fed does enough.”

“We’re still not even in the restricted territory on the funds rate,” she added.

Earlier, the St. Louis Fed President James Bullard said that the Fed is determined to get inflation to the right level of policy rates, so they can achieve the Fed’s inflation goal. He acknowledged that the US might get into a recession as the Fed brings inflation down, though he emphasized that it’s not “his base scenario.”

Earlier, in the Asian session, Australia reported inflation for August, which dropped slightly due to falling gasoline prices, as data have shown, ahead of the Reserve Bank of Australia (RBA) monetary policy meeting next week. Australia CPI rose by 6.8% YoY, less than July’s 7%,

On Friday, the Australian economic calendar will feature Housing Credit and Private Sector Credit readings. On the US front, the Fed’s favorite inflation gauge is the Core PCE Price Index, the Chicago PMI index, and the University of Michigan Consumer Sentiment will be reported.

AUD/USD Key Technical Levels

 UK Trade Secretary Kemi Badenoch has crossed the wires again saying:

• The UK is facing global economic pressures.
• The chancellor is `working well' with Bank of England.
• Will not contradict pm Truss on US trade deal.

Badenoch has used her first overseas visit as UK trade secretary to spruik the government's economic strategies as "going for growth in a big way".

The pound was sold off heavily to record lows following the controversy since the chancellor last week announced his mini-Budget, which included plans to cut taxes to the benefit of the most wealthy.

However, Badenoch told investors at the fifth annual Atlantic Future Forum hosted on the HMS Queen Elizabeth, moored in New York, the strategies were necessary due to a "global growth slow-down".

"Right now, there's a global growth slow-down underway," she said.

"And if you'll forgive the pun, we need all hands on-deck to get the world economy's wheels spinning again.

"And that's why in the UK we're going for growth in a big way. And in fact some of you may have heard some major reforms we announced on Friday, to achieve this."

GBP/USD has since recovered a significant amount over the past few days reaching as high as 1.1108 on Thursday in a 62% ratio retracement. 

The Mexico central bank, Banxico, said the board was unanimous on the rate decision where it raised the benchmark interest rate to 9.25% from 8.50%.

Key notes

• Says the balance of risks for the trajectory of inflation within the forecast horizon remains biased significantly to the upside.
• Says the board will thoroughly monitor inflationary pressures as well as all factors that have an incidence on the foreseen path for inflation and its expectations.
• Says the board will assess the magnitude of the upward adjustments in the reference rate for its next policy decisions based on the prevailing conditions.
•  Says an environment of uncertainty prevails, while the balance of risks for economic activity remains biased to the downside.
• Says the accumulated inflationary pressures associated with both the pandemic and the military conflict continue affecting headline and core inflation.  
• Sees average annual headline inflation of 8.6% for the fourth quarter of 2022.

Meanwhile,  USD/MXN is 0.25% bid on the day at 20.1570.

The exchange rate channel is not significant enough to influence monetary policy the European Central Bank’s chief economist, Philip Lane said.

Key notes

• ECB still trying to reach neutral, not yet taking a stand on whether that will be enough.
• No "fixed formula" for TPI, is meant to address situations where there is dysfunction or overshooting.
• Important ECB "retain judgment" over circumstances in which TPI is triggered.

Earlier in the week, Lane said “our interest rate hikes will slow demand in the economy.” 

''I would strongly warn firms not to expect the same level of profitability in times of high inflation.

Because of the war and the high energy prices, there are many indicators that the economy is going to slow down. 

We are now making sizeable interest rates increases. This should make it clear to businesses and workers that demand conditions will become less favorable.''

Nevertheless, the euro has seen a significant turnaround on the back of a sell-off of the US dollar from 20-year highs into month end. A hot German inflation print has also underpinned renewed demand for the single currency that is trading some 0.5% higher on the day. 

Federal Reserve Bank of Cleveland President Loretta Mester said that the Fed's median path does not envision recession but does have "quite a bit" of slow down in growth

Key notes

Trade-offs with growth will become more relevant as inflation comes back down.
    
Given the persistence of inflation, still puts more weight on being sure the fed does enough.
    
Fed "got the persistence and magnitude" of inflation "wrong".

Earlier, she said Thursday in an interview on CNBC that “real interest rates -- judged by the expectations over the next year of inflation -- have to be in positive territory and held there for a time.”

“We’re still not even in the restricted territory on the funds rate,” she added.

The US dollar ran to a 20-year high in September following the move by Fed officials that raised interest rates by 75 basis points on Sept. 21 for the third straight meeting, bringing the target for the benchmark federal funds rate to a range of 3% to 3.25%.

• USD/CAD is gaining some 0.82% courtesy of Fed officials on Thursday.
• US unemployment claims keep heading lower, while Q2 GDP fell 0.6% as estimated.
• Fed’s Mester and Bullard estimate the Federal funds rate (FFR) to peak around 4.5%.
• The economy in Canada grew 0.1% MoM in July, exceeding estimations.

The USD/CAD marches firmly towards the 1.3700 figure after diving close to 0.90% on Wednesday, after hitting a two and half-year high at 1.3833. Sentiment shifts sour due to continuing Fed’s hawkish rhetoric, while US labor market data confirmed that the economy could survive further central bank tightening.

Therefore, the USD/CAD is trading at 1.3717, above its opening price, after hitting a daily low of 1.3604 at the time of writing.

Early, the US Department of Labor reported that unemployment claims reported for the last week ending on September 24 fell 197K, lower than estimates of 215K, a signal of the labor market resilience.

In the meantime, the US Department of Commerce revealed the Q2 final GDP reading, coming at -0.6%, as foreseen. It’s worth noticing that the government revised GDP data from 2016 Q4 to 2021 Q4, which showed that the economy’s recovery from the Covid-19 pandemic was more substantial than initially reported.

Earlier, some Fed officials led by Cleveland’s Fed President Loretta Mester and the St. Louis Fed President James Bullard crossed newswires.

Loretta Mester said that she still sees inflation as the economy’s main problem and commented that she does not see the case for slowing down. Furthermore, expects rates to peak around 4.6%. Later, St Louis Fed President James Bullard expressed that the Fed would need to keep rates “higher for longer” and added that real rates in the positive territory are an “encouraging sign.” However, he acknowledged the high recessionary risks while adding that the unemployment rate at 4.5% “would still be healthy for the economy.”

The US Dollar Index, a gauge of the buck’s value vs. a basket of peers, remained heavy, down by 0.35%, at 112.317, well below the YTD high at 114.778.

Aside from US dollar dynamics, Canada’s economy surged higher unexpectedly in July, as shown by data released by Statistics Canada. July’s GDP grew 0.1% MoM, higher than the 0.1% contraction estimated by analysts. “After a solid first half of the year, momentum appears to be slowing as multi-decade-high inflation and rapidly rising interest rates weigh on the economy,” according to sources cited by Reuters.

Given the backdrop that the Bank of Canada hiked rates 75 bps earlier in September, today’s data and high inflation would likely keep the BoC on the pedal to tame inflation.

USD/CAD Key Technical Levels

• US dollar under pressure for the second day in a row.
• Wall Street off lows, Treasuries erase losses and DXY drops by 0.50%.
• EUR/USD looking at 0.9800, technical favor more gains.

The EUR/USD is trading at the highest level since last Wednesday slightly below the 0.9800 mark. It is up by more than 250 pips from Wednesday low as it continues to recovery on the back of a weaker US dollar.

The greenback is suffering as Wall Street moves off lows and also as US yields approach daily lows. Another negative for the dollar is the recovery of the offshore Chinese yuan that is having the best day in months with USD/CNH below 7.10.

Everybody says down but is going up

Despite most of the current forecasts projecting the EUR/USD to move south over the next weeks to fresh multi-year lows, the pair is rising for the second day in a row on Thursday, accumulating a gain of more than 200 pips. The impact of Bank of England’s surprise announced on Wednesday (temporary purchase of long-term gilts at whatever scale is necessary) is still being digested by market participants.

The dollar received a brief and short-lived relief earlier on Thursday following the release of US economic data that confirmed a 0.6% GDP contraction during the second quarter and a larger-than-expected decline in initial jobless claims to the lowest level in months below 200K.

Fed officials continue to point toward more rate hikes. Bullard argued the rates will likely be at higher levels for a longer period of time. Mester said inflation remains the main economic problem. The US central bank is expected to continue rising rates with odds favoring a 75 basis points rate hike in November.

The European Central Bank is also expected to continue rising rates further as inflation remains at decade highs. According to preliminary data released on Thursday, the Consumer Price Index in Germany reached 10% in September, the first time 70 years to hit double digits.

Short-term technical indicators favor the upside. More gains seem likely while above 0.9750. The positive tone would be affected with a slide back under 0.9640 (20-Simple Moving Average in four-hour charts). On the upside, the next resistance is the 0.9800/05 area, followed by a stronger barrier around 0.9880.

Technical levels

"It’s hard to avoid the conclusion that fiscal easing announced will prompt a significant and necessary monetary policy response in November,” Bank of England Chief Economist Huw Pill said on Thursday, as reported by Reuters.

Additional takeaways

"We will come to our more complete assessment in November."

"I recognise that, as of today, November might seem a long time away but monetary policy needs to be framed on a more considered or lower frequency basis."

"Inflation target is a lens through which we view recent market developments."

"MPC commitment to achieving the inflation target is unwavering."

Market reaction

GBP/USD preserves its bullish momentum after these comments and was last seen rising more than 1% on the day at 1.1045.

• GBP/USD reached a daily high at 1.1074 due to the London Fix.
• US Initial Jobless Claims fell, cementing the case for further Fed rate hikes.
• GBP/USD Technical Analysis: Testing the 50% Fibonacci, once cleared, could rally towards 1.1210; otherwise, it could retest 1.0538.

The GBP/USD advances for the third consecutive day as the global equities sell-off continues. However, in the FX space, a slight improvement in sentiment keeps most G8 currencies higher against the greenback, despite upbeat US economic data.

At the time of writing, the GBP/USD is trading at 1.1024, above its opening price by 1%, after hitting a daily low of 1.0759.

GBP/USD rallies on mixed US economic data

In the North American session, US economic data was mixed, with GDP for the second quarter coming at -0.6%, as estimated by street analysts. Worth noticing that the government revised GDP data from 2016 Q4 to 2021 Q4, which showed that the economy’s recovery from the Covid-19 pandemic was stronger than initially reported.

At the same time, the US Department of Labor reported Initial Jobless Claims for the week ending on September 24, dropping by 193K less than 215K, showing the labor market resilience, despite headwinds spurred by the Federal Reserve’s restrictive stance.

Meanwhile, Fed officials are keeping to its hawkish narrative. Cleveland’s Fed President Loretta Mester expressed she does not see distress in the US financial markets when asked about what’s happening in the UK. She acknowledged that the Bank of England’s actions pledged to stabilize the bonds market.

Aside from that, Mester added that she still sees inflation as the economy’s main problem and commented that she does not see the case for slowing down. Furthermore, expects rates to peak around 4.6%.

Of late, St Louis Fed President James Bullard said the Fed would need to keep rates “higher for longer” and added that real rates in the positive territory are an “encouraging sign.” Nevertheless, he acknowledged the high recessionary risks while adding that the unemployment rate at 4.5% “would still be healthy for the economy.”

As a backdrop, the US Federal Reserve hiked rates in September by 75 bps, to 3.25%. Odds for the November meeting lie at a 70% chance of another increase of the same size, pushing interest rates to the 4% threshold.

Earlier, the UK’s Prime Minister Liz Truss said that she was willing to take “controversial” decisions, doubling down on its economic plan, laid out by her finance Minister Kwasi Kwarteng.

GBP/USD Price Analysis: Technical outlook

During the last three days, the GBP/USD has recovered some ground vs. the greenback, though today’s rally is testing 1.1047, the 50% Fibonacci retracement, drawn from the last swing high at 1.1738, towards the lowest low, being the YTD low at 1.0356. Therefore, if the pair surpasses the former, the next resistance level to test would be the 61.8% Fibonacci at 1.1210. On the other hand, failure to hurdle it, then a fall towards 1.0884, the 38.2% Fibonacci retracement is likely followed by the September 28 low at 1.0538.

• Pound recovers further ground across the G10 space. 
• EUR/GBP having the worst day in months. 

The EUR/GBP dropped further during the American session and hit the lowest level in almost a week at 0.8836. It is hovering around 0.8850, down almost 90 pips, having the worst performance in months as the pound extends its recovery. 

The surprise announcement of the Bank of England on Wednesday helped gilts and also the pound that is rising across the board on Thursday. UK PM Liz Truss defended her economic plan today amid mounting criticism. Recent events created instability on Truss’s administration. 

Data released on Thursday showed the Consumer Price Index in Germany reached 10% in September, the first time 70 years to hit double digits. “The main drivers remain energy and food prices, but prices are also rising faster and faster in most other goods groups. There is no easing in sight, and next year the inflation rate is only likely to fall because energy prices are unlikely to rise again as strongly as this year, partly due to government intervention. However, the underlying price pressure is likely to remain strong”, point out Commerzbank analysts. 

The inflation numbers have no impact on the euro. Markets continue to expect the ECB and the BoE to keep rising interest rates. Afterwards EUR/GBP dropped further as GBP/SUD rose back above 1.1000. EUR/USD also printed fresh highs but rose a slower pace. 

Technical levels
 

St. Louis Federal Reserve Bank President James Bullard said on Thursday that the Federal Reserve is having to raise rates pretty rapidly to get to a minimally appropriate level to tackle inflation, as reported by Reuters.

Additional takeaways

"Fed always watches global market developments but is focused on US market and fundamentals."

"Fed determined to get to the right level of policy rate."

"Other central banks will have to react to Fed's intentions."

"Disinflation will come more through inflation expectations than demand adjustment."

"Inflation will start to come down in 2023 but how fast is uncertain."

"It is possible US will get a recession as Fed brings inflation down, but it is not my base case."

"If US unemployment rises to 4.5%, that would still be a healthy labor market."

Market reaction

The greenback stays on the backfoot after these comments and the US Dollar Index was last seen losing 0.27% on the day at 112.40.

The Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure (Core PCE), will be published on Friday, September 30 at 12:30 GMT and as we get closer to the release time, here are the forecasts of economists and researchers of six major banks.

The market expectation is for the monthly core PCE inflation to rise by 0.5% in August following July’s 0.1% increase. On a yearly basis, the PCE inflation and the core PCE inflation, which excludes volatile food and energy prices, are forecast to rise to 6.6% and 4.7%, respectively. 

Commerzbank

“Excluding food and energy, the deflator probably increased by 0.4% MoM. This is a bit less than the recently released core CPI rate. This is because rents have a lower weight in the deflator than in the CPI basket (15% vs. 32.6%); rents rose quite strongly in the CPI in August. In addition, medical services have a much higher weighting in the deflator, and here the government health services included in the deflator, in contrast to the CPI, have a dampening effect on prices.”

TDS

“Core PCE prices likely gained speed again in August following a strong CPI report where core inflation surprised significantly to the upside at 0.6%. The YoY pace likely bounced back to 4.8% (same as in June), suggesting prices remain sticky at an elevated level. Separately, personal spending likely advanced at a modest 0.2% MoM pace following an even weaker 0.1% gain in July.”

NBF

“The annual PCE deflator may have moderated from 6.3% to 6.0%, but core PCE deflator may have increased one tick to 4.7%.”

Deutsche Bank

“We expect core PCE to edge higher by +0.5% MoM (vs +0.1% in July) which won’t allow the Fed to take the foot off the tightening pedal.”

CIBC

“The Fed’s preferred measure of prices, core PCE prices, could have accelerated more modestly than its CPI counterpart, to 4.7% YoY, given the lower weighting of shelter in the index.”

Citibank

“We expect a solid 0.47% MoM increase in core PCE inflation in August. The YoY reading is likely to rise to 4.7%, with further increases likely over the next three months as base effects are likely to push YoY core PCE higher through November.”

Gold has failed to build on Wednesday's gains as US yields have reversed back higher. Economists at TD Securities expect the yellow metal to remain under pressure as the US dollar is also in demand.

Capitulation risk is growing 

“After a brief period of relief, recovery in the USD and increasing yields have started to weigh on precious metals once again.”

“The risk of capitulation remains prevalent for the yellow metal moving into October with key labour market and inflation data on tap before the next Fed meeting.”

“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.”

“The combination of surging real rates and USD, continued outflows from money managers and ETF holdings are all adding pressure on family offices and prop shops to finally capitulate on their length.”

• Gold recovers a part of its intraday losses amid the emergence of some selling around the USD.
• Aggressive Fed rate hike bets lift the US bond yields and should act as a tailwind for the buck.
• The prospects for more aggressive central banks could also contribute to capping the XAU/USD.

Gold attracts some buying in the vicinity of the $1,640 level on Thursday and recovers a major part of its early lost ground. The XAU/USD climbs back closer to the weekly high touched the previous day and is trading around the $1,655 region during the early North American session, still down over 0.30% for the day.

The US dollar struggles to preserve its intraday gains and drops to a fresh daily low in the last hour, which turns out to be a key factor offering support to the dollar-denominated gold. The USD downtick could be solely attributed to a goodish pickup in demand for the British pound, though a combination of factors could help limit deeper losses.

Investors seem convinced that the Federal Reserve will continue to hike interest rates at a faster pace to combat stubbornly high inflation. The bets were reaffirmed by the recent hawkish comments by a slew of FOMC officials. This, in turn, triggers a fresh leg up in the US Treasury bond yields and should act as a tailwind for the greenback.

Furthermore, the prospects for a more aggressive policy tightening by other major central banks might also contribute to capping the upside for the non-yielding gold. This makes it prudent to wait for strong follow-through buying before confirming that the XAU/USD has formed a near-term bottom and positioning for any further appreciating move.

That said, the prevalent risk-off mood, amid growing worries about a deeper global economic downturn and geopolitical risk, could extend support to the safe-haven precious metal. The mixed fundamental backdrop warrants some caution for aggressive traders and placing fresh directional bets around gold.

Technical levels to watch

St. Louis Federal Reserve Bank President James Bullard noted on Thursday that the weekly Jobless Claims reported earlier was a "super low number," as reported by Reuters.

US: Weekly Initial Jobless Claims drop to 193K vs. 215K expected.

"The labor market is very tight no matter how you cut it.," Bullard added. "I have a hard time seeing the unemployment rate going up that much with so many job openings."

Market reaction

These comments don't seem to be having a noticeable impact on the dollar's performance against its rivals. As of writing, the US Dollar Index was up only 0.08% on the day at 112.80.

Aluminum (LME) remains capped by its 55-day moving average (DMA), currently seen at $2,355, and is establishing fresh YTD lows. Strategists at Credit Suisse stay biased towards further weakness.

Aluminum remains in a clear downtrend

“We identify the next significant medium-term support at the 78.6% retracement of the 2020/2022 uptrend and key psychological mark at $2,015/2,000. In case this long-term support area would break as well, we then identify next key supports at the $1,945 January 2021 low and then the October 2020 low at $1,725.”

“Above the 55-DMA, currently at $2,355, would stabilize Aluminum in the short-term, but above the 200-DMA, currently seen at $2,830, is needed for a more profound medium-to long-term stabilization, which is not our base case.”

• AUD/USD comes under renewed selling pressure on Thursday amid resurgent USD demand.
• Aggressive Fed rate hike bets trigger a fresh leg up in the US bond yields and lift the buck.
• The risk-off impulse further contributes to driving flows away from the risk-sensitive aussie.

The AUD/USD pair recovers a few pips from the daily low and climbs to the 0.6480-0.6485 region during the early North American session, still down nearly 0.60% for the day.

The US dollar regains positive traction on Thursday and prompts fresh selling around the AUD/USD pair, forcing spot prices to reverse a part of the overnight recovery move from its lowest level since April 2020. The recent hawkish comments from a slew of FOMC members reaffirm expectations that the US central bank will continue to hike interest rates at a faster pace to curb inflation. This, in turn, triggers a fresh leg up in the US Treasury bond yields and helps revive demand for the greenback.

Apart from this, the risk-off impulse offers additional support to the safe-haven buck and further contributes to driving flows away from the risk-sensitive aussie. The prospects for a more aggressive policy tightening by the Fed, along with growing worries about a deeper global economic downturn, continue to temper investors' appetite for riskier assets. This is evident from a sea of red across the global equity markets, which tends to boost demand for the traditional safe-haven greenback.

On the economic data front, the final US GDP report showed that the world's largest economy contracted by 0.6% during the second quarter, matching the previous estimate. Separately, the US Weekly Initial Jobless Claims fell from 209K to 193K during the week ended September 22. The data, however, did little to provide any meaningful impetus. That said, a pickup in demand for the British pound exerts some pressure on the greenback and lends some support to the AUD/USD pair. The fundamental backdrop, however, remains tilted firmly in favour of bearish traders.

Technical levels to watch

In the view of economists at TD Securities, it is hard to see the fundamentals shifting favourably in the EUR's direction anytime in the near-term. Therefore, the EUR/USD pair is forecast at 0.92 by the end of the year.

EUR likely to remain under pressure

“We don't think the EUR is out of the woods yet and managed to make another forecast downgrade for the months ahead.” 

“The biggest driver relates to the feedback loop between the ongoing terms of trade shock and the growth outlook. The ECB has helped to cushion the downside but the EUR remains the shock absorber for these lingering shocks.” 

“Our tracking of global and EZ growth drivers points to a push towards 0.92 now.”

• EUR/USD partially fades Wednesday’s robust uptick to 0.9750.
• If bears regain the initiative, the pair could revisit the YTD low.

EUR/USD’s bullish attempt faltered once again at weekly highs around 0.9750, sparking a marked sell-off afterwards.

Odds for extra weakness in the European currency remain well on the table so far with the immediate target at the 2022 low at 0.9535 (September 28). 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 1.0660.

EUR/USD daily chart

Federal Reserve Bank of Cleveland President Loretta Mester said on Thursday that they are not yet at a point where they could start thinking about stopping interest rate hikes, as reported by Reuters.

Additional takeaways

"All the indicators we have from businesses is that demand for labor exceeds supply of labor."

"We're basically back to trend on labor force participation given demographics."

"Not expecting a big bump up in labor force participation."

"We're still not even in restrictive territory on the funds rate."

"The dollar is among the conditions that have tightened, it's is helpful on inflation."

"Money supply hasn't been a reliable indicator for a long time."

"I'd like to see long-term inflation expectations down from where they are now."

"Would also want to see continued progress on realized inflation."

Market reaction

The greenback preserves its strength following these comments. The US Dollar Index was last seen rising 0.5% on the day at 113.28.

• USD/CAD regains positive traction on Thursday and moves little post-US/Canadian macro data.
• A modest bounce in crude oil prices underpins the loonie and acts as a headwind for the major.
• Rising US bond yields offer some support to the USD and remain supportive of the bid tone.

The USD/CAD pair retreats a few pips from the daily high and is currently placed just above the 1.3700 mark, still up over 0.80% for the day.

The US dollar surrenders a major part of its strong intraday gains and turns out to be a key factor acting as a headwind for the USD/CAD pair. Apart from this, an intraday bounce in crude oil prices offers some support to the commodity-linked loonie and further contributes to capping the upside for spot prices.

That said, a combination of factors underpins the greenback and remains supportive of the bid tone surrounding the USD/CAD pair. Expectations that the Fed will stick to its aggressive policy tightening path triggers a fresh leg up in the US Treasury bond yields. This, along with the risk-off impulse, benefits the safe-haven buck.

The market sentiment remains fragile amid worries about the potential economic fallout from the rapidly rising borrowing costs and the risk of a further escalation in the Russia-Ukraine conflict. Moreover, concerns that a deeper global economic downturn will dent fuel demand should cap any meaningful upside for oil prices.

The USD/CAD pair, meanwhile, reacts little to mostly upbeat macro data from the US and Canada. The final GDP report showed that the world's largest economy contracted by 0.6% annualized pace during the second quarter, matching expectations. Furthermore, the US Weekly Initial Jobless Claims fell more than anticipated last week.

From Canada, the monthly GDP print surpasses consensus estimates and records a modest 0.1% growth in July, though fails to provide any impetus. That said, the fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside and any corrective pullback could be seen as a buying opportunity.

Technical levels to watch

• Real GDP in Canada grew by 0.1% in July as expected.
• USD/CAD posts strong daily gains, trades above 1.3700.

Real Gross Domestic Product (GDP) in Canada grew by 0.1% on a monthly basis in July, Statistics Canada reported on Thursday. This reading followed June's expansion of 0.1% and came in better than the market expectation for a contraction of 0.1%.

"Advance information indicates that real GDP was essentially unchanged in August," Statistics Canada further noted in ints press release. "Increases in retail and wholesale trade, as well as in agriculture, forestry, fishing, and hunting were offset by decreases in manufacturing and oil and gas extraction."

Market reaction

The USD/CAD pair edged higher after this report and was last seen gaining 0.8% on the day at 1.3715.

• Initial Jobless Claims in the US fell by 16,000 in the week ending September 24.
• US Dollar Index clings to daily gains above 113.00 after the data.

There were 193,000 initial jobless claims in the week ending September 24, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 209,000 (revised from 213,000) and came in better than the market expectation of 215,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1% and the 4-week moving average was 207,000, a decrease of 8,750 from the previous week's revised average.

"The advance number for seasonally adjusted insured unemployment during the week ending September 17 was 1,347,000, a decrease of 29,000 from the previous week's revised level," the DOL reported.

Market reaction

The dollar preserves its strength following the upbeat data and the US Dollar Index was last seen rising 0.5% on the day at 113.25.

• DXY fades initial gains to the 113.80 region on Thursday.
• Further downside appears in store in the very near term.

DXY looks to reverse part of Wednesday’s sharp pullback, although the bullish attempt seems to have met a tough resistance near 113.80.

Despite the bounce, further decline remains in the pipeline for the dollar. Against that, the corrective leg lower could extend to the weekly low at 109.35 (September 20) ahead of the 55-day SMA at 108.41.

On the broader scenario, prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 7-month support line around 107.10.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 102.38.

DXY daily chart

• Real GDP in the US declined by 0.6% in the second quarter.
• US Dollar Index stays in positive territory above 113.00.

The US economy contracted at an annualized rate of 0.6% in the second quarter, the US Bureau of Economic Analysis' (BEA) third and final estimate showed on Thursday. This reading came in line with the market expectation and the previous estimate.

"In the second estimate, the decrease in real GDP was also 0.6%," the BEA noted in its publication. "The update primarily reflected an upward revision to consumer spending that was offset by a downward revision to exports. Imports, which are a subtraction in the calculation of GDP, were revised down."

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen gaining 0.4% on the day at 113.15.

Bank of England (BOE) Deputy Governor Dave Ramsden said on Thursday that the emergency purchase programme of the long-dated government bonds will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided.

"The UK financial assets saw significant repricing since the start of this week," Ramsden noted and added that were dysfunction in this market to continue or worsen, there would be a material risk to financial stability, as reported by Reuters.

Market reaction

The GBP/USD pair showed no immediate reaction to these comments and was last seen losing 0.15% on the day at 1.0872.

German Finance Minister Christian Lindner said on Thursday that they will mobilise Germany's economic strength when necessary, as reported by Reuters.

Regarding the German government's decision to implement a price brake on gas and electricity while providing funding of up to €200 billion for an "economic defence shield," Linder said that these measures should not fuel inflation.

"We are not following the British down the path of expansionary fiscal policy," the minister explained.

Market reaction

The EUR/USD pair retreated from session highs following these comments and was last seen trading at 0.9705, where it was down 0.33% on a daily basis.

According to a German government document published on Thursday, nuclear power plants in southern Germany will be allowed to run until spring 2023, as reported by Reuters.

The government will also implement an emergency price brake on gas and electricity while providing funding of up to €200 billion for an "economic defence shield."

Commenting on government measures, "the energy crisis threatens to grow into a social and economic crisis," German Economy Minister Robert Habeck said. 

"Gas consumption has to come down," Habeck added and said that Germany is still in a critical situation.

Market reaction

Germany's DAX 30 showed no reaction to these announcements and it was last seen losing 1.35% on a daily basis.

Eurostat will release Harmonised Index of Consumer Prices (HICP) data for September on Friday, September 31 at 09:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks regarding the upcoming EU inflation print.

For the eurozone as a whole, headline inflation is expected at 9.7% YoY vs. 9.1% in August and core is expected at 4.7% YoY vs. 4.3% in August. On a monthly basis, the HICP is expected to rise to 1.2% vs. 0.1% booked in August while the core HICP is foreseen at 1% against the previous figure of 0.5%. 

Commerzbank

“In the euroarea, the inflation rate is likely to have jumped from 9.1% in August to 9.9% in September, and in Germany, it may even already be in double digits. Once again, energy and food were the price drivers. But the inflation rate excluding energy, food and luxury goods is also likely to have jumped from 4.3% to 4.6% in the euroarea.”

Nomura

“We see EA flash inflation rising to what we think will be a peak of 9.7% in September.”

TDS

“The end of the subsidies that artificially lowered German inflation in June will provide a substantial boost to German HICP inflation in September. This combined with continued food pressures will likely push aggregate euro area headline inflation close to 10% YoY.”

SocGen

“We think HICP will increase to 9.6% YoY in the September flash, up from 9.1% in August, and we believe this could be the peak in euro area inflation. Even if it isn’t the peak, we don’t think inflation will increase much from this level in 4Q and inflation is almost certain to fall in early 2023 due to the negative base effects in the energy component.”

Deutsche Bank

“We expect the measure to hit a record +9.5%, up from the previous record of +9.1% in August.”

• Inflation in Germany rose at a stronger pace than expected in September.
• EUR/USD trades above 0.9700 after hot German CPI data.

Annual inflation in Germany, as measured by the Consumer Price Index (CPI), climbed to 10% in September from 7.9% in August, Germany's Destatis reported on Thursday. This reading came in higher than the market expectation of 9.4.

Meanwhile, the Harmonised Index of Consumer Prices (HICP), the European Central Bank's (ECB) preferred gauge of inflation, jumped to 10.9% from 8.8%, compared to analysts' estimate of 10%.

On a monthly basis, the CPI and the HICP arrived at 1.9% and 2.2%, respectively, surpassing market forecasts.

Market reaction

The EUR/USD pair continues to trade above 0.9700 after the German inflation data. 

Will the fourth quarter bring an end to the bear market? Morgan Stanley’s Global Investment Committee believes this bear market is far from over and recommends investors consider three key dynamics to inform their equity investments going forward.

Stock investors should demand a greater premium for taking on risk

“The paths for interest rates, inflation and corporate profitability all remain uncertain. That’s why stock investors should be demanding a greater premium for taking on risk. In other words, stocks still look expensive, and valuations look high, especially given that inflation-adjusted yields have moved up.”

“Investors could be in for more surprises as they continue to overlook the impact of tightening financial conditions. They should be cautious about investing in long-duration or growth-oriented equities, which currently may not offer fair compensation for the risks of rising rates, weakening operating leverage and the strong US dollar.” 

“Any bear-market rally that may occur in the seasonally strong fourth quarter should be used for rebalancing portfolios and tax-loss harvesting.”

• EUR/JPY extends the recovery north of the 140.00 yardstick.
• The continuation of the rebound targets the weekly high at 144.04.

EUR/JPY adds to Wednesday’s bounce and manages to advance to multi-day peaks near 140.70 on Thursday.

Considering the ongoing price action, further upside should not be ruled out. That said, if the bullish impulse gathers steam, the cross should meet the next up barrier at the weekly top at 144.04 (September 20).

Looking at the longer term, the constructive stance is expected to persist while above the 200-day SMA, today at 135.77.

EUR/JPY daily chart

Brent Crude Oil has seen a clear break below the crucial $92.09/91.90 support area. Strategists at Credit Suisse expect further weakness toward the 50% retracement of the whole 2020/2022 upmove at $77.56.

Brent Crude Oil is under pressure

“We expect further weakness toward the 50% retracement at $77.56. If this level would break as well, we then identify next support levels at $65.72, the December 2021 low and then $63.02, the 61.8% retracement, where we would expect a more sustainable consolidation/countermove to be established.”

“Only a solid rise back above the crucial intersection of the 55 and 200-day averages, currently seen at $96.76/101.61, would improve the technical picture again, which is not our base case.”

US Q2 GDP Overview

Thursday's US economic docket highlights the release of the Final GDP print for the second quarter, scheduled at 12:30 GMT. The second revision is expected to show that the world's largest economy contracted by a 0.6% annualized pace during the April-June period, matching the previous estimates.

How Could it Affect EUR/USD?

The backwards-looking data might do little to push back against expectations that the Fed will continue to hike interest rates at a faster pace to curb inflation. Hence, the focus will remain glued to the US Core PCE Price Index - the Fed's preferred inflation gauge, suggesting that the final US GDP might do little to provide any meaningful impetus. That said, an upward revision will be seen as a positive trigger for the US dollar bulls and prompt fresh selling around the EUR/USD pair.

Meanwhile, Eren Sengezer, Editor at FXStreet, offered a brief technical outlook for the EUR/USD pair: “The Relative Strength Index (RSI) indicator on the four-hour chart stays near 50 and EUR/USD trades slightly above the 20-period SMA, which is currently located at 0.9635. As long as this level stays intact, the pair could try to stage another rebound.”

Eren also outlines important levels to trade the EUR/USD pair: “On the upside, 0.9670 (Fibonacci 23.6% retracement of the latest downtrend) aligns as immediate resistance before 0.9700 (psychological level) and 0.9740 (Fibonacci 38.2% retracement). If the pair manages to stabilize above that last hurdle, sellers could move to the sidelines and open the door for additional gains.”

“0.9635 (20-period SMA) forms first support before 0.9600 (psychological level) and 0.9550 (static level, the end-point of the downtrend),” Eren adds further.

Key Notes

   •  EUR/USD Forecast: Euro needs to capture 0.9740 to extend rebound

   •  EUR/USD: Bears regain control below the 0.9700 mark

    •  EUR/USD: Unlikely to hold above 0.95 – SocGen

About US GDP

The Gross Domestic Product Annualized released by the US Bureau of Economic Analysis shows the monetary value of all the goods, services and structures produced within a country in a given period of time. GDP Annualized is a gross measure of market activity because it indicates the pace at which a country's economy is growing or decreasing. Generally speaking, a high reading or a better than expected number is seen as positive for equities, while a low reading is negative.

EUR/USD has moved below parity. While economists at ABN Amro expect the euro to remain under pressure, they expect the pair to end the year around parity.

Lower safe-haven demand could result in a recovery of EUR/USD

“An energy crisis and a recession in the eurozone combined with a more aggressive path of rate hikes in the US compared to the eurozone will probably keep the euro under pressure versus the US dollar this year.”

“The recent wave of risk aversion pushed EUR/USD below parity due to safe-haven demand for the dollar. When financial markets calm down somewhat again, lower safe-haven demand for the dollar could result in a recovery of EUR/USD.” 

“Our forecasts for EUR/USD for end-2022 stands at 1.00.”

• GBP/USD reverses an intraday dip, though struggles to make it through the 1.0900 mark.
• Concerns about rising UK debt continue to undermine sterling and acts as a headwind.
• Recession fears, resurgent USD demand contributes to capping the upside for the major.

The GBP/USD pair recovers early lost ground to the 1.0765-1.0760 area and climbs to a fresh daily high during the mid-European session. Spot prices, however, struggle to capitalize on the move and remain below the 1.0900 round-figure mark.

The Bank of England's move on Wednesday to buy long-term bonds to restore stability appears to have calmed the market and acts as a tailwind for the British pound. This, in turn, assists the GBP/USD pair to attract some dip-buying, though a combination of factors continues to act as a headwind and caps any meaningful upside for spot prices.

Investors seem less confident in the UK government’s ability to manage the ballooning debt, especially after the announcement of the mini-budged last week. The massive unfunded tax cuts could stretch Britain's finances to their limits and derail the BoE's efforts to contain sky-high inflation, creating additional headwinds for the UK economy.

Apart from this, the emergence of fresh US dollar buying further contributes to keeping a lid on the GBP/USD pair, at least for the time being. Growing acceptance that the Fed will tighten its policy more aggressively to curb inflation triggers a fresh leg up in the US Treasury bond yields. This, along with the risk-off impulse, underpins the safe-haven buck.

The aforementioned factors make it prudent to wait for strong follow-through buying before positioning for a further recovery in the GBP/USD pair, from an all-time low touched earlier this week. In the absence of any major market-moving economic releases from the UK, traders on Thursday will take cues from a speech by BoE Deputy Governor David Ramsden.

Traders will further take cues from the US economic docket, featuring the release of the final Q2 GDP print and the usual Weekly Initial Jobless Claims. This, along with speeches by influential FOMC members and the US bond yields, will drive the greenback demand and contribute to producing short-term trading opportunities around the GBP/USD pair.

Technical levels to watch

EUR/CZK has neared the 24.70 mark. Beyond here, the pair could test 25.00 and then 25.20, economists at Société Générale report.

Initial support seen at 24.48

“The EUR/CZK pair has recently evolved within an ascending triangle with a flat upper limit near 24.70. The pattern points towards potential upside.”

“If a break beyond 24.70 materializes, ongoing bounce is expected to extend towards 25.00 and the upper band of a multiyear descending channel at 25.20.”

“First support is at 24.48, the 50% retracement from August.”

• USD/JPY regains positive traction on Thursday amid the emergence of fresh USD buying.
• A pickup in the US bond yields and aggressive Fed rate hike bets revives the USD demand.
• The risk-off impulse offers some support to the safe-haven JPY and seems to cap the pair.
• The Fed-BoJ policy divergence favours bulls and supports prospects for additional gains.

The USD/JPY pair regains some positive traction on Thursday and trades near the top end of a three-day-old trading range, around the 144.80 region through the first half of the European session.

The US dollar makes a solid comeback and reverses a part of the overnight sharp retracement slide from a two-decade high, which, in turn, is seen offering support to the USD/JPY pair. Following the previous day's dramatic turnaround, a fresh leg up in the US Treasury bond yields, bolstered by hawkish Fed expectations, helps revive the USD demand.

Investors seem convinced that the US central bank will tighten its monetary policy at a faster pace to curb persistently high inflation. This marks a big divergence in comparison to a more dovish stance adopted by the Bank of Japan, which continues to undermine the Japanese yen and further contributes to intraday buying around the USD/JPY pair.

It is worth mentioning that the Japanese central bank has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing. Moreover, a government spokesperson signalled on Thursday that Japan is ready to take more steps to ease the pain from the rising electricity bills.

That said, the risk-off impulse, as depicted by a sea of red across the global equity markets, seems to be lending some support to the safe-haven JPY. This, in turn, is holding back traders from placing fresh bullish bets around the USD/JPY pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the upside.

Market participants now look forward to the US economic docket, featuring the release of the final Q2 GDP report and the usual Weekly Initial Jobless Claims data. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD. Apart from this, the broader market risk sentiment should provide some impetus to the USD/JPY pair.

Technical levels to watch

The US dollar has stabilized following yesterday’s sharp correction lower. Economists at ING expect dips to the 112.50/113.00 area in the US Dollar Index (DXY) to attract buyers.

Dollar will continue to be favoured

“We continue to favour defensive strategies in FX – which means backing the dollar and looking for the Swiss franc to outperform in Europe as the Swiss National Bank (SNB) guides it higher.”  

“Out of interest as well, the US trade balance has narrowed back to levels last seen in October 2021 – meaning that the dollar's Achilles Heel – the trade deficit – does not look as vulnerable as it could.” 

“Expect there to remain strong demand for the dollar on dips – e.g in the 112.50/113.00 area for DXY.”

European Central Bank’s (ECB) policymaker Pablo Hernandez de Cos said on Thursday that he hasn't yet observed clear evidence of de-anchoring of inflation expectations in the eurozone, as reported by Reuters.

Additional takeaways

"Quantitative tightening could potentially cause market turmoil in certain market segments, as supply may outgrow demand and liquidity may dry up."

"This could imperil policy normalisation path at a time in which all our efforts should be focused on it."

"Policy rates are thus a more effective instrument to tighten monetary policy."

"On basis of current information, the median terminal rate value across models is at 2.25%- 2.50%, estimated with significant uncertainty."

"This target-compatible terminal rate is not necessarily the same as the natural or neutral rate."

"At best, we have some estimates about its long-run value, which range from -1 to 0%, equivalent to 1-2% long-run nominal rates."

"Running down APP holdings could lower the terminal rate."

"In case of APP, ECB could potentially decide to start reducing asset stock earlier than markets currently anticipate."

Market reaction

The EUR/USD pair is having a difficult time staging a rebound after these comments and it was last seen losing 0.68% on the day at 0.9668.

• Business and consumer sentiment in the euro area continued to weaken in September.
• EUR/USD trades in negative territory below 0.9700 after the data.

The data published by the European Commission showed on Thursday that the Economic Sentiment Indicator (ESI) for the euro declined to 93.7 in September from 97.3 in August. This reading came in weaker than the market expectation of 95. For the EU, the ESI fell by 3.5 points to 92.6.

"Amongst the largest EU economies, the ESI fell markedly in Germany (-4.8), the Netherlands (-3.7), Italy (-3.7), France (-3.2), Poland (-2.4) and, to a lesser extent, Spain (-1.0)," the publication read. 

Further details of the report revealed that the Industrial Confidence Index fell to -0.4 from 1 and the Services Sentiment Index edged lower to 4.9 from 8.1.

Finally, the Consumer Confidence Index for the euro area arrived at -28.8, a new all-time low, matching the flash estimate. 

Market reaction

The EUR/USD pair largely ignored these data and it was last seen losing 0.6% on the day at 0.9675.

EUR/USD has turned south and declined below 0.9700. In the opinion of Kit Juckes, Chief Global FX Strategist at Société Générale, the pair is set to post a new cycle low.

Inflation problem and economic threat from Russia to weigh on the EUR

“A new cycle low in EUR/USD seems certain, and 0.95 is unlikely to hold.”

“The early signs from the Laender suggest the risk is of an overshoot to the consensus for German CPI inflation, which looks for a rise from 7.9% to 9.5%. Meanwhile, the leading German Institutes forecast a 0.4% fall in GDP next year, which is slightly below the -0.2% consensus figure.” 

“The rates market will price in further ECB hikes and ECB representatives will talk tough, but a growing inflation problem at the same time as the economic threat from Russia, will weigh on the euro.”

• NZD/USD meets with a fresh supply on Thursday and is pressured by a combination of factors.
• Fed rate hike bets trigger a fresh leg up in the US bond yields and revive the USD demand.
• The risk-off impulse also underpins the safe-haven buck and weighs on the risk-sensitive kiwi.

The NZD/USD pair comes under renewed selling pressure on Thursday and reverses a part of the overnight bounce from its lowest level since March 2020. The pair maintains its offered tone through the early part of the European session and is currently trading near the daily low, just above mid-0.5600s.

Following the previous day's dramatic turnaround from a new 20-year peak, the US dollar regains strong positive traction and turns out to be a key factor exerting downward pressure on the NZD/USD pair. A goodish pickup in the US Treasury bond yields, bolstered by expectations for faster rate hikes by the Fed, acts as a tailwind for the greenback.

Investors seem convinced that the Fed will stick to its aggressive policy tightening path to combat stubbornly high inflation. The bets were reaffirmed by the recent hawkish comments by a slew of FOMC members. This, along with a fresh wave of the global risk-aversion trade, underpins the safe-haven buck and weighs on the risk-sensitive kiwi.

The market sentiment remains fragile amid growing worries that rapidly rising borrowing costs will lead to a deeper global economic downturn. Apart from this, the risk of a further escalation in the Russia-Ukraine conflict takes its toll on the global risk sentiment, which is evident from a sea of red across the global equity markets.

Market participants now look forward to the US economic docket, featuring the release of the final Q2 GDP report and the usual Weekly Initial Jobless Claims data. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD demand and produce some trading opportunities around the NZD/USD pair.

Technical levels to watch

European Central Bank (ECB) Governing Council member Olli Rehn repeated on Thursday that the ECB needs significant rate hikes in the coming meetings, as reported by Reuters. Rehn further explained either a 75 or a 50 basis points rate hike would be considered to be significant, per Reuters.

Additional takeaways

"I expect the ECB to get to the neutral rate by Christmas."

"Prospect of recession in the euro area has grown more likely."

"Indiscriminately increasing expenditure does not help in the fight against inflation."

"Gas supplies have clearly been weaponised by Russia in an energy war."

Market reaction

These comments don't seem to be having a noticeable impact on the shared currency's performance against its rivals. As of writing, the EUR/USD pair was down 0.75% on the day at 0.9660.

In a dramatic policy U-turn, the Bank of England is resuming gilt purchases. Yet, economists at ING expect GBP/USD to struggle to surpass the 1.08/09 area. 

Mixed news for the pound

“BoE gilt intervention is being seen as mixed news for sterling. The positive is that the BoE has taken action to address financial stability concerns at the long end of the gilt market.”

“Die-hard sterling bears will remain so, citing ‘fiscal dominance’ in that the BoE has suspended its planned QT, and by buying gilts the BoE effectively provides room for the government to continue with its aggressive fiscal programme. That is why we have seen HM Treasury make every effort to reassure BoE independence.”

“We doubt cable holds gains to 1.08/1.09 and the bias has got to be for a 1.0350/1.0500 retest.”

There is finally bullish news. WTI crude prices are back near $82. While strategists at TD Securities believe the risks have tilted to the upside, it is too early to take aggressive strategic longs.

Stars aligning for oil bulls

“If OPEC+ cuts the rumored one million bbl/s of production starting in November and Washington starts refilling the SPR, then this market could well move into a material deficit. This likely means that money managers could continue covering shorts and start taking out some limited longs in the not too distant future, implying a rally which could easily see a move back toward $90/b resistance.”

“Given that there is the possibility of a deep recession resulting from restrictive action by key central banks and continued uncertainty surrounding when China returns to normality, after COVID shutdowns, we don’t see a sustained rally.”

• USD/CAD catches aggressive bids on Thursday and is supported by a combination of factors.
• A fresh leg up in the US bond yields, the risk-off impulse revives demand for the greenback.
• Sliding crude oil prices undermines the loonie and provides an additional boost to the major.

The USD/CAD pair attracts fresh buying near the 1.3600 mark on Thursday and stalls the previous day's sharp retracement slide from its highest level since May 2020. The intraday positive move lifts spot prices to levels just above mid-1.3700s during the early European session and is sponsored by a combination of factors.

Following the previous day's dramatic turnaround from a new two-decade high, the US dollar makes a solid comeback and turns out to be a key factor offering support to the USD/CAD pair. Apart from this, a fresh leg down in crude oil prices undermines the commodity-linked loonie and provides an additional boost to spot prices.

As investors digest the Bank of England's intervention to stabilize the market for gilts, expectations for faster rate hikes by the Fed allow the US Treasury bond yields to reverse a part of the overnight slump. This, along with the risk-off impulse, revives demand for the safe-haven greenback and offers support to the USD/CAD pair.

The market sentiment remains fragile amid concerns that a more aggressive policy tightening by the Fed will push the economy into recession. Investors also seem concerned that a deeper economic downturn will dent fuel demand, which, to a larger extent, offsets worries about a tight global supply. This, in turn, fails to assist the black liquid to capitalize on the overnight strong recovery from the vicinity of a multi-month low.

The aforementioned fundamental factors suggest that the path of least resistance for the USD/CAD pair is to the upside. This, in turn, supports prospects for the resumption of the recent appreciating move witnessed over the past two weeks or so. Market participants now look forward to Thursday's economic releases from the US and Canada, which, along with oil price dynamics, should provide a fresh impetus to the USD/CAD pair.

Technical levels to watch

Further gains to 7.3000 in USD/CNH now seem to have lost some momentum, comment FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “We expected ‘further rapid rise in USD’ and stated that ‘the levels to watch are at 7.2300 and 7.2500’. Our view was not wrong as the rally in USD took out both levels (high of 7.2668). However, the subsequent outsized sell-off from the high came as a surprise (low of 7.1450). While further volatility is not ruled out, USD is likely to trade within a narrower range of 7.1450/7.2250.”

Next 1-3 weeks: “We have expected USD to strengthen for more than 2 weeks now. As USD rose, in our latest update from yesterday (28 Sep, spot at 7.2050), we indicated that the breach of the key resistance at 7.1960 could carry USD higher to 7.2500, possibly 7.3000. USD subsequently surged to 7.2668 before plunging to a low of 7.1450. While our ‘strong support’ at 7.1400 (no change in level from yesterday) is not breached, after the sharp drop from the high, the odds of USD rising to 7.3000 have diminished. Looking ahead, a breach of 7.1400 would indicate that USD strength has come to an end.”

• EUR/USD gives away part of Wednesday’s strong gains to 0.9750.
• The dollar resumes the uptrend and weighs on the risk complex.
• Germany flash CPI, EMU final Consumer Confidence next of note.

EUR/USD now loses some upside traction and revisits the mid-0.9600s following Wednesday’s uptick to the 0.9750 area.

EUR/USD looks to USD, data

EUR/USD regains downside traction and sheds around a cent from Wednesday’s bull run to the 0.9750 zone.

Indeed, USD-bulls return to the market and push the USD Index (DXY) to daily highs near the 114.00 barrier, hurting at the same time the sentiment surrounding the risk-linked galaxy.

In line with their US peers, the German 10-year bund yields print humble gains in the wake of the opening bell in the old continent and trade at shouting distance from recent multi-year peaks.

Interesting calendar on this side of the Atlantic, as EMU’s final Consumer Confidence gauge and the Economic Sentiment are due seconded by preliminary inflation figures in Germany for the month of September.

In the NA session, final GDP Growth Rate will be in the centre of the debate ahead of Initial Claims and speeches by FOMC’s Bullard, Mester and Daly.

What to look for around EUR

EUR/USD comes under pressure after climbing as high as the 0.9750 area on Wednesday on the back of the technical correction in the dollar.

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: 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 0.77% at 0.9656 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 0.99750 (weekly high September 28) would target 1.0050 (weekly high September 20) en route to 1.0197 (monthly high September 12).

European Central Bank (ECB) Governing Council member Mario Centeno argued on Thursday that a faster increase in rates than warranted may backfire, as reported by Reuters.

"I do not see a deanchoring of inflation expectations," Centeno added and said that higher interest rates would push up funding costs and diminish fiscal space. "Normalisation will not be constrained by fiscal considerations," Centeno further noted.

Market reaction

The EUR/USD pair continues to push lower following these remarks and it was last seen losing 0.8% on the day at 0.9655.

Citing sources familiar with the matter, Reuters reported that the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+, have started to discuss a potential output cut for the next meeting.

One of the sources told Reuters that a reduction in oil output was "likely." The group is scheduled to meet on October 5.

Market reaction

Crude oil prices edged slightly higher from daily lows on this headline but the market reaction was relatively subdued. As of writing, the barrel of West Texas Intermediate was trading at $80.80, where it was down 1.3% on a daily basis.

According to FX Strategists at UOB Group Quek Ser Leang and Peter Chia, further gains in USD/JPY need to surpass 145.00.

Key Quotes

24-hour view: “Our expectations for USD to ‘rise above 145.00’ yesterday did not materialize as it retreated from a high of 144.87 (low has been 143.89). Upward pressure has eased and the current price movement is likely part of a consolidation phase. In other words, USD is likely to trade sideways for today, expected to be between 143.70 and 144.70.”

Next 1-3 weeks: “Our update from two days ago (27 Sep, spot at 144.30) still stands. 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.”

EUR/USD has found solid support around the 0.95 area so far. Nevertheless, the pair is unlikely to stage a significant rally, according to economists at ING.

Any rallies above 0.97 to prove brief

“The European Central Bank (ECB) is talking tough and will probably deliver on the 75 bps of hikes expected for the 27 October meeting. We doubt this provides much support for the euro, however.”

“0.9500 has proved a good support area for EUR/USD after all and the BoE action did provide a brief reprieve to non-dollar currencies across the board. But we see nothing yet to reverse this powerful underlying downtrend in EUR/USD and expect any rallies above 0.97 to prove brief.”

• The index picks up pace and advances sharply to 113.75/80.
• US yields regain upside traction and reclaim ground lost.
• Final Q2 GDP Growth Rate, Initial Claims next on tap in the docket.

The greenback, when tracked by the USD Index (DXY), leaves behind part of Wednesday’s steep decline and advances to the 113.75/80 band on Thursday.

USD Index now looks to data

Following Wednesday’s acute retracement, the index resumes the uptrend and advances to the upper-113.00s amidst the resumption of the weak note in the risk complex and the march north in US yields across the curve.

Indeed, the dollar leaves behind Wednesday’s corrective move and refocuses on the 114.00 neighbourhood, as investors continue to reprice the tighter-for-longer stance from the Federal Reserve. Wednesday’s “technical” knee-jerk in the buck was somehow expected as per the extreme overbought conditions of DXY in past sessions.

In the US calendar, the final Q2 GDP Growth Rate will take centre stage along with usual weekly Claims and speeches by St. Louis Fed J.Bullard (voter, hawk), Cleveland Fed L.Mester (voter, hawk) and San Francisco Fed M.Daly (2024 voter, hawk).

What to look for around USD

Bulls regain the upper hand after Wednesday’s correction and prompt the dollar to re-shift its focus to the 114.00 hurdle and beyond.

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: 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 0.92% at 113.75 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 109.35 (weekly low September 20) seconded by 107.68 (monthly low September 13) and finally 107.58 (weekly low August 26).

Here is what you need to know on Thursday, September 29:

The US Dollar Index (DXY) lost over 1% on Wednesday, the 10-year US Treasury bond yield fell 5.5% and Wall Street's main indexes gained between 1.9% and 2%. The market correction, however, seems to be over already with the DXY rising above the mid-113.00s and the US stock index futures trading deep in negative territory. Business and consumer sentiment data from the euro area and HICP figures from Germany will be looked upon for fresh impetus during the European session. In the second half of the day, the US Bureau of Economic Analysis will release the final reading of the annualized Gross Domestic Product growth for the second quarter.

During the Asian trading hours, Reuters reported that China's finance ministry was planning to issue about 2.5 trillion yuan ($347.4 billion) in government bonds in the fourth quarter. This headline helped the Shanghai Composite Index limit its daily losses on Thursday but markets remain risk-averse early Thursday.

EUR/USD gained more than 100 pips on Wednesday but already retraced a large portion of the previous day's rally. Several European Central Bank (ECB) policymakers noted that 75 basis points hikes in rates would be appropriate in October. Nevertheless, the souring market mood and the renewed dollar strength don't allow the pair to shake off the bearish pressure. As of writing, EUR/USD was down 0.9% on the day at 0.9645.

Following the Bank of England's (BoE) intervention in the gilt market, GBP/USD fluctuated wildly and ended up closing the day in positive territory above 1.0800.  The BoE said that it would carry out temporary purchases of long-dated UK government bonds to restore orderly market conditions. The UK central bank, however, noted that the MPC's annual target of £80 billion stock reduction will remain unaffected. Meanwhile, several news outlets reported that the UK government had no plans of reversing its fiscal policy and that Finance Minister Kawsi Kwarteng would not resign. When asked about the market reaction to the mini-budget early Thursday, British Prime Minister Liz Truss said that she believed that the government had done the right thing. As markets keep a close eye on the latest developments in the UK gilt markets, GBP/USD loses 1% on the day below 1.0800. 

With market focus staying on the British pound and bond markets, USD/JPY registered small daily losses on Wednesday. Supported by the rebound in US yields, USD/JPY trades in positive territory slightly below 115.00 on Thursday.

Gold capitalized on the sharp decline seen in the US yields on Wednesday and rose nearly 2%, posting its largest one-day gain since March. With the 10-year US yield rising over 3% early Thursday, gold failed to build on Wednesday's gains and was last seen falling 1% on the day at $1,643.

Bitcoin rose nearly 2% on Wednesday but lost its bullish momentum before testing $20,000. At the time of press, BTC/USD was fluctuating in a narrow range above $19,000. Ethereum struggled to make a decisive move in either direction on Wednesday and close the day virtually flat. ETH/USD stays under modest bearish pressure and trades within a touching distance of $1,300. 

• AUD/USD comes under renewed selling pressure and is pressured by a combination of factors.
• Mixed Australian CPI report for August, the risk-off impulse weighs on the risk-sensitive aussie.
• A goodish pickup in the US bond yields revives the USD demand, which contributes to the slide.

The AUD/USD pair struggles to capitalize on the overnight solid bounce of over 150 pips from its lowest level since April 2020 and meets with a fresh supply on Thursday. The pair extends its intraday descent through the early European session and slides back below mid-0.6400s, hitting a fresh daily low in the last hour.

The Australian dollar started losing ground after the first monthly consumer inflation report showed that price pressures may be starting to ease. In fact, the Australian Bureau of Statistics reported that the headline CPI eased to a 6.8% YoY rate in August from 7% in the previous month. Excluding the volatile food and energy prices, the gauge edged up to 6.2% during the reported month. This, along with resurgent US dollar demand, prompts fresh selling around the AUD/USD pair.

Following the previous day's dramatic turnaround from a new two-decade high, the USD regains positive traction amid a goodish pickup in the US Treasury bond yields. Investors seem convinced that the Fed will hike interest rates at a faster pace to curb inflation. The bets were reaffirmed by the recent hawkish remarks by a slew of FOMC officials, which, in turn, acts as a tailwind for the US bond yields. Apart from this, the risk-off impulse further underpins the safe-haven buck.

The market sentiment remains fragile amid worries that a more aggressive policy tightening by major central banks will lead to a deeper economic downturn. Adding to this, the risk of a further escalation in the Russia-Ukraine conflict has been fueling recession fears and taking its toll on the global risk sentiment. This is evident from a fresh leg down in the equity markets, which forces investors to take refuge in traditional safe-haven assets and weighs on the risk-sensitive aussie.

The fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside and attempted recoveries might still be seen as a selling opportunity. Market participants now look forward to the US economic docket, featuring the final Q2 GDP print and the usual Weekly Initial Jobless Claims. Traders will also take cues from speeches by FOMC members, which, along with the US bond yields, should drive the USD and provide some impetus to the AUD/USD pair.

Technical levels to watch

Economists at Wells Fargo expect further significant weakness in the pound. They forecast GBP/USD around parity over the next six months.

BoE rate hikes to fall well short of the Fed

“With the UK still seen falling into recession and CPI inflation expected to peak lower than previously, we expect Bank of England rate hikes to fall well short of the Fed, or tightening currently implied by market participants.”

“We expect the pound to fall close to parity versus the US dollar over the next six months.”

In light of the recent price action, a breakdown of 0.5565 in NZD/USD appears out of favour for the time being, suggest FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “Yesterday, we held the view that NZD ‘could dip to 0.5600 first before the risk of a rebound would increase’. NZD dropped more than we expected but it rebounded strongly from the next support at 0.5565 (high has been 0.5733). The sharp and swift rebound appears to be running ahead of itself and NZD is unlikely to advance much further. For today, we expect NZD to trade within a range of 0.5630/0.5740.”

Next 1-3 weeks: “We turned negative in NZD 2 weeks ago. In our latest narrative from yesterday (28 Sep, spot at 0.5635), we indicated that NZD “is likely to break 0.5600 but it remains to be seen whether NZD can decline to the next support level at 0.5565”. NZD subsequently dropped to 0.5565 before rebounding strongly. Downward momentum has waned and the strong rebound amidst oversold conditions suggests the chance of NZD breaking below 0.5565 is low. That said, only a breach of 0.5755 (no change in ‘strong resistance’ level from yesterday) would indicate that NZD is not weakening further.”

When asked if she is ashamed of the government's budget, "I think we should remember the situation the country was facing," British Prime Minister Liz Truss said on Thursday, as reported by Reuters.

Truss further reiterated that they are working closely with the Bank of England. "We have seen difficult markets around the world, I am clear that the government has done the right thing," the PM added. "As the PM, I am prepared to take difficult decisions and do the right thing."

Market reaction

The British pound continues to weaken against its rivals following these comments and the GBP/USD pair was last seen losing 1% on the day at 1.0780.

Copper is back below its 55-day moving average (DMA). With an existing top already in place, analysts at Credit Suisse stay biased towards further weakness.

The core risk still leans lower

“Copper (LME) is back below its 55-DMA, currently seen at $7,736, and the industrial metal remains in a well-defined technical downtrend.”

“With a large top still in place and the market below falling long-term moving averages, we stay biased towards further weakness and we note that a break below $6,844 would open up support seen next at $6,300/6,269.”

• Gold price keeps reversal from the key hurdle, drops back towards yearly low.
• Risk-aversion, hawkish central banks joined firmer yields to weigh on XAU/USD.
• US Q2 GDP eyed for intraday clues, recession, Russia and central banks are in focus.
• Bears can keep reins unless crossing $1,660 resistance confluence.

Gold price (XAU/USD) braces for the fresh yearly low, snapping a two-day uptrend, as the US dollar bulls return to the table after a brief absence the previous day. Fears of global recession and hawkish central bank actions are the major drivers that recently propelled the greenback. On the same line could be the upbeat US trade data and doubts over the Bank of England (BOE) and the People’s Bank of China (PBOC) to tame the economic slowdown woes. It’s worth noting that the chatters surrounding heavy rate hikes from the European Central Bank (ECB) joined the BOE’s surprise bond action to trigger the metal’s biggest daily jump in six months the previous day.

Given the sour sentiment and the XAU/USD pullback from the key hurdles, the bears are likely to keep the reins. However, a close watch over the aforementioned risk catalysts and the final readings of the US Q2 Gross Domestic Product (GDP) appears necessary for clear directions.

Also read: Gold Price Forecast: XAU/USD struggles to capitalize on corrective bounce amid rate-hike jitters

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price retreats from multiple strong resistances, suggesting a smooth run towards the south.

That said, a convergence of the previous weekly low and the SMA 100 on the hourly play, near $1,640, appears the immediate support to watch during the quote’s further weakness.

Following that, it can quickly decline towards the joint of the Pivot Point one week S1, close to $1,627.

During the XAU/USD downside past $1,627, the $1,600 appears the favorite among the gold bears.

Alternatively, $1,646 acts as the wall of resistance comprising Pivot Point one month S2, Fibonacci 38.2% on one day and 5-DMA.

If the metal prices cross the $1,646 hurdle, a run-up towards $1,653 can’t be ruled out. However, a convergence of 5-HMA, middle Bollinger on one-hour and Fibonacci 23.6% on one day and one week could challenge the buyers afterward.

It’s worth observing that the bullion’s run-up beyond $1,653 could aim for the last defense of bears, namely $1,660 that comprises the 10-DMA and Fibonacci 38.2% on one week.

Here is how it looks on the tool

About Technical Confluences Detector

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

• GBP/USD meets with a fresh supply on Thursday and erodes a major part of the previous day’s gains.
• The reaction to the BoE’s move to buy government bonds fades amid concerns about rising UK debt.
• A goodish pickup in the US bond yields revives the USD demand and contributes to the intraday slide.

The GBP/USD pair struggles to capitalize on the previous day's strong rally of over 175 pips and comes under renewed selling pressure on Thursday. The intraday downfall extends through the early European session and drags spot prices momentarily below the 1.0800 mark.

The overnight reaction to the Bank of England's intervention fizzles out rather quickly amid the lack of confidence in the UK government’s ability to manage the ballooning public debt. This continues to undermine the British pound, which, along with the emergence of some US dollar dip-buying, is exerting downward pressure on the GBP/USD pair.

It is worth mentioning that the UK central bank announced on Wednesday that it will start buying long-dated UK government bonds to help restore orderly market conditions. The move, however, fails to ease jitters over the UK’s tax-cut plan, which could stretch Britain's finances to their limits and derail the BoE's efforts to contain sky-high inflation.

The USD, on the other hand, stalls its sharp retracement slide from a new two-decade high touched on Wednesday amid a goodish pickup in the US Treasury bond yields. Growing acceptance that the Fed will continue to hike interest rates at a faster pace to combat stubbornly high inflation continues to act as a tailwind for the US bond yields and the greenback.

The GBP/USD pair, meanwhile, erodes a major part of the previous day's gains and for now, seems to have snapped a two-day winning streak. In the absence of any relevant economic data from the UK, traders on Thursday will take cues from a speech by BoE Deputy Governor David Ramsden. Apart from this, the US macro releases would be looked upon for a fresh impetus.

The US economic docket features the release of the final Q2 GDP print and the usual Weekly Initial Jobless Claims data later during the early North American session. This, along with speeches by influential FOMC members and the US bond yields, will drive the greenback demand and contribute to producing short-term trading opportunities around the GBP/USD pair.

Technical levels to watch

Compared with other EM currencies the peso was so far able to stand up quite well against USD. Today, Banxico is expected to hike rates by 75 basis points. However, a lot seems have been priced in by the market. Therefore, the peso is unlikely to benefit from a hawkish central bank, economists at Commerzbank report.

Upside risks for USD/MXN

“There seems to be unanimous agreement amongst analysts polled by Bloomberg that the Mexican central bank Banxico will hike its key rate for the third consecutive time by 75 bps to then 9.25% and it is also fully priced in on the market. The continued price pressure moreover points towards a hawkish statement in which Banxico signals further rate hikes.”

“We assume that Banxico will continue its tightening course. It will probably not want its speed to drop below that of the Fed so as to support the peso, as continued peso weakness would further intensify price pressure. The market seems to expect key rates to reach 10.4% by year-end. Overall, a lot seems to have been priced in by the market so that only a Banxico surprise is likely to move the peso significantly.”

“The expected momentum is likely to be dampened as a result of the recession expected for the USA. The quarrels about the trade agreement between the US, Canada and Mexico, the so-called USMCA, about Mexico’s energy policy also constitute a fly in the ointment.”

“In the current market environment with continued USD strength, we, therefore, continue to see upside risks for USD/MXN.”

European Central Bank (ECB) Governing Council member Madis Muller told Bloomberg on Thursday that the ECB's monetary policy is still accommodative and they need to move further with tightening.

"Inflation calls for significant rate hikes," Muller noted and added something similar to the last two hikes would be appropriate.

Key takeaways

"It is too early to say how much in basis points."

"We should have a QT discussion relatively soon."

"The euro rate is one of the metrics we're looking at."

Market reaction

These comments failed to help the shared currency and EUR/USD was last seen losing 0.7% on the day at 0.9667.

The inflation data from Germany, Spain and Belgium will give a first taste of the eurozone inflation data for September tomorrow. In the opinion of economists at Commerzbank, inflation could cause trouble for the euro again.

Inflation as a euro risk

“If the economy cools significantly over the coming weeks and if the ECB begins to conclude from that that this might increase inflation pressure to such an extent that more cautious rate hikes might be required, inflation might very soon become an issue for the euro again.”

“If the FX market does not share the ECB’s view there is a risk of higher inflation, which the ECB is not countering with an adequate tightening of monetary policy, putting significant pressure on the single currency.”

GBP/USD is displaying a lackluster performance. Economists at Commerzbank expect the pair to see another leg lower.

Sterling likely to resume its downward trend quite soon

“High volatility at the short end makes me doubt that the financial market will give the government and the Bank of England until November to find an answer to the turbulence. And even then, there would still be the risk that the measures announced will not be sufficient to regain market confidence.”

“I see the urgent need for confidence building measures and as long as the government does not give in, this will include, first and foremost, the BoE’s clear commitment to hike rates significantly to limit the increasing inflationary risks due to the announced tax cuts, sterling weakness and the new bond purchases. Otherwise, sterling is likely to resume its downward trend quite soon again.”

“For now, we continue to see significant GBP risks going forward.”

• USD/JPY picks up bids to refresh intraday high, reversing the previous day’s losses.
• Recession fears, hawkish central banks renew upside momentum of Treasury bond yields.
• Japan considers aid package to ease utility bill burden amid rising energy cost.
• US GDP could entertain buyers but BOJ’s intervention tests upside momentum.

USD/JPY remains on the front foot around 144.65, refreshing intraday high while paring the previous day’s losses ahead of Thursday’s European session. In doing so, the yen pair tracks the firmer Treasury bond yields while also cheering the hopes of stimulus at home, as well as respecting the US dollar’s broad recovery.

That said, the US 10-year Treasury bond yields pare the biggest daily loss in six months while adding 11 basis points (bps) to 3.82% by the press time. It’s worth noting that the benchmark bond coupons reversed from the highest levels since 2010 the previous day.

The US Dollar Index (DXY) also benefits from the firmer yields, as well as the market’s risk for risk-safety, while printing 0.70% intraday gains around 113.50. It should be observed that the greenback’s gauge versus the six major currencies reversed from the 20-year high the previous day after the Bank of England (BOE) announced a surprise bond-buying program.

Among the major risk-negative headlines are fears of global stagflation and recession in the Eurozone, recently backed by World Bank President David Malpass. Further, doubts about the Bank of England’s (BOE) capacity to restore the British economic performance while keeping the recently criticized fiscal plan weigh on the sentiment. Additionally, the hawkish commentary from the global central bankers, including those from Europe and the US, join the discomfort from China’s efforts to avoid recession, which seem to spoil the mood and favor the DXY.

At home, Japan readies more steps to ease the pain from the rising electricity bills, a government spokesperson signaled on Thursday. The diplomat underscored, per Reuters, underscoring the pressure it faces in addressing the burden on households of higher prices for imports from a weak yen. The news adds that Electricity bills have risen about 20% in the past year for households and by about 30% for businesses, Chief Cabinet Secretary Hirokazu Matsuno told a briefing, adding that such increases were becoming a "heavy burden" for consumers.

Amid these plays, the stock futures remain sluggish and the Asia-Pacific equities dwindle.

Moving on, updates surrounding the Bank of Japan’s (BOJ) efforts to defend the yen, as well as the Japanese government’s stimulus, will be important for the USD/JPY pair. Also, the final readings of the US Q2 Gross Domestic Product (GDP), expected to confirm -0.6% annualized figure, will be important to watch.

Technical analysis

Unless providing a daily closing beyond a three-week-old resistance line, around 144.90 by the press time, USD/JPY buyers remain cautious. The downside move, however, needs validation from the 21-DMA support surrounding 143.15.

Gold (XAU/USD) retreats to the $1,650 area. A break below $1,642 would clear the way towards the $1,620-$1,615 region, FXStreet’s Haresh Menghani reports.

The $1,662 area should now act as a pivotal point for gold

“A sustained strength beyond the $1,662 area, which coincides with the 38.2% Fibonacci retracement level of the recent fall from the monthly peak, could trigger a fresh bout of a short-covering move and lift spot prices to the $1,676-$1,678 supply zone. The latter comprises 50% Fibo. level and the 100-period SMA on the 4-hour chart, which if cleared decisively will suggest that the XAU/USD has formed a near-term bottom. This, in turn, will set the stage for a further near-term appreciating move and allow bulls to aim back to reclaim the $1,700 round-figure mark.”

“The 23.6% Fibo. level, around the $1,642 area, now seems to protect the immediate downside. Any subsequent decline might continue to find support near the $1,620-$1,615 region or the YTD low. A convincing break below will be seen as a fresh trigger for bearish traders and drag gold towards the $1,600-$1,590 area. Some follow-through selling should pave the way for an extension of the downward trajectory towards the $1,567-$1,565 intermediate support en route to the $1,530-$1,528 region and the $1,500 psychological mark.”

Reserve Bank of India (RBI) meets on Friday, September 30 at 04:30 GMT to discuss interest rates. Here you can find the expectations as forecast by the economists and researchers of five major banks regarding the upcoming central bank's decision. 

The RBI is expected to hike the repo rate by 50 basis points to 5.90%.

ING

“It is likely the Bank will hike its key repo rate by 30 bps to 5.7%. As inflation rose from 6.7% in July to 7% in August, policymakers should continue to feel the pressure and increase repo rates in an attempt to cool the economy.”

ANZ

“We expect the RBI to deliver another 50 bps hike. Our view is based primarily on the US Fed’s hawkish outlook that now signals a much higher terminal fed funds rate. This outlook, combined with renewed USD strength, is a development that is unlikely to escape the policy calculus of the RBI. The bilateral strength of the dollar is becoming increasingly difficult to address via intervention in the FX market. It will likely translate into higher imported inflation. Separately, the RBI will also be providing its revised GDP growth and inflation forecasts. We also expect a paring of their growth forecast for FY23, given a weaker than expected start to the year as well as a softer outlook for global growth.”

Standard Chartered

“We now expect the RBI to hike the repo rate by 50 bps to 5.9% (from 35 bps previously) and stay vigilant on upside risks to its inflation projections. We also raise our terminal repo rate forecast to 6.50% from 6% previously; we forecast a 35 bps hike in December (from 25 bps previously) and a final 25 bps hike at the February 2023 meeting (from flat previously).” 

TDS

“Despite USD/INR above 80, we don't think the RBI will rely on big rate hikes to defend the INR. Further, the RBI needs to consider the growth trajectory from a rapid increase in rates. Q2 GDP surprised to the downside at 13.5% YoY, short of RBI's forecast at 16.2% YoY which may concern the RBI. This gives the RBI a reason to step down to 35 bps.”

SocGen

“While we expect the RBI to raise the policy rate by another 50 bps to 5.9%, in line with its desire to frontload rate hikes, the central bank may not be too far from ending its hiking cycle, with the focus then shifting to growth given the stubbornly high unemployment rate.”

• EUR/GBP is accelerating towards 0.9000 on BOE’s policy easing measure to stabilize financial markets.
• The BOE has announced a 13-day bond-buying program worth GBP five billion/each day.
• Hawkish comments from ECB Lagarde will keep the shared currency bulls on the upside.

The EUR/GBP pair has rebounded firmly after a short-lived pullback to near 0.8960 in the early European session. The asset is expected to refresh its day’s high above 0.8980 and will ultimately march towards the psychological hurdle of 0.9000. On a broader note, the asset is oscillating in a range of 0.8855-0.9068, and an upside breakout is expected.

A surprise announcement of a bond-purchase program by the Bank of England (BOE) has cleared that the respective economy doesn’t have the stomach to fight inflation while simultaneously keeping the financial markets stable. After sensing immense volatility in the bond market, the BOE chose the route of injecting liquidity into the economy through a bond-buying program. An immediate 13-day long program of buying government bonds worth GBP five billion regularly will offset the ongoing fight against inflation to a certain point.

The UK households and BOE policymakers are already facing economic turmoil due to ultra-hot inflation and the infusion of more liquidity into the economy will worsen the situation further.

Now, investors are shifting their focus toward the Gross Domestic Product (GDP) data, which is due on Friday. The annual and quarterly data is expected to remain steady at 2.9% and -0.1% respectively.

On the Eurozone front, the hawkish commentary from European Central Bank (ECB) President Christine Lagarde strengthened the shared continent bulls. ECB Lagarde sees a rate hike 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 has got vulnerable each passing month over the past year.

ECB’s Simkus: 50 basis points is minimum for October

more to come

Considering advanced prints from CME Group for natural gas futures markets, open interest rose by nearly 2K contracts after two daily drops in a row on Wednesday. On the other hand, volume remained choppy and shrank by around 102.6K contracts.

Natural Gas remains supported by the 200-day SMA

Wednesday’s gains in prices of natural gas were on the back of rising open interest, paving the way for the continuation of the rebound in the very near term. So far, prices of natural gas face decent contention around the 200-day SMA, today near the $6.50 mark per MMBtu, a zone coincident with recent lows.

• EUR/USD holds lower ground while paring the biggest daily loss in six months.
• Bearish MACD signals, steady RSI add strength to the downside bias targeting 100-HMA, 23.6% Fibonacci retracement.
• Bulls need validation from 0.9800 to retake control.

EUR/USD consolidates Wednesday’s heavy gains as sellers flirt with 0.9680-85 heading into Thursday’s European session. In doing so, the major currency pair pulls back from a one-week-old descending resistance line while dropping back towards the 20-year low marked the previous day.

The bearish MACD signals and an absence of oversold RSI (14) add strength to the downside bias.

However, a convergence of the 100-HMA and 23.6% Fibonacci retracement of the September 19-28 downturn offers a tough nut to crack for the EUR/USD sellers around 0.9655.

Following that, the previous resistance line from Monday, near 0.9615 by the press time, could challenge the pair bears before directing them to the recently flashed multi-year low near 0.9535.

Alternatively, recovery moves need to cross the aforementioned resistance line, close to 0.97365 at the latest, to convince the intraday buyers.

Even so, the previous day’s high at around 0.9750 and September 22 swing low near 0.9805-10 could challenge the EUR/USD bulls before giving them the throne.

Overall, EUR/USD is likely to remain on the bear’s radar but the 0.9655 level may test intraday sellers.

EUR/USD: Hourly chart

Trend: Further downside expected

Open interest in gold futures markets rose by just 577 contracts on Wednesday after two consecutive daily drops according to preliminary readings from CME Group. Volume followed suit and went up by almost 89K contracts, reversing at the same time two straight daily pullbacks.

Gold now targets $1,688

Prices of the ounce troy of gold added to the weekly rebound on Wednesday amidst rising open interest and volume. That said, the continuation of the bounce appears on the table in the very near term and with the immediate up barrier at the weekly high at $1,688 (September 21).

In the opinion of FX Strategists at UOB Group Quek Ser Leang and Peter Chia, the probability of GBP/USD to drop to the parity zone seems to have lost traction for the time being.

Key Quotes

24-hour view: “Yesterday, we held the view that GBP ‘is likely to edge lower but a sustained decline below 1.0630 is unlikely’. We did not expect the volatile trade as GBP plummeted briefly to 1.0539 before rocketing to a high of 1.0917 during NY hours. Further volatility is not ruled out, albeit likely within a narrower range of 1.0670/1.0970.”

Next 1-3 weeks: “Three days ago (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. Yesterday (28 Sep), GBP surged to a high of 1.0917. Downward momentum has waned and a breach of 1.1000 (no change in ‘strong resistance’ level from yesterday) would indicate that the weakness in GBP from 2 weeks ago has stabilized. All in, after yesterday’s price movement, the probability of GBP dropping to 1.0000 this time round has diminished considerably.”

CME Group’s flash data for crude oil futures markets noted traders trimmed their open interest positions for the third session in a row on Wednesday, this time by around 6.4K contracts. Volume, instead, increased for the second consecutive day, now by more than 150K contracts.

WTI: Next on the upside comes $90.00 and above

Wednesday’s advance in prices of the WTI was on the back of shrinking open interest, which hints at the view tha extra recovery seems not favoured in the very near term. In the meantime, the monthly high at $90.37 (September 5) emerges as the next target of note for bulls.

• NZD/USD snaps two-day uptrend, retreats towards yearly low.
• New Zealand’s ANZ Business Confidence, Activity Outlook flashed upbeat numbers for September.
• Market sentiment remains choppy even as yields regain upside traction.
• Bearish bias remains more favorable amid recession fears, US GDP eyed.

NZD/USD remains sidelined around 0.5690, recently bouncing off the daily low, as buyers and sellers jostle over the mixed catalysts during early Thursday in Europe. That said, the quote’s latest weakness contrasts with the broad pessimism while the upbeat data at home fail to convince the bulls.

Australia and New Zealand Banking Group (ANZ) unveiled September’s Activity Outlook and Business Confidence figures for New Zealand during the early Asian session. As per the release, the ANZ Business Confidence improved to -36.7 versus -52.1 expected and -47.8 prior whereas the Activity Outlook gauge also rose to -1.8% from -6.3% market forecasts and -4.0% previous readings.

Elsewhere, China’s Vice Foreign Minister Ma Zhouxu said, per Reuters, “We Chinese will not capitulate. We will not sit and do nothing while our country's interests are being harmed,” suggesting further Sino-American tussles. Also from the Chinese were headlines that the People’s Bank of China’s (PBOC) first increase in the onshore yuan fix in nine days and plans to issue 2.5 trillion yuan in government bonds in Q4.

It should be noted that the markets’ doubts about the Bank of England’s (BOE) capacity to restore the British economic performance while keeping the recently criticized fiscal plan weigh on the sentiment. Additionally, the hawkish commentary from the global central bankers, including those from Europe and the US, joins the looming energy crisis in Europe and Russia’s hesitance to respect the Western pressure to exert additional downside pressure on the major currency pair.

Against this backdrop, the US 10-year Treasury bond yields pare the biggest daily loss in six months and allow the US Dollar Index (DXY) to jump back towards the 20-year high marked the previous day. It’s worth noting that the S&P 500 Futures print mild gains while struggling to keep the bounce off a 21-month low of late.

Looking forward, the NZD/USD traders need clear directions and hence headlines surrounding the economic slowdown and the final readings of the US Q2 Gross Domestic Product (GDP), expected to confirm -0.6% annualized figure, will be important to watch. If the US GDP number surprises to the upside, NZD/USD may have further declines to track.

Technical analysis

NZD/USD defends 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. The pair’s further upside, however, needs 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.

FX Strategists at UOB Group Quek Ser Leang and Peter Chia suggest EUR/USD could still visit the 0.9500 region in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the bias for EUR is tilted to the downside but a clear break below 0.9530 is unlikely’. While our view was not wrong as EUR subsequently dipped to a low of 0.9534, we did not expect the lift-off from the low that sent EUR surging to a high of 0.9750. The sharp and rapid rise appears to be overdone and EUR is unlikely to advance much further. For today, we expect EUR to trade sideways between 0.9620 and 0.9750.”

Next 1-3 weeks: “We have held a negative EUR for more than 2 weeks now. In our latest narrative from Monday (26 Sep, spot at 0.9630), we held the view that EUR ‘could continue to weaken, possibly to 0.9500’. Yesterday (28 Sep), EUR dropped to 0.9534 before jumping to test our ‘strong resistance’ level at 0.9750. As the ‘strong resistance’ is not clearly breached, there is still a chance (albeit a slim one) for EUR to drop to 0.9500. Looking ahead, a breach of 0.9750 would indicate that EUR could trade sideways within a broad range for a period of time.”

• Market sentiment remains sluggish after a volatile day.
• Stock futures, Asia-Pacific equities trade mixed, yields regain upside momentum.
• Headlines surrounding China, hawkish central bank keep bears hopeful amid doubts over BOE’s action.
• German inflation data, US GDP could entertain traders but risk-aversion is likely to prevail.

Global markets fade the previous day’s optimism as traders await fresh clues to believe in the policymakers’ cautious optimism during early Thursday.

While portraying the mood, the US 10-year Treasury bond yields pare the biggest daily loss in six months and allow the US Dollar Index (DXY) to jump back towards the 20-year high marked the previous day. It’s worth noting that the S&P 500 Futures print mild gains while struggling to keep the bounce off a 21-month low of late.

Recently, China’s Vice Foreign Minister Ma Zhouxu said, per Reuters, “We Chinese will not capitulate. We will not sit and do nothing while our country's interests are being harmed,” suggesting further Sino-American tussles.

Also from the Chinese were headlines that the People’s Bank of China’s (PBOC) first increase in the onshore yuan fix in nine days and plans to issue 2.5 trillion yuan in government bonds in Q4.

Elsewhere, the markets’ doubts about the Bank of England’s (BOE) capacity to restore the British economic performance while keeping the recently criticized fiscal plan weigh on the sentiment. Additionally, the hawkish commentary from the global central bankers, including those from Europe and the US, joins the looming energy crisis in Europe and Russia’s hesitance to respect the Western pressure to exert additional downside pressure on the major currency pair.

That said, traders are currently waiting for Germany’s headline inflation data, namely the Harmonized Index of Consumer Prices (HICP), to determine immediate market moves amid upbeat expectations from the release, 10.0% YoY versus 8.8% prior. Following that, readings of the US Q2 Gross Domestic Product (GDP), expected to confirm -0.6% annualized figure, will be important to watch clear directions.

• Asian indices have defended the downside momentum as US yields cooled off.
• The Chinese government is planning to purchase bonds worth 2.5 trillion yuan in the fourth quarter.
• Oil prices have recaptured the $80.00 hurdle as EIA reported a decline in oil inventories.

Markets in the Asian domain have picked significant bids after a decline after a few trading sessions. Asian indices have bounced back sharply after the 10-year benchmark US Treasury yields plunged. After hitting a high of 4% for the first time since 2010, yields have fallen sharply to nearly 3.76%. This has underpinned the risk-on impulse and risk-sensitive assets are having a ball.

At the press time, Japan’s Nikkei225 jumped 0.92%, ChinaA50 added 0.38%, and Hang Seng surged more than 1%.

The US dollar index (DXY) witnessed a steel fall after failing to sustain above the crucial hurdle of 114.50. As investors have started acknowledging the fact that the Federal Reserve (Fed) will slow down the pace of hiking interest rates post bigger rate hikes in the first week of November and mid of December, the DXY is losing its appeal.

Moreover, investors are also punishing the DXY amid lower consensus for the US Gross Domestic Product (GDP). As per the consensus, the growth rate in the US economy has declined by 0.6% in the second quarter on an annualized basis.

Meanwhile, the Chinese Finance ministry is planning to issue government bonds worth 2.5 trillion yuan in the fourth quarter, as reported by Reuters. The decision is supposed to safeguard the markets from any further turmoil as the economy is not expected to display a decent growth rate amid zero tolerance for Covid-19 spread and the real estate crisis.  

On the oil front, oil prices have rebounded firmly after remaining in the grip of bears. The black gold has overstepped the psychological resistance of $80.00 after displaying a decline in the US oil inventories reported by the Energy Information Administration (EIA). The oil stockpiles declined by 0.215 million barrels for the past week ending September 23.

"We Chinese will not capitulate. We will not sit and do nothing while our country's interests are being harmed," Vice Foreign Minister Ma Zhouxu said in response to a Reuters question at a Thursday news conference to discuss Chinese diplomacy in the decade since Xi assumed power.

The news gains importance as Ma is considered to be among contenders to replace Wang Yi as foreign minister in an upcoming leadership reshuffle.

Key quotes

Also read: USD/CNH Price Analysis: Fades bounces off weekly support below 7.2000

• USD/CNH struggles to defend the recovery moves, retreats from intraday high.
• Steady RSI suggests further grinding towards the north.
• 12-day-old ascending trend line, 50-SMA adds to the downside filters.
• Bullish bias remains intact beyond 7.1000, buyers aim for a fresh all-time high.

USD/CNH reverses the previous day’s pullback from the record high during early Thursday morning in Europe, despite recent inaction around 7.1880.

In doing so, the offshore Chinese yuan (CNH) pair bounces off a horizontal area comprising multiple lows marked since Monday amid a steady RSI (14). However, bearish MACD signals and the buyer’s inability to keep the reins beyond the 7.2000 psychological magnet challenge the pair’s upside momentum.

It should be noted, however, that the pair’s pullback moves below the aforementioned immediate support near 7.1460-50 are likely to be challenged by an upward sloping support line from September 13, close to 7.1280 by the press time.

Also acting as a downside filter is the 50-SMA level surrounding 7.1125.

Even if the quote drops below 7.1125, the September 22 swing high near 7.1060 and the 7.1000 psychological magnet could act as the last defenses for the USD/CNH buyers.

Alternatively, recovery moves need to stay beyond the 1.2000 mark to convince buyers to aim for the multiple hurdles near 1.2500.

Following that, the recently flashed record high near 7.2600 and the 7.3000 psychological magnet will be in focus.

USD/CNH: Four-hour chart

Trend: Bullish

• GBP/USD is expected to resume its upside journey after concluding its correction to near 1.0800.
• To revive UK’s financial stability, the BOE announced a bond-buying program worth GBP 65 billion.
• Does BOE really not have the stomach to fight inflation while simultaneously keeping financial stability?

The GBP/USD pair is displaying a lackluster performance in the Tokyo session. The asset has turned sideways in a narrow range of 1.0782-1.0800 after dropping from the critical hurdle of 1.0900. A failed attempt of overstepping the barricades at 1.0900 brought a correction in the cable, however, a bullish impulsive move after the conclusion of a pullback cannot be ruled out.

The surprise move of the bond-purchase program by the Bank of England (BOE) to bring stability to the financial markets has started displaying its consequences. It is worth mentioning that risk-sensitive currencies are performing now as the US dollar index (DXY) has recorded an intermittent top of around 115.00. However, the sterling gains are poor in comparison with other currencies.

The BOJ will purchase GBP five billion worth of long-dated bonds consecutively for 13 days to safeguard the economy from the financial turmoil. In times, when households in the UK are facing the headwinds of higher price pressures and BOE policymakers are already putting their blood and sweat to tame inflation, sheer liquidity infusion could offset a significant impact.

Does it state that the BOE really does not have the stomach to fight inflation while simultaneously keeping financial markets stable? Well, it will be consequences of minting more money which will display the capacity later.

On the economic data front, Friday’s Gross Domestic Product (GDP) data will be keenly watched. The annual and quarterly data is expected to remain steady at 2.9% and -0.1% respectively.

Meanwhile, the DXY is expected to remain sideways further as investors are awaiting the release of the US GDP data. As per the market consensus, the annualized US GDP will continue its de-growth pattern for this quarter by 0.6%.

• AUD/USD remains pressured around intraday low, drops back towards two-year bottom.
• Australia’s first-ever monthly CPI suggests easing inflation pressure.
• Yields pare the biggest daily fall in six months as geopolitical tension remains intact.
• China’s plans to issue government bonds probe sellers, final readings of Q2 US GDP eyed.

AUD/USD pares intraday losses around 0.6490, recently bouncing off daily lows, as traders await fresh clues to defend the latest pullback moves.

That said, downbeat prints of Australia’s monthly Consumer Price Index (CPI) joined the risk-off mood to weigh on the Aussie pair during early Thursday. The same joined firmer US Treasury yields to consolidate the previous day’s rebound from the two-year low.

As per the first monthly CPI data from the Australian Bureau of Statistics (ABS), the headline price pressure eased in August to 6.8% from 7.0% in July. The same joins the Reserve Bank of Australia’s (RBA) recently cautious statements to challenge the AUD/USD buyers after the data release.

Elsewhere, Wednesday’s risk-on mood and China’s efforts to propel the domestic markets in an attempt to overcome slowdown fears seem to favor the recent rebound in the US Treasury yields, as well as the US dollar. On the same line could be the People’s Bank of China’s (PBOC) first increase in the onshore yuan fix in nine days and plans to issue 2.5 trillion yuan in government bonds in Q4.

It should be noted, however, that the markets’ doubts about the Bank of England’s (BOE) capacity to restore the British economic performance while keeping the recently criticized fiscal plan weigh on the sentiment, as well as the AUD/USD prices. Additionally, the hawkish commentary from the global central bankers, including those from Europe and the US, joins the looming energy crisis in Europe and Russia’s hesitance to respect the Western pressure to exert additional downside pressure on the major currency pair.

Amid these plays, the US 10-year Treasury bond yields pare the biggest daily loss in six months and allow the US Dollar Index (DXY) to jump back towards the 20-year high marked the previous day. It’s worth noting that the S&P 500 Futures print mild losses and fades bounce off a 21-month low of late.

Moving on, the final readings of the US Q2 Gross Domestic Product (GDP), expected to confirm -0.6% annualized figure, could entertain AUD/USD traders. However, risk catalysts are more important and hence the Fedspeak, as well as headlines from China may direct short-term pair moves clearly.

Technical analysis

A sustained reversal from a the two-week-old resistance line, near 0.6530 at the latest, redirects AUD/USD towards the 78.6% Fibonacci Expansion (FE) of the AUD/USD pair’s April-August moves, around 0.6355.

• Gold price is expected to find bids around $1,650.00 followed by a conclusion of the corrective move.
• It seems that the DXY has made an immediate top as the Fed will trim the rate hike pace.
• The annualized US GDP may display de-growth by 0.6% consecutively.

Gold price (XAU/USD) is experiencing a healthy correction in the Tokyo session after witnessing a bumper rally. The precious metal is expected to find significant bids around the immediate cushion of $1,650.00 as the downside bias is not backed by momentum. So after the conclusion of the pullback move, the bright metal will resume its upside journey.

The rationale behind the mild correction in the gold prices is the less-confident pullback in the US dollar index (DXY). The DXY plunged after failing to sustain above the critical hurdle of 144.50. For the time being, the DXY’s top is in sight parallel to the interest rates peak at 4.6% guided by the Federal Reserve (Fed).

It is worth noting that Fed’s interest rate peak is not far from current interest rates at 3.-3.325% after a scrutiny of the ongoing velocity of hiking interest rates. The Fed is expected to maintain the terminal rate at 4.6% for a longer period till it finds a slowdown in the price pressures for several months.

On Thursday, investors will keep the US Gross Domestic Product (GDP) data on their radar. Considering the preliminary estimates, the annualized US GDP will continue its de-growth pattern for this quarter by 0.6%.

Gold technical analysis

Gold prices are declining towards the horizontal support placed from Monday’s high at $1,649.83 on an hourly scale. The precious metal is declining gradually, therefore, it is expected to capitalize on the above-mentioned horizontal support. This will indicate a change in polarity and the bright metal will display a firmer impulsive move.

The yellow metal is holding above the 50-period Exponential Moving Average (EMA) at $1,641.58, which indicates that the short-term uptrend is intact. While the bright metal has slipped below the 200-EMA at $1,655.00 but is expected to recapture it sooner.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a bullish range of 60.00-80.00, which indicates more upside ahead. Also, the momentum oscillator may find support at 60.00.

Gold hourly chart

• A tad longer inventory adjustment process after a juggernaut rally favors a distribution.
• The 50-EMA has acted as major support for the greenback bulls.
• An oscillation in the 40.00-60.00 range by the RSI (14) still holds a consolidation bet.

The USD/JPY pair has witnessed a pullback move after dropping to near 144.00. Broadly, the asset is testing the downside break of the chartered territory plotted in a narrow range of 144.40-144.90. Signs of exhaustion in the upside trend are lucid and transparent and the greenback bulls could surrender their grip going forward.

On a four-hour scale, the major is auctioning in an inventory adjustment process, which indicates a tad longer consolidation period. It is critical to state that the adjustment process is an accumulation or distribution by institutional investors. Odds favor an inventory distribution as the asset is displaying signs of momentum loss.

It is ‘fit and proper to claim that the 50-period Exponential Moving Average (EMA) at 113.80, at the time of writing, has been a major cushion for the greenback bulls. Once a volatile event has already halted the harmony but luckily overstepped it again. A consecutive surrender of the 50-EMA will weaken the greenback.

The 200-EMA at 141.20 is scaling higher, which indicates that the long-term trend is still solid.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which indicates a continuation of rangebound moves ahead.

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

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

USD/JPY four-hour chart

• EUR/USD pares the biggest daily gains since March as risk-aversion returns to the table.
• Yields, DXY reverse pullback from multi-year high amid hawkish central bankers, looming recession.
• Europe versus Russia tension is likely to exert downside pressure on prices.
• Germany’s HICP may not impress pair buyers unless US GDP disappoints.

EUR/USD sellers are up and roaring as sour sentiment joins firmer yields to renew the downside during early Thursday, after a day full of surprises and positive performance. That said, the major currency pair takes offers to renew the intraday low near 0.9670 while reversing the previous day’s bounce off the 20-year low, also consolidating the biggest daily jump in six months.

Wednesday’s risk-on mood and China’s efforts to propel the domestic markets in an attempt to overcome slowdown fears seem to favor the recent rebound in the US Treasury yields, as well as the US dollar.

On the same line could be the People’s Bank of China’s (PBOC) first increase in the onshore yuan fix in nine days and plans to issue 2.5 trillion yuan in government bonds in Q4.

Additionally, the markets’ doubts about the Bank of England’s (BOE) capacity to restore the British economic performance while keeping the recently criticized fiscal plan weigh on the EUR/USD prices. Further, the hawkish commentary from the global central bankers, including those from Europe and the US, joins the looming energy crisis in Europe and Russia’s hesitance to respect the Western pressure to exert additional downside pressure on the major currency pair.

It should be noted that the hawkish comments from the European Central Bank (ECB) policymakers and the Bank of England’s (BOE) bond-buying helped the EUR/USD to rebound the previous day.

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

Against this backdrop, the US 10-year Treasury bond yields pare the biggest daily loss in six months and allow the US Dollar Index (DXY) to jump back towards the 20-year high marked the previous day. It’s worth noting that the S&P 500 Futures print mild losses and fades bounce off a 21-month low of late.

Looking forward, Germany’s headline inflation data, namely the Harmonized Index of Consumer Prices (HICP), could direct immediate EUR/USD moves amid upbeat expectations from the release, 10.0% YoY versus 8.8% prior. Following that, readings of the US Q2 Gross Domestic Product (GDP), expected to confirm -0.6% annualized figure, will be important to watch clear directions.

To sum up, EUR/USD weakness is likely to continue even if the German/US data challenge the pair’s downtrend. The reason could be linked to the risk-off mood and the US dollar’s safe-haven status.

Technical analysis

The bullish MACD signals and the firmer RSI (14) keep the EUR/USD buyers hopeful. That said, the 21-SMA, currently around 0.9640 offers immediate support ahead of the resistance-turned-support line from September 13, near the 0.9600 threshold.

Alternatively, a convergence of the downward sloping trend line from August 23 and the 50-SMA, around 0.9800 at the latest, appears a tough nut to crack for the pair buyers.

China's finance ministry plans to issue about 2.5 trillion yuan ($347.4 billion) in government bonds in the fourth quarter, two sources with direct knowledge of the matter told Reuters on Thursday.

The news also adds that the ministry has also urged local governments to complete issuing the roughly 500 billion yuan in special bonds by the end of October under carryover quotas from previous years, per the source.

Earlier in the day, China’s Securities Times mentioned that the yuan is unlikely to continue depreciating rapidly. “As long as market expectations can be stabilized, and as the policies to support domestic economic growth continue to take effect, it will be hard for the dollar index to bring huge volatility to the yuan,” added the Chinese media.

Market reaction

AUD/USD renews intraday low around 0.6480 despite the price-positive news. The reason could be linked to the market’s risk-off mood and reversing of the yields.

Also read: AUD/USD Price Analysis: Bulls take on the bears in key correction territory

Japanese Chief Cabinet Secretary Hirokazu Matsuno said on Thursday that they are reviewing whether to take additional steps to curb rise in electricity cost in upcoming economic stimulus package.

The policymaker also mentioned, “Japan will maintain close contact with allies, including the US, to monitor and deal with North Korea.”

“North Korea’s multiple missile launches are unacceptable,” adds Japan’s Matsuno.

On the same line could be the news that US Vice President Kamala Harris will meet with South Korea's President Yoon to discuss south Korean-Japanese relations.

Market reaction

Although the risk-negative news weighs on the S&P 500 Futures and allow the yields to regain upside momentum, the USD/JPY prices remain pressured around 144.20 by the press time.

• USD/CHF pares the biggest daily loss in 15 weeks, snaps two-day downtrend.
• Firmer oscillators, rebound from 10-DMA direct buyers towards 61.8% Fibonacci retracement.
• Two-week-old ascending trend line adds to the downside filters.
• Descending trend line from mid-May acts as the key upside hurdle.

USD/CHF picks up bids to refresh intraday high around 0.9790 during Thursday’s Asian session while printing the first daily gain in three. In doing so, the Swiss currency (CHF) pair rebounds from the 10-DMA, as well as the weekly low, to pare the biggest slump since mid-June.

The pair’s sustained bounce off the 10-DMA support and the firmer RSI, not overbought, joins the bullish MACD signals to direct buyers toward the 61.8% Fibonacci retracement of the May-August downside, near the 0.9800 threshold.

Following that, tops marked in early September and July, around 0.9870 and 0.9885 respectively, will challenge the pair’s upside momentum.

If at all the USD/CHF bulls keep reins past 0.9885, a downward sloping resistance line from May, around 0.9930, could act as the last defense of the pair sellers.

Meanwhile, a downside break of the 10-DMA support of 0.9758 won’t be a welcome card for the USD/CHF sellers as a 12-day-old support line, close to 0.9725 by the press time, will test the declines.

Overall, USD/CHF is likely to remain firmer but the upside appears limited.

USD/CHF: Daily chart

Trend: Further upside expected

• USD/CAD picks up bids to snap two-day downtrend.
• US Dollar traces rebound in Treasury yields amid sluggish session.
• Hawkish Fedspeak, looming energy crisis and doubts over BOE keep buyers hopeful.
• Canada’s monthly GDP, final Q2 GDP for the US will join Fedspeak to entertain buyers.

USD/CAD recalls buyers after a two-day absence as the quote pokes 1.3650 during Thursday’s Asian session. In doing so, the Loonie pair benefits from the market’s sour sentiment and firmer yields while paying little heed to the upbeat prices of Canada’s key export item WTI crude oil.

WTI crude oil prices rise for the third consecutive day, up 0.40% intraday near $81.85 by the press time, as fears of a supply crunch supersede the recession woes. That said, the previous day’s risk-on mood and China’s efforts to propel the domestic markets in an attempt to overcome slowdown fears also seem to favor the black gold prices.

Elsewhere, the People’s Bank of China (PBOC) marked the first increase in the onshore yuan fix in nine days and favored the sour sentiment. On the same line could be the markets’ doubts about the Bank of England’s (BOE) capacity to restore the British economic performance while keeping the recently criticized fiscal plan.

Furthermore, the looming energy crisis in Europe and Russia’s hesitance to respect the Western pressure joins firmer US data and hawkish Fedspeak to also propel the USD/CAD prices.

That said, 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.

Amid these plays, the US 10-year Treasury bond yields pare the biggest daily loss in six months and allow the US Dollar Index (DXY) to jump back towards the 20-year high marked the previous day. It’s worth noting that the S&P 500 Futures print mild losses and fades bounce off a 21-month low of late.

Moving on, the monthly Canadian Gross Domestic Product (GDP) for July, expected -0.1% versus 0.1% prior, could keep the USD/CAD buyers hopeful. The run-up could gain more pace if the final readings of the US Q2 GDP improved from -0.6% initial estimates.

Technical analysis

A fortnight-old support line, around 1.3600 by the press time, restricts short-term USD/CAD downside considering the bullish MACD signals and upbeat RSI.

• AUD/JPY is eyeing to cross 94.00 amid a decline in Aussie's August CPI to 6.8%.
• Monthly CPI covers updated prices for between 62-73% of the weight of the quarterly CPI basket.
• The unscheduled bond-buying program and fading impact of BOJ’s intervention have weakened yen.

The AUD/JPY pair is marching north to surpass the critical hurdle of 94.00 amid a first-time release of the Australian monthly inflation indicator. August's reading has remained lower at 6.8% vs. July's reading of 7%.

In order to provide a timelier indication of price pressures, the Australian Bureau of Statistics (ABS) has introduced a monthly Consumer Price Index (CPI) indicator that inculcates the same data used in quarterly CPI mechanics. Each month will include updated prices for between 62 and 73 percent of the weight of the quarterly CPI basket, as reported by ABS.

It is worth noting that the quarterly Australian inflation data was recorded at 6.1% for the second quarter. The Reserve Bank of Australia (RBA) is continuously working on taming the soaring price pressures. RBA Governor Philip Lowe has already accelerated its Official Cash Rate (OCR) to 2.35%.

On Wednesday, the aussie dollar rebounded sharply after the release of better-than-projected Aussie 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%.

Meanwhile, the Japanese yen is losing its grip on the risk barometer as the impact of the Bank of Japan (BOJ)’s intervention in the currency markets is fading away. It seems that the BOJ is highly needed to restrict policy easing to safeguard yen from a further impulsive wave of depreciation. Also, an unscheduled bond-purchase program by the BOJ has weakened the yen bulls.

• AUD/NZD picks up bids to probe two-day downtrend after Australia, New Zealand statistics.
• Australia’s first monthly inflation data, ANZ sentiment figures for September teased buyers.
• Cautious mood, firmer yields challenge the upside momentum.

AUD/NZD extends rebound from the intraday low after Australia and New Zealand both flashed important data during early Thursday. That said, the cross-currency pair takes the bids to 1.1390 by the press time.

Australian Bureau of Statistics (ABS) released the first ever monthly Consumer Price Index (CPI) for July and August. On the other hand, Australia and New Zealand Banking Group (ANZ) unveiled September’s Activity Outlook and Business Confidence figures for New Zealand.

Australia’s CPI rose 7.0% and 6.8% in July and August respectively. Further, ANZ Business Confidence improved to -36.7 versus -52.1 expected and -47.8 prior whereas the Activity Outlook gauge also rose to -1.8% from -6.3% market forecasts and -4.0% previous readings.

It should be noted, however, that the market’s sour sentiment and fears surrounding China, Australia’s biggest customer, test the AUD/NZD buyers.

The People’s Bank of China (PBOC) is another central bank, in addition to the Bank of Japan (BOJ) and the Bank of England (BOE), to defend the domestic currency, namely the yuan. It’s worth noting that the PBOC has recently intervened multiple times in the market and is likely to do so today as well as to defend the yuan amid fears of economic slowdown, led by the covid-led lockdowns.

It should be noted that the BOE’s bond-buying triggered the market’s risk-on mood and drowned the yields the previous day. That said, the US Treasury bond yields recover and the S&P 500 Futures print mild losses by the press time, which in turn probes the AUD/NZD pair buyers.

Technical analysis

Unless breaking a three-week-old support line, near 1.1330 by the press time, AUD/NZD remains on the way to October 2013 high near 1.1580.

• AUD/USD bears are lurking but bulls may not be done yet. 
• The price has corrected a significant portion of the bearish impulse. 

AUD/USD rallied in a correction on Wednesday and there could be more to come should the markets continue to offload long positions of the greenback into the fixes and month end this week. The following illustrates the bias on a daily time frame into the remaining days and sessions for the month. 

AUD/USD daily chart

The last bearish impulse has seen a significant correction in mid-week trade and there could be more to come if the bulls can stay the course with the 0.6570s eyed. The antipodean currency might start to find support from better-than-expected data of late such as the recent Retail Sales, which showed Australian shoppers were proving resilient to red-hot inflation and rising interest rates. In recent trade, the monthly inflation data has shown a +6.8% Yoy in August and +7.0% YoY for July. However, traders are awaiting the quarterly data that will arrive in late October. 

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1102 vs. the previous fix of 7.1107 and the prior close of 7.2020. The estimate was at 7.1066.

The yuan had weakened to a record low against the US dollar following another weaker-than-expected fix the prior day. 

About the fix

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

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

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

• GBP/USD pares BOE-led gains, the biggest in 3.5 months.
• Jump in UK vehicle production, fresh run-up in yields challenge BOE’s capacity to restore market confidence.
• Fears over the European energy crisis, hawkish Fedspeak add strength to the pullback moves.
• Multiple central bank speakers are up for speeches, final readings of US GDP could also help sellers.

GBP/USD takes offers to refresh the intraday low around 1.0800, snapping a two-day rebound from the record low. In doing so, the cable pair consolidates the biggest daily gains since mid-June during Thursday’s Asian session.

Recovery in the US Treasury bond yields joins the market’s discomfort in the Bank of England’s (BOE) confidence to revive the British Pound (GBP) strength to weigh on the GBP/USD prices of late. On the same line could be the prevailing energy crisis in Europe and current pessimism in China.

Recently, the UK’s car production rose for the fourth straight month in August as per the data from the Society of Motor Manufacturers and Traders (SMMT), shared via Reuters. That said, the details suggest that almost seven in 10 SMMT members have expressed fears about future business operations.

Elsewhere, the People’s Bank of China (PBOC) is another central bank, in addition to the Bank of Japan (BOJ) and the BOE, to defend the domestic currency, namely the yuan. It’s worth noting that the PBOC has recently intervened multiple times in the market and is likely to do so today as well as to defend the yuan amid fears of economic slowdown, led by the covid-led lockdowns.

It should be noted that the British government’s rejection to fire the UK Chancellor Kwasi Kwarteng and keep his recently criticized fiscal plan in place also challenge the GBP/USD traders.

On Wednesday, 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. That said, the BOE will start buying on September 28, which in turn suggests they postponed the pre-established mechanism of selling the bonds until October 31. BOE later confirmed that it could buy just £1.025 billion in the emergency QE operation, well below the planned £5 billion. 

On the other hand, 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.

Looking forward, multiple BOE speakers are on the line and so do the final readings of the US Q2 Gross Domestic Product (GDP), expected to confirm -0.6% annualized figure. Considering the same, the GBP/USD may witness further downside if the US data prints upbeat figures and the BOE policymakers hesitate in convincing markets.

Technical analysis

GBP/USD remains bearish unless providing a clear upside break of 1.0730-35 resistance confluence, including the 10-DMA and a 12-day-old descending trend line.

• Gold prices have shifted into a corrective phase after failing to sustain above $1,660.00.
• Declining 10-year yields from a high of 4% have strengthened the risk-on impulse.
• An expectation of a slowdown in the current pace of hiking rates by the Fed has weakened the DXY.

Gold price (XAU/USD) is displaying a time correction move in Asia after a juggernaut rally from $1,620.00. The precious metal is declining gradually after failing to sustain above $1,660.00, however, the upside remains favored in a cheerful market mood. A decline in US Treasury yields brought a bumper rally in the risk-sensitive assets. The 10-year benchmark US Treasury yields fell sharply from 4% to around 3.7%.

The US dollar index (DXY) has witnessed a pullback move to near 113.00. However, the pullback move seems less confident and will conclude sooner. No doubt, the hawkish commentaries from Federal Reserve (Fed) policymakers should delight the DXY. But those commentaries are also highlighting the fact that the pace of hiking interest rates by the Fed will slow down in a short time.  Fed’s current interest rates stand at 3-3.25% and bigger hikes are expected in the remaining 2022. This will leave a small room for deviation from the optimal rate of 4.6%.

Going forward, investors’ focus will remain on the US Gross Domestic Product (GDP), which will display the condition of the growth rate in economic activities. 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 strengthen the gold prices further.

Gold technical analysis

Gold prices are declining towards the horizontal support placed from Monday’s high at $1,649.83 on an hourly scale. The precious metal is declining gradually, therefore, it is expected to capitalize on the above-mentioned horizontal support.

The yellow metal is holding above the 50-period Exponential Moving Average (EMA) at $1,641.58, which indicates that the short-term uptrend is intact. While it has slipped below the 200-EMA at $1,655.00 but is expected to recapture it sooner.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a bullish range of 60.00-80.00, which indicates more upside ahead. Also, the momentum oscillator may find support at 60.00.

Gold hourly chart

World Bank President David Malpass says it may take years for global energy production to diversify away from Russia, prolonging the risk of stagflation.   

Key notes

Says pressing danger for the developing world is that a sharp slowdown in global growth deepens into a global recession.
    
Says increased likelihood of a recession in Europe.
    
Says crisis facing development is intensifying, and more spending on education and health preparedness is urgently needed.
    
Says debt relief from bilateral and commercial creditors will also play a key role.
    
Says weathering 'this perfect storm' and undoing reversals in development requires new macro- and microeconomic approaches.

Meanwhile, global markets took a breather from the ferocious selling that has gripped them since the UK government announced its drastic fiscal plans and following the Federal Reserve that has embarked on its most aggressive path of interest-rate hikes since the 1980s. The US dollar caved and the euro rallied from 20-year lows. 

• EUR/USD consolidates the biggest daily gains in six months, retreats after crossing the 0.9600 previous key hurdle.
• Convergence of 50-SMA, support-turned-resistance from late August probes buyers.
• Firmer RSI, bullish MACD signals join clear upside break of 0.9600 to test sellers.
• 21-SMA, weekly support line adds to the downside filters.

EUR/USD takes offers to refresh intraday low around 0.9700 while paring the previous day’s bounce off a 20-year low during Thursday’s Asian session.

In doing so, the major currency pair also trims the biggest daily jump since March while reversing the breakout of the 0.9600 hurdle comprising the 21-SMA and a one-week-old descending trend line.

It should, however, be noted that the bullish MACD signals and the firmer RSI (14) keep the buyers hopeful. That said, the 21-SMA, currently around 0.9640 offers immediate support ahead of the resistance-turned-support line near the 0.9600 threshold.

Even if the EUR/USD prices drop below the 0.9600 support, a downward sloping trend line from Monday, around 0.9530 by the press time, could challenge the pair’s further declines.

On the flip side, the latest swing high near 0.9750 holds the key to EUR/USD buyers’ welcome.

Following that, a convergence of the downward sloping trend line from August 23 and the 50-SMA, around 0.9800 at the latest, could challenge the pair bulls.

In a case where the quote rises past 0.9800, the odds of witnessing the run-up towards the parity can’t be ruled out.

EUR/USD: Four-hour chart

Trend: Further recovery expected

• USD/JPY bulls move in, but there could be more to come from the bears.
• USD/JPY bears need to commit below 144.50 and take out 143.80.

USD/JPY fell to 143.90 by late NY trade as US yields tumbled overnight following the Bank of England's surprise move by buying bonds. Global bond yields fell in response while equities rallied and the US dollar tanked as bulls capitulated into month-end sessions. At the time of writing, USD/JPY is retesting the 144.40s, moving up from the 144.04 lows 

The US dollar index (DXY) is up 0.36% on the day but had reversed from a 20-year high in its first daily decline since 19 September. Bond yields fell sharply overnight after the BoE’s announcements that sent the yield on the 10-year gilt down nearly 50bp to 4.00%, while the US 10-year treasury dropped  21.4bp to 3.731%. In turn, the S&P 500 lifted 2.0%, following a bid in European equities.

The central bank said it will carry out temporary purchases of long-dated UK government bonds from 28 September to restore orderly market conditions. “The purchases will be carried out on whatever scale is necessary to effect this outcome,” BoE said in its statement. 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.

Following the aggressive fall in the value of USD/JPY, the currency pair could be ripening for a deeper correction of the steep rise from a week ago from down at 140.35 However, insofar as the divergence between Federal Reserve and Bank of Japan policy continues to signal upside potential for USD/JPY.

''The MoF, however, will be aware of the current vulnerability of the JPY and probably hopes to create enough fear of further intervention to keep some speculators side-lined.  That said, we continue to target USD/JPY147.00 on a 3-month view,'' analysts at Rabobank argued. 

USD/JPY technical analysis

The price took out the first level of support in the NY open and there are now prospects of a continuation to the downside should 144.50s hold as resistance and 143.90 breaks followed by 143.80. 

• The DXY will display sheer weakness after surrendering the crucial support of 112.50.
• A significant drop in 10-year US Treasury yields improved investors’ risk appetite.
• In today’s session, the US GDP will be of utmost importance.

The US dollar index (DXY) is displaying a pullback move in the Tokyo session after dropping to near 112.57. Investors dumped the DXY on Wednesday after the market sentiment turned positive. Investors shrugged off the uncertainty of accelerating interest rates admitting that taming inflationary pressure is necessary. The DXY is expected to display more weakness as the pullback move will soon find sellers and the resumption of a downside journey will drag the asset to near 112.00.

10-year US Treasury yields plunge

After hitting a high of 4% for the first time since 2010, 10-year benchmark US Treasury yields have fallen dramatically as investors are expecting that the Federal Reserve (Fed) will slow down the pace of hiking interest rates sooner. A significant drop in yields has improved investors’ risk appetite.

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 as the deviation between the desired terminal rate at 4.6% and Fed policymaker projections will trim significantly.

Spotlight shifts to US GDP

On Thursday, the investing community will keep its eye on the US Gross Domestic Product (GDP) data. As per the consensus, the annualized US economic activities have displayed a de-growth consecutively by 0.6% for the second quarter. A lower-than-projected GDP data will weaken the DXY further.

• AUD/USD pares the biggest daily gains in three weeks, fades bounce off yearly low.
• Market sentiment sours again amid looming energy crisis in Europe, concerns over China’s economic health.
• Hawkish Fedspeak, rebound in yields add strength to the risk-off mood.
• Australia’s first event monthly inflation data for July and August will be important considering RBA’s cautious mood.

AUD/USD consolidates the previous day’s rebound from the two-year low around 0.6500 during Thursday’s Asian session. In doing so, the Aussie pair pares the biggest daily jump in three weeks amid the cautious mood ahead of the key data from Australia and the US.

The risk-barometer pair rallied during the late Wednesday, after refreshing the yearly low, as the US dollar tracked a heavy slump in the Treasury yields to retreat from the two-decade top.

That said, the US Dollar Index (DXY) reversed from 114.78 to 113.00 after the Bank of England (BOE) announced surprise bond buying to restore the market’s confidence following the disappointment from the UK’s fiscal plan.

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, 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.

Amid these plays, 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 that the S&P 500 Futures print mild losses and fades bounce off 21-month low of late.

While the risk-on mood favored the AUD/USD buyers the previous day, the prevailing energy crisis in Europe, doubts over the BOE’s capacity to regain traders’ confidence and current pessimism in China weigh on the pair.

Moving on, Australia’s first ever monthly inflation data for July and August will be crucial for the AUD/USD pair considering the latest cautious statements from the Reserve Bank of Australia (RBA). Should the outcome prints softer details, the latest risk-aversion could join the firmer US dollar to recall the bears and attack the recently flashed yearly low.

Following that, the final readings of the US Q2 Gross Domestic Product (GDP), expected to confirm -0.6% annualized figure, will be crucial for the pair traders to watch.

Technical analysis

Although 78.6% Fibonacci Expansion (FE) of the AUD/USD pair’s April-August moves, around 0.6355 triggered the pair’s bounce, a clear upside break of the two-week-old resistance line, near 0.6530 at the latest, becomes necessary to defend the recovery.