Next week, the Bank of Canada will have its monetary policy meeting. Market consensus is for an increase in the key rate to 3.25%. Analysts at TD Securities look for the BoC to deliver a 75 basis point hike, bringing rates into restrictive territory. They see little incentive for smaller hikes CPI running well above target and the economy in excess demand. The BoC's messaging will be the larger source of uncertainty; we expect the Bank to emphasize that rates are now restrictive and signal that future hikes will be more modest in size.

Key Quotes: 

“The economic situation clearly calls for restrictive policy rates, and we see a clear path for the BoC to hike by 75bps in September. We expect the pace of tightening to slow in October however, which may imply some moderation in the Bank's forward-looking language in the September communique.”

“Ahead of the BoC, we note that USDCAD has started to run ahead of the global drivers we track for the pair. Our tools peg USDCAD around 1.30. In turn, while we could see some action above 1.32 in the short-term, we prefer to fade those rallies given the divergence in risk sentiment and other drivers.”

“The market is pricing a terminal rate for this hiking cycle around 3.875%, we see fair value closer to 3.65% taking our call of 3.5% for the terminal plus allowing for the probability of realizing higher than 3.5% (where we see the risks to our forecast), a 4% terminal price would give us substantial conviction to fade.”

The US official employment report showed the US economy added 315K jobs in August, slightly above expectations of 300K; the unemployment rate rose unexpectedly from 3.5% to 3.7%. According to analysts at Wells Fargo, today's data in isolation tilt the scales toward a 50 basis points interest rate hike at the Fed's September meeting but does not on its own settle the matter. While the August jobs report keeps hope alive that the Fed may be able to pull off the elusive soft-landing, there remains significant work ahead in quelling the inflation pressures coming from the labor market, explained analysts. 

Key Quotes: 

“The labor market cooled in all the right ways in August, at least as far as the Fed is concerned. Nonfarm payrolls rose by 315K last month, close in line with consensus expectations and with industry gains once again widespread. The pace marks a downshift from the downwardly revised 402K average recorded the prior three months, but is nonetheless a robust gain in its own right.”

“While the more moderate gain in payrolls suggests somewhat weaker demand for workers, a more balanced picture of the labor market is emerging thanks also to improving supply.”

“August's slowdown in hiring helps bridge the gap that had opened up between nonfarm payroll growth and labor market measures in recent months.”

“Today's report in isolation tilts the scales toward a 50 bps hike at the September FOMC meeting, but does not on its own settle the matter. With the Fed laser-focused on inflation, the August CPI will offer the last major piece of the 50 vs. 75 bps puzzle. But we don't see anything in the August employment report to alter the general path ahead: rate hikes are highly likely to extend beyond September and stay restrictive for a prolonged period. We expect to see more definitive signs of the labor market weakening ahead as a result, as the FOMC increasingly acknowledges that a cooler jobs market will be necessary in quelling inflation for the long haul.”

• USD/MXN fails to break critical resistance at 20.25.
• Below 20.00, next strong support stands at 19.80.

The USD/MXN is falling sharply on Friday, amid a broad-based decline of the US Dollar. The decline of the pair takes place after being unable to break a key resistance area around 20.25.

So far, USD/MXN bottomed at 19.92 and is it about to test the 19.90 short-term support. Technical indicators favor the downside, with RSI turning shout, like Momentum which still remains above 100. Price is back under the 20-day Simple Moving Average.

Since mid-August, the pair is moving sideways in a range between 19.80 and 20.25. If reached, the 19.80 zone is likely to offer a rebound. A break lower, would point to the next support around 19.65.

The 20.25 has become critical to the upside. A break above should clear the way to more gains, targeting initially the 20.45 zone.

USD/MXN daily chart

• US economy adds 315K jobs in August, Unemployment rate rises to 3.7%.
• USD/JPY pulls back amid a weaker US dollar after NFP.
• Yen remains under pressure, now on risk appetite.

The USD/JPY is falling modestly on Friday, after hitting earlier at 140.79, the highest level since 1998. A weaker US Dollar across the board weighed on the pair following the official US employment report.

US yields retreat sharply

Non-farm payrolls rose by 315K in August against expectations of a 300K increase. The unemployment rate rose unexpectedly from 3.5% to 3.7%, however, the labor participation rate also rose.

After the report, US yields dropped sharply favoring the decline in USD/JPY. The US 10-year yield fell to 3.17% and the 2-year fell from 3.52% to 3.40%. At the same time, equity prices in Wall Street rose. The Dow Jones was rising by 0.81% and the Nasdaq by 0.79%.The Japanese yen failed to stage a broad-based recovery on the back of the improvement in risk sentiment.

Despite falling on Friday, USD/JPY is about to post the third consecutive weekly gain and the highest close since 1998. The divergence between the Bank of Japan and the Federal Reserve’s monetary policy continues to drive the pair to the upside. At their next meeting, the BoJ is expected to keep the ultra-expansive stance while the Fed is seen raising rates by 50 or 75 basis points.

Technical levels

• USD/CAD retreats further from a multi-week high and is pressured by a combination of factors.
• Rebounding crude oil prices underpin the loonie and prompt some selling amid a weaker USD.
• The intraday USD selling picks up pace following the release of the mixed US monthly jobs data.
• Hawkish Fed expectations, recession fears to limit the USD losses and lend support to the pair.

The USD/CAD pair extends its steady intraday descent and drops to the 1.3115-1.3110 area, or a fresh daily low during the early North American session. Spot prices retreat further from the highest level since July 14 touched the previous day and for now, seem to have snapped a three-day winning streak.

A goodish recovery in crude oil prices underpins the commodity-linked loonie. This, along with a broad-based US dollar weakness, prompts some selling around the USD/CAD pair on Friday. The USD retracement slide from a two-decade high set on Thursday picks up pace following the release of the mixed US monthly jobs report. Apart from this, an intraday decline in the US Treasury bond yields and the risk-on impulse exert additional downward pressure on the safe-haven greenback.

That said, a combination of factors should help limit deeper losses for the USD/CAD pair and warrant some caution before placing aggressive bearish bets. Investors remain concerned that a deeper global economic downturn and fresh COVID-19 lockdown would dent fuel demand, which should act as a headwind for crude oil prices. Apart from this, expectations that the Fed will stick to its aggressive policy tightening path should limit the USD downfall and lend support to the major.

In fact, the markets are still pricing in a greater chance of a supersized 75 bps rate hike move at the next FOMC monetary policy meeting on September 20-21. This, in turn, favours the USD bulls and supports prospects for the emergence of some dip-buying around the USD/CAD pair. Hence, it will be prudent to wait for a strong follow-through decline before confirming that the recent strong move up witnessed over the past three weeks or so has run out of steam and positioning for further losses.

Technical levels to watch

• US dollar is under pressure and scrutiny following the mixed US NFP report. 
• The bears are looking to the weekly chart for clues as to where the dollar could be correcting towards. 

The US dollar, as measured vs. a basket of major currencies in the DXY index, fluttered on the release of the US Labor Department's closely watched Nonfarm Payrolls employment report. While the data showed an increase of 315,000 jobs last month after surging 526,000 in July, the disappointments came in the form of Average Hourly Earnings which rose 0.3% compared with expectations of 0.4% and the Unemployment Rate which missed expectations of 3.5% vs. 3.7% actual. However, the stronger than expected Participation Rate could go some way toward explaining this miss given the increase in the number of people joining the labour force last month. 

• Labour Force Participation Rate July: 62.4% vs. estimated 62.2%; previous 62.1%.

Despite mixed data, traders see a 75% chance of a third straight 75 basis points rate hike in September and expect rates to peak at 3.90% in March 2023. The US dollar has since recovered from the knee-jerk sell-off and lows of the day down at 109.049 and is trying to hang on to the correction in the 109.20s at the time of writing. It had recovered to 109.46, so it remains slightly pressured still. US yields are under pressure as well, with the 2-year US Treasury yield down over 2.57% at the lows of 3.406%

Despite today's disappointments, the US dollar index had rallied to a fresh 20-year high on Thursday of 109.99, bolstered by robust US data which leaves the DXY on track for a 0.5% weekly gain still on a closing basis. However, given that the data has a little something for everyone, it eases some pressure on the Federal Reserve looking to cool down labour demand and the overall economy to bring inflation back to its 2% target which is a factor that can weigh on the greenback for the forthcoming days as markets continue to digest the implications. Traders will now look to the August Consumer Price Index report due in the middle of this month for clues on the next rate increase ahead of when the Fed meets.

DXY H1 chart

From a technical standpoint, the index is trying to establish around a 61.8% Fibonacci retracement level of the prior hourly bullish impulse. If the bulls commit, then there will be prospects of a bullish extension for the day ahead and open next week with sights beyond the 110.00 level. On the other hand, should the support area give way, a deeper correction of the weekly bullish run could be on the cards for next week:

The W-formation on the weekly chart is a reversion pattern and there are prospects of a correction into the prior highs that meet with the 38.2% Fibo retracement. 

US employment loses some momentum. But in the view of economists at Commerzbank, the Federal Reserve is set to stick to its plan despite signs of a weakening. 

Job growth remains strong despite pace has slowed

“Even though the pace of job growth has slowed somewhat, at over 300 thousand it remains strong for this phase of the business cycle (and one should keep in mind that job growth of around 75 thousand per month is enough to supply the growing working-age population with jobs).”

“Fed Chairman Powell, in his speech at Jackson Hole, has put the markets on notice that monetary policy will continue to step on the brakes. It is therefore unlikely that the central bank will use this moderate slowdown of employment growth as an opportunity to raise key rates by only 50 bps in September.”

“We are sticking to our forecast of a 75 bps rate hike.”

• EUR/USD regains composure and surpasses the parity level.
• Extra consolidation appears favoured for the time being.

EUR/USD fades part of Thursday’s strong sell-off and manages to regain the area above the key parity level at the end of the week.

Further consolidation looks the most likely scenario in EUR/USD in the near term at least, always within the 1.0100-0.9900 range and ahead of the key ECB and FOMC events later in the month.

The breakout of the weekly high at 1.0090 (August 26) could spark further gains to 1.0202 (August17 high). Alternatively, the 0.9900 neighbourhood is expected to hold the bearish impulse for the time being.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0794.

EUR/USD daily chart

• USD/TRY comes under pressure after flirting with 18.25.
• The downtrend in the Turkish currency remains unchanged.
• Next of note in the docket comes Monday’s CPI release.

The Turkish lira poked with all-time lows vs. the dollar after USD/TRY briefly rose past 18.25 earlier on Friday’s session.

USD/TRY further upside could retest 20.00… soon

USD/TRY maintains the buying interest for the third session in a row despite faltering just below the all-time peak above 18.25 at the end of the week.

Indeed, the selling bias in the Turkish lira is expected to remain well in place for the foreseeable future and could even gather extra steam in the next periods considering the increasing divergence between the Federal Reserve and the Turkish central bank (CBRT).

Indeed, the dollar is seen firmer vs. the risk complex and the EM FX universe against the current backdrop of rising expectations of extra tightening by the Fed, as inflation in the US economy looks far from abating.

Nothing scheduled in the Turkish docket on Friday, whereas US Nonfarm Payrolls came a tad above estimates at 315K for the month of August. The US Unemployment Rate, in the meantime, crept higher to 3.7%.

What to look for around TRY

The upside bias in USD/TRY remains unchanged and approaches the all-time high around 18.25. The uptrend in spot has been intensified following the unexpected interest rate cut by the CBRT on August 18.

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

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

In addition, there seems to be no other immediate alternative to attract foreign currency other than via tourism revenue, in a context where official figures for the country’s FX reserves remain surrounded by increasing skepticism among investors.

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

USD/TRY key levels

So far, the pair is gaining 0.14% at 18.2187 and faces the immediate target at 18.2574 (2022 high September 2) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a breach of 17.7586 (monthly low August 9) would pave the way for 17.6120 (55-day SMA) and finally 17.1903 (weekly low July 15).

• GBP/USD prolongs its range-bound price action following the release of the US monthly jobs data.
• The USD dips in reaction to an unexpected rise in the US unemployment rate and softer wage growth.
• The markets are still expecting a 75 bps Fed rate hike in September, which limits the USD downside.
• A bleak outlook for the UK economy continues to undermine sterling and favours bearish traders.

The GBP/USD pair continues with its struggle to gain any meaningful traction and remains confined in a narrow range through the early North American session. The pair is currently placed around the mid-1.1500s and moves little following the release of the US monthly jobs report.

The slightly better-than-anticipated headline NFP print, showing that the US economy added 312K jobs in August, was offset by an unexpected rise in the unemployment rate - to 3.7% from 3.5% previous. Adding to this, Average Earnings growth slowed to 0.3% during the reported month, down notably from July's upwardly revised 0.5%. The US dollar added to its intraday losses in reaction to the data, though hawkish Fed expectations help limit deeper losses.

In fact, the markets are still pricing in a greater chance of a supersized 75 bps Fed rate hike move at the September policy meeting. This remains supportive of elevated US Treasury bond yields, which, in turn, should assist the USD to stall its corrective pullback from a two-decade high touched on Thursday. Apart from this, a bleak outlook for the UK economy further contributes to keeping a lid on any meaningful upside for the GBP/USD pair, at least for now.

Nevertheless, spot prices remain well within the striking distance of the lowest level since March 2020 set the previous day and seem vulnerable to sliding further. Bearish traders, however, might prefer to wait for a convincing break below the 1.1500 psychological mark before positioning for an extension of the depreciating move. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the GBP/USD pair is to the downside.

Technical levels to watch

After two consecutive months of decline, EUR/CHF staged a recovery toward the end of August that saw the franc close weaker for the month. Nonetheless, economists at MUFG Bank believe that the rebound will not last and expect lower levels for the EUR/CHF pair.

EUR’s rebound unlikely to last

“With recession risks still high, we doubt the EUR rebound will prove lasting. Even if natural gas prices move lower, the lift to confidence will be marginal given the high level of uncertainty over supplies from Russia in 2023 and beyond.” 

“The rhetoric from the SNB also indicates a central bank growing increasingly concerned over the threat of inflation and hence there are risks the SNB could match the ECB’s actions if the ECB does turn more hawkish through the remainder of the year. But what seems as likely is the ECB failing to deliver what is priced into the market as recession in the eurozone bites.” 

“Toward the end of August SNB President Jordan stated that the signs were increasing that structural changes globally could lead to ‘persistently higher inflationary pressures in the coming years’. If the SNB believes a structural change is underway, then the attitude to CHF appreciation will change and the entire framework of the monetary policy strategy in Switzerland could also change. This to us points to lower EUR/CHF levels until the energy crisis in Europe abates.”

• Gold rallies as the US dollar and yields sell off after the NFP miss in the details. 
• The headline was a touch above expectations but the UR and earnings disappointed. 
• Fed funds futures traders are still pricing in a September rate hike of 75 basis points after the jobs report.

The gold price is higher on the Nonfarm Payrolls on the knee-jerk. The US dollar has sold-off and US yields are volatile while US stocks rally. The outcome of the data was mixed but the Unemployment came in at 3.7% vs. 3.5% expected and Average Hourly Earnings missed the mark as well, at 0.3% month on month vs. 0.4% expected. This data, behind the headline beat of 315k vs. 300k expected, is less inflationary and therefore the market initially dialled down its expectations of a 75 basis point hike from the Federal Reserve at the next meeting later this month. In this regard, however, it is worth noting that the Participation Rate was higher, potentially explaining the higher Unemployment Rate. 

Payrolls have continued to advance strongly in August,  but at a more moderate pace following the eye-popping 528k increase registered in July, which was a five-month high. Wage growth has slowed modestly after registering an unexpected 0.5% jump last month, nevertheless, Fed swap pricing of the terminal cycle rate has dropped to around 3.91%. The 2-year Treasury yield has fallen on the data within a 3.518%-3.449% range but is down 1.28% on the day so far. However, fed funds futures traders are still pricing in a September rate hike of 75 basis points after the jobs report which may limit the fall in yields, the greenback and put a cap on the yellow metal. 

Prior to the data, the US dollar was headed for its third weekly gain in a row and was near two-decade highs against other major currencies, as measured by the DXY which tracks the currency against six counterparts. The US currency has been on the front foot since Federal Reserve Chair Jerome Powell said at the Jackson Hole symposium in Wyoming a week ago that rates would need to be high "for some time" to combat inflation. The index rallied to a fresh 20-year high on Thursday of 109.99, bolstered by robust U.S. data showing a fall in unemployment claims. Despite the data, DXY is still on track for a 0.5% weekly gain on a closing basis. 

After all, Fedspeak has successfully catalyzed a repricing in rates markets, which have now largely priced-out odds that rate cuts will immediately follow the rate hiking cycle, as analysts at TD Securities noted.

''This leaves current pricing for rates near-fair, which suggests that the catalyst for the move lower in precious metals pricing is now fundamentally running out of steam. Notwithstanding, with every tick lower in gold prices, we continue to see odds of a major capitulation event growing, which could coincide with a break below a multi-decade uptrend in the yellow metal near $1675/oz.''

Gold technical analysis

Meanwhile, however, there is a bullish argument on the charts for the yellow metal.

The price is correcting from a strong sell-off on the daily timeframe. The bulls are moving in on a 38.2% Fibonacci retracement and a bullish close today, Friday, could leave prospects for a deeper correction over the start of next week, taking the price into the resistance as illustrated on the above chart. 

• AUD/USD adds to intraday recovery gains and refreshes daily high in reaction to mixed US jobs report.
• The US economy added 312K jobs in August and the unemployment rate unexpectedly rose to 3.7%.
• Hawkish Fed expectations should help limit any meaningful USD downside and cap gains for the pair.

The AUD/USD pair extends its recovery move through the early North American session and jumps to a fresh daily high, around mid-0.6800s in reaction to the mixed US jobs report.

The headline NFP print showed that the US economy added 312K jobs in August against the 300K anticipated, though the reading was well below the 526K reported in the previous month. Adding to this, the unemployment rate unexpectedly rose to 3.7% from the 3.5% previous. Furthermore, softer-than-estimated Average Hourly Earnings drag the US dollar away from a two-decade high touched the previous day. This is seen as a key factor that provides a modest lift to the AUD/USD pair.

Spot prices have now reversed the overnight losses to the lowest level since July 18, though any further recovery still seems elusive. Despite a slight disappointment from the US employment details, growing acceptance that the Fed will stick to its aggressive policy tightening path might continue to act as a tailwind for the USD. Apart from this, concerns about a deeper global economic downturn might further contribute to capping the upside for the AUD/USD pair, at least for now.

Even from a technical perspective, the intraday positive move stalls near the 100-hour SMA, currently around mid-0.6800s, which should now act as a pivotal point for intraday traders. This makes it prudent to wait for strong follow-through buying before confirming that the AUD/USD pair has formed a near-term bottom and positioning for any further appreciating move.

Technical levels to watch

• EUR/USD remains bid above the parity level on Friday.
• US Nonfarm Payrolls rose by 315K jobs in August.
• The unemployment rate ticked higher to 3.7%.

EUR/USD keeps the daily bid bias unchanged and manages to retest the 1.0030 region in the wake of the release of Nonfarm Payrolls for the month of August.

EUR/USD looks well supported near 0.9900

EUR/USD keeps the positive stance on Friday after the release of the Nonfarm Payrolls showed the US economy added 315K jobs during August, surpassing initial estimates for a gain of 300K jobs. The July reading was revised down slightly to 526K (from 528K).

Further data saw the Unemployment Rate edge higher to 3.7% (from 3.5%) and the key Average Hourly Earnings – a proxy for inflation via wages – rise 0.3% MoM and 5.2% from a year earlier. Additionally, the Participation Rate, improved a tad to 62.4% (from 62.1).

Next on the US docket will come July’s Factory Orders.

EUR/USD levels to watch

So far, the pair is gaining 0.67% at 1.0013 and further upside could retest 1.0090 (weekly high August 26) ahead of 1.0202 (high August 17) and finally 1.0203 (55-day SMA). On the flip side, the breach of 0.9899 (2022 low August 23) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2022 low).

During August, the New Zealand dollar depreciated further against the US dollar from 0.6266 to 0.6134. Economists at MUFG Bank expect the kiwi to recover in the next year.

NZD/USD to remain under downward pressure in the short-term

“With the Fed expected to be more active to year-end, we would expect NZD/USD to remain under downward pressure.”

“Next year, assuming NZ does not slow notably, we’d expect NZD/USD to recover as Fed tightening concludes.”

Nonfarm Payrolls in the US rose by 315,000 in August, the data published by the US Bureau of Labor Statistics revealed on Friday. This reading followed July's increase of 526,000 (revised from 528,000) and came in slightly better than the market expectation of 300,000. 

Follow our live coverage of market reaction to the US jobs report.

Further details of the publication revealed that the Unemployment Rate rose to 3.7% from 3.5%. The annual wage inflation, as measured by the Average Hourly Earnings, stayed unchanged at 5.2%, compared to the market expectation of 5.3%. Finally, the Labor Force Participation Rate improved to 62.4% from 62.1% in July.

Market reaction

The US Dollar Index edged lower with the initial reaction and was last seen losing 0.4% on the day at 109.18.

The Canadian dollar weakened in August with that weakness unfolding in the second half of the month. Economists at MUFG Bank expect the loonie to remain weak through the remainder of the year before recovering in 2023.

Global equity market weakness lifts USD/CAD

“The comment from Fed President Kashkari effectively welcoming declines in equity markets does not bode well for risk assets more generally. That has implications for CAD given its strong positive correlation with US and global equity market performance.” 

“The speed of the tightening of monetary policy is likely to continue to weigh on the housing sector and with financial market conditions set to tighten further, we assume CAD will remain weak through the remainder of the year before recovering in 2023.”

The Central Bank of the Republic of Turkey's (CBRT’s) unexpected move to cut rates by 100 bps in August triggered a new bout of lira weakness with USD/TRY breaching the 18 level. Economists at Danske Bank think twin deficits and global financial tightening could push USD/TRY towards 25 in 12 months. 

Burden on Turkey’s public finances will grow while growth momentum is slowing down

“We think the combination of global financial tightening, rising budget deficits and substantial refinancing needs at the private sector in the context of already-tight FX liquidity could push USD/TRY to 25 in the next 12M.”

“In the absence of a policy turnaround ahead of the June 2023 election, the burden on Turkey’s public finances will grow while growth momentum is slowing down.”

“In the longer term, Turkey’s economy could have a lot to gain (or lose) depending on how successfully it navigates the new geopolitical world order.”

• DXY corrects lower after hitting 20-year tops around 110.00.
• Occasional weakness in the dollar could be a buying opportunity.

DXY gives away part of Thursday’s strong advance to new cycle highs just below the 110.00 mark.

The short-term bullish view in the dollar remains well in place for the time being and propped up by the 7-month support line, today around 105.65. The surpass of recent peaks, however, could face the next barrier at the weekly highs at 111.90 (June 6 2002) and 113.35 (May 24 2002).

Looking at the long-term scenario, the bullish view in the dollar remains in place while above the 200-day SMA at 100.99

DXY daily chart

UOB Group’s Economist Enrico Tanuwidjaja comments on the likelihood of further tightening by the Bank of Thailand (BoT) later in the year.

Key Takeaways

“Thai economy grew less than expected in 2Q22 but pickup in consumer spending was a welcome start for possibly faster pace of growth momentum this quarter and next.”

“Persistent current account deficit to the tune of USD15bn to-date has weighed THB down but we expect with stronger tourism receipts, reversal into surplus is abound and is positive for THB.”

“Slower 2Q growth but unabating inflationary pressures is unlikely to deter Sep’s rate hike but we reckon BOT to pause in Nov to assess the incoming data before considering further monetary policy tightening.”

• EUR/JPY fades Thursday’s pullback and regains 140.00 and above.
• Further upside could see the 142.30 region revisited.

EUR/JPY resumes the weekly recovery and manages to surpass the key barrier at the 140.00 mark on Friday.

Extra gains in the cross are favoured once it clears the 140.00 region. Beyond this area, another test of the weekly peak at 142.32 (July 21) should re-emerge on the horizon ahead of the 2022 high at 144.27 (June 28).

While above the 200-day SMA at 134.48, the prospects for the pair should remain constructive.

EUR/JPY daily chart

US monthly jobs report overview

Friday's US economic docket highlights the release of the closely-watched US monthly jobs data for August. The popularly known NFP report is scheduled for release at 12:30 GMT and is expected to show that the economy added 300K jobs during the reported month, down from the 528K in July. The unemployment rate, however, is expected to hold steady at 3.5% in August. Apart from this, investors will take cues from Average Hourly Earnings, which could offer fresh insight into the possibility of a further rise in inflationary pressures.

Analysts at TD Securities sounded more optimistic and wrote: “We expect the series to have continued to advance strongly in August (370K), but at a more moderate pace following the eye-popping 528K increase registered in July, which was a five-month high. We look for the solid gain in employment to also be reflected in another decline in the unemployment rate to 3.4% (second consecutive one-tenth decline). We are assuming an improvement in the participation rate to 62.2% after falling to 62.1% in July. We are also looking for wage growth to slow modestly to a still robust 0.4% MoM after registering an unexpected 0.5% jump last month. The MoM leap should result in a one-tenth increase in the YoY measure to 5.3% in August.”

How could the data affect EUR/USD?

Ahead of the key data risk, traders opt to take some profits off their US dollar bullish positions after the recent run-up to a two-decade high. This, in turn, pushes the EUR/USD pair back above the parity mark. A disappointing labour market report might prompt some long-unwinding around the USD, though the immediate market reaction is more likely to be short-lived. Growing recession fears and economic headwinds stemming from fresh COVID-19 lockdowns in China and the war in Ukraine should help limit any meaningful corrective slide for the safe-haven buck.

Conversely, stronger data will reaffirm expectations that the Fed will continue to tighten its monetary policy at a faster pace to tame inflation. This should be enough to push the US Treasury bond yields higher, alongside the USD. Apart from this, concerns over an extreme energy crisis in Europe suggest that the path of least resistance for the EUR/USD pair is to the downside and any attempted recovery could get sold into.

Eren Sengezer, Editor at FXStreet, offers a brief technical overview and writes: “EUR/USD has climbed above the 50-period SMA on the four-hour chart and the Relative Strength Index (RSI) indicator recovered toward 50 early Friday. Although these technical developments don't necessarily point to a bullish tilt in the near-term outlook, they show that sellers remain cautious for the time being.

Eren also outlines important technical levels to trade the EUR/USD pair: “On the upside, 1.0000 (psychological level, 20-period SMA) aligns as immediate resistance ahead of 1.0020 (Fibonacci 23.6% retracement of the latest downtrend) and 1.0060 (100-period SMA). Supports are located at 0.9980 (50-period SMA), 0.9920 (end-point of the downtrend) and 0.9900 (psychological level).

Key Notes

  •  Nonfarm Payrolls Preview: Five reasons to expect a win-win release for the dollar

  •  NFP Preview: Forecasts from eight major banks, employment growth still strong

  •  EUR/USD Forecast: Can euro extend recovery on a weak NFP print?

About the US monthly jobs report

The nonfarm payrolls released by the US Department of Labor presents the number of new jobs created during the previous month, in all non-agricultural business. The monthly changes in payrolls can be extremely volatile, due to its high relation with economic policy decisions made by the Central Bank. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish), although previous months reviews and the unemployment rate are as relevant as the headline figure.

Economist at UOB Group Enrico Tanuwidjaja assesses the recently published inflation figures in Indonesia.

Key Takeaways

“Aug’s headline inflation fell by 0.2% m/m and eased slightly to 4.7% y/y (4.9% in Jul) while core inflation rose to 3.0% y/y (prior 2.9%).”

“Inflation in Aug continued to be driven by elevated level of food and transport prices, as well as the housing, water, and electricity costs.”

“We keep our 2022 inflation forecast (average) at 4% but now with upside risks on the back of highly probable fuel price hikes in due course. As such, we maintain our view for BI to hike rates to reach 4.50% by year-end.”

• USD/JPY hits a 24-year high on Friday and now seems to have entered a consolidation phase.
• The Fed-BoJ policy divergence offsets modest USD weakness and continues to lend support.
• A modest USD weakness seems to cap the upside ahead of the crucial US jobs report (NFP).

The USD/JPY pair attracts some dip-buying near the 139.85 region and climbs to a fresh 24-year high on Friday. The pair now seems to have entered a bullish consolidation phase and is seen oscillating in a narrow band, just mid-140.00s through the first half of the European session.

The Japanese yen continues to be weighed down by the divergent stance adopted by the Bank of Japan and other major central banks, including the Federal Reserve. This, in turn, is seen as a key factor acting as a tailwind for the USD/JPY pair. It is worth mentioning that the BoJ has repeatedly said that it remains committed to the ultra-loose monetary policy. In contrast, the Fed is expected to tighten its policy further to tame inflation.

In fact, the markets are currently pricing in a greater chance of a supersized 75 bps rate hike at the September FOMC meeting. The bets were reaffirmed by the recent hawkish remarks by several Fed officials, which helped push the rate-sensitive 2-year US government bond to a 15-year peak. Moreover, the yield on the benchmark 10-year US government rose to more than a two-month peak, widening the US-Japan rate differential and weighing heavily on the JPY.

That said, hints at a possible government intervention to prop up the yen seem to hold back bulls from placing fresh bets. In fact, Hirokazu Matsuno, Japanese Chief Cabinet Secretary, told reporters that currency market volatility is heightening recently and sudden exchange-rate fluctuations are not desirable. Adding to this, a modest US dollar pullback from a two-decade high further contributes to keeping a lid on any further gains for the USD/JPY pair, at least for now.

Investors also seem reluctant and prefer to move to the sidelines ahead of the US monthly jobs data, due later during the early North American session. The popularly known NFP report will provide a fresh insight into the labour market conditions in the wake of rising interest rates and stubbornly high inflation. This, in turn, might influence Fed rate hike expectations and drive the USD demand. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside and any pullback might be seen as a buying opportunity.

Technical levels to watch

• AUD/USD gains positive traction and reverses a part of the overnight slide to a multi-week low.
• The USD moves away from a two-decade high and turns out to be a key factor lending support.
• Aggressive Fed rate hike bets to limit the USD losses and cap the pair ahead of the NFP report.

The AUD/USD pair attracts some buying on Friday and recovers a part of the previous day's losses to the 0.6770 area, or the lowest level since July 18. The pair builds on its steady intraday ascent and moves back above the 0.6800 mark, hitting a fresh daily high during the first half of the European session.

The US dollar edges lower and retreats further from a two-decade high touched on Thursday, which, in turn, offers some support to the AUD/USD pair. A softer tone surrounding the US Treasury bond yields keeps the USD bulls on the defensive amid some repositioning trade ahead of the US monthly jobs data. Apart from this, signs of stability in the financial markets further undermine the safe-haven buck and benefit the risk-sensitive aussie.

That said, growing recession fears, economic headwinds stemming from fresh COVID-19 lockdowns in China and the war in Ukraine should cap any optimistic moves. Furthermore, expectations that the Fed will continue to tighten its monetary policy to tame inflation should act as a tailwind for the US bond yields and lend support to the greenback. This, in turn, warrants caution before placing aggressive bullish bets around the AUD/USD pair.

It is worth mentioning that the markets are pricing in a supersized 75 bps rate hike at the September FOMC meeting and the bets were reaffirmed by the recent hawkish remarks by several Fed officials. Traders now look to the US NFP report, which will provide a fresh insight into the economy's health and influence the USD price dynamics. This, in turn, will drive the AUD/USD pair ahead of the Reserve Bank of Australia (RBA) meeting next week.

Technical levels to watch

Head of Research at UOB Group Suan Teck Kin, CFA, reviews the latest GDP figures in the Indian economy.

Key Takeaways

“India’s real GDP in the Apr-Jun quarter (1QFY22-23) surged 13.5% y/y from 4.1% in the prior quarter, in line with our expectation of 14% but well below Bloomberg survey’s 15.3% and Reserve Bank of India’s (RBI) forecast of 16.2%. The gain was boosted by a low base and record increase in private consumption expenditure and increase in investment demand.”

“While the strong headline figure places India’s performance as the best among Asian countries in the quarter, the pace is expected to moderate ahead. We project 6.3% y/y in the Jul-Sep quarter (2QFY22-23), and at 7.0% for FY22-23 (or 6.8% for CY2022) from 8.7% in FY21-22.”

“With the RBI focused on containing inflationary pressures, we continue to see the central bank adding on another 50bps rate increases in the two remaining meetings in 2022 to bring the repo rate to 5.90% by the end of the year, and to pause thereafter. The next RBI policy meeting will be held in 28-30 Sep.”

• EUR/USD manages to bounce off weekly lows near 0.9900.
• The greenback appears offered following Thursday cycle tops.
• Market participants will closely follow the release of August NFP.

The single currency regains some composure and prompts EUR/USD to trim part of the strong drop to the vicinity of 0.9900 recorded in the previous session.

EUR/USD now focuses on Payrolls

Following Thursday’s deep pullback, EUR/USD now trades with decent gains and re-targets the key parity level in a context where investors seem to be cashing up part of the recent advance in the greenback to new cycle peaks near the 110.00 hurdle when gauged by the US Dollar Index (DXY).

In the meantime, speculation around a 75 bps rate hike by the ECB at the September meeting remains on the rise and it has been exacerbated after signs that inflation in the region is not giving up, as per the latest flash CPI figures for the month of August.

In the domestic calendar, Germany’s trade surplus shrank a tad to €5.4B in July and Producer Prices in the broader Euroland rose 4.0% MoM in July and 37.9% over the last twelve months.

Across the pond, the US labour market report will take centre stage seconded by Factory Orders.

What to look for around EUR

EUR/USD picks up renewed pace with the immediate target at the psychological parity zone in the wake of Thursday’s sharp sell-off.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence. However, potential shifts to a more hawkish stance from ECB’s policy makers regarding the bank’s rate path could be a source of strength for the euro.

On the negatives for the single currency emerge the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals.

Key events in the euro area this week: Germany Balance of Trade, EMU Producer Prices (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.40% at 0.9948 and further upside could retest 1.0090 (weekly high August 26) ahead of 1.0202 (high August 17) and finally 1.0203 (55-day SMA). On the flip side, the breach of 0.9899 (2022 low August 23) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2022 low).

• Gold edges higher on Friday and moves away from a multi-week low touched the previous day.
• A modest USD pullback from a two-decade high, retreating US bond yields offer some support.
• Hawkish Fed expectations should cap any meaningful upside ahead of the US jobs data (NFP).

Gold gains some positive traction on Friday and recovers a major part of the previous day's losses to the sub-$1,690 levels - the lowest since July 21. The steady intraday ascent lifts spot prices to a fresh daily high, further beyond the $1,700 mark during the first half of the European session.

The US dollar edges lower and moves away from a two-decade high touched the previous day amid some repositioning trade ahead of the closely-watched US monthly jobs report. Apart from this, a softer tone surrounding the US Treasury bond yields further contributes to the modest USD downtick, which, in turn, is seen as lending support to the dollar-denominated commodity. That said, any meaningful positive move still seems elusive amid hawkish Fed expectations.

In fact, the markets seem convinced that the US central bank will continue to tighten its policy to tame inflation and have been pricing in a supersized 75 bps rate hike at the September meeting. The bets were reaffirmed by the recent hawkish remarks by several Fed officials. This should act as a tailwind for elevated US bond yields and limit any meaningful USD corrective slide, capping gains for the non-yielding yellow metal, at least for time being.

Investors might also prefer to move to the sidelines and wait for a fresh catalyst. Hence, the focus will remain glued to the US NFP report, due for release later during the early North American session. The data might influence Fed rate hike expectations and will play a key role in influencing the USD price dynamics. This, in turn, should assist investors to determine the near-term trajectory for gold ahead of the crucial FOMC meeting on September 20-21.

Technical levels to watch

Institute for Supply Management (ISM) Chair Timothy Fiore said in an MNI interview on Thursday that "there's clearly a trend towards getting to price stability. We're leveling off through the end of the year.”

Key quotes

"We're not out of equilibrium if prices dropped down to 45 and up."

US manufacturing will see steady growth through the end of the year and added the sub-indexes are "changing for the good."

"As lead times were pushed out, buyers had to jump into the market and now they're trying to make sure that as they close the year they don't get stuck with excess inventory."

"That could mean prices will drop at some point but I don't think it's in the next two to three months."

"Employment gains in August should translate into stronger expansion in production growth in September.”

"We made gains simply because the quits rate slowed down because some are getting a little concerned about the economy.”

“The ratio of hiring to firing has also been stable for several months.”

Related reads

• US: ISM Manufacturing PMI unchanged at 52.8 in August vs. 52 expected
• US Dollar Index retreats from cycle highs near 110.00 ahead of Payrolls

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang note the bullish bias in USD/CNH could lose momentum in case 6.8700 is breached.

Key Quotes

24-hour view: “Our expectations for USD to ‘trade with an upward bias towards 6.9325’ was incorrect as it dropped briefly to 6.8882 before rebounding to close at 6.9154 (+0.12%). Despite the decline, downward momentum has not improved. The current movement is likely part of consolidation phase and we expect USD to trade sideways between 6.8900 and 6.9250 for today.”

Next 1-3 weeks: “We turned positive USD two weeks ago. USD subsequently soared to 6.9325 but has not been able to make any further headway to the upside. While upward momentum has waned somewhat, only a break of 6.8700 (no change in ‘strong support’ level from yesterday) would indicate that USD is not strengthening further.”

• The index comes under pressure and recedes from 110.00.
• The risk complex regains some composure and trims recent losses.
• All the attention remains on the August’s Nonfarm Payrolls due later.

The greenback, in terms of the US Dollar Index (DXY), gives away part of the recent advance to fresh cycle highs in the 110.00 region (September 1).

US Dollar Index looks to key data

The index now comes under pressure and sheds some ground following Thursday’s advance to levels last seen back in June 2002 in the 110.00 neighbourhood.

The recent strong climb in the dollar has been underpinned by the equally intense move higher in US yields, particularly in the short end of the curve, which was at the same underpinned by persistent expectations of the continuation of the normalization process by the Federal Reserve.

On the latter, the probability of a 75 bps rate raise at the September event is now at nearly 75% as per CME Group’s FedWatch Tool.

Still looking at the next Fed’s rate hike, Friday’s focus of attention is expected to remain on the release of US Nonfarm Payrolls for the month of August due later in the NA session. Consensus expects the economy to have added 300K jobs during last month and the jobless rate to stay unchanged at 3.5%.

Additional data will also see Factory Orders for the month of July.

What to look for around USD

Despite the ongoing knee-jerk, the greenback keeps the bullish outlook well in place in the area of 20-year highs near the 110.00 zone.

Bolstering the dollar’s strength appears the firm 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. This view was recently reinforced by Chair Powell’s speech at the Jackson Hole Symposium.

Extra volatility in the dollar, however, should not be ruled out considering the ongoing debate around the size of the September’s interest rate hike by the Federal Reserve.

Looking at the more macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, Factory Orders (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.

US Dollar Index relevant levels

Now, the index is retreating 0.18% at 109.43 and faces the next support at 107.58 (weekly low August 26) seconded by 106.69 (55-day SMA) and then 104.63 (monthly low August 10). On the upside, a breakout of 109.97 (2022 high September 1) would aim for 110.00 (round level) and finally 112.17 (high May 31 2002).

The Australian dollar weakened modestly in August. Economists at MUFG Bank expect to see AUD weakness for now before recovery in 2023.

Jobs market in Australia will support growth going forward

“We would expect the solid fundamentals to lead to some rebound by year-end and into 2023.” 

“The jobs market in Australia will support growth going forward with the labour participation rate at the highest level in 112 years. Stronger wage growth is likely and that will ensure continued monetary tightening with risks to the upside relative to the RBA guidance.” 

“Economic growth is expected to slow due to tighter policy and slower global growth with the RBA estimating 3.25% growth in 2022 and 1.75% in 2023 and 2024.” 

“More favourable growth in China in 2023 should also help ensure higher AUD/USD levels next year even with growth more subdued.”

The European Central Bank (ECB) conducted a survey of consumer expectations for inflation, with the key results noted below.

Market reaction

The above survey findings have little to no impact on the shared currency, as EUR/USD consolidates its rebound around 0.9975 ahead of the critical US NFP report. The pair is up 0.32% on a daily basis.

• USD/CAD retreats further from multi-week high and is pressured by a combination of factors.
• A goodish rebound in oil prices underpins the loonie and exerts pressure amid a weaker USD.
• Rising bets for more aggressive Fed rate hikes to limit the USD losses and lend some support.
• Traders might also refrain from placing aggressive bets ahead of the key US jobs report (NFP).

The USD/CAD pair extends the overnight pullback from levels just above the 1.3200 mark and edges lower on Friday, snapping a three-day winning streak to a seven-week high. The steady intraday descent drags spot prices back below mid-1.3100s during the early European session and is sponsored by a combination of factors.

Crude oil prices stage a goodish recovery move on Friday and reverse a major part of the previous day's losses back closer to the monthly low touched in August. This, in turn, underpins the commodity-linked loonie, which, along with a modest US dollar weakness, exerts some downward pressure on the USD/CAD pair.

A softer tone surrounding the US Treasury bond yields keeps the USD bulls on the defensive amid some repositioning trade ahead of the US monthly jobs data, due later this Friday. Apart from this, signs of stability in the financial markets further drag the safe-haven buck away from a two-decade high set on Thursday.

The downside for the USD/CAD pair, however, seems cushioned amid expectations for a more aggressive policy tightening by the Fed, which should continue to act as a tailwind for the greenback. Moreover, concerns that a global economic downturn will dent fuel demand should cap oil prices and lend support to the major.

Hence, it will be prudent to wait for strong follow-through selling before positioning for any further depreciating move for the USD/CAD pair. Traders might also refrain from placing aggressive bets and prefer to wait for the release of the closely-watched US NFP report, which will play a key role in driving the USD demand.

Apart from this, the broader risk sentiment, might influence the greenback and provide some impetus to the USD/CAD pair. Traders will also take cues from oil price dynamics to grab short-term opportunities on the last day of the week and ahead of the Bank of Canada (BoC) monetary policy meeting on September 7.

Technical levels to watch

The rouble has been consolidating within a relatively narrow range over the summer with USD/RUB trading just above the 60.00 level. Economists at MUFG Bank expect the RUB to move downward in 2023.

RUB has benefitted from record current account surpluses 

“The rouble is continuing to derive support from higher energy prices. Russia has already reduced the supply of natural gas through the Nord Stream 1 pipeline to around 20% of full capacity. Higher energy prices have helped Russia to post record trade surpluses this year.”

“The CBR has now more than fully reversed the initial emergency rate hike delivered just after the Ukraine conflict started. It sends a further clear signal that the CBR its now more concerned about disinflation risks including those posed by a stronger rouble. However, we do not expect lower yields in Russia to trigger a significantly weaker rouble while capital controls remain in place limiting outflows.” 

“Beyond the near-term, we expect the rouble to gradually weaken in the year ahead.”

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang suggest USD/JPY could advance to 141.50 on a close above 1405.50.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘the rapid improvement in momentum is likely to lead to further USD strength towards 140.00’. We highlighted that ‘a breach of this major resistance is not ruled out’ and ‘the next resistance is at 140.50’. Our view was not wrong as USD soared to a high of 140.22. Further USD strength is likely even though overbought conditions suggest USD may not be able to maintain a foothold above 140.50. On the downside, a breach of 139.35 (minor support is at 139.65) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “We turned positive USD on Monday (29 Aug, spot at 138.30). As USD soared, in our latest narrative from yesterday (01 Sep, spot at 139.35), we highlighted that the surge in momentum suggests that USD could advance to 140.00, 140.50. Our view was not wrong as USD cracked 140.00 during NY hours and rose to 140.22. Upward momentum remains strong and a break of 140.50 would shift the focus to 141.50. On the downside, a breach of 138.60 (‘strong support’ level was at 138.00 yesterday) would indicate that USD is unlikely to advance further.”

During August, the Turkish lira weakened against the US dollar from 17.92 to 18.18. In the view of economists at MUFG Bank, risks remain heavily tilted to the downside for the TRY.

Turkey’s weak economic fundamentals still favour further lira weakness

“Turkey’s economy appears to be overheating with domestic demand still robust, the trade balance widening sharply and very elevated inflation.” 

“The CBRT’s decision to lower rates will further undermine confidence in domestic policy settings and in the lira.” 

“The policy rate in Turkey now appears even more inappropriate. After adjusting for inflation of 79.6% in July, the real policy rate has fallen even deeper into negative territory. It should keep downward pressure on the lira.”

USD/IDR reached a low below 14,700 on 12th August but was soon rebounding again with dollar strength reviving. Economists at MUFG expect the pair to edge higher till the end of the year before moving back down in 2023.

Further rate hikes to bring the 7D RR to 5.00%

“We expect another 75 bps of rate hikes for the rest of the year and another 50 bps in 2023, to bring the 7D RR to 5.00%. However, this may not offset the USD strength from aggressive Fed rate hikes.”

“We forecast USD/IDR at 15,100 and 15,200 by Q3 and Q4, moving down to 15,000 and 14,750 in Q1 and Q2 next year.”

EUR/USD came within a touching distance of 0.9900 on Thursday but managed to stage a rebound early Friday. A firm Nonfarm Payrolls could pose renewed downside pressure on the pair, economist at OCBC Bank report.

0.9910-1.0000 range likely intra-day

“Consolidative trades likely ahead of US data event risk – payrolls. A firmer print there could pose renewed downside pressure on EUR.”

“Support at 0.9910, 0.9850 levels.”

“Resistance at 1.0010 (23.6% fibo retracement of Aug high to low), 1.0080 levels (38.2% fibo).”

“0.9910-1.0000 range likely intra-day.”

See – NFP Preview: Forecasts from eight major banks, employment growth still strong

• NZD/USD stages an intraday recovery from over a two-year low touched earlier this Friday.
• A modest USD pullback from a two-decade high turns out to be a key factor offering support.
• Aggressive Fed rate hike bets to limit the USD losses and cap the pair ahead of the NFP report.

The NZD/USD pair recovers a few pips from its lowest level since May 2020, around mid-0.6000s touched this Friday and climbs back closer to the daily high during the early European session. Spot prices, however, seem to struggle to capitalize on the move and remain below the 0.6100 mark.

The US dollar moves away from a two-decade high touched on Thursday and turns out to be a key factor offering some support to the NZD/USD pair. A softer tone surrounding the US Treasury bond yields keeps the USD bulls on the defensive amid some repositioning trade ahead of the US monthly jobs report later this Friday. Apart from this, signs of stability in the financial markets further seem to undermine the safe-haven buck and benefit the risk-sensitive kiwi.

That said, growing recession fears, economic headwinds stemming from fresh COVID-19 lockdowns in China and the war in Ukraine should cap any optimism. Furthermore, expectations that the Fed will stick to its aggressive policy tightening path should act as a tailwind for the US bond yields and lend support to the greenback. This makes it prudent to wait for strong follow-through buying before positioning for any meaningful near-term recovery for the NZD/USD pair.

Investors might also prefer to move on the sidelines and await the closely-watched US NFP report, due for release later during the early North American session. The data will provide a fresh insight into the labour market conditions and the overall health of the economy, which should influence Fed rate hike expectations. This, in turn, will play a key role in driving the USD demand and help investors to determine the next leg of a directional move for the NZD/USD pair.

Technical levels to watch

Here is what you need to know on Friday, September 2:

Fueled by the upbeat macroeconomic data releases from the US, the US Dollar Index (DXY) surged to its highest level in nearly two decades at around 110.00 on Thursday. With investors taking a step back ahead of the US August jobs report, the DXY consolidates its gains near 109.50. Reflecting the cautious market mood, US stock index futures trade mixed in the early European session and the benchmark 10-year US Treasury bond yield stays in negative territory below 3.25%. 

The US Department of Labor announced on Thursday that the weekly Initial Jobless Claims declined to 232K, compared to the market expectation of 248K, last week. Additionally, the ISM Manufacturing PMI survey revealed that the business activity in the manufacturing sector continued to expand at a healthy pace in August. More importantly, the Employment Component jumped to 54.2 in August from 49.9 in July, reviving optimism for an upbeat labour market report on Friday.

The US Bureau of Labor Statistics is expected to report an increase of 300,000 in Nonfarm Payrolls (NFP) in August following July's impressive growth of 528,000. The annual wage inflation is forecast to edge higher to 5.3% with the Labor Force Participation Rate remaining unchanged at 62.1%.

Nonfarm Payrolls Preview: Five reasons to expect a win-win release for the dollar.

EUR/USD came within a touching distance of 0.9900 on Thursday but managed to stage a rebound early Friday. The pair was last seen trading in positive territory slightly below parity.

GBP/USD touched its weakest level in over two years at 1.1500 on Thursday before claiming above 1.1550 early Friday. 

Gold dropped below $1,700 for the first time since late July on Thursday but advanced beyond that level in the European morning on Friday. 

US August Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises.

Boosted by rising US yields and the broad-based dollar strength, USD/JPY reached its highest level in 24 years above 140.00. Japanese Finance Minister Shunichi Suzuki said on Friday that he would not comment on every day-to-day move in foreign exchange markets but reiterated that they would take action if necessary.

Bitcoin stays relatively quiet on the last trading day of the week and moves up and down in a tight channel slightly above $20,000. Ethereum closed the second straight in positive territory and was last seen posting small daily gains at around $1,600.

According to advanced prints from CME Group for natural gas futures markets, open interest reversed two daily drops in a row and increased by around 2.7K contracts on Thursday. In the same line, volume added to the previous build and went up by around 38.7K contracts.

Natural Gas targets recent highs around $10.00

Prices of natural gas extended the rebound on Thursday amidst rising open interest and volume. Against that, further upside now looks likely while the next hurdle of note remains at the 2022 high around the $10.00 mark per MMBtu.

USD/JPY pushed above 140 on Thursday without much fanfare. The pair's acceleration above 140 may revamp risk of FX interventions as the last time USD/JPY was above 140 in the late 1990s, the Japanese were intervening, economists at ING report.

Getting too weak for comfort?

“Investors have downscaled fears over possible Japanese FX intervention to sell USD/JPY. While we all acknowledge that Japanese authorities would be trying to turn back the tide here (USD/JPY is above 140 for good macro reasons) we should not discount intervention completely.”

“Any sharp near-term move to the 142/143 would probably spark a much sharper verbal protest from Japanese authorities and put intervention back on the agenda.”

• GBP/USD enters a bearish consolidation phase and oscillates in a narrow range on Friday.
• A combination of factors prompts some USD profit-taking and offers support to the pair.
• A bleak outlook for the UK economy continues to weigh on the GBP and caps the upside.
• Hawkish Fed expectations should limit any deeper USD pullback ahead of the NFP report.

The GBP/USD pair struggles to capitalize on the overnight late bounce from levels just below the 1.1500 psychological mark and oscillates in a narrow band on Friday. The pair is placed around mid-1.1500s and remains well within the striking distance of its lowest level since March 2020 touched on Thursday.

The US dollar eases a bit from a fresh two-decade peak set the previous day, which turns out to be a key factor offering some support to the GBP/USD pair. Signs of stability in the financial markets, along with a softer tone surrounding the US Treasury bond yields, undermine the safe-haven buck. That said, hawkish Fed expectations should help limit any deeper USD pullback.

In fact, the markets seem convinced that the US central bank will stick to its policy tightening path to tame inflation and have been pricing in a supersized 75 bps rate hike at the September FOMC meeting. The bets were reaffirmed by the recent hawkish remarks by several Fed officials. This, in turn, should act as a tailwind for the US bond yields and lend support to the greenback.

Apart from this, a bleak outlook for the UK economy might have dampened the prospects for further rate hikes by the Bank of England. This is reinforced by the fact that the British pound, so far, has struggled to attract any buyers despite rising bets for a 75 bps BoE rate hike in September. This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the downside.

Traders, however, seem reluctant and prefer to wait for the release of the closely-watched US monthly jobs data. The popularly known NFP report will provide a fresh insight into the economy's health in the face of rising rates and stubbornly high inflation. This, in turn, should influence the near-term USD price dynamics and determine the next leg of a directional move for the GBP/USD pair.

Technical levels to watch

The US Dollar Index (DXY) touched 110.00 on Thursday. In the view of economists at ING, a decent Nonfarm Payrolls report may be enough to keep supporting the dollar.

Dollar rally does not require exceptional jobs data

“The question now is whether jobs data will be enough to trigger another bullish dollar reaction. Our suspicion here is that the market may not really need a big surprise to fully price in a 75 bps hike in September, and a respectable jobs report may be enough to trigger another leg higher in the dollar today.”

“A break above 110.00 in DXY may unlock further upside for the dollar.”

See – NFP Preview: Forecasts from eight major banks, employment growth still strong

USD/JPY has surged above 140. The pair is expected to stay elevated before staging a major correction into the fourth quarter, economists at the Bank of America Global Research report.

USD/JPY to remain elevated until US inflation starts to decelerate

“We expect USD/JPY to remain elevated until US inflation starts to decelerate.”

“We expect USD/JPY to remain above 135 through the summer and corrected into 2023 from 4Q22. However, the structural JPY weakness should reemerge longer-term. We expect USD/JPY to end 2022 at 127.”

EUR/USD has recovered a bit of ground in overnight trading. But in the view of economists at ING, the pair is ready to retest 0.9900.

Eurozone PPI figures for July will likely have limited market implications

“The main data release to watch today in the eurozone is PPI figures for July, which should mark a clear acceleration although will likely have limited market implications.”

“We see the potential for another round of dollar appreciation today after the NFP, which may force a re-test of 0.9900 in EUR/USD before markets close for the weekend.”

See – NFP Preview: Forecasts from eight major banks, employment growth still strong

• Silver price snaps five-day downtrend, reverses from the lowest levels since July 2020.
• Sluggish markets ahead of US NFP, DXY retreat underpins XAG/USD corrective bounce.
• Bears stay hopeful amid fears of recession, hawkish Fed bets.

Silver price (XAG/USD) consolidate weekly loss at the lowest levels since July 2020, picking up bids to refresh intraday high around $17.95 during early Friday morning in Europe. In doing so, the bright metal snaps a five-day downtrend as the traders prepare for the monthly US employment data.

The short-covering moves could also be linked to the stimulus hopes from China, as well as a pullback of the US Dollar Index (DXY) from the highest levels in two decades.

Chinese authorities show readiness to adopt various monetary policy tools, other than the rate cuts, to renew market optimism amid the covid woes. The policymakers also appear okay with giving special attention to the aiming real-estate sector.

On the other hand, the DXY drops 0.20% intraday to 109.45 by the press time, reversing from the highest levels since 2002.

Even so, fears surrounding the global economic slowdown, led by China’s covid woes and geopolitical tussles surrounding Europe, seem to weigh on the XAG/USD price. Also exerting downside pressure are the hawkish Fedspeak and firmer US data that underpin the market’s hopes of the Fed’s aggression towards raising rates despite recession fears.

On Thursday, US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Following the data, Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Before that, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Amid these plays, the US 10-year Treasury yields seesaw around the highest levels since late June, near 3.26% by the press time, while the two-year US bond coupons follow the trend by teasing the 15-year high near 3.51%. With this, the yield curve inversion hints at the recession fears and the traders’ rush towards bonds. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

It should, however, be noted that the downbeat expectations from the US employment numbers seem to keep silver traders on the edge as any positive surprise could quickly renew the US dollar run-up and weigh on the XAG/USD. That said, the US Nonfarm Payrolls (NFP) bears the expectations of easing to 300K versus 528K prior while the Unemployment Rate is likely to remain unchanged at 3.5%.

Technical analysis

Silver’s recovery remains elusive until the quote stays below July’s low of $18.15. That said, June 2020 low near $16.95 appears to lure the XAG/USD bears.

EUR/USD is below parity and USD/JPY is above 140. Economists at ANZ Bank expect EUR/USD and USD/JPY to move towards 0.97 and 142, respectively.

DXY to reach 112 by early 2023

“Our new global forecasts have the euro slipping below parity to 0.97, the yen weakening to 142, and the sterling to 1.14. These downgrades (upgrades for the USD) recognise that the USD is likely to remain the currency of choice as Europe tackles rampant inflation amid slumping confidence and a war on its doorstep, Japan doubles down on its long-held strategy of ultra-easy monetary policy, and the UK struggles under the weight of surging energy prices and political uncertainty.”

“We forecast the USD DXY to reach 112 by early 2023.”

Further selling pressure could drag AUD/USD to 0.6750 region ahead of 0.6705 in the short-term horizon, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘downward momentum is building quickly’ and we held the view ‘the risk for AUD is on the downside towards 0.6785’. Our view turned out to be correct even though the weakness in AUD exceeded our expectations (AUD dropped to a low of 0.6771). The downside risk remains intact but in view of the oversold conditions, the major support at 0.6750 could be out of reach for now. Resistance is at 0.6825 followed by 0.6845.”

Next 1-3 weeks: “Yesterday (01 Sep, spot at 0.6835), we held the view that AUD is likely to weaken to 0.6785, as low as 0.6750. AUD subsequently dropped to 0.6771. We continue to expect AUD to weaken and a break of 0.6750 would shift the focus to 0.6705. The downside risk is intact as long as AUD does not move above 0.6870 (‘strong resistance’ level was at 0.6910 yesterday).”

Economists at ANZ Bank have downgraded their NZD forecasts. Still, they expect the kiwi to advance towards 0.62 by the end of the year.

It is difficult to expect anything other than ongoing USD domination

“We have downgraded our NZD forecasts, and now expect it to hold broadly steady over coming months.”

“While we do expect a mild appreciation to 0.62 by year-end, we regard this as a broadly neutral outlook, that sandwiches the NZD between the AUD (which we are more upbeat on) and other G10 currencies like EUR, GBP and JPY.”

“At present, the weakness in the NZD has more to do with strong demand for USD than anything specific to our currency. We expect the NZD to gradually appreciate, rising to USD 0.63 by March.”

CME Group’s flash data for crude oil futures markets noted investors trimmed their open interest positions for the third session in a row on Thursday, now by around 1.5K contracts. In the same line, volume shrank for the second straight session, this time by around 43.5K contracts.

WTI remains capped by the 200-day SMA

Prices of the WTI flirted with multi-month lows in the sub-$86.00 area amidst shrinking open interest and volume on Thursday. That said, a potential rebound emerges on the cards in the very near term, although the key 200-day SMA, today at $96.25, continues to limit the upside potential in the commodity for the time being.

FX option expiries for Sept 2 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9850 645m
• 0.9875 340m
• 0.9900 1.8b
• 0.9925 352m
• 0.9950 610m
• 0.9975-80 446m
• 1.0000-05 1.94b
• 1.0020-25 1.44b
• 1.0050 1.01b

- GBP/USD: GBP amounts        

• 1.1755 204m

- USD/JPY: USD amounts                     

• 138.00 1.34b
• 138.25-30 380m
• 138.65 323m
• 139.00 250m
• 139.25 200m
• 139.50 300m
• 140.00 560m
• 140.50 260m

- AUD/USD: AUD amounts  

• 0.6795-00 786m

- USD/CAD: USD amounts       

• 1.3150 310m
• 1.3200-10 341m

- EUR/GBP: EUR amounts

• 0.8550 250m

- EUR/JPY: EUR amounts

• 139.57 9533m

The Indian rupee fell by only 0.2% vs the US dollar in August as opposed to the average decline for Asian currencies of -1.2%. Although the USD/INR pair is still expected to rise, the strong economic performance is set to cushion INR's weakness.

Strong economic recovery is helping to stabilize INR

“Softer inflationary pressures will definitely be welcome news for RBI. The market is still pricing in another 25 bps hike before year-end. The strong economic recovery is helping to stabilize INR.”

“The bias is still tilted to the upside for USD/INR but the strong economic performance could help constrain INR weakness.”

The final round of the Conservative Party leadership election is coming up with foreign secretary Liz Truss and former chancellor Rishi Sunak being the two final candidates. Economists at Danske Bank look at how the election matters for fiscal policy, monetary policy and EU relations

EU-UK relations could reemerge as a theme for markets

“We expect substantial fiscal easing if Truss wins. This could add further upside pressure on inflation and yields.”

“We expect the GBP FX impact to be limited in our base case although the potential for higher rates could add slight support.”

“We do not expect that the EU will remain passive as the NIP Bill is passing through government. In the worst case, EU could terminate the free trade agreement (FTA), which would effectively reset the no-Brexit clock and the risk of a trade war. A renewed rise in tensions between the EU and the UK would most likely pose a significant headwind to UK assets and hence GBP.”

Inflation is an issue for the Swiss National Bank (SNB). As the European Central Bank (ECB) seems more hesitant, the EUR/CHF pair is set to extend its downfall, economists at Commerzbank report.

The SNB is seen to be fighting inflation

“The SNB is likely to hike its key rate again at its meeting this month. It is likely to be of secondary importance for the FX market how large the step will be on 22nd September, what is more important is the fact that the SNB is seen to be fighting inflation, which is likely to support the franc.”

“Even though the ECB too will hike its rates next week, which might support the euro short-term, the ECB still seems comparatively hesitant. Moreover, economic concerns and the risk of an energy crisis are likely to put pressure on EUR so that EUR/CHF is expected to trade at lower levels over the coming months.”

• AUD/USD fades bounce off six-week low, sidelined off late.
• Multiple horizontal supports to challenge bears as RSI drops towards oversold territory.
• 100-day EMA, three-month-old resistance line limit upside momentum.

AUD/USD remains on the back foot around 0.6790-85 as traders brace for the US jobs report during early Friday. In doing so, the Aussie pair retreats towards the lowest levels in more than 1.5 months, marked the previous day.

The pair’s weakness could be justified by the bearish MACD signals and downward sloping RSI, as well as sustained trading below the 100-day EMA and the lows marked during late August.

Even so, horizontal supports comprising multiple levels prints during late July, highlight the 0.6760 and the 0.6710 levels as the key supports ahead of directing AUD/USD bears towards the yearly low near 0.6680.

It’s worth noting that the RSI is approaching the oversold territory and hence further downside appears limited. However, a clear break of 0.6680 could roll the ball for the 61.8% Fibonacci Expansion (FE) of April-August moves, near 0.6530.

Alternatively, recovery moves could initially aim for the multiple lows marked in August around 0.6860 and 0.6870 ahead of challenging the 100-day EMA hurdle, close to 0.6970 by the press time.

Following that, the 0.7000 threshold and a downward sloping resistance line from June, surrounding 0.7100, will be in focus.

AUD/USD: Daily chart

Trend: Limited downside expected

NZD/USD fell below its July low. Economists at ANZ Bank highlight that the kiwi is at risk of plummeting to 0.5940.

Local factors are not a driver right now

“Chinese growth is slowing and the US dollar is benefitting as the Fed takes back the high ground of doing what needs to be done to tackle inflation. Readers may ask why we haven’t mentioned NZ; that’s because local factors aren’t a driver right now.” 

“Technically, below 0.6061 there’s clear air till 0.5940. Caution.”

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, further weakness is still favoured in GBP/USD in the next weeks.

Key Quotes

24-hour view: “While we highlighted yesterday that GBP ‘is still weak and is likely to drop below 1.1580’, we indicated, ‘oversold conditions suggest 1.1530 could be out of reach’. GBP subsequently dropped below 1.1580 but held above 1.1530 until NY session when it plunged sharply but briefly to 1.1499 before bouncing. Despite the bounce from the low, the risk for today is still on the downside. That said, any decline in GBP may not be able to maintain a foothold below 1.1500 (note that conditions are still deeply oversold). The next support is at 1.1460.On the upside, a break of 1.1605 (minor resistance is at 1.1570) would indicate that the weakness in GBP has stabilized.”

Next 1-3 weeks: “We turned negative GBP at the start of the week. As GBP plummeted, in our latest narrative from yesterday (01 Sep, spot at 1.1610), we indicated that the downside risk in GBP remains intact. We highlighted that a break of 1.1580 would shift the focus to 1.1530. While our view was correct, we did not expect the sharp but short-lived plunge to 1.1499 during NY session. Further weakness is likely and the level to focus on is at the Mar 2020 low near 1.1415. That said, shorter-term conditions are deeply oversold and it is left to be seen if this major support is within reach this time round. Overall, only a break of 1.1635 (‘strong resistance’ level was at 1.1700 yesterday) would indicate that GBP is not weakening further.”

Sterling not only lost ground against USD but also against EUR over the past few days. In the opinion of economists at Commerzbank, there are indeed some quite good reasons for GBP to ease.

Dark clouds on the horizon

“It is difficult to ignore the impression that if the economy were to weaken considerably it would take the economy into consideration with its monetary policy decisions if push came to shove and would not fight inflation in the determined way that might become necessary. This is likely to remain a negative factor for Sterling, in particular against USD, as the US central bank is acting more decisively against inflation.”

“On Monday we will find out who is going to be the leader of the Conservative Party and thus Prime Minister going forward. Liz Truss is leading the polls. She is not exactly the favourite candidate of the financial markets.”

“Should we see a surprise on Monday in the end, with Rishi Sunak being announced as the winner Sterling might benefit in an initial reaction. However, fundamentally the outlook for Sterling remains dampened.”

Open interest in gold futures markets extended the uptrend for yet another session on Thursday, this time by around 3.8K contracts according to preliminary readings from CME Group. Volume followed suit and went up by the second session in a row, now by around 25.3K contracts.

Gold now targets the YTD low at $1,680

Gold prices dropped for the fifth consecutive day on Thursday, breaking and closing below the key $1,700 support for the first time since July. The daily retracement was on the back of rising open interest and volume and suggest extra losses in the very near term, with the immediate target at the 2022 low at $1,680 (July 21).

Over the past few days, the euro was able to stand up well against a number of currencies. But in the view of economists at Commerzbank, the recent EUR move seems reasonably fragile.

ECB seems to be able to convince the market, for now

“The recently hawkish comments on the part of European Central Bank (ECB) members seem to have had an effect. However, that increases the risk of EUR correcting to the downside if the ECB were to disappoint at its meeting next week.”

“Since expectations regarding the scope of the rate step have gone a long way, I find it difficult to imagine that the ECB can fulfil or even exceed these expectations, thus providing further support to EUR.”

“At the end of next week, at the latest, there is the risk of downside corrections.”

Once again, all eyes are on the US labour market report. Even a low number of new positions is unlikely to weigh on the US dollar, economists at Commerzbank report.

The US labour market should continue to hum

“Several hundred thousand jobs are likely to have been created in the US again in August. So there is not likely to be any evidence on the labour market of the economy slowing. And even if the data should be disappointingly low, it is questionable whether that will cause the Fed to deviate from its current course.”

“We would have to see clearer signs of an economic downturn in the US with the addition of more cautious comments on the part of the Fed to end the USD rally. As this is unlikely to be the case for now, as the labour market report will probably confirm today in our view, USD is likely to remain in demand.”

See – NFP Preview: Forecasts from eight major banks, employment growth still strong

Gold price witnesses a brief pullback before resuming the next downtrend. As FXStreet’s Dhwani Mehta notes, XAU/USD downside risks are intact towards $1,677.

Technical outlook for gold remains bearish

“Should the downside accelerate, a test of the 2021 low of $1,677 will be inevitable. The 14-day Relative Strength Index (RSI) still holds just above the oversold region, indicating more pain ahead.”

“The 21-Daily Moving Average (DMA) is set to cut the 50 DMA from above, which if confirmed on a daily closing basis will represent a bear cross. The bearish crossover will add credence to the ongoing losing streak in the metal.”

“Bulls will meet initial resistance at the previous day’s high of $1,711, above which the $1,720 round number could come into play. The July 22 low of $1,728 could challenge bearish commitments on the road to recovery.”

• Copper price drops for the sixth consecutive day to revisit the late July levels on COMEX.
• China’s stimulus fails to renew optimism as covid woes, recession fears loom.
• Moody’s cites concerns over metal basket, cuts 12-month price outlook.

Copper price braces for a big weekly fall as the demand outlook worsens for the red metal, mainly due to concerns relating to China and global central banks. Also exerting downside pressure on the metal could be the market’s anxiety ahead of the key US jobs report for August.

That said, copper futures on COMEX print a six-day downtrend as bears poke the lowest levels since July 27, down 0.50% around 3.3930 heading into Friday’s European session. Also, the most-traded October tin contract on the Shanghai Futures Exchange (SFE) has plunged 13% so far this week to 172,510 yuan ($24,994.20) a tonne, hitting the lowest since June 23, 2021, on Friday, per Reuters. Furthermore, the LME copper dropped 0.4% to $7,563.50 a tonne by the press time.

Chinese authorities show readiness to adopt various monetary policy tools, other than the rate cuts, to renew market optimism amid the covid woes. The policymakers also appear okay with giving special attention to the aiming real-estate sector.

Even so, the fresh lockdown in the southwestern Chinese metropolis of Chengdu follows activity restrictions in parts of the southern city of Guangzhou and the tech hub of Shenzhen to challenge the metal’s outlook.

Further, the Sino-American tussles, recently over Taiwan, join downbeat China PMIs for August to weigh on the metal prices.

It should be noted that the recession fears signaled by the US Treasury yields and the hawkish Fed bets are extra burdens on copper prices.

That said, the US 10-year Treasury yields seesaw around the highest levels since late June, near 3.26% by the press time, while the two-year US bond coupons follow the trend by teasing the 15-year high near 3.51%. With this, the yield curve inversion hints at the recession fears and the traders’ rush towards bonds. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

Elsewhere, global rating giant Moody’s trimmed its annual price forecasts for the basket of the metal and mining commodities the previous day, which in turn dragged the copper prices.

Looking forward, the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, will be important for fresh directions amid recent counter-trend sentiment.

• USD/TRY has crossed the immediate hurdle of 18.20 as the focus shifts to US NFP.
• Fed’s Powell already warned of softening labor market ahead due to higher interest rates.
• Improved forecast for the Turkish current account deficit may bring short-term weakness for Turkish lira bulls.

The USD/TRY pair has given an upside break of the consolidation formed in a narrow range of 18.17-18.20 in the early European session. On a broader note, the asset has remained sideways after facing barricades above 18.22. For a decisive move, investors are awaiting the release of the US Nonfarm Payrolls (NFP) data.

According to the preliminary estimates, the US economy generated 300k jobs in August, lower than the prior release of 528k in July. As the US economy is operating at full-employment levels, room for more employment generation has squeezed significantly. The investing community is aware of the fact that Federal Reserve (Fed) chair Jerome Powell has already warned about softening of labor market while addressing the world economy at the Jackson Hole Economic Symposium.

In order to fix the inflation mess, the growth prospects in the US economy have to make some sacrifices. Bringing price stability to the economy is the foremost priority of the Fed, which could be achieved by squeezing cheap money from the market. Therefore, a decline in the job creation process cannot be ruled out. Apart from the US NFP, the Unemployment Rate is seen as stable at 3.5%.

On the Turkiye lira front, Goldman Sachs has raised its forecast for Turkey's 2022 GDP growth to 5.5% from 3.5% for CY2022. However, the research agency has increased its current deficit forecast to $45 billion from $36 billion. A higher forecast for the current account deficit may bring a short-term weakness for the Turkiye lira bulls.

.

A breach of 0.9900 could accelerate losses in EUR/USD in the near term, suggest FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “The sharp plunge in EUR to a low of 0.9909 came as a surprise (we were expecting EUR to range-trade). Despite the rapid bounce from the low, the risk for today is still on the downside. While a break of 0.9900 is not ruled out, it is left to be seen if EUR can maintain a foothold below this major support level. From here, the chance for EUR to drop to 0.9850 is not high. On the upside, a break of 1.0000 (minor resistance is at 0.9975) would indicate the downward pressure has eased.”

Next 1-3 weeks: “Yesterday (01 Sep, spot at 1.0040), we held the view that EUR is still consolidating albeit at a higher range of 0.9940/1.0125. We did not anticipate the sharp sell-off as EUR plunged to 0.9909 before closing lower by a whopping 1.12% (NY close of 0.9944), its largest 1-day drop in 1-1/2 months. The sharp drop has shifted the risk to the downside but EUR has to close below the major support at 0.9900 before further sustained decline is likely. The next support is at 0.9850. Overall, only a breach of 1.0035 (the current ‘strong resistance’ level) within these 1 to 2 days would indicate that the downside risk has dissipated.”

• USD/CHF retreats inside a three-week-old bullish channel as RSI, MACD favor pullback.
• Multiple hurdles to test bears before giving them control.
• USD/CHF bulls need to cross 0.9860 hurdle for unstoppable strength.

USD/CHF takes offers to refresh intraday low around 0.9800, snapping a five-day uptrend near the highest levels in 1.5 months heading into Friday’s European session.

In doing so, the Swiss currency (CHF) pair eases from a three-week-old bullish channel’s upper line. The pullback also justifies the RSI (14) retreat from the overbought territory. Furthermore, the impending bear cross of the MACD line over the signal line also keeps the USD/CHF sellers hopeful.

With this, the latest decline is likely to extend and can easily break the 0.9800 threshold. However, a convergence of the two-month-old horizontal support area and the lower line of the stated channel, around 0.9740-45, appears a tough nut to crack for the USD/CHF bears.

Following that, a south-run towards the 200-SMA level near 0.9595 could quickly appear on the chart.

Meanwhile, recovery moves are likely to remain dismal as a convergence of the channel’s resistance line and multiple tops marked since July 12, around 0.9860, could challenge the USD/CHF bulls.

In a case where USD/CHF rallies past 0.9860, the odds of witnessing the 0.9900 as a quote can’t be ruled out.

USD/CHF: Four-hour chart

Trend: Pullback expected

• Gold price is facing barricades around $1,700.00 as investors await US NFP.
• The DXY may face the wrath amid lower consensus for the US NFP.
• The odds of a consecutive 75 bps rate hike by the Fed will remain intact.

Gold price (XAU/USD) is advancing gradually higher as the US dollar index (DXY) is displaying a subdued performance ahead of the US Nonfarm Payroll (NFP) data. The precious metal is struggling to cross the psychological resistance of $1,700.00 as investors are awaiting the release of the US employment data for fresh impetus.

On Thursday, gold prices witnessed a steep fall after the release of the higher-than-expected US ISM Manufacturing PMI data. The economic data was released at 52.8, in line with the prior release but higher than the forecasts of 52.0. Investors were expecting a fall in the volume of manufacturing activities as the corporate sector has postponed expansion plans led by the unavailability of cheaper money for disposal. However, a surprise upside in the Manufacturing PMI drove the DXY close to the critical resistance of 110.00.

Ahead of the US NFP, the DXY could face selling pressure as a consensus for employment generation is lower than the prior release. The US NFP is expected to land at 300k, lower than the prior release of 528k. A downbeat release may halt the DXY’s dream rally and will strengthen the gold prices. However, the odds of a consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed) will remain stable.

Gold technical analysis

Gold prices are declining firmly towards the monthly lows placed at $1,680.91, recorded on July 21. The 20-period Exponential Moving Average (EMA) at $1,711.61 is declining, which adds to the downside filters.

Also, the Relative Strength Index (RSI) (14) is oscillating in the bearish range of 20.00-40.00, which indicates a continuation of downside momentum.

Gold four-hour chart

• USD/CAD remains sidelined around seven-week high, probes three-day uptrend.
• WTI crude oil bounces off fortnight low amid OPEC+, Iran concerns.
• DXY seesaws around 20-year high as downbeat consensus for NFP challenge Fed hawks.

USD/CAD struggles for clear directions around mid-1.3100s as traders await the key US employment report for August on Friday. The Loonie pair’s latest inaction fails to justify the firmer prices of Canada’s main export item, namely WTI crude oil, as well as ignores the pullback of the US Dollar Index (DXY).

WTI crude oil prices consolidate weekly losses around a fortnight low, picking up bids to $88.10 while snapping a three-day downtrend. Chatters that the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, due to meet on September 5, could announce production cuts seem to have favored the oil buyers of late. On the same line are the fears that the US-Iran Nuclear Deal, necessary to flow the Iranian oil back into the markets, seems murky at this stage.

Elsewhere, US Dollar Index (DXY) drops 0.13% intraday to 109.52 while easing from the highest levels since 2002, marked the previous day. The greenback’s gauge eased amid downbeat forecasts for the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors.

However, firmer US data and hawkish Fedspeak, coupled with the Treasury yield curve inversion, favor the DXY bulls. US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Following the data, Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Before that, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

That said, the US 10-year Treasury yields seesaw around the highest levels since late June, near 3.26% by the press time, while the two-year US bond coupons follow the trend by teasing the 15-year high near 3.51%. With this, the yield curve inversion hints at the recession fears and the traders’ rush towards bonds. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

Moving on, oil price moves and the US jobs report will be important for the USD/CAD traders to watch for fresh impulse. Also important will be Canada’s Labor Productivity data for the second quarter (Q2) ahead of the next weeks monthly employment data.

Technical analysis

A daily closing beyond an upward sloping resistance line from late December 2021, around 1.3165 by the press time, appears necessary for the Loonie buyers to prosper. Otherwise, a pullback towards the 1.3100 threshold and August 22-23 swings, near 1.3060, can’t be ruled out.

• EUR/JPY is scaling firmly towards 140.00 as a bumper rate hike by the ECB looks imminent.
• Nord Stream 1 pipeline’s unscheduled maintenance may conclude on September 2.
• Next week, Japan’s GDP data will be of utmost importance.

The EUR/JPY pair is marching sharply higher towards the psychological resistance of 140.00. The asset extended its gains in the Asian session after overstepping the hurdle of 139.50. The cross is advancing with a firmer momentum and is expected to remain in the grip of bulls ahead. The shared currency bulls have been underpinned by the market participants amid soaring odds of a ‘hawkish’ stance by the European Central Bank (ECB) next week.

As eurozone has joined the elite club of a 9% inflation rate after the UK and the US, bets for a jumbo rate hike by the ECB have soared vigorously. ECB’s interest rate decision is scheduled for next week and ECB President Christine Lagarde is expected to step up its interest rates to tame the price pressures.

ECB’s Governing Council member and German central bank head Joachim Nagel on Wednesday cited that the ECB “urgently needs to act decisively next week,” He further added that “We need a strong rate hike in September,”

Meanwhile, soaring energy prices are continuously haunting the shared currency bulls. The current halt in energy supplies to Germany through Nord Stream 1 pipeline due to unscheduled maintenance has escalated fears of an energy crisis.

On the Tokyo front, Japanese Finance Minister Shunichi Suzuki has suggested not to focus on regular forex moves. The administration will intervene if it finds a high sense of urgency. Going forward, Japan’s Gross Domestic Product (GDP) data will be keenly watched by the market participants, which will release on Wednesday. In the first quarter of CY22, the GDP data landed at 0.5%.

• Asia-Pacific equities track Wall Street’s performance to trade mixed.
• Markets in Australia, New Zealand print mild gains amid hopes of stimulus from China, receding hawkish central bank bias.
• Covid woes, Sino-American tussles join pre-NFP anxiety, hawkish Fed bets to weigh on sentiment elsewhere.

Asian equities trade mixed on Friday as market players await the US employment data for August. Also adding filters to the trading are the complex concerns surrounding China and a light calendar.

While portraying the mood, the MSCI’s Index of Asia-Pacific shares outside Japan remains pressured at a five-month low, down 0.35% intraday at the latest. However, Japan’s Nikkei 225 remains directionless at 27,680 heading into the European session.

That said, downbeat trade numbers from New Zealand and softer activity data from Australia, as well as China, weigh on the previously hawkish hopes from the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA). As result, stocks in Auckland and Canberra print mild gains at the latest. On the same line could be the hopes of more stimulus from China as the dragon nation shows readiness to streamline the struggling real estate sector.

However, covid woes, China’s tussles with the US and the market’s lack of conviction in accepting the calls that the dragon nation will be able to avoid recession seem to weigh on the equities in Beijing, as well as connected economies in the Asia-Pacific zone.

Furthermore, upbeat US data and hawkish Fedspeak also challenge the region’s share traders as the yield curve inversion hint at the economic slowdown.

US 10-year Treasury yields print a one-pip fall from the highest levels since late June, to 3.25%, while the two-year US bond coupons follow the trend while retreating from the 15-year high. Further, the CME’s FedWatch Tool signals a 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

It’s worth noting that the S&P 500 Futures struggle for clear directions near 3,670 after bouncing off the six-week low the previous day.

While the pre-data anxiety restricts share market moves, downbeat hopes from the US Nonfarm Payrolls (NFP) keep traders on the edge. Forecasts suggest the US NFP and Unemployment Rate for August to print 300K and 3.5% figures respectively versus 528K and 3.5% in that order.

Also read: S&P 500 Futures retreat, yields dribble at multi-year top as markets await NFP

Ruan Jianhong, head of the People’s Bank of China’s (PBOC) Statistics and Analysis Department, said on Friday, “we will strengthen the flexibility of the yuan exchange rate.”

Additional quotes

Market reaction

USD/CNY was last seen trading at 6.9009, down 0.07% on a daily basis.

• EUR/USD pares the biggest daily fall in seven weeks amid pre-NFP consolidation.
• Yields keep DXY on bull’s radar despite latest pullback from two-decade high.
• Hawkish money market bets on ECB rate hike, hopes of overcoming the bloc’s energy crisis to limit downside.
• US NFP signals softer readings for August, suggesting USD run-up on positive surprise.

EUR/USD licks its wounds around 0.9960-65, after posting the biggest daily fall in nearly two months, as traders await the all-important US Nonfarm Payrolls (NFP) during early Friday morning in Europe. In addition to the market’s preparations for the US jobs report for August, recently hawkish concerns over the European Central Bank (ECB) also underpins the corrective pullback.

“The European Central Bank remains behind the curve on tackling record euro-zone inflation and will have to act more forcefully than previously envisaged to wrest control of prices,” according to a survey of economists conducted by Bloomberg. On Thursday, Reuters mentioned that Eurozone money markets now price in a roughly 80% chance of a 75 basis-point ECB rate hike next week, versus just over 50% on Wednesday.

Even so, the final readings of the Eurozone PMI and comments from the ECB policymaker Mario Centeno appeared to have probed the EUR/USD buyers. The final August manufacturing PMI edged 0.1 lower to 49.6 vs 49.7. This is the second month below 50, highlighting the recession risks facing the sector. Further, European Central Bank (ECB) Governing Council member Mario Centeno said on Thursday, per Reuters, “Decision-makers should not rush to take pro-cyclical measures as inflation is expected to slowly diminish in the longer run.”

It should be noted that the recent efforts by the old continent to overcome the energy crisis seemed to have gained acceptance from the Middle East and hence the bloc leaders sound optimistic to win over Russia-linked gas and oil shortages, with the help of Iran, Iraq and Saudi Arabia.

On the other hand, US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Following the data, Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Before that, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

It should be noted that the pessimism surrounding China and increasingly hawkish Fed bets join the aforementioned US data and Fedspeak to underpin the US Dollar Index (DXY) strength as it seesaws near a 20-year high, marked the previous day. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

Looking forward, the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, will be important for fresh directions amid recent counter-trend sentiment. Ahead of the data, the Financial Times (FT) said, “The pace of US jobs growth is poised to have slowed in August after an unexpected acceleration the previous month, though it is likely to remain high enough to compel the Federal Reserve to plow ahead with its aggressive tightening of monetary policy.”

Technical analysis

EUR/USD remains on the bear’s radar unless crossing 1.0180 hurdle comprising the 50-DMA and upper line of a four-month-old bearish channel.

• An upside break of the Rising Channel has strengthened the greenback bulls.
• The asset is expected to refresh its 24-year high ahead.
• Oscillation in a bullish range by the RSI (14) adds to the upside filters.

The USD/JPY pair has recovered its morning losses after slipping to near 139.88. The asset has managed to recapture the psychological resistance of 140.00 and is hovering above the same. On a broader note, the asset has displayed a juggernaut rally and refreshed its 24-year high at 140.27.

An ongoing break and test phase of the Rising Channel chart pattern on a four-hour scale is indicating that the market participants are gearing up for a vertical upside move ahead. The upper portion of the above-mentioned chart pattern is placed from August 5 high at 135.59 while the lower portion is plotted from August 11 low at 131.73.

The 20-and 50-period Exponential Moving Averages (EMAs) at 139.26 and 138.23 respectively are scaling towards the north, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a bullish range of 20.00-40.00, which signals a continuation of upside momentum.

Should the asset break above Monday’s high at 140.27, the greenback bulls will send the major towards the 27 July 1998 low at 140.81. A breach of the latter will send the asset towards August 1998 high at 142.46.

Alternatively, a slippage below the round-level support of 139.00 will drag the asset towards Tuesday’s low at 138.05, followed by an August 27 high at 137.21.

USD/JPY four-hour chart

• Steel price holds lower ground at the lowest levels late July, sluggish of late.
• China’s covid woes, Sino-American tussles supersede stimulus hopes.
• Market sentiment remains downbeat amid hawkish Fed bets, recession woes.
• US NFP will be crucial for fresh impulse amid mixed mood.

Steel price stays pressured around the lowest levels in six weeks as fears of central bank aggression join China-linked pessimism. That said, pre-NFP trading lull restricts the metal’s immediate moves.

While portraying the mood of steel traders, Rebar prices on the Shanghai Futures Exchange (SFE) fell 1%, while hot-rolled coil shed 0.6%. Stainless steel slipped 0.4%.

A covid-led lockdown in China’s Chengdu city joins downbeat Caixin Manufacturing PMI to portray grim conditions for the world’s second-largest economy and weigh on the sentiment. On the same line could be the escalating geopolitical tension between Beijing and Washington, via Taiwan. Furthermore, Reuters unveiled news suggesting that US President Joe Biden's curbs on chips to China are part of a broader effort.

On the same line could be the news from Reuters stating, “Nearly 70 Chinese cities, meanwhile, reported declines in new home prices last month, the most since the start of the pandemic, putting more pressure on local governments to quickly roll out additional support measures for homebuyers and developers.”

Elsewhere, firmer US data and hawkish Fedspeak joined pessimism surrounding China to underpin the US Treasury yields’ run-up, which in turn favored the US Dollar Index (DXY) to rise to the highest levels since 2002 and exert downside pressure on steel price.

Looking forward, market players will keep their eyes on the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, for fresh impulse amid mounting calls of recession and central bank aggression. “Though steel prices could see some support during what is traditionally a peak demand season between September and October, when construction activity picks up in China ahead of winter, analysts said there is limited room for any upside,” per Reuters.

• USD/INR fades bounce off two-week low amid pre-NFP anxiety.
• Moody’s cut India’s growth forecast for 2022, yields favor DXY strength.
• Rebound in oil prices jostle with RBI’s defensive play to add to the trading filters.
• US jobs report bears downbeat forecasts for August, tests pair buyers.

USD/INR retreats towards 79.50 during Friday’s Asian session, fading the bounce off a fortnight low, as traders await the US Nonfarm Payrolls (NFP) amid a light calendar and mixed clues. That said, the market’s consolidation also underpinned the quote’s latest pullback.

It’s worth noting, however, that the global rating giant Moody’s raised concerns over India’s growth and challenge the USD/INR bears. “Moody's on Thursday sharply lowered India's economic growth forecast for 2022 to 7.7% from 8.8% estimated earlier, citing monetary policy tightening, uneven distribution of monsoon rains and slowing global growth,” stated Reuters while quoting Mint.

Also likely to challenge the USD/INR sellers is the recent rebound in the WTI crude oil prices, up 2.15% to $88.00 by the press time. The black gold dropped during the last three days but the latest chatters surrounding Iran and output cut seemed to have triggered the commodity’s rebound.

Also read: WTI rebounds from fortnight low towards $87.50 on Iran, OPEC+ chatters

Additionally, firmer US data and hawkish Fedspeak joined pessimism surrounding China to underpin the bullish bias for the USD/INR pair. US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Also, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

A covid-led lockdown in China’s Chengdu city joins downbeat Caixin Manufacturing PMI to portray grim conditions for the world’s second-largest economy and weigh on the sentiment. On the same line could be the escalating geopolitical tension between Beijing and Washington, via Taiwan. Furthermore, Reuters unveiled news suggesting that US President Joe Biden's curbs on chips to China are part of a broader effort.

Meanwhile, the Reserve Bank of India’s (RBI) defense of the domestic currency every time it hits the 80.00 threshold seemed to have joined the recently sluggish commodities to favor the USD/INR bears.

Looking forward, USD/INR traders should keep their eyes on the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, for fresh impulse amid mounting calls of recession and central bank aggression.

Technical analysis

Although 50-day EMA restricts short-term USD/INR downside to around 79.40, the pair’s further advances need to be sustained daily closing beyond the 80.00 threshold to convince the bulls.

• AUD/USD is expected to display more weakness despite soaring odds for hawkish RBA.
• The DXY is displaying a lackluster performance ahead of the US NFP.
• As per consensus, the US NFP will decline to 300k vs. 528k reported earlier.

The AUD/USD pair has sensed barricades around the immediate hurdle of 0.6800 in the Asian session. Earlier, the asset displayed a feeble pullback after printing a fresh six-week low at 0.6771 on Thursday. The less-confident pullback is expected to turn into fresh mayhem after a hiatus as the US dollar index (DXY) is broadly strong.

The aussie bulls have failed to find traction despite the soaring bets over the ‘hawkish’ stance by the Reserve Bank of Australia (RBA). Next week, the RBA will announce the monetary policy, and a restrictive measure is highly expected. As price pressures in the Australian economy have not displayed any sign of exhaustion yet, RBA Governor Philip Lowe will keep up the pace of hiking interest rates.

Currently, the RBA’s Official Cash Rate (OCR) stands at 1.85% after three consecutive 50 basis points (bps) interest rate hikes. RBA policymakers are expected to advocate one more 50 bps rate hike. An occurrence of the same will elevate the OCR to 2.35%.

Meanwhile, the DXY has turned sideways after a minor correction from a fresh two-decade high at 109.98. The DXY slipped after remaining a little short of the psychological resistance of 110.00. Investors have shifted to the sidelines ahead of the US Nonfarm Payrolls (NFP) data. The economic data is expected to land at 300k, lower than the prior release of 528k. As US corporate preferred to slow down the recruitments due to lower demand forecasts after the second quarter earnings season, a dismal employment generation is highly expected.

• Gold price re-attempts $1,700 amid a dead cat bounce, pre-NFP caution.
• Aggressive global tightening bets, China covid lockdowns keep investors on the edge.
• XAU/USD closed Thursday below $1,700, bears target $1,681 and $1,677.    

Gold price is attempting a dead cat bounce from six-week lows of $1,689, as investors reposition in the run-up to the critical US Nonfarm Payrolls release. Gold traders refrain from placing any directional bets, as the US payrolls data will likely have a significant impact on the Fed’s rate hike pricing for this month. Heading into the US jobs report, markets are wagering a 74% probability of a 75 bps September rate hike. With the US economy expected to have added 300K jobs in August, the dollar remains in a win-win position, as hawkish Fed rate hike expectations and China’s fresh covid lockdown in Chengdu-led risk-aversion will continue favoring the dollar bulls. The bright metal, therefore, remains at risk of further decline should the recovery attempt fade. The US Treasury yields hovering near multi-year highs will also keep any rebound in the bullion checked.

Also read: US August Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price needs to find acceptance above the Fibonacci 61.8% one-day at $1,703 to extend the recovery towards the pivot point one-week S2 at $1,707.

The next powerful resistance for bulls is seen around $1,710, where the pivot point one-day R1 and the previous month’s low coincide.

If the downside resumes momentum, then bears will aim for the immediate cap at $1,694, the Fibonacci 23.6% one-day.

Further south, the confluence of the previous day’s low and the pivot point one-day S1 around $1,688 will be challenged.

The 2022 lows of $1,681 will be next on sellers’ radars, below which a test of the 2021 low of $1,677 will be on the table.

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.

• The falling channel formation has already underpinned the greenback bulls.
• Huge deviation in declining 20-and 50-EMAs indicates the strength of the downside momentum.
• A downside move below 1.1500 may drag the cable towards 1.1400.

The GBP/USD pair is displaying a lackluster performance in the Asian session as investors are preparing for the US Nonfarm Payrolls (NFP) event. The cable is oscillating in a narrow range of 1.1540-1.1560, however, the downside remains favored amid an overall bearish context. Earlier, the asset refreshed its 29-months low after declining to near the psychological support of 1.1500.

On a four-hour scale, the asset is auctioning a Falling Channel chart pattern that advocates a downside bias. The upper portion of the above-mentioned chart pattern is placed from August 10 high at 1.2277 while the lower portion is plotted from August 5 low at 1.2003. The cable has displayed a less-confident pullback after sensing a cushion around the lower portion of the chart pattern.

The 20-and 50-period Exponential Moving Averages (EMAs) at 1.1616 and 1.1709 respectively are scaling towards the south, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a bearish range of 20.00-40.00, which has already triggered a fresh downside impulsive wave.

A less-confident pullback move to near 10-EMA at 1.1575 will activate a bargain sell. An occurrence of the same will drag the asset towards psychological support at 1.1500. A breach of the latter will drag the cable towards the round-level support at 1.1400.

On the flip side, a break above Wednesday’s average price at 1.1650 will send the asset towards the round-level resistance at 1.1700, followed by Tuesday’s high near 1.1760.

GBP/USD four-hour chart

An official at China’s State Administration of Foreign Exchange (SAFE) is making some comments on the monetary policy and liquidity provision.

Key quotes

Related reads

• USD/CNH Price Analysis: Retreats inside bull flag, 6.9150 is the trigger
• S&P 500 Futures retreat, yields dribble at multi-year top as markets await NFP

• Market sentiment portrays the typical pre-NFP inaction, light calendar adds strength to trading lull.
• S&P 500 Futures fade bounce off six-week low, two-year Treasury yields seesaw at the highest levels since 2007.
• US President Biden’s curbs to chip exports to China, covid woes in Beijing weigh on sentiment.
• Hawkish Fedbets test risk profile but downbeat hopes from NFP tease optimists.

Global markets remain dicey as traders wait for the US Nonfarm Payrolls (NFP) during early Friday. Even so, fears of recession and hawkish Fed bets keep the bears hopeful amid a sluggish Asian session.

While portraying the mood, the S&P 500 Futures drop 0.10% intraday while retreating to 3,966, after bouncing off the six-week low the previous day. Also, the US 10-year Treasury yields seesaw around the highest levels since late June, near 3.26% by the press time, while the two-year US bond coupons follow the trend by teasing the 15-year high near 3.51%. With this, the yield curve inversion hints at the recession fears and the traders’ rush towards bonds. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

A covid-led lockdown in China’s Chengdu city joins downbeat Caixin Manufacturing PMI to portray grim conditions for the world’s second-largest economy and weigh on the sentiment. On the same line could be the escalating geopolitical tension between Beijing and Washington, via Taiwan. Furthermore, Reuters unveiled news suggesting that US President Joe Biden's curbs on chips to China are part of a broader effort.

On the other hand, firmer US data and hawkish Fedspeak joined pessimism surrounding China to underpin the US Treasury yields’ run-up, which in turn favored the US Dollar Index (DXY) to rise to the highest levels since 2002, mildly offered near 109.60 at the latest.

US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Also, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Moving on, market players will keep their eyes on the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, for fresh impulse amid mounting calls of recession and central bank aggression.

Also read: Nonfarm Payrolls Preview: Five reasons to expect a win-win release for the dollar

Japanese Finance Minister Shunichi Suzuki said on Friday that they will take action on FX if necessary.

Additional quotes

Market reaction

USD/JPY was last seen trading at 140.11, down 0.06% on the day, having reversed a brief dip below the latter.

• USD/CNH fades the previous day’s corrective bounce from the weekly bottom but stay inside a bullish chart pattern.
• Steady RSI, sustained trading beyond fortnight-old support line, 50-SMA also favor buyers.
• Sellers need validation from 6.8820, May’s high to retake control.

USD/CNH portrays a bullish chart pattern around the two-year high as it drops back to 6.9100 during Friday’s Asian session. In doing so, the offshore Chinese yuan (CNH) pair reverses the previous day’s rebound from the weekly low.

However, steady RSI and the quote’s ability to stay firmer past a two-week-old support line and the 50-SMA keep the USD/CNH buyers hopeful.

In addition to the aforementioned support line and the 50-SMA, close to 6.9050 and 6.8910 in that order, the lower line of the stated channel could also test the bearish bias around 6.8820.

Even if the USD/CNH bears conquer the 6.8820 support, the May 2022 peak surrounding 6.8385 could challenge the pair’s further downside.

Meanwhile, the pair’s upside moves need a sustained break of the 6.9150 hurdle to justify the bullish flag.

Following that, the recent multi-month high near 6.9325-30 could entertain the USD/CNH bulls before the theoretical target surrounding 7.0550. During the run-up, the 7.000 psychological magnet will be crucial to watch.

USD/CNH: Four-hour chart

Trend: Further upside expected

• EUR/USD bulls step in ahead of the all-important NFP.
• The markets are looking for confirmation that the Fed will hike by 75bp in Sep.

In increasing forex volatility, EUR/USD is rising in Tokyo as the bulls move in ahead of Nonfarm Payrolls in the US session. The single currency has been on the move in the final sessions of the end of the week, dropping against a strong US dollar that vaulted to a 20-year high on Thursday after US data showed a firming economy, giving the Federal Reserve more room to aggressively hike interest rates to quell inflation.

EUR/USD fell from a high of 1.0050 to a low of 0.9910 and is back trading in the middle of the 0.99s as markets prepare for what could be another hectic day of volatility on Wall Street. On Thursday, a surprising late-day reversal lifted US equities, supporting the euro which is tied to risk appetite. 

However, the US currency has kept the upper hand in the remaining hours of this week. The DXY, which measures the greenback vs. a basket of currencies, firmed after a government report showed that the number of Americans filing new claims for unemployment benefits declined further last week. This was consistent with strong demand for workers and tight labour market conditions.

The DXY firmed to 109.99, its highest since June 2002. Additionally, data from the Institute for Supply Management (ISM) showed US Manufacturing grew steadily in August as employment and new orders rebounded. This helped push the yield on the benchmark 10-year US Treasuries to a more than two-month high of 3.297.

All in all, there are expectations for a third straight 75-basis-point US rate hike at the Sept. 20-21 Fed meeting. Fed funds futures last pointed to around a 77.1% chance of such an increase on the back of this series of solid economic data. If Nonfarm Payrolls come in hot, this could help the safe-haven dollar attract more demand as it will cement a 75bps hike from the Fed should the number of new jobs beat the 300k consensus estimate.

The jobless rate is projected to remain unchanged at 3.5% while the labour participation rate is seen ticking up to 62.2% from 62.1% the month prior. Average hourly earnings are expected to increase by 0.4% in August after a 0.5% gain in July, but the year-over-year rate would rise to 5.3% from 5.2% in the previous month due to base effects. The average workweek is expected to remain at 34.6 hours.

• US NFP: Exepct a 300K increase for August – Goldman Sachs

Analysts at Societe Generale offer a sneak peek at what they expect from the all-important US Nonfarm Payrolls release due later this Friday at 1230 GMT.

Key quotes

“We project a 300K increase for August non-farm jobs.”

“A gain near our forecast of 300K implies either a return of workers back into the workforce or further declines in the unemployment rate.”

“We look for the unemployment rate to hold steady at 3.5%.”

“The return of workers should lift the labor force participation rate from the 62.1 level posted for July.”

• WTI crude oil prices snap three-day downtrend at the lowest levels in 12 days.
• Hopes of OPEC+ output cut contrast with the US-Iran oil deal but softer USD, yields favor buyers of late.
• China’s covid conditions, US NFP also become important for fresh impulse.

WTI crude oil prices consolidate weekly losses around a fortnight low, picking up bids to $87.35 during Friday’s Asian session. In doing so, the energy benchmark cheers the expectations of output cut from the major producers while also trying to ignore the talks surrounding the US-Iran oil deal. Above all, the market’s consolidation ahead of the US employment report appears to favor the latest corrective bounce of the commodity.

“The Organization of the Petroleum Exporting Countries and allies, together called OPEC+, are due to meet on September 5 against a backdrop of sliding prices and falling demand, even as top producer Saudi Arabia says supply remains tight,” per Reuters. The news also mentioned that OPEC+ this week slashed its demand outlook, now forecasting demand to lag supply by 400,000 barrels per day (bpd) in 2022, but it expects a market deficit of 300,000 bpd in its base case for 2023.

On a different page, Reuters quotes Iranian state news while saying that Iran has sent ‘constructive’ response to US proposals aimed at reviving 2015 nuclear deal, adding that response ‘aimed at finalizing negotiations’.

It should be noted that a covid-led lockdown in China’s Chengdu city joins downbeat Manufacturing PMIs and hawkish Fedbets to exert downside pressure on the WTI crude oil prices of late.

That said, the US 10-year Treasury yields print a one-pip fall from the highest levels since late June, to 3.25%, while the two-year US bond coupons follow the trend while retreating from the 15-year high. That said, the CME’s FedWatch Tool signals a 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

Looking forward, oil traders will pay close attention to the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, for fresh impulse.

Technical analysis

Although the $85.30-50 horizontal support restricts the immediate downside of the black gold, recovery remains elusive until crossing the convergence of the 50-DMA and the 200-DMA, around $95.15-30.

• NZD/USD drops towards the seven-week low marked the previous day.
• Three-day-old bearish channel, descending RSI line keep sellers hopeful.
• Sellers have a limited downside room, bulls need validation from 200-HMA.

NZD/USD fades the early Asian session rebound as it retreats to 0.6070 on Friday. In doing so, the Kiwi pair portrays a pullback from the 20-HMA while staying inside a short-term bearish trend channel.

Given the receding bullish bias of the MACD and the RSI retreat supporting the quote’s latest weakness, the NZD/USD prices are likely to remain weak.

However, the stated channel’s support line, around 0.6045, could test the bears before directing them to the yearly low marked in July, around 0.6025.

It should be noted that the 0.6000 psychological magnet could act as a tough nut to crack for the NZD/USD bears.

Alternatively, the 20-HMA and the stated channel’s upper line, respectively near 0.6085 and 0.6095, quickly followed by the 0.6100 round figure comprising multiple lows marked during late August, could restrict short-term NZD/USD recovery.

Even if the pair rises past 0.6100, it can aim for the 200-HMA hurdle, around 0.6160 by the press time.

Overall, NZD/USD remains on the bear’s radar while staying on its way to 0.6000.

NZD/USD: Hourly chart

Trend: Limited downside expected

• USD/CAD is displaying a healthy correction after remaining in the grip of bulls for around a month.
• The corrective move is expected to drag further to 2.6% Fibo retracement at 1.3100.
• Advancing 20 and 50-EMAs indicate more upside ahead.

The USD/CAD pair has witnessed a time-based correction after failing to sustain above the crucial resistance of 1.3200 on Thursday. The asset is declining modestly and may find a cushion sooner as the broader context is extremely bullish. At the press time, the major surrendered the cushion of 1.3150.

After remaining a little short of recapturing the six-week high at 1.3224, the asset is displaying signs of momentum loss but that doesn’t warrant a bearish reversal. As the major has displayed a juggernaut rally, the correction could extend further to near 23.6% Fibonacci retracement (placed from August 11 low at 1.2728 to Thursday’s high at 1.3208) near 1.3100.

Advancing 20-and and 50-period Exponential Moving Averages (EMAs) at 1.3110 and 1.3050 respectively indicates more upside ahead.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which adds to the upside momentum filters.

A corrective move to near 1.3100 will be a bargain buy for the market participants, which will drive the asset towards a six-week high at 1.3224, followed by the round-level resistance at 1.3300.

Alternatively, a break below the August 23 low at 1.3012 will drag the asset towards 50% FIbo retracement at 1.2972. A breach of the latter will unleash the loonie bulls for more downside towards the August 25 low at 1.2895.

USD/CAD four-hour chart

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.8917 vs. the previous fix of 6.8821 and the prior close of 6.9066.

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.

Japan's chief cabinet secretary Matsuno said that it is important for currencies to move stably reflecting economic fundamentals.

Key quotes

• Sharp fx fluctuations not desirable.
• Watching fx moves with high sense of urgency.
• Volatility is rising in recent forex market.

This follows a move in USD/JPY since 1998. The pair reached 140.27 on Friday with the US dollar on the march following data that showed a resilient economy, giving the Federal Reserve more room to aggressively hike interest rates to quell inflation.

• USD/JPY pares recent gains at the highest levels since 1998 as traders await US jobs report for August.
• Monetary policy divergence between Fed and BOJ underpins the bullish bias.
• Yields seesaw around multi-year high amid hawkish Fed bets.
• Japan policymakers have signaled market intervention of late but couldn’t lure yen buyers.

USD/JPY renews intraday low around 140.00 as it retreats from the 24-year high, marked the previous day, amid anxiety over the upcoming US employment data. That said, the quote drops to 139.87 as Tokyo opens for Friday’s trading.

The yen pair’s latest pullback could be linked to the sluggish US Treasury yields around the multi-month high. However, hawkish Fed bets keep the bulls hopeful ahead of the key US Nonfarm Payrolls (NFP).

That said, the US 10-year Treasury yields print a one-pip fall from the highest levels since late June, to 3.25%, while the two-year US bond coupons follow the trend while retreating from the 15-year high. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

On Thursday, firmer US data and hawkish Fedspeak joined pessimism surrounding China to underpin the US Treasury yields’ run-up, which in turn favored the US Dollar Index (DXY) to rise to the highest levels since 2002.

US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Also, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Elsewhere, a covid-led lockdown in China’s Chengdu city joins downbeat Caixin Manufacturing PMI to portray grim conditions for the world’s second-largest economy. On the same line could be the escalating geopolitical tension between Beijing and Washington, via Taiwan.

It should be noted that statements from Japanese Chief Cabinet Secretary Hirokazu Matsuno, as well as Finance Ministry, signaled that the authorities are bracing for market intervention.

Amid these plays, S&P 500 Futures remain inactive at 3,965 after a mixed closing of the Wall Street benchmarks.

Moving on, USD/JPY traders will pay close attention to the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, for fresh impulse. It’s worth mentioning, though, that the divergence between the US Federal Reserve (Fed) and the Bank of Japan (BOJ) could keep the pair buyers hopeful.

Also read: Nonfarm Payrolls Preview: Five reasons to expect a win-win release for the dollar

Technical analysis

Only if the USD/JPY prices decline below July’s peak near 139.40, the intraday sellers could take the risk of entry. Otherwise, a run-up towards the 61.8% Fibonacci Extension (FE) of the pair’s late March to early August moves, near 141.60, can’t be ruled out.

• The DXY is expected to display more losses if it declines firmly below 109.50.
• The risk-off tone has faded for a while ahead of US NFP.
• Cues from US ADP employment data indicate a plunge in US NFP data.

The US dollar index (DXY) is looking to extend its losses as a slippage below the immediate support of 109.53, which will drag the asset towards the critical cushion of 109.20. An inventory distribution phase is likely to turn into a breakdown as the risk sentiment rebounded in the late New York session after remaining negative.

Earlier, the asset printed a fresh 19-year high at 109.98 after the release of higher-than-expected US ISM Manufacturing PMI data. The index remained short of hitting the psychological resistance of 110.00 and displayed a loss in upside momentum.

US ISM Manufacturing PMI advanced surprisingly

As interest rates are hiking with immense pace by the Federal Reserve (Fed) and plenty of funds have been squeezed from the market. The corporate sector has inculcated additional filters on investment proposals and has postponed its expansion plans. Therefore, the US ISM Manufacturing PMI was expected to remain vulnerable. However, a surprisingly higher PMI strengthened the DXY. The economic data landed at 52.8, higher than the estimates of 52 and similar to the prior release.

US NFP to remain peculiar

Week’s show stopper event of US Nonfarm Payrolls (NFP) is expected to surprise the market significantly but will also provide a clear picture of the journey ahead. As per the expectations, the US economy has added 300k jobs in August vs. 528k, recorded in July.

Earlier, the US Automatic Data Processing (ADP) reported 132k job additions with the deployment of unconventional methodology for employment scrutiny. Considering the cues from US ADP, a vulnerable performance is expected from the US NFP data ahead.

Key data next week: S&P Global PMI, ISM Services PMI, Goods and Services Trade Balance, and Initial Jobless Claims.

Major events next week: US holiday on September 5, RBA interest rate decision, BOC monetary policy, and ECB interest rate policy.

• AUD/USD bulls step in below weekly lows ahead of NFP.
• The bears need to take back control from a 50% mean reversion area or face a bullish surge into the close of the week.

As per the prior analysis, AUD/USD Price Analysis: Bulls could be encouraged at this juncture above 0.6790, the downside case was a risk and that scenario played out. The following illustrates the market structure that has been carved out ahead of Friday's showdown event in the US Nonfarm Payrolls.

It was stated that a break of 0.6790 as per the weekly chart could see a significant downside breakout:

AUD/USD live update

The price moved in on the prior support and has stalled awaiting the outcome of the US data later tonight from the US session. However, the head and shoulders offer a bearish outlook for the end of the week as bears push bulls to the edge of the abyss. A continuation to the next round number, 0.6700, could be just days away.  

AUD/USD H4 chart

From a shorter-term perspective, the price actually pierced the prior weekly lows which is a bearish feature on the chart. The accumulation has started to take place with the bulls probing the 0.68 round number. A correction to the prior lows around a 50% mean reversion could be on the cards for the day ahead. If the bears commit there, then this could be the last show of the bulls for the foreseeable sessions ahead. 

On the other hand, the week could end on a bullish note with the price targeting above 0.6850 to close the week down at an equilibrium:

• Gold price consolidate recent losses at six-week low.
• Hawkish Fed bets, firmer yields keep XAU/USD bears hopeful.
• Downbeat consensus for US NFP teases corrective bounce as DXY hovers around 20-year high.

Gold price (XAU/USD) picks up bids to portray a corrective pullback from the yearly low as it approaches $1,700 during Friday’s Asian session. The yellow metal’s recovery, however, remains doubtful as traders await the US Nonfarm Payrolls (NFP) and Unemployment Rate for August.

While paring the latest losses at around $1,698, the XAU/USD snaps a five-day downtrend as it bounces off the lowest levels since July 21. The recent bounce appears as the pre-NFP consolidation amid a lackluster market.

The hawkish Fedspeak and firmer US data joined downbeat concerns surrounding China to weigh on the XAU/USD prices of late.

On Thursday, US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Elsewhere, a covid-led lockdown in China’s Chengdu city joins downbeat Caixin Manufacturing PMI to portray grim conditions for the world’s second-largest economy. On the same line could be the escalating geopolitical tension between Beijing and Washington, via Taiwan.

Additionally, Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Also, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Amid these, Wall Street closed mixed but the US 10-year Treasury yields rose to the highest levels since late June. More importantly, the 02-year counterpart jumped to the 15-year top. It should be noted that the CME’s FedWatch Tool signals 72% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

It’s worth noting that the US Treasury yields and the US Dollar Index (DXY) retreated from the multi-year high by the press time.

Moving on, US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, will be crucial for gold traders.

Also read:

Technical analysis

Gold’s sustained trading below the seven-week-old horizontal support zone, now resistance around $1,715-17, joins bearish MACD signals to keep XAU/USD sellers directed towards the yearly low of $1,680.

Following that, a lower line of the six-month-old bearish channel, close to $1,613, will be in focus ahead of the $1,600 threshold.

Meanwhile, the oversold RSI conditions hint at the corrective bounce. However, nothing matters until the quote marks an upside break of the $1,717 hurdle.

Even so, the 21-day EMA and upper line of the stated channel, respectively $1,742 and $1,758, will be crucial for the gold buyers to watch for fresh impulse.

Gold: Daily chart

Trend: Limited downside expected

Australia's central bank will raise the cash rate by another half-point on Tuesday to curb soaring inflation but will moderate the pace of hikes for the remainder of the year, a Reuters poll of economists found.

The survey update also mentioned that the Reserve Bank of Australia (RBA), one of the later entrants to the global monetary policy-tightening cycle, has raised rates by a total of 175 basis points since May to 1.85%.

Key findings

Also read: AUD/USD bears stay in dominant position below 0.6800, US NFP, RBA eyed

• AUD/JPY is displaying wild moves around 95.00 as RBA hogs the limelight.
• Investors should brace for a fourth consecutive 50 bps rate hike by the RBA.
• The Japanese yen has failed to capitalize on upbeat Retail Trade data.

The AUD/JPY pair is displaying topsy-turvy moves in a tad wider range of 94.77-95.20 in the Tokyo session. The asset has turned sideways as investors are awaiting the announcement of the monetary policy by the Reserve Bank of Australia (RBA), which is due next week. The cross is displaying sideways auction from the past two trading sessions despite the release of the downbeat Caixin Manufacturing PMI.

The economic data has been trimmed to 49.5 against the consensus of 50.2 and the prior release of 50.4. The Chinese economy is facing the headwinds of a resurgence in Covid-19 cases, and lockdown curbs by the Chinese administration have soared recession fears.

It is worth noting that Australia is a leading trading partner of China and dismal Chinese economic activities could put significant pressure on the aussie dollar.

Next week, the interest rate decision by the RBA may escalate the RBA-Bank of Japan (BOJ) policy divergence further. Considering the soaring price pressures in the Australian economy, RBA Governor Philip Lowe is expected to announce a fourth consecutive rate hike by 50 basis points (bps). An occurrence of the same will escalate the Official Cash Rate (OCR) to 2.35%.

Meanwhile, the Japanese economy is getting worried over costly imports due o broader weakness in the Japanese yen. The private sector is facing the headwinds of costly inputs, which are impacting their margins extremely. This week, the Japanese yen failed to capitalize on the upbeat Retail Trade data. The annual Retail Trade improved dramatically to 2.4% against the expectations of 1.9% and the prior release of 1.5%.

Goldman Sachs (GS) said on Thursday it had raised its forecast for Turkey's 2022 GDP growth to 5.5% from 3.5%, while lifting its 2022 current account deficit forecast to $45 billion from $36 billion, per Reuters.

The news also adds that the GS said the Turkish Central Bank's forex reserves had risen sharply since the third week of June and that, with less of an external funding constraint, it was updating its macro forecasts and market views.

Key quotes

Also read: USD/TRY finally reaches 18.20 and beyond, new 2022 highs

• GBP/USD licks its wounds at the lowest levels in 29 months.
• Fears of UK recession escalate amid increasing energy bill.
• Firmer US data, hawkish Fedspeak join strong yields to propel DXY to fresh 20-year high.
• Nothing more important than the US jobs report for August.

GBP/USD remains sidelined around 1.1540-50 during Friday’s Asian session, after refreshing the two-year low the previous day. In doing so, the Cable pair portrays the typical pre-NFP moves despite looming fears of the UK’s recession.

“The UK is already in the midst of a recession, and inflation is on course to hit 14% later this year,” as per the British Chambers of Commerce (BCC) reports shared by Bloomberg. Elsewhere, the Financial Times (FT) said that the number of UK households in fuel poverty will more than double in January to at least 12mn unless the next prime minister takes “immediate” action to curb spiraling energy bills, a coalition of groups named “End Fuel Poverty” has warned.

It should be noted that Britain's Foreign Minister and a frontrunner in the UK’s leadership race, Liz Truss, wrote in the Sun newspaper in an article published late on Wednesday that “I will deliver "immediate support" to ensure people are not facing unaffordable fuel bills going into the winter.”

Also exerting downside pressure on the GBP/USD prices were firmer US data and hawkish Fed bets, not to forget the strong US Treasury yields.

That said, Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Also, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Talking about data, US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Amid these plays, Wall Street closed mixed but the US 10-year Treasury yields rose to the highest levels since late June. More importantly, the 02-year counterpart jumped to the 15-year top. It should be noted that the CME’s FedWatch Tool signals a 72% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

On the other hand, the Bank of England’s (BOE) Decision Maker Panel survey of chief financial officers showed on Thursday that British businesses' expectations for consumer price inflation rose in August. Furthermore, a monthly survey from Citi and YouGov showed on Wednesday, per Reuters, that British households' expectations for average inflation over the next five to 10 years jumped to a record-high 4.8% in August, well above the Bank of England's 2% inflation target.

Moving on, the markets are likely to witness anxiety ahead of the key US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors. Should the job report print firmer data, the odds of witnessing further US dollar strength can’t be ruled out.

Also read: Nonfarm Payrolls Preview: Five reasons to expect a win-win release for the dollar

Technical analysis

Unless rising back beyond July’s low near 1.1760, GBP/USD remains vulnerable to refreshing the multi-year low marked in 2020 at around 1.1410.

• EUR/GBP is auctioning in a minute range as ECB policy hogs the limelight.
• ECB’s Nagel has advocated for a strong rate hike announcement in September.
• UK’s long-term inflation expectations are seen at 4.8% vs. BOE’s target of 2%.

The EUR/GBP pair is displaying a balanced market profile after delivering a corrective move from Thursday’s high at 0.8670. The asset is oscillating in a narrow range of 0.8608-0.8618 and a make-or-break move is expected ahead as investors are shifting their focus towards the interest rate decision by the European Central Bank (ECB) next week.

As price pressures have skyrocketed in the Eurozone region amid soaring energy bills after supply cuts by Russia, the ECB is bound to discuss a jumbo rate hike to cool down the red-hot inflation. ECB’s Governing Council member and German central bank head Joachim Nagel on Wednesday cited that the ECB “urgently needs to act decisively next week,” He further added that “We need a strong rate hike in September,”

Investors should be aware of the fact that Eurozone inflation has crossed the whooping figure of 9% comfortably and is expected to remain on the elevated side as the energy crisis is expected to dampen further. As the winter season is standing at doors and leads to more energy consumption, energy prices will scale much higher. Hopefully, September 2 remains the last day of energy supply cuts to Germany as Nord Stream 1 went under unscheduled maintenance for three days.

On the UK front, soaring price pressures are haunting the pound bulls. The bank of England (BOE) is continuously hiking interest rates to fix the inflation chaos, however, the inflation rate is not responding at all to the restrictive monetary policies. As per a Citi survey, long-term inflation expectations are seen at 4.8%, which is extremely higher than the desired rate of 2%.

“The UK is already in the midst of a recession, and inflation is on course to hit 14% later this year,” according to the British Chambers of Commerce (BCC) reports Bloomberg on early Friday morning in Asia. The analysis also mentioned the news as heaping more pressure on the nation’s new prime minister to act fast to avoid an economic calamity.

Elsewhere, the Financial Times (FT) said that the number of UK households in fuel poverty will more than double in January to at least 12mn unless the next prime minister takes “immediate” action to curb spiraling energy bills, a coalition of groups named “End Fuel Poverty” has warned.

Key quotes (from Bloomberg)

The business lobby group says it expects the economy to follow its second quarter contraction with two more periods of decline to round off the year before a meager bounceback of just 0.2% in 2023. 

It blames the crumbling outlook on rising energy costs and a decline in household spending and real wages, as well as weaker export prospects, poor investment conditions and weakening business confidence.

Inflation meanwhile will hit 14% this winter, according to the BCC, and be 5% by the end of 2023.

GBP/USD remains pressured

GBP/USD holds lower grounds near the 29-month bottom, taking rounds to 1.1550 by the press time.

Read: GBP/USD Price Analysis: Bulls are coming up for air but face strong bearish pressure

• AUD/NZD pauses the recent downside moves but remains pressured at one-week low.
• New Zealand’s trade numbers came downbeat for the second quarter (Q2).
• 10-DMA guards immediate upside, 100-DMA appears a tough nut to crack for bears.
• Impending bear cross on MACD, a clear break of 10-DMA favor short-term sellers.

AUD/NZD pauses the previous day’s bearish performance around a one-week low after witnessing downbeat New Zealand (NZ) trade data during Friday’s Asian session. In doing so, the cross-currency pair probes the bears but stays far from the buyer’s radar.

As per the latest trade numbers from Statistics New Zealand, the Terms of Trade fell 2.4% in the second quarter (Q2), reported Reuters. The details mentioned that Export prices rose 3.7 percent, while imports increased 6.5 percent. Economists were expecting the index to show a 1.3 percent fall, with export prices rising 0.8 percent and imports up 2.5 percent, according to a Reuters poll.

That said, the quote’s successful trading below the 10-DMA, around 1.1185, directs AUD/NZD towards the early August swing high near 1.1125.

Following that, the 100-DMA and the previous monthly low, respectively near 1.1050 and 1.0990, will be crucial to watch.

Alternatively, recovery moves need a successful run-up beyond the 10-DMA hurdle surrounding 1.1185 to convince AUD/NZD buyers.

Even so, the latest swing high and an upward sloping resistance line from May, around 1.1255, will be a major challenge for the AUD/NZD bulls.

AUD/NZD: Daily chart

Trend: Further weakness expected

• On Thursday, the GBPY/JPY snapped two days of losses, though faltered to crack the 20-day EMA.
• GBP/JPY: Break above 162.00 could pave the way toward the YTD high at 168.73; otherwise, a fall towards 161.00 is on the cards.

The GBP/JPY pares some of its Wednesday’s losses on Thursday, edged higher by 0.23%, despite a dismal market sentiment hitting the financial markets. Expectations of further Fed aggression, alongside China’s weaker than expected factory activity, was no excuse for GBP bulls to cap their weekly losses, reclaiming the 161.00 mark. At the time of writing, the GBP/JPY is trading at 161.79, slightly below its opening price, as the Asian session begins.

GBP/JPY Price Analysis: Technical outlook

From a technical perspective, the GBP/JPY remains sideways. The cross-currency remains in the 159.44-162.84 range, unable to crack above/below it due to fundamental reasons linked to both currencies. The Relative Strength Index (RSI) paints a dull picture, trapped in the 38-49 reading, in bearish territory, directionless. Therefore, GBP/JPY intraday price action could be more entertaining.

Short term, the GBP/JPY one-hour chart illustrates the formation of a double-bottom on Wednesday, which targets the 162.00 mark. Nevertheless, buyers’ failure to reach the target spurred a pullback towards the 161.70s area.

Therefore, the GBP/JPY’s first resistance would be the September 1 daily high at 161.87. The break above will expose the double bottom’s 162.00 targets. On the flip side, the GBP/JPY first support would be the 100-EMA at 161.74. A breach of the latter would pave the way towards the bottom of the range, but firstly, sellers need to reclaim the 200-EMA at 161.66, followed by the confluence of the 20 and 50-EMAs around 161.49-53.

GBP/JPY Key Technical Levels

• EUR/USD is auctioning in an inventory distribution phase near a two-decade low at around 0.9900.
• A bear cross, represented by 20-and 50-EMAs, adds to the downside filters.
• The RSI (14) has shifted into the bearish range of 20.00-40.00 that indicating more weakness ahead.

The EUR/USD pair is displaying a lackluster performance after failing to overstep the immediate hurdle of 0.9960 in the late New York session. The asset witnessed a steep fall on Thursday after surrendering the 1.0000 magical figure. Currently, the overall price action indicates that 1.0000 will remain a dream level for the EUR/USD pair as the asset is gearing up for a fresh bearish impulsive wave.

On an hourly scale, the asset has already halted the tad-wider consolidation formed in a 0.9900-1.0095 range. The asset is auctioning around the lower levels and a failure in achieving a reversal signifies inventory distribution for more downside. A decisive break below the consolidation will trigger volatility expansion.

A bear cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 1.0016 indicates more weakness ahead.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00 after remaining in the neutral range of 40.00-60.00 for a tad longer period. This has triggered a fresh downside move ahead.

A decisive drop below Thursday’s low at 0.9910 will drag the asset towards the round-level support at 0.9800 followed by the 1 January 2001 high at 0.9600.

Alternatively, the shared currency bulls could regain their glory if the asset oversteps the August 26 high at 1.0090. An occurrence of the same will send the major towards August 17 high at 1.0203 and August 4 high at 1.0254.

EUR/USD hourly chart