• USD/CAD may face resistance near 1.3130 which puts an emphasis o the downside. 
• Beyond 1.3130, there are prospects of a move into 1.3150/75.

USD/CAD lost its footing on Wednesday as risk sentiment improved, knocking the US dollar off its bull cycle highs while the Bank of Canada hiked rates by 75 basis points. This has seen the technical outlook a touch less bullish than it was the prior day as the following illustrates. 

USD/CAD H4 chart

The M-formation is a reversion pattern that would be expected to see the price revert into the neckline between a 38.2% Fibonacci and a 50% mean reversion area of around 1.3150.

USD/CAD H1 chart

With that being said, the lower time frame price action is less bullish given the potential resistance up ahead near 1.3130 where prior support falls in near a 61.8% Fibonacci retracement of the prior bearish impulse on the hourly chart. A break below 1.31 opens risk of a test and break below 1.3070. 

• NZD/USD bulls take a breather after bouncing off two-year low.
• Fortnight-old trend line breakout favors buyers to poke 10-DMA hurdle, MACD, RSI signal further rebound.
• Downward sloping support line from May could lure bears on marking fresh multi-day low.

NZD/USD struggles to extend the biggest daily rebound in two weeks, fading the bounce off a two-year low while retreating to 0.6075 during the initial Asian session on Thursday. Even so, the Kiwi pair defends the previous day’s break out of a fortnight-old resistance line while retreating from the 10-DMA.

Given the receding bearish bias of the MACD and the gradually improving RSI, the latest NZD/USD rebound from the multi-day low is likely to overcome the immediate hurdle, namely the 10-DMA level surrounding the 0.6100.

However, the late August low near 0.6155-60 could challenge the pair buyers afterward, a break of which will direct the bulls towards the August 25 swing high near 0.6255.

It’s worth noting that the NZD/USD run-up beyond 0.6255 will enable the Kiwi pair buyers to aim for the previous monthly high around 0.6470.

Alternatively, a downside break of the previous resistance line, around 0.6060 by the press time, won’t hesitate to drag the quote back to the 0.6000 threshold. Also acting as a downside filter is the latest low of 0.5996.

In a case where the NZD/USD prices drop below 0.5996, May 2020 low and a four-month-old descending support line near 0.5920-15 appears the strong support to watch.

NZD/USD: Daily chart

Trend: Further recovery expected

• The short-term trend has turned bullish on establishment above 1.0000.
• An upside break of the Descending Triangle strengthened the Eurozone bulls.
• After a tad longer period, the RSI (14) has shifted into the bullish range of 60.00-80.00.

The EUR/USD pair is on the verge of extending its gains as the asset is crossing Wednesday’s high at 1.0011. Precisely an establishment above the magical figure of 1.0000 is sufficient to strengthen the shared currency bulls. Earlier, the pair displayed a juggernaut rally after sensing a significant buying interest near the crucial support of 0.9880.

On an hourly scale, EUR/USD is scaling vigorously higher after a breakout of the Descending Triangle chart pattern. The downward-sloping trendline of the chart pattern is plotted from the August 31 high at 1.0079. While the horizontal support is marked from Monday’s low at 0.9878.

The major has crossed the 20-and 200-period Exponential Moving Averages (EMAs) at 0.9955 and 0.9965 respectively. It is worth noting that the asset is auctioning above the aforementioned EMAs while the 20-EMA is still below the giant one. This indicates that the shared currency bulls are extremely strong.

Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00 after an extended period, which favors an upside momentum.

A break above Thursday’s high at 1.0013 will drive the asset towards August 31 high at 1.0079, followed by August 16 low at 1.0123.

Alternatively, the shared currency bulls would lose their grip if the asset drops below August 26 low at 0.9947. If it happens then the major could decline further towards Monday’s low at 0.9878 and round-level support at 0.9800.

EUR/USD hourly chart

• Gold price defends recovery from seven-week-old support line, grinds higher of late.
• Pre-event pullback of US dollar helped XAU/USD buyers despite mixed US data, fears of recession.
• Fed’s Powell could renew US dollar strength amid hawkish expectations.

Gold price (XAU/USD) grinds higher as bulls attack a short-term key hurdle surrounding $1,718 during the initial hour of Thursday’s Asian session. The yellow metal marked the biggest daily gains in over a week the previous day after the US dollar witnessed a pullback from the 20-year high during the US session, after initially refreshing the peak.

That said, the US Dollar Index (DXY) jumped to the highest levels in two decades before retreating to 109.60 by the end of Wednesday’s North American session. While the greenback earlier cheered the risk-off mood and the hawkish Fed expectations, the cautious mood ahead of Fed Chairman Jerome Powell’s speech and mixed data seemed to have trigged the DXY pullback.

Hawkish hopes from the European Central Bank (ECB) and a narrowing trade deficit appeared to have weighed on the US dollar before a few hours.

The ECB is likely to lift the benchmark rates by 75 basis points (bps) in today’s monetary policy meeting as the energy crisis propels inflation to a record top. The challenge is in the form of the recession but the latest improvement in the data seemed to have favored the bloc’s currency, which in turn weighed on the US dollar and favored the XAU/USD.

The Eurozone’s final reading of the Gross Domestic Product (GDP) rose by 0.8% QoQ in the three months to June of 2022 (Q2 2022) vs. 0.6% initial forecasts. That said, the YoY figures also improved to 4.1% in Q2 vs. 3.9% marked in the initial forecasts. On the other hand, US Goods and Services Trade Balance improved to $-70.7B in July from $-80.9B prior, versus $-70.3B forecasts. Further, the Good Trade Balance deteriorated to $-91.1B from $-89.1B marked in July.

Amid these plays, Wall Street closed positive and the yields retreated, which in turn weighed on the gold price.

Moving on, risk catalysts will be crucial for the XAU/USD prices ahead of the key ECB decision and a speech from Fed’s Powell. It’s worth noting that hawkish hopes from the ECB and the Fed may test XAU/USD bulls ahead of the event but the ultimate result is likely to weigh on the metal prices as the Fed is comparatively better placed than the ECB.

Technical analysis

Gold price rebounds from the nearly two-month-old support line amid bullish MACD signals and firmer RSI (14) to poke a downward sloping resistance line from August 12, around $1,718.

Given the firmer oscillators backing the XAU/USD recovery, the prices are likely to extend the latest run-up towards crossing the immediate hurdle. However, the convergence of the 200-EMA and the 50% Fibonacci retracement level of late July to early August upside, near $1,745, could challenge the metal’s further upside.

It’s worth noting, however, that the late August swing low near $1,728 appears to lure short-term gold buyers.

Meanwhile, pullback moves may witness the 78.6% Fibonacci retracement level of $1,707 as immediate support before testing the aforementioned support line from late July, around $1,690 by the press time.

Following that, the yearly low surrounding $1,680 could become the last defense of the gold buyers.

Gold: Four-hour chart

Trend: Limited recovery expected

• On Wednesday, the EUR/JPY gained more than 1.70% during the day.
• EUR/JPY price action shows the pair is overextended, opening the door for a mean reversion move.

The Japanese yen continues to weaken against most G8 currencies, and the common currency is no exception, with the EUR/JPY registering huge gains of more than 240 pips, closing to the YTD high at around 144.27. The EUR/JPY retreated and is trading at 143.99, some 40 pips shy of the 2022 highs, as the Asian session begins.

EUR/JPY Price Analysis: Technical outlook

The EUR/JPY daily chart suggests the pair is overextended after rallying close to 500 pips in two days, ahead of the European Central Bank (ECB) monetary policy. Oscillators, particularly the Relative Strength Index (RSI) at overbought conditions, suggest that the pair could retreat from current exchange rates before extending its gains if that’s the case.

Shifting to the 4-hour scale, the EUR/JPY is trading below June’s 29 daily high, and the Relative Strength Index (RSI) is in overbought territory, above its last peak, meaning that a reversal looms.

Therefore, If that scenario plays out, the EUR/JPY first support would be the daily pivot point at 143.05. The break below will expose the S1 daily pivot at 142.10, followed by the 20-EMA at 141.11.

On the flip side, a break above the YTD low at 144.27, the next resistance would be the psychological 145.00 figure.

EUR/JPY Key Technical Levels

• AUD/USD is scaling higher and may find a hurdle around 0.6800.
• The minutes from Fed’s Beige Book have halted the DXY’s rally.
• RBA’s hawkish stance on OCR and Australian mixed GDP numbers supported antipodean.

The AUD/USD pair has turned sideways after a sheer upside move and will continue marching towards the immediate hurdle of 0.6800. The asset is oscillating in a 0.6766-0.6770 range and an upside break of the same will resume the upside journey. On Wednesday, the major rebounded firmly after defending the critical support of 0.6700 as the release of the Federal Reserve (Fed) Beige Book that dictates a qualitative review of economic conditions in the US weakened the US dollar index (DXY).

Fed’s Beige Book trims DXY’s appeal

The catalyst which dragged the DXY below the psychological support of $110.00 was a shift in the consumption pattern of the households. As price pressures have remained a hardship for households, households dropped shopping for durable goods and stocked necessity goods seldom. A drop in retail demand for durable goods displays a decline in consumer confidence as demand for essentials cannot be postponed. Apart from that, inflation pressures are displaying exhaustion signals.

More hawkish commentary came from Fed Vice Chair Lael Brainard citing that the central bank will continue its restrictive approach till it records a decline in the inflation rate for several months. The Fed needs to be confident that the desired rate of 2% will be accomplished before trimming the hawkish tone.

Mixed GDP and hawkish RBA supported Aussie

On the Aussie front, mixed Gross Domestic Product (GDP) data and a rate hike announcement by the Reserve Bank of Australia (RBA) have strengthened the antipodean. The Australian GDP data landed at 0.9%, lower than the expectations of 1% but above the prior release of 0.8% on a quarterly basis. However, the annual data has improved to 3.6% against the estimates and the prior print of 3.5% and 3.3% respectively. Also, RBA Governor Philip Lowe announced a fourth consecutive 50 basis points (bps) interest rate hike.

Going forward, investors will focus on the speech from Fed chair Jerome Powell and RBA Governor Philip Lowe. Fed Powell is expected to dictate the likely monetary policy action this month while RBA Lowe will discuss the rationale behind steeping up the Official Cash Rate (OCR) by 50 bps consecutively for the fourth time.

• GBP/USD is recording decent gains after nosediving to a 1985 daily low.
• The British pound found some base around 1.1400, rallying more than 130-pips on the day.
• The major might record a leg-up before extending its fall for a re-test of the YTD low at a1.1406.

The GBP/USD refreshed a 37-year low but bounced off and reclaimed the 1.1500 figure after meandering around the 1.1400 round figure during the day. The GBP/USD recovered some ground and settled at current exchange rates, trading at 1.1531, above its opening price by 0.18%, at the time of writing.

GBP/USD Price Analysis: Technical outlook

The GBP/USD trades were volatile during Wednesday’s trading session. The major is still downward biased, despite recovering more than 100-pips losses. It is worth noting that the Sterling dropped below the descending channel, where the major has been trading since late May, when the British pound began its downfall throughout 2022.

GBP traders should know that the Relative Strength Index (RSI) is within the oversold territory, so the pair might print a leg-up before resuming its downward path. Therefore, the GBP/USD’s first resistance would be the September 6 daily high at 1.1608. Once cleared, the next supply zone would be the 50% Fibonacci retracement at 1.1652, followed by the 61.8% Fibonacci level at 1.1710.

On the downside, the GBP/USD first floor would be the 1.1500 figure. The break below will expose the YTD low at 1.1400, followed by the psychological 1.1300 figure.

GBP/USD Key Technical Levels

• NZD/USD holds in positive territory into the early Asian session.
• The kiwi has been driven higher by a fall in the greenback from the lofty bull cycle highs. 

NZD/USD is ending the day close to the highs of 0.6075 after rallying around 0.6% from a low of 0.5996, rebounding on the back of a move lower in US bond yields and firmer equities.

Despite data that has been signalling strength in the US economy, the greenback flipped over on Wednesday even though traders continue to bet on a 75-basis-point interest rate hike by the Federal Reserve later this month. Fed fund futures are implying that investors are pricing in a more than 76% chance of such a move. 

''Once again there was nothing NZ-specific about the move, and that’s the way it feels like it’s going to be for a while as global FX markets digest significant themes (restated Fed hawkishness, the far-reaching consequences of surging energy costs, debates over how sticky inflation is, and climate change – to name a few),'' analysts at ANZ Bank said in early Asia open on Thursday.

''Technically though, the textbook bounce in the NZD off 0.60 (it fell below it briefly, but it wasn’t sustained) is a positive sign for those of that ilk, and if the global market backdrop doesn’t deteriorate, it may have formed a base. But that can’t be assured, and it makes sense to brace for volatility.''

Looking ahead, the main focus will be on Fed chair Powell's speech ahead of the US Consumer Price data next week as traders for clues on the path of monetary policy. At midnight this Friday, the Fed media blackout goes into effect and there will be no speakers until Chair Powell’s post-decision press conference on September 21.

• The gold price firms to take on ket resistance as the US dollar tails off from fresh bull cycle highs. 
• Gold bulls eye a 50% mean reversion with the prospects of a break to $1,735 beyond there.

The gold price has added to gains on the day, although is starting to tail off from the New York session highs of $1,719.29 currently. The precious metal is around 0.8% higher on the day, having risen from a low of $1,691.46 to a high of $1,719.29 as the greenback and US yields retrace.

The US dollar has fallen off the strongest levels in two decades as per the DXY index, which measures the greenback vs. a basket of currencies. The index was last seen down 0.44% to 109.76, after earlier touching 110.786 the highest since 2002. US Treasury yields also slid from early highs, bullish for gold since it offers no interest. The yield on the US 10-year note was last seen down 2.45% to 3.271%.

Meanwhile, however, hawkish comments from Fed Chair Jerome Powell were compounded by signs of an economic slowdown in Europe and China and aggressive steps by major central banks to tame inflation, all of which has been underpinning the greenback of late. Additionally, data signalling strength in the US economy has prompted traders to bet on a 75-basis-point interest rate hike by the Fed later this month. Despite last week's mixed jobs data in the Nonfarm Payrolls, the Fed fund futures are still implying that investors are pricing in a more than 78% chance of such a move. Nevertheless, the Atlanta Fed GDP nowcast estimates for the third revised 1.4% from the 2.6% pace in the previous estimate on Sept. 1. The next update is scheduled for Friday, ahead of next week's critical US Consumer Price Index. 

More immediately, the European Central Bank is meeting on Thursday which could be a further weight to gold prices with the board leaning towards a 75bp rate hike given that the ECB is behind the curve. ''The possibility that failure to deliver a 75bp rate hike could send the euro spiralling lower. Markets look set to remain volatile and it is important to remain open to the potential for swift changes in sentiment given current positioning,'' analysts at ANZ Bank said.

Meanwhile, ''traders are questioning whether the move lower in precious metals is fundamentally running out of steam, after a repricing in rates markets has left market expectations more closely in line with the Fed's outlook for rates,'' analysts at TD Securities said who argue that while rates pricing now appears closer to fair value.

''Gold markets have failed to price the implications of a sustained period of restrictive interest rates,' they said, expecting odds of a major capitulation event growing with every tick lower in gold prices. The analysts say that this ''could coincide with a break below a multi-decade uptrend in the yellow metal near $1675/oz.''

''Gold markets still feature an extremely concentrated and bloated position held by a small number of family offices and proprietary trading shops, which are increasingly at risk as prices approach their pandemic-era entry levels. At the same time, the margin of safety against a short squeeze continues to grow, increasing odds that we can break through this critical support. And, our tracking of Shanghai gold trader positioning suggests that China's appetite for gold is finally starting to ebb, potentially adding into a liquidation vacuum.''

Gold technical analysis

The price is headed towards a price imbalance near $1,721. Beyond there, a 50% mean reversion comes in near $1,727 prior structure. On the downside, however, a retest of the 2021 lows around $1,676 is feasible, but the upside is playing out which leaves the prospects of a break to $1,735 on the table in the meantime as per the projected W-formation. 

What you need to take care of on Thursday, September 8:

The American dollar maintained its strong footing throughout the first half of the day but gave up during the American session.

The EUR/USD pair flirted with the December 2002 low at 0.9859 before recovering, now battling to regain parity. Nevertheless, the European energy crisis will likely limit shared currency demand. Skyrocketing prices in the EU are taking their toll on households and businesses and pushing high inflation up. European non-ferrous metal producers have called for emergency EU action to prevent permanent deindustrialization in a letter to the European Commission President, Ursula Von der Leyen. Producers noted that "50% of the EU's aluminium and zinc capacity has already been forced offline due to the power crisis."

Russian President Vladimir Putin rushed to answer by announcing Moscow is working on the construction of new pipelines to transport gas, some of which pass through Mongolia to China. He also noted that the G7 oil price cap "would be an absolutely stupid decision," adding they would not supply "anything" if it's contrary to Russian economic interest. "No gas, no oil, no coal, no fuel oil, nothing."

The European Central Bank will announce its monetary policy decision on Thursday. The ECB is widely anticipated to hike rates by 50 bps when it meets on Thursday, but the focus will be on whether European policymakers are willing to put growth behind taming inflation or not.

The US published the Beige Book, a survey of economic conditions based on data from 12 district banks. The document showed that price growth has slowed in 9 of the 12 districts, although most surveyed believe price pressures will last at least until the end of the year.

The Bank of Canada hiked its main rate by 75 basis points to 3.25%, in line with market expectations. The accompanying statement showed that policymakers would likely continue to raise the benchmark given the inflation outlook. On a positive note, the document also revealed that they believe the economy continues to operate in excess demand and labor markets remain tight. USD/CAD trades around 1.3140.

Bank of England Monetary Policy Report Hearings put pressure on the pound at the beginning of the day, with GBP/USD plummeting to 1.1404. Policymakers are still on the tightening path, and Governor Andrew Bailey noted that the central bank would continue to respond to price shock. Broad dollar's weakness helped the pair to recover to the current 1.1510 price zone.

The USD/JPY pair kept marching higher and reached 144.98, to end the day around the 144.00 figure.

The AUD/USD pair trades around 0.6750 by the end of the day, trimming early losses. Encouraging Australian data did little for the pair, rising amid the better tone of Wall Street and easing government bond yields weighing on the American currency.

Spot gold fell to an intraday low of $1,691.32 a troy ounce but managed to recover towards the current $1,716 level.

Crude oil prices, on the other hand, edged sharply lower amid speculation about easing Chinese demand following tepid local data. China's trade surplus was $79.39 billion in August, well below the $101.26 billion from July.

What the rejection at $19,000 now means for the Bitcoin price

• EUR/USD advances sharply, above the 0.9980 mark, ahead of the ECB’s decision.
• The US trade deficit narrowed, though it failed to boost the greenback.
• Fed policymakers reiterated the Fed’s commitment to tame inflation while saying that rates will remain in the restrictive territory.

The EUR/USD advanced sharply on Wednesday, spurred by a slightly risk-on impulse in the North American session, with US equities rising while US Treasury bond yields slip from YTD highs as market players focus on the US Federal Reserve rate path.

The EUR/USD opened near the lows of the day, shy of the 0.9900 mark, and tumbled towards the daily low at 0.9880, before rallying, towards parity at 1.0000. nevertheless, the major retreated to current exchange rates. At the time of writing, the EUR/USD is trading at 0.9982, well above its opening price.

US data revealed earlier, particularly the Trade Balance, showed that the US deficit narrowed in July, as the US Department of Commerce reported. The figures revealed that the deficit descended 12.6% to $70.6 Billion, while Exports of goods and services climbed 0.2%.

Meanwhile, a tranche of Fed speakers are grabbing headlines ahead of the blackout period, which will start on September 10. The first one to hit the stand was the Cleveland Fed Loretta Mester, saying that the market needs to focus on the path of interest rates, rather than “one particular meeting,” while adding that the size of the rate hike that she wants, would be decided in the meeting.

Later, Fed Vice Chair Lael Brainard said that the Fed will keep tighter monetary policy conditions “for as long as it takes to get inflation down.” Brainard added that although July’s inflation figures were positive,  the Fed needs to see “several months of low monthly inflation” to be confident that inflation is indeed cooling down.

Meanwhile, the Fed Beige Book reported that some firms see some easing in labor shortages and price pressures.

According to the Fed’s report, “Overall labor market conditions remained tight, although nearly all Districts highlighted some improvement in labor availability.” Regarding price pressures, nine districts reported some degree of moderation.

What to watch

On Thursday, the European Central Bank would reveal its monetary policy decision, with most analysts expecting a 75 bps rate hike. Nevertheless, researchers of 12 major banks, eight of them expect a 75 bps, while the other four, are not clearly decided between a 50 or a 75 bps increase.

Also read: ECB Preview: Forecasts from 12 major banks, even 75 bps is too little to lift the euro

EUR/USD Price Analysis: Technical outlook

The EUR/USD bounced off the week’s lows, below the 0.9900 figure, while the Relative Strength Index (RSI) is aiming towards the 50-midline. EUR/USD traders should be aware that a divergence between price action and the RSI formed. So EUR/USD Wednesday’s price action is a reaction of the previously mentioned.

Therefore, the EUR/USD first resistance would be parity. A break above will expose the 20.day EMA at 1.0039 and 1.0100. On the flip side, the EUR/USD first support would be 0.9900. Once cleared, the next support would be the YTD low at 0.9863m and the 0.9800 mark.

The Federal Reserve's Beige Book notes that economic activity, stating that "the outlook for future economic growth remained generally weak.

The US central bank released its latest summary of feedback from business contacts nationwide as it mulls whether to proceed with a third straight 75-basis-point interest rate hike at its Sept. 20-21 policy meeting or go with a still larger-than-usual 50-basis-point rise in its battle to curb high inflation.

Key notes

• Economic activity was unchanged, on balance, since early july, with five districts reporting slight to modest growth in activity and five others reporting slight to modest softening.
• The outlook for future economic growth remained generally weak, with contacts noting expectations for further softening of demand over the next six to twelve months.
• Price levels remained highly elevated, but nine districts reported some degree of moderation in their rate of increase.
• The outlook for future economic growth remained generally weak, with contacts noting expectations for further softening of demand over the next six to twelve months.  
• Employers noted improved worker retention, on balance.
• Wages grew across all districts, although reports of a slower pace of increase and moderating salary expectations were widespread.    

• Oil loses ground as the market prices in weak demand from China.
• Russian threats to halt oil exports lends some support.

West Texas Intermediate crude is under pressure midweek, losing some 5% in Midday New York trade and taking out key support territory as the greenback rises to a 20-year high at the same time the market prices in weak demand from China.

The headlines are dominated by the Covid-19 lockdowns in China, the world's No.1 net importer. and the worries as restrictions on movements that are now impacting 46 cities. As many as 65 million people across the country are now subject to restrictions on their mobility and the dent to demand is expected to quickly ripple through international markets already grappling with fears that the global economy is barreling toward a recession.

''More infectious strains of the virus are raising concerns that authorities will be forced to more frequently lockdown areas as China persists with a zero-COVID strategy,'' analysts at ANZ Bank explained.

However, Russian threats to halt oil exports should the G-7 and European Union plan to cap prices for Russian oil go forward offered some support for oil. Nevertheless, a decision this week by OPEC+ to lower production quotas by 100,000 barrels per day has also been taken into consideration.

Analysts at TD Securities said that this signals that this group of swing producers will be increasingly active in its decision-making as we stare down the barrel of the recession. ''In turn, energy supply risks should also be bolstered by the revival of the OPEC+ put. The right tail in energy markets is fattening,'' the analysts argued.

Meanwhile, the Energy Information Administration (EIA) on Wednesday slightly raised its forecast for 2022 global oil demand while trimming its estimate for production this year.

• USD/CHF retraces from weekly highs and dives below the 0.9800 figure due to a risk-on impulse.
• A triple-top chart pattern in the 4-hour chart keeps the USD/CHF under some selling pressure, targeting a fall to 0.9660.

USD/CHF slides from weekly highs reached at around 0.9869 on Wednesday, despite risk appetite improving, which usually benefits riskier assets during the day. The USD/CHF is trading at 0.9783, below its opening price, by 0.51%.

USD/CHF Price Analysis: Technical outlook

The USD/CHF is pulling back after reaching a solid weekly high at around 0.9869, set during the overlap of the Asian/European session, courtesy of market sentiment shifting sour. Nevertheless, as the North American session progressed, investors’ mood improved, as seen by US equities trading in the green.

In the USD/CHF case, the Swiss Franc strength dragged prices lower, so far clearing on its way south the 0.9800 figure.

Short term, the USD/CHF four-hour chart, illustrates a formation of a triple-top chart pattern, and so far, the major is retreating from weekly high levels, approaching the “neckline” around the 0.9766 area. A decisive breach of the latter could send the major tumbling towards the triple-top measured target at 0.9660, but first, it will need to overcome some hurdles on its way south.

The USD/CHF first support would be the bottom-trend line of an ascending channel drawn since August 11, around 0.9720, followed by the 0.9700 figure, followed by the 100-EMA at 0.9680.

USD/CHF Key Technical Levels

Fed Vice Chair Lael Brainard reiterated on Wednesday that the Fed's policy rate will need to rise further and that they will need to keep the policy restrictive 'for some time,' as reported by Reuters.

Additional takeaways

"Our resolve is firm, goals clear, tools up to the task."

"We need several months of low monthly inflation readings to be confident inflation is moving down to 2%."

"Higher policy rate, balance sheet reduction should help bring demand into alignment with supply."

"Especially important to guard against rise in inflation expectations."

"Labor demand continues to exhibit considerable strength, hard to reconcile with more downbeat tone of activity."

"May take some time for full effect of tighter financial conditions to work through economy."

"At some point in tightening cycle, risks will become more two-sided."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen losing 0.25% on the day at 109.97.

As expected, the Bank of Canada (BoC) on Wednesday announced a 75 basis points rate hike to 3.25%, the highest level since 2008. Analysts at CIBC, point out the central bank appears ready to sacrifice more growth than what they expected to get inflation falling on a faster trajectory. 

Key Quotes: 

“The 75 bp hike to an overnight rate of 3.25% was widely expected, but we took note that the final paragraph opted to retain the view that “interest rates will need to rise further.” We’ll therefore be lifting our target for the end of this tightening cycle, with another 25-50 bps on tap for October.”

“The BoC appears ready to sacrifice more growth than we expected to get inflation falling on a faster trajectory, and we'll be bumping down our GDP projections for Canada in an updated forecast to be released next week. While the Bank could opt for as little as an extra quarter point, had they been convinced that 3.5% was the ceiling, they could have done that move today, so we'll have to give some thought to whether they're thinking of a 3.75% rate. That would be a half point above what we had built into our prior GDP call, and therefore somewhat material to the outlook.”

“The fact that the Fed is also talking fairly tough these days, and might also be leaning to hike a bit more than we had projected, dulls the benefits to the loonie of a more hawkish Bank of Canada. We still judge it as unlikely that the peak overnight rate in Canada will end up exceeding that of the US.”
 

• EUR/GBP resumes upside after two-day correction.
• Price peaks at 0.8688, the strongest level since June 15.
• Thursday: ECB decision and Truss’s energy plan.

The EUR/GBP resumed the upside after a two-day correction. Recently it climbed to 0.8688, reaching the highest level since June 15. It is hovering around 0.8665, about to post the second highest daily close in 16 months.

Thursday could be a busy volatile day for EUR/GBP with the European Central Bank meeting and the energy plan in the UK. The ECB is expected to raise rates by 75 basis points and will release macro forecasts. “Higher than expected August CPI readings certainly make the case for more aggressive tightening and it seems that more and more officials on the Governing Council are leaning towards this outcome.  While the energy crisis adds another wrinkle to the process, we think it is too early yet for it to impact ECB policy right now”, mentioned analysts at Brown Brother Harriman.

UK PM Liz Truss is expected to unveil her energy plans tomorrow as the pound remains under pressure. The GBP/USD dropped toward the lowest levels in decades near 1.1400.

With EUR/GBP trading around critical levels and considering the mentioned developments, volatility is set to remain elevated. The cross is near 0.8700 and also close to the 200-week Simple Moving Average at currently at 0.8702. A firm break above 0.8720 should clear the way to more gains over the medium-term. On the contrary, if the pound manages to keep that level, a recovery seems likely, particularly if the cross falls below 0.8560.

Technical levels

• AUD/USD reclaimed the 0.6700 figure but remains unable to register gains.
• The US trade deficit narrowed in July, as exports registered a record high.
• Australia’s GDP exceeded estimates, while money market futures foresee a 50 bps RBA rate hike in October.

AUD/USD operates below its opening price on Wednesday, spurred by a sour market sentiment during the Asian session. However, as the European and North American sessions have taken over, sentiment shifted slightly positive, so the AUD/USD is recovering some ground.

During the day, the AUD/USD tumbled towards the 0.6698 daily low but bounced off, trimming some of its losses. At the time of writing, the AUD/USD is trading at 0.6726, down 0.09%.

AUD/USD on the defensive despite positive Aussie data

The US Department of Commerce revealed that July’s US trade deficit narrowed, as exports registered a record high, which could impact and contribute to GDP growth in Q3. Later, the Cleveland Fed President Loretta Mester crossed newswires, saying that the last labor market report flashed signs of moderation. She added that markets need to focus on the path of interest rates rather than “one particular meeting.” Further, she expressed that she will decide the size of rate hikes in the September meeting, and she’s not convinced that inflation has peaked yet.

On the Australian front, the Gross Domestic Product for Q2 expanded aligned with estimations of 0.9% QoQ, while Australia grew at a 3.6% pace on an annual basis. Meanwhile, money market futures expect an additional 50 bps interest rate increase from the Reserve Bank of Australia (RBA) in October, and the yield curve forecast rates to peak at around 3.85%.

AUD/USD Price Analysis: Technical outlook

From a daily chart perspective, the AUD/USD appears to form a double-bottom. Wednesday’s daily low tested a downslope-resistance-trendline, drawn from April 2022 highs, which turned support, quickly rejecting lower prices, reclaiming the 0.6700 mark. Nevertheless, to validate the chart pattern abovementioned, the AUD/USD needs to reclaim the 0.7136 resistance. Otherwise, a drop below 0.6698 could pave the way for a re-test of the YTD low.

• US dollar retreats across the board amid an improvement in risk sentiment.  
• Yen trims losses versus the dollar, drops further versus other currencies.
• USD/JPY overbought but still pointing to the upside.

The USD/JPY peaked at 144.98 on Wednesday, the highest level since 1998. After being unable to break above 145.00 the rally lost momentum and it pulled back to 144.20, on the back of a broad-base correction of the US dollar.

The greenback moved off highs during the American session as Wall Street turned positive. As of writing, the Dow Jones was up by 0.80% and the Nasdaq by 0.87%. The improvement in risk sentiment avoided a general recovery of the yen.

The Japanese yen trimmed losses against the dollar but it printed fresh lows versus most of the currencies. The DXY was in red for the day at 110.15 after hitting a multi-year high at 110.78.

The USD/JPY is still up more than 400 pips from Tuesday’s opening level. The divergence between the Fed and the Bank of Japan continues to be the key driver of the rally. The 145.00 zone has become the new resistance. On the downside, 144.20 is the immediate support followed by 143.40.

Later on Wednesday, the Federal Reserve will release the Beige Book. On Thursday, Q2 growth data from Japan is due.

Technical levels

According to the Federal Reserve Bank of Atlanta's GDPNow model, the US economy is expected to grow at an annualized rate of 1.4% in the third quarter, down from 2.6% in the previous estimate.

"After recent releases from the US Census Bureau, the US Bureau of Labor Statistics, the US Bureau of Economic Analysis, and the Institute for Supply Management, the nowcasts of third-quarter real personal consumption expenditures growth, third-quarter real gross private domestic investment growth, and third-quarter real government spending growth decreased from 3.1%, -3.5%, and 1.7%, respectively, to 1.7%, -5.8, and 1.3, respectively, while the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth increased from 0.82 percentage points to 1.09 percentage points," Atlanta Fed explained in its publication.

Market reaction

This report doesn't seem to be having a significant impact on the dollar's performance against its rivals. As of writing, the US Dollar Index was posting small daily losses at 110.17.

• USD/CAD reaction was muted, with the pair seesawing in the 1.3160-1.3201 range, on the BoC decision.
• The Bank of Canada opened the door for further hikes as core inflation continued broadening.
• Fed’s Mester: To decide the size of the hike in the September meeting.

The USD/CAD is soaring despite the recent decision of the Bank of Canada to hike rates by 75 bps, from 2.50% to 3.25%, amidst a mixed market sentiment, with most global equities tumbling, except for US stocks. At the time of writing, the USD/CAD edges up 0.18%, trading at 1.3173, above its opening price.

USD/CAD extends its gain, despite BoC’s rate hike

The Loonie failed to gain traction after the BoC decided to hike rates. The central bank noted that they would need to rise further, given the inflation outlook. According to the BoC, core inflation continues broadening, particularly in services, reiterating its commitment to price stability and adding that it would take action as required to achieve the 2% goal.

The USD/CAD seesawed on the headlines, edging towards 1.3163 and then surging to 1.3201 before stabilizing at current exchange rates.

In the meantime, the Canadian economic docket also revealed the Ivey Purchasing Managers Index for August, which came at 60.9, seasonally adjusted, whine unadjusted rose by 57.1.

At the same time, the Cleveland Fed President Loretta Mester was crossing newswires. Mester said that the last labor market report flashed signs of moderation. She added that markets need to focus on the path of interest rates rather than “one particular meeting.” Furthermore expressed that she will decide the size of rate hikes in the September meeting, and she’s not convinced that inflation has peaked yet.

Earlier, the US trade deficit narrowed in July, as exports recorded a high, which could see trade continuing to contribute to the Gross Domestic Product (GDP) in the third quarter.

On Thursday, an absent Canadian economic docket would leave traders lying on the dynamics of the greenback. The US calendar will release Initial Jobless Claims for the week ending on September 3, alongside Fed speakers led by Chairman Jerome Powell. Chicago Fed President Charles Evans and Minnesota’s Neil Kashkari.

USD/CAD Key Technical Levels

Cleveland Federal Reserve Bank President Loretta Mester said on Wednesday that she is not convinced yet that inflation in the US has peaked, as reported by Reuters.

Additional takeaways

"Better for markets to focus on path of interest rates than any one particular meeting."

"Policy should be guided by incoming data as it informs the outlook."

"I will decide my preferred size of rate hike at the September meeting itself."

"Medium and longer-term inflation expectations still in the range consistent with 2% inflation goal but I am very attentive to that."

"Growth rate of wages still higher than what is consistent with 2% inflation."

"Lags in policy are a consideration for the future, not right now with inflation so high."

"Our challenge is to engineer a slow down in activity without causing a recession."

Market reaction

The US Dollar Index edged lower after these comments and was last seen posting small daily losses at 110.20.

The Bank of Canada (BoC) hiked its policy rate by 75 basis points (bps) to 3.25% in September. This decision came in line with the market expectation.

In its policy statement, the BoC said rates will need to rise further given the inflation outlook.

Market reaction

With the initial reaction, USD/CAD edged lower from session highs but quickly recovered its losses. As of writing, the pair was up 0.3% on the day at 1.3190.

Key takeaways from policy statement

"Will be assessing how much higher rates need to go as the effects of tighter monetary policy work through the economy."

"Canadian inflation excluding gasoline increased in July and data indicate a further broadening of price pressures, particularly in services."

"Surveys suggest short-term inflation expectations remain high; the longer this continues, the greater the risk elevated inflation becomes entrenched."

"Canadian economy continues to operate in excess demand and labor markets remain tight."

"While Q2 growth was somewhat weaker than bank had projected, indicators of domestic demand were very strong."

"Global and Canadian economies evolving broadly in line with July projections."

"BoC continues to expect Canadian economy to moderate in H2 2022."

"Canadian housing market is pulling back as anticipated amid higher mortgage rates."

"BoC remains resolute in commitment to price stability and will take action as required to achieve 2% inflation target."

• Gold remains depressed for the third successive day, though the downside seems cushioned.
• Aggressive Fed rate hike bets lift the USD to a fresh two-decade high and act as a headwind.
• Retreating US bond yields seem to cap gains for the USD and lend support to the XAU/USD.

Gold struggles to capitalize on its modest intraday bounce and attracts fresh selling near the $1,707 region on Wednesday. The XAU/USD remains on the defensive through the early North American session and is currently trading around the $1,700 round-figure mark.

The relentless US dollar buying remains unabated for the third successive day, which turns out to be a key factor exerting downward pressure on the dollar-denominated gold. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, hits a fresh two-decade high and remains well supported by hawkish Fed expectations.

Tuesday's upbeat US ISM Services PMI reaffirmed market bets that the US central bank will continue to hike interest rates more aggressively to tame inflation. The Fed is widely expected to deliver a supersized 75 bps rate hike at the end of a two-day policy meeting on September 21, which, in turn, continues to act as a tailwind for the greenback.

Apart from this, a recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - further undermines the safe-haven gold. That said, a modest pullback in the US Treasury bond yields is holding back the USD bulls from placing fresh bets and lending some support to the non-yielding metal, for the time being.

There isn't any major market-moving economic data due for release from the US on Wednesday, leaving the USD bulls at the mercy of the US bond yields. That said, speeches by Fed officials might influence the USD price dynamics and provide some impetus to gold. Traders will further take cues from the broader risk sentiment to grab short-term opportunities.

Nevertheless, the fundamental backdrop remains tilted in favour of bearish traders. This, in turn, suggests that any attempted recovery move could be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Gold still seems vulnerable to retesting the $1,689-$1,688 intermediate support before eventually dropping to the YTD low, around the $1,680 area.

Technical levels to watch

• EUR/USD remains under pressure in the lower end of the range.
• Further decline could see the 2022 low at 0.9863 revisited.

EUR/USD alternates gains with losses around the 0.9900 region on Wednesday.

Against that, the inability of the pair to regain serious upside traction should keep the door to further retracement open in the near term. Extra losses face the immediate target at the 2022 low at 0.9863 (September 6) seconded by 0.9859 (December 2002 low) and then 0.9685 (October 2002 low).

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0773.

EUR/USD daily chart

Economist at UOB Group Lee Sue Ann comments on the latest interest rate decision by the RBA.

Key Takeaways

“The Reserve Bank of Australia (RBA) decided to increase the offical cash rate (OCR) by 50bps to 2.35%. It also increased the interest rate on Exchange Settlement balances by 50bps to 2.25%. This is the fourth consecutive month that the RBA has raised rates by 50bps.”

“Once again, the RBA signalled that it will continue to hike in the coming months, but is not on a preset path. We now pencil in 25bps hikes for the remaining three meetings in 2022. That will take the OCR to 3.10% by year-end. We then look for a pause thereafter.”

“The next RBA meeting is on 4 Oct. Immediate focus will now shift to 2Q22 GDP data due on Wed (7 Sep) at 9.30am SGT, where expectations are for the Australian economy to expand by 0.9% q/q or 3.4% y/y.”

• DXY keeps pushing higher and prints tops near 110.80.
• The continuation of the upside could see 111.00 revisited.

DXY advances for the third session in a row and approaches the 111.00 mark on Wednesday.

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 just below 106.00.

Still on the upside, the surpass of the recent top at 110.78 (September 7) 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 101.20.

DXY daily chart

BoC Monetary Policy Decision – Overview

The Bank of Canada (BoC) is scheduled to announce its monetary policy decision this Wednesday at 14:00 GMT. The Canadian central bank is widely expected to lift its policy rate by 75 bps to 3.25% at the end of the September meeting in an effort to keep inflation expectations anchored. Apart from the decision, investors will further take cues from the accompanying monetary policy statement in the absence of the post-meeting press conference.

Analysts at Wells Fargo offer a brief overview and explain: “We expect the BoC to deliver a 75 bps hike to 3.25%. We think the BoC will slow down the pace of its hikes beyond September, only taking the policy rate to 3.75% by the end of Q4-2022, although we see the risks as remaining tilted to a higher peak. We will be particularly interested in guidance on future policy from the BoC, especially against a backdrop of slowing growth and still-elevated inflation.”

How Could it Affect USD/CAD?

Ahead of the key event risk, weaker crude oil prices continue to undermine the commodity-linked loonie. This, along with relentless US dollar buying, lifts the USD/CAD pair back closer to the monthly peak touched last week. Given that the markets have fully priced in a 75 bps rate hike, the expected move is unlikely to provide any respite to the Canadian dollar.

Furthermore, a tilt toward a more conservative policy stance amid concerns about the worsening economic outlook and easing price pressures could weigh heavily on the domestic currency. This, in turn, will set the stage for an extension of the recent appreciating move for the USD/CAD pair witnessed over the past month or so.

That said, an unlikely event of a more aggressive 100 bps rate hike could trigger a significant market reaction and provide a strong boost to the Canadian dollar. The USD/CAD pair might then turn vulnerable and dive back towards the 1.3100 round-figure mark. Some follow-through selling below the 1.3075-1.3070 region could pave the way for a fall towards the 1.3035-1.3030 intermediate support en route to the 1.3000 psychological mark.

Key Notes

 •  BoC Preview: Will BoC take its foot off the pedal?

 •  BoC Preview: Forecasts from eight major banks, hiking rates again

 •  USD/CAD: Any support for the loonie from the BoC may fade rapidly – ING

About the BoC Interest Rate Decision

BoC Interest Rate Decision is announced by the Bank of Canada. If the BoC is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the CAD. Likewise, if the BoC has a dovish view on the Canadian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

• Canada's international trade surplus narrowed at a softer pace than expected in July.
• USD/CAD continues to trade in positive territory below 1.3200.

Canada's merchandise trade surplus with the world narrowed to C$4.05 billion in July from C$4.88 billion in June, Statistics Canada reported on Wednesday. This reading came in slightly better than the market expectation for a surplus of C$3.8 billion. 

"Following six consecutive monthly increases, total exports decreased 2.8% to $68.3 billion in July," the publication further read. "Total imports fell 1.8% in July to $64.2 billion, the first decrease since January."

Market reaction

Ahead of the Bank of Canada's (BoC) policy announcements, USD/CAD showed no immediate reaction to this report and was last seen rising 0.27% on a daily basis at 1.3188.

• GBP/USD meets with a fresh supply on Wednesday and drops to its lowest level since March 2020.
• The BoE policymakers failed to lift bets for a 75 bps September rate hike and weighed on the GBP.
• The relentless USD buying contributes to the decline and supports prospects for additional losses.

The GBP/USD pair comes under renewed selling pressure on Wednesday and sinks to the lowest level since March 2020 during the mid-European session. The pair is currently trading around the 1.1425-1.1420 region and seems vulnerable to prolonging a nearly one-month-old descending trend.

The Bank of England policymakers, including Governor Andrew Bailey, testified before the Parliament's Treasury Committee this Wednesday and failed to reinforce bets for a more aggressive rate hike. This, in turn, is seen as a key factor weighing on the British pound and exerting downward pressure on the GBP/USD pair amid relentless US dollar buying.

The BoE MPC member Silvana Tenreyro noted that we are still to see the majority of the impact of the significant policy tightening already in place. Tenreyro added that a more gradual pace of tightening reduces the risk of overshooting. Adding to this, Governor Bailey said that more forceful bank rate moves to open the door for policy hold or reversal later.

Against the backdrop of a bleak outlook for the UK economy, the not-so-hawkish remarks might continue to undermine sterling. The USD, on the other hand, hits a fresh two-decade high and continues to draw support from firming expectations that the Fed will continue to tighten its monetary policy at a faster pace to curb stubbornly high inflationary pressures.

In fact, the markets are pricing in a greater chance of a supersized 75 bps rate hike at the upcoming FOMC policy meeting on September 20-21. This, along with the prevalent risk-off mood and worries about a deeper global economic downturn, should act as a tailwind for the safe-haven greenback and supports prospects for a further depreciating move for the GBP/USD pair.

Some follow-through selling below the March 2020 low, around the 1.1410 region, will reaffirm the negative bias and pave the way for deeper losses. In the absence of any major market-moving economic releases from the US, speeches by Fed officials will play a key role in influencing the USD price dynamics. Apart from this, the broader risk sentiment might also drive the USD demand and provide some meaningful impetus to the GBP/USD pair.

Technical levels to watch

• International goods and services deficit of the US narrowed sharply in July.
• US Dollar Index clings to strong daily gains above 110.50.

The data published by the US Census Bureau showed on Wednesday that the goods and services deficit narrowed by $10.2 billion to $70.6 billion in July. This reading came in slightly higher than the market expectation for a deficit of $70.3 billion.

"July exports were $259.3 billion, $0.5 billion more than June exports," the publication further read. "July imports were $329.9 billion, $9.7 billion less than June imports."

Market reaction

These figures failed to trigger a significant market reaction and the US Dollar Index was last seen gaining 0.4% on the day at 110.68.

EUR/USD trades narrowly around 0.99. For the moment, there is little real pressure on the downside, economists at Scotiabank note.

Safe technical ground remains distant at 1.0135

“Tuesday’s range was bearish for the EUR and the failure to pick up any, lasting support after reaching a new cycle low is a negative. But the market is just about holding within the Tuesday range so far today, suggesting little real pressure on the downside at the moment.”

“Safe technical ground (major resistance) remains distant for the EUR at 1.0135. Support is 0.9850 and 0.9750.”

Post the European Central Bank (ECB) meeting, the energy crisis should remain the key driver for the euro. Therefore, economists at ING expect the EUR/USD pair to remain skewed to the downside.

The 0.98-0.99 area could prove to be a near-term anchor

“We expect the energy story to return firmly to the driving seat for EUR/USD after the post-ECB reaction. Barring a very hawkish surprise, this should keep EUR/USD below parity and prevent it to reconnect with the more supportive rate differential.” 

“The 0.98-0.99 area could prove to be a near-term anchor for EUR/USD, but a further worsening of the energy crisis and/or further dollar strengthening can trigger a drop to the 0.96-0.97 area.”

See – ECB Preview: Forecasts from 12 major banks, even 75 bps is too little to lift the euro

The European Central Bank (ECB) is set to announce its decision on monetary policy on Thursday, September 8 at 12:15 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 12 major banks.

The ECB is expected to hike rates by 50 bps but markets are wagering a 75 bps rate hike amid surging energy costs. Furthermore, the bank’s staff projections are in focus, with no respite seen for the EUR.

Danske Bank

“We now expect ECB to hike 75 bps, which will be followed by 50 bps in October and 25 bps in December, but acknowledge the increased uncertainty on the two latter hike size expectations. This is +25 bps for our previous rate hike expectations at both the September and October meetings, respectively, and we now see the end-point of the ECB deposit rate at 1.5%. As regards the reinvestment schedule, we currently do not foresee that ECB will change it, but increased market and ECB focus. We believe the euro area will face a recession and ECB will hike into that, however, we also acknowledge that even without the ECB tightening, the European economy was in a severe situation to begin with a worsening energy crisis.” 

Rabobank

“The ECB is hard-pressed to demonstrate determination to achieve its price stability objective. The macroeconomic projections will show a weaker growth outlook, but the ECB is clearly willing to risk a slowdown as inflation could -again- turn out to stay higher for longer. Inflation expectations are at risk of de-anchoring, and a weak EUR adds to price pressures. Markets price roughly 67 bp of hikes currently, and the ECB cannot underdeliver if it wants to show commitment to bring inflation back to 2%. We now expect a 75 bps rate hike, but risk of 50 bps remains significant. Lagarde will stress that this is not a precursor to more 75 bps moves.”

Commerzbank

“We expect 75 bps. Admittedly, 50 bps can by no means be ruled out either; after all, many supporters of a fundamentally loose monetary policy (‘doves’) have not spoken out recently. But 75 bps is also supported by the fact that the inflation rate for August rose again and was well above expectations. However, the ECB is unlikely to raise rates by another 75 basis points after next week's meeting since they are nearing the neutral rate. Rather, we expect 50 basis points for the October meeting and 25 basis points each for December and February 2023. At the beginning of 2023, the deposit rate would be 1.75%.”

Nordea

“We now see the ECB delivering a 75 bps hike and the bank is most likely to hike at a similar speed in October.”

TDS

“This decision is balanced on a knife's edge between 50 bps and 75 bps. We opt for the more cautious 50 bps hike on the back of recent Lane comments, but neither outcome would surprise us. A 50 or 75bp hike probably won't do many favours for the EUR, given the importance of the terms of trade shock, growth, and global risk sentiment. A more forceful ECB could limit the downside, especially if the energy shocks ease a bit. Yet, we still like selling EUR/USD rallies ahead of 1.02, aiming for a test of 0.98 in the near future.”

SocGen

“Until recently, we would not have believed in an outsized 75 bps ECB hike given the risks to the growth outlook, even though we think the ECB has reacted too slowly so far. However, with high inflation now lingering for longer, risking a more problematic wage-price spiral, and, importantly, with markets pricing in close to a 75 bps hike, the focus is rather on the risks of not raising by 75 bps, with the currency impact an important aspect. We thus think there is an urgency to reach a more neutral policy stance. Given the threat to the ECB’s credibility, we also wonder why quantitative tightening (QT) is not discussed. As we argued in the past, not using QT should imply higher rate hikes. The greatest risk of raising rates by 75 bps now is that the ECB may need to trigger the TPI soon. This, along with an uncertain growth outlook and a low neutral rate (1%), will be stressed by the doves who might put up more of a fight than in July (also as there is no TPI to compromise on). We expect rate hikes of 75 bps, 50 bps and 25 bps in the forthcoming meetings this year, taking the deposit rate into neutral territory as the economy slows, and another three 25 bps hikes next year. With high uncertainty over how effective rate hikes will be in a landscape of high excess liquidity, QT will need to be considered soon, unless a deeper slowdown in activity intervenes.”

ING

“We expect the ECB to ‘only’ hike by 50 bps. This would be a compromise, keeping the door open for further rate hikes. A 75 bps rise looks like one bridge too far for the doves but cannot be excluded. Further down the road, we can see the ECB hiking again at the October meeting but have difficulties seeing the ECB continue hiking when the eurozone economy is hit by a winter recession. Hiking into a recession is one thing, hiking throughout a recession is another.”

Nomura

“We now expect a 75 bps increase in policy rates. Continued upside surprises to price data since the last meeting, markedly elevated core and supercore inflation, as well as continued concerns over a de-anchoring of inflation expectations, will force the hand of the ECB Governing Council to tighten more aggressively in the near term. We have made other adjustments to our forecast profile and now see 50 bps hikes in both October and December, 2% peak rates by February, and cuts from September 2023.”

ANZ

“We think inflation trends and disparities merit a 75 bps hike. EUR weakness is a problem. The ECB’s task is greatly complicated by uncertainty over Russian gas supplies. Moscow’s decision not to re-start gas flows via the Nord Stream pipeline raises downside growth risks while increasing the inflation outlook. The ECB must prioritise its price stability mandate amid unprecedented uncertainty. Decisive monetary normalisation is a sensible strategy as containing inflation is central to euro area (EA) economic stability. We have raised our terminal deposit facility forecast 50 bps to 2.0%.”

Citibank

“Besides the size of the 2nd hike (we expect 50 bps), the focus will be on the prospects for the terminal rate, APP reinvestments as well as the remuneration of deposits. ECB staff projections could matter if they show above-target inflation in 2024 or deep recession.”

BMO

“We now expect the ECB to raise rates by 75 bps. How the euro reacts will be watched carefully. The ECB may not target the exchange rate, but having a weak euro also contributes to higher inflation. The sustainability of the euro’s strength will depend more heavily on 1) the general USD tone, 2) credit market conditions, and 3) energy price developments.”

ABN Amro

“We expect the ECB to raise its policy rates by 75 bps. The larger expected hike reflects: 1. The hawkish comments from the majority of Governing Council officials over the last few days 2. Headline inflation has continued to accelerate, while the drivers of price pressures have generally been more elevated than the ECB expected in June. For instance, the euro has weakened further 3. GDP in the first half of this year has come in higher than the central bank expected 4. The shift in market pricing and analyst forecasts means that a larger move would not be a shock (even though such a move is not fully priced).”

Economists at the Bank of America Global Research expect the Bank of Canada (BoC) to hike 75 basis points (bps). However, the USD/CAD pair is set to extend its race higher.

CAD yields to decline heading into year-end

“We expect the BoC to hike the policy rate by 75 bps to 3.25% to put it above the neutral range. Risks are balanced. Once the policy rate is in tightening territory the BoC will likely resume a gradual pace en route to 4.0% to tame inflation.” 

“We expect CAD yields to decline heading into year-end. Our base view is for the USD/CAD uptrend to continue in September.”

See – BoC Preview: Forecasts from eight major banks, hiking rates again

In the view of economists at Crédit Agricole CIB Research, the US dollar is the first choice for safe haven followed by the Swiss franc. Meanwhile, the only significant support for the Japanese yen is its appeal as a safe-haven currency.

JPY’s only safe-haven appeal is that it is cheap

“The USD is investors’ first choice and the CHF is likely the second choice given its geographical proximity to Europe, which currently needs safe havens, and the currency offers short-term positive yields.” 

“The JPY offers no short-term positive yields and is more exposed to high energy prices than the USD and the CHF. The JPY’s only safe-haven appeal at the moment is that it is cheap.”

GBP/USD has declined below 1.15. A break under 1.1410 would set up a test of the December 1985 all-time low around 1.0520, economists at BBH report.

UK is stepping back from a Brexit confrontation with the EU

“GBP/USD remains on track to test the March 2020 low near 1.1410. After that is the December 1985 all-time low near 1.0520.”

“The UK will reportedly request an extension to the grace periods. This is welcome news as the last thing the UK needs right now is a trade war with its largest trading partner. That said, Brexit is now on the back burner but the matter is in no way resolved.” 

“Energy price caps will help limit inflation, which at the margin lessens the need for some amount of tightening. However, the cap is an artificial construct that doesn’t do anything to address the underlying supply-demand imbalance and comes at a fiscal cost.”

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest inflation figures in Philippines.

Key Takeaways

“Headline inflation eased for the first time in six months to 6.3% y/y in Aug after hitting a 45-month high of 6.4% in Jul. The Aug inflation outturn defied our expectation for a rise to 6.5% and Bloomberg consensus for holding steady at 6.4%. It was mainly pulled down by a smaller gain in prices of food, fuels and electricity during the month.”

“However, nearly 70% of 12 CPI components saw a further jump in their prices, indicating that inflation could remain sticky in the near term. Global commodity prices are still subject to upside risks while the country’s currency (PHP) is still prone to a weakening bias, which are wildcards for the inflation outlook going into 4Q22 and 2023. Hence, we believe the blip in Aug inflation is temporary. Inflation will likely rebound to surpass 7.0% by year-end before decelerating and returning to the BSP’s 2.0%4.0% medium-term target range in 2H23. We raise our full-year inflation projections to 5.5% for 2022 (from 5.0% previously, BSP est: 5.0%) and 4.5% for 2023 (from 4.0% previously, BSP est: 4.2%).”

“As the latest inflation outturn is likely to be a temporary blip, it will not deter BSP from hiking rates further this month (22 Sep), in our view. We stick to our call that BSP will hike its policy rates by another 25bps on 22 Sep and thereafter keep the overnight reverse repurchase (RRP) rate at 4.00% through 4Q22 and 2023, unless both global and domestic environments move in unexpected directions.”

• EUR/JPY widens the rally beyond the 143.00 mark.
• Next target now comes at the 2022 high above 144.00.

EUR/JPY picks up pace and trades with gains for the fourth consecutive session on Wednesday.

Extra gains in the cross remain well favoured for the time being, with the next target now emerging at the YTD high at 144.27 (June 28).

While above the 200-day SMA at 134.68, the prospects for the pair should remain constructive.

EUR/JPY daily chart

• USD/JPY gains strong follow-through traction on Wednesday and spikes to a fresh 24-year peak.
• The Fed-BoJ policy divergences continue to weigh heavily on the JPY and remain supportive.
• Retreating US bond yields hold back the USD bulls from placing fresh bets and might cap gains.

The USD/JPY pair builds on the previous day's blowout rally and gains strong follow-through traction on Wednesday. The pair hits a fresh 24-year peak during the first half of the European session and is currently placed just above mid-144.00s.

The dramatic freefall in the Japanese yen remains a key theme in the markets amid a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks. It is worth mentioning that the BoJ has been lagging in the process of policy normalisation and remains committed to continuing with its monetary easing. This, along with a modest bounce in the equity markets, weighs heavily on the safe-haven JPY and continues to push the USD/JPY pair higher.

Bullish traders further took cues from the fact that the BoJ said it would buy ¥550 billion of bonds at its regular operations, up from ¥500 billion scheduled, to keep the benchmark 10-year yield below the 0.25% upper limit. The intraday buying, meanwhile, remains unabated despite the latest verbal warning by officials against a sharp fall of the yen. In fact, Chief Cabinet Secretary Hirokazu Matsuno told reporters that he is concerned about rapid, one-sided moves in the currency market recently and added that the government would like to take necessary steps if such movements continue.

Apart from this, the underlying strong bullish sentiment surrounding the US dollar lifts the USD/JPY pair to its highest level since August 1998. Firming expectations that the Fed will stick to its aggressive policy tightening path allow the greenback to stand tall near a two-decade high. In fact, the markets are pricing in a supersized 75 bps rate hike at the September FOMC meeting and the bets were reaffirmed by Tuesday's upbeat US ISM Services PMI. That said, a modest pullback in the US Treasury bond yields might keep a lid on any further gains for the greenback and the USD/JPY pair.

There isn't any major market-moving economic data due for release from the US on Wednesday. Hence, the focus will be on speeches by Fed officials, due later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, traders might take cues from the broader risk sentiment to grab short-term opportunities. Nevertheless, the fundamental backdrop supports prospects for further gains.

Technical levels to watch

The European Commission will propose a cap on the price of Russian gas imports and will propose a mandatory target for reducing electricity usage at peak hours, European Commission President Ursula von der Leyen told reporters on Wednesday.

"We must cut Russia's revenues which Putin uses to finance this atrocious war in Ukraine," von der Leyen added and said that they will also propose a cap on revenues of companies producing electricity with low costs.

Market reaction

EUR/USD showed no immediate reaction to these comments and it was last seen trading flat on the day at 0.9900.

UOB Group’s Economist Ho Woei Chen, CFA, and Senior FX Strategist Peter Chia, review the latest decision by the PBoC.

Key Takeaways

“In a statement on Mon (5 Sep), the People’s Bank of China (PBoC) said the reserve requirement ratio for foreign currency deposits (FC RRR) will be reduced to 6% from the current 8% with effect from 15 Sep. This is the second FC RRR cut this year, following a 100bps reduction that took effect on 15 May.”

“Given the outstanding foreign currency deposits of about USD0.95 tn, the 2 percent point cut in the FC RRR is estimated to increase liquidity by around USD19 bn.”

“With the increasing headwinds in China, the PBoC will need to maintain an accommodative monetary policy and a proactive fiscal policy to support the recovery. Chinese officials said on Mon (5 Sep) that the government will accelerate its stimulus rollout in 3Q22. Policy priority will remain on stabilising the economy as well as preventing sharp depreciation to the CNY ahead of the 20th Party Congress that starts on 16 Oct. To further stem the depreciation, the PBoC may also increase offshore bill issuance to absorb the CNH liquidity.”

“The latest move is unlikely to be a game changer for the current bout of CNY weakness. We reiterate our current set of USD/CNY forecasts which are at 7.00 in 3Q22, 7.05 in 4Q22, 7.08 in 1Q23 and 7.10 in 2Q23.”

"If we think quantitative tightening (QT) is causing too much tightening, we can offset that with less interest rate increases," Bank of England (BOE) Chief Economist Huw Pill told the UK's Treasury Select Committee on Wednesday.

"Quantities of QT that will be under consideration at next week's MPC meeting have taken market conditions into account," Pill added and explained that market prices are an important ingredient in discussions about the digestibility of QT.

Market reaction

GBP/USD stays under bearish pressure following these comments and was last seen trading at 1.1477, where it was down 0.35% on a daily basis. 

• AUD/USD stages an intraday bounce from sub-0.6700 levels touched earlier this Wednesday.
• Retreating US bond yields force the USD to consolidate its recent gains to a two-decade high.
• A positive risk tone also undermines the bucks and offers support to the risk-sensitive aussie.

The AUD/USD pair recovers its intraday losses to sub-0.6700 levels, or the lowest level since July 14 and climbs to the top end of its daily range during the first half of the European session. The pair is currently trading around the 0.6730-0.6735 region, though any meaningful recovery still seems elusive.

The US dollar now seems to have entered a bullish consolidation phase amid a modest pullback in the US Treasury bond yields. This, along with a positive risk tone undermines the safe-haven greenback and offers some support to the risk-sensitive aussie. That said, growing worries about a deeper economic downturn should keep a lid on any optimistic move in the markets. Apart from this, hawkish Fed expectations might continue to act as a tailwind for the buck and cap any attempted recovery for the AUD/USD pair.

Investors seem convinced that the US central bank tighten its monetary policy more aggressively to tame inflation and have been pricing in a 75 bps rate hike at the September meeting. Moreover, the prospects for rapid interest rate hikes, along with the economic headwinds stemming from fresh COVID-19 curbs in China and the ongoing war in Ukraine, have been fueling recession fears. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside and attempted recovery could get sold into.

There isn't any major market-moving economic data due for release from the US on Wednesday. Hence, the focus will be on speeches by Fed officials later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Apart from this, traders might take cues from the broader risk sentiment to grab short-term opportunities around the major.

Technical levels to watch

Bank of England (BOE) Governor Andrew Bailey is testifying alongside several Monetary Policy Committee (MPC) members on inflation and the economic outlook before Parliament's Treasury Committee on Wednesday.

Key quotes

more to come ...

Market reaction

GBP/USD is keeping its range around 1.1485, as Governor Bailey testifies. The spot is down 0.23% on the day, at the press time.

Bank of England (BOE) policymaker Silvana Tenreyro is testifying on the bank’s Monetary Policy Report (MPR) before Parliament's Treasury Committee on Wednesday.

Key quotes

• EUR/GBP regains positive traction and moves away from a one-week low touched on Tuesday.
• Mostly better-than-expected Eurozone macro data offers some support to the shared currency.
• The emergence of some selling around the British pound contributes to the intraday move up.
• The new UK PM’s efforts to ease the cost of living crisis, BoE rate hike bets could cap gains.

The EUR/GBP cross catches fresh bids on Wednesday and snaps a two-day losing streak to a one-week low, around the 0.8565 region touched the previous day. The cross adds to its intraday gains and hits a fresh daily high, around the 0.8630-0.8635 area during the first half of the European session.

The shared currency's relative outperformance against its British counterpart comes amid mostly better-than-anticipated economic releases from the Eurozone. According to the official data released earlier this Wednesday, German Industrial Production fell by 0.3% in July against the 0.4% decline expected. Furthermore, the Eurozone GDP was revised higher to show a growth of 0.8% during the second quarter of 2022 vs. 0.6% estimated previously.

Russian President Vladimir Putin said on Wednesday that Nord Stream 1 is practically shut down and added that we can launch Nord Stream 2 gas pipeline if necessary. This, to some extent, helps ease concerns about an extreme energy crisis in Europe and offers additional support to the common currency. This, along with the emergence of some selling around the British pound, provides an additional lift to the EUR/GBP cross.

That said, efforts by the new UK Prime Minister Liz Truss to offset the current cost of living crisis in the UK and bets for aggressive rate hikes by the Bank of England might limit losses for sterling. This, in turn, might keep a lid on any meaningful upside for the EUR/GBP cross. Investors might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the European Central Bank monetary policy meeting on Thursday. 

Technical levels to watch

Bank of England (BOE) Governor Andrew Bailey is testifying alongside several Monetary Policy Committee (MPC) members on inflation and the economic outlook before Parliament's Treasury Committee on Wednesday.

Also read: Bailey speech: On the exchange rate, there are dollar-specific factors at work

Key quotes

Bank of England (BOE) Governor Andrew Bailey is testifying alongside several Monetary Policy Committee (MPC) members on inflation and the economic outlook before Parliament's Treasury Committee on Wednesday.

Key quotes 

Bank of England (BOE) policymaker Catherine Mann is testifying on the bank’s Monetary Policy Report (MPR) before Parliament's Treasury Committee on Wednesday.

Key quotes

more to come ...

Bank of England (BOE) Chief Economist Huw Pill is testifying on the bank’s Monetary Policy Report (MPR) before Parliament's Treasury Committee on Wednesday.

Key comments

Bank of England (BOE) policymaker Silvana Tenreyro is testifying on the bank’s Monetary Policy Report (MPR) before Parliament's Treasury Committee on Wednesday.

Key quotes

The Eurozone economy expanded by 0.8% on the quarter in the three months to June of 2022 vs. 0.6% prior, the final revision confirmed on Wednesday. The market consensus was for a reading of 0.6% in the reported period.

On an annualized basis, the bloc’s GDP rate rose by 4.1% in Q2 vs. 3.9% booked in the first estimate while matching 3.9% expectations.

Meanwhile, the bloc’s Q2 Employment Change arrived at 0.4% QoQ and 2.7% YoY. The employment data surpassed expectations across the time horizon.

FX implications

EUR/USD was last seen trading at 0.9909, up 0.10% on the day. The euro failed to find any inspiration from the upbeat Eurozone GDP and employment data.

About Eurozone GDP

The Gross Domestic Product released by Eurostat is a measure of the total value of all goods and services produced by the Eurozone. The GDP is considered a broad measure of the Eurozone's economic activity and health. Usually, a rising trend has a positive effect on the EUR, while a falling trend is seen as negative (or bearish).

• Silver reverses an intraday dip and refreshes its daily high during the early European session.
• Bulls still need to wait for a move beyond the ascending channel before placing fresh bets.
• Weakness below the $17.85 area will make the XAG/USD vulnerable to retesting the YTD low.

Silver attracts some dip-buying near the $17.85 area, or the weekly low set earlier this Wednesday and refreshes the daily peak during the early part of the European session. The white metal is currently placed near the $18.20-$18.25 region, still well below a one-week high touched the previous day.

The XAG/USD is currently flirting with a resistance marked by the top boundary of a downward sloping channel extending from the August monthly swing high. Sustained strength beyond will be seen as a fresh trigger for bullish traders and pave the way for some meaningful upside in the near term.

The XAG/USD might then accelerate the momentum towards the next relevant resistance, just ahead of the $19.00 round figure. The said handle coincides with the 100-period SMA on the 4-hour chart, which if cleared decisively will suggest that spot prices have formed a bottom near the $17.55 area.

Some follow-through buying has the potential to lift the XAG/USD towards the 200-period SMA on the 4-hour chart, currently pegged near the $19.40-$19.45 region. The recovery momentum could further get extended and allow bullish traders to aim back to reclaim the $20.00 psychological mark.

On the flip side, the $18.00 mark seems to act as immediate support ahead of the daily low, around the $17.85 region. Failure to defend the said support levels will expose the YTD low, around the $17.55 area touched last Thursday en-route the ascending channel support, around the $17.00 mark.

Silver 4-hour chart

Key levels to watch

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang note USD/CNH could now challenge the key 7.0000 hurdle in the short term.

Key Quotes

24-hour view: “The strong surge in USD that easily took out a couple of strong resistance level came as a surprise (we were expecting sideway-trading). The impulsive rally is likely to extend and the level to focus on is obviously at 7.0000. A break of this level is not ruled out but in view of the deeply overbought conditions, USD may not be able to maintain a foothold above this level. Support is at 6.9620 followed by 6.9500.”

Next 1-3 weeks: “We have expected a stronger USD for more three weeks now. In our latest narrative from yesterday, we indicated that while further USD strength is likely, USD has to close above 6.9600 before a move towards 7.0000 can be expected. We did not expect the subsequent sharp rally as USD surged to 6.9816 before closing at 6.9712. From here, all eyes are on 7.0000. A break of this level would shift the focus to 7.0500. The USD strength is deemed intact as long as USD does not move below the ‘strong support’ at 6.9300 (level was at 6.9070 yesterday).”

• EUR/USD retakes the 0.9900 barrier and beyond.
• Revised EMU Q2 GDP came at 4.1% YoY, 0.8% QoQ.
• Fedspeak, trade balance figures, Beige Book all due later.

The single currency manages to regain some poise and encourages EUR/USD to return to the area above the 0.9900 mark on Wednesday.

EUR/USD shifts the focus to the ECB event

EUR/USD trades with modest gains and sets aside two consecutive daily retracements despite the continuation of the bid bias around the greenback.

Indeed, the US Dollar Index (DXY) recorded new cycle highs near 110.70 earlier in the session, although it lost some shine soon afterwards and sponsored the bounce in the pair.

The uptick in spot comes in tandem with some loss of upside momentum in the German 10y bund yields following earlier peaks around 1.65%.

The European currency is expected to trade within a prudent stance in the next hours ahead of the key ECB monetary policy meeting on Thursday. On this, investors remain tilted towards a 75 bps rate hike.

In the domestic calendar, revised GDP figures now see the EMU expanding at an annualized 4.1% in the April-June period and 0.8% inter-quarter.

Data in the US will show usual weekly MBA Mortgage Applications, trade balance results and the release of the Fed’s Beige Book. Additionally, FOMC’s Barkin, Mester and Brainard are all due to speak as well.

What to look for around EUR

EUR/USD regains upside traction following alternating trends in the appetite for the risk complex.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence. The latter, in the meantime, keeps closely following the prevailing debate around the size of the next interest rate hikes by both the ECB and the Federal Reserve.

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: Revised EMU Q2 GDP Growth Rate (Wednesday) – ECB Interest Rate Decision, Fed Powell (Thursday) – Eurogroup Meeting, Emergency Energy Meeting (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 0.13% at 0.9915 and faces the next up barrier at 1.0090 (weekly high August 26) ahead of 1.0169 (55-day SMA) and then 1.0202 (August 17 high). On the flip side, a breach of 0.9863 (2022 low September 6) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low).

EUR/USD has managed to stage a rebound following Tuesday's decline. The pair could struggle to find direction ahead of the European Central Bank's (ECB) monetary policy announcements on Thursday, FXStreet’s Eren Sengezer reports.

EUR/USD is yet to gather recovery momentum

“The lack of decisiveness behind the market pricing of the ECB rate decision could cause EUR/USD's action to remain choppy on Wednesday.”

“On the upside, 0.9935 (20-period SMA) aligns as immediate resistance ahead of 0.9980 (static level, 50-period SMA) and 1.0000 (psychological level, 100-period SMA).”

“Supports are located at 0.9900 (psychological level), 0.9880 (static level) and 0.9860 (20-year lows).”

• USD/CAD trims a part of its intraday gains amid a modest USD pullback from a two-decade high.
• Bearish crude oil prices continue to undermine the loonie and should limit any meaningful slide.
• Market participants now look to the BoC policy decision and Fedspeak for a fresh trading impetus.

The USD/CAD pair builds on the overnight goodish intraday rally from sub-1.3100 levels and gains strong follow-through traction on Wednesday. The momentum lifts spot prices back closer to the monthly high touched earlier this week, though bulls struggle to capitalize on the move or find acceptance above the 1.3200 mark.

The US dollar retreats from a fresh two-decade high set on Wednesday and turns out to be a key factor acting as a headwind for the USD/CAD pair. The fundamental backdrop, however, seems tilted firmly in favour of bullish traders and supports prospects for an extension of a nearly one-month-old strong appreciating move.

Growing acceptance that the Fed will tighten its monetary policy more aggressively to tame inflation should act as a tailwind for the greenback. In fact, the current market pricing indicates a greater chance of a 75 bps rate hike at the September FOMC meeting, which remains supportive of elevated US Treasury bond yields.

This, along with the prevalent risk-off mood, might continue to lend support to the safe-haven buck. Apart from this, declining crude oil prices could undermine the commodity-linked loonie and further contribute to limiting any meaningful pullback for the USD/CAD pair ahead of the Bank of Canada meeting later this Wednesday.

The prospects for rapid interest rate hikes, along with the economic headwinds stemming from fresh COVID-19 curbs in China and the ongoing war in Ukraine, have raised worries of a global recession. This could result in lower fuel demand, which, in turn, drags crude oil prices to their lowest level since February 2022.

Despite the aforementioned supporting factors, traders seem reluctant to place aggressive bullish bets and prefer to move to the sidelines ahead of the key central bank event risk. Investors will further take cues from speeches by Fed officials, which will influence the USD price dynamics and provide a fresh impetus to the USD/CAD pair.

Technical levels to watch

The bullish stance remains intact in USD/JPY and now faces a key resistance at 145.00, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “The outsized surge in USD to 143.07 came a surprise (we were expecting USD to range-trade). USD extended its rally during early Asian hours and could continue to rise towards 144.00. The next major resistance at 145.00 is unlikely to come into the picture for now. On the downside, any pullback is likely to stay above 142.00 (minor support is at 142.50).”

Next 1-3 weeks: “Two days ago (05 Sep, spot at 140.30), we held the view that USD is likely to advance further and we indicated that the focus is at 141.50. While our view for USD to strengthen was not wrong, we did not expect the manner by which it blast past 141.50 and rocketed to 143.07. Obviously, upward momentum is solid and the risk is still clearly for further USD strength. The next level to watch is at 145.00. Looking ahead, the next resistance above 145.00 is at the 1998 high near 147.65. Overall, the USD strength that started early last week is intact as long as it does not move below 141.00 (‘strong support’ level was at 139.30 yesterday).”

Russian President Vladimir Putin said on Wednesday that “Nord stream 1 is practically shut down,” adding that “we can launch Nord Stream 2 gas pipeline if necessary.”

Additional comments

“Proposed caps on Russian gas prices are stupid, will lead to price increases.”

“Gazprom is interested in long-term gas sales contracts.”

“The last operational Nord Stream 1 turbine is out of order.”

“We will resume Nord Stream 1 flows if they return the turbine.”

“We are working on the construction of new pipelines to transport gas, some of which pass through Mongolia to China.”

Meanwhile, German Chancellor Olaf Scholz was reported, as saying that “Russia doesn't want to deliver gas, the leak is just an excuse.”

He added that “the winter will be challenging but we will manage to get through it.”

Market reaction

EUR/USD Is holding the recovery gains above 0.9900, trading at 0.9915, up 0.16% on the day, at the time of writing.

In the opinion of strategists at UBS, the recent weakness in the oil price –which has shaved 23% off Brent crude since the mid-June peak – is not justified by market fundamentals. Here are three reasons that highlights upside for oil.

Imports from China look set to pick up

“Oil demand will be bolstered globally by its increasing use to generate electricity, reflecting the rising price or reduced availability of gas and coal.”

“Imports from China look set to pick up. Business portal Caixin has estimated that 65 million people in 33 Chinese cities are now under semi-lockdown conditions, as the government seeks to curb outbreaks of the virus. Despite this, we see a rebound in crude imports from China from such atypically low levels. Meanwhile, although China’s economic recovery has been bumpy, we see growth reviving in the coming months.”

“Global oil supplies look set to come under pressure later in the year. This is partly due to an end to sales of strategic oil reserves from OECD countries. In addition, Europe’s decision to stop imports of close to 3 million barrels a day of Russian oil will only fully take effect close to the cut-off point in December (for crude) and February (for refined products). Also, efforts to bring more Iranian oil to the global markets are still in the balance.”

“We expect Brent to end the year around $125 a barrel.”

• GBP/USD edges lower on Wednesday amid a strong bullish sentiment surrounding the USD.
• The new UK PM’s efforts to ease the cost of living crisis offer support to the British pound.
• Investors eye BoE’s Monetary Policy Report Hearings for some impetus ahead of Fedspeak.

The GBP/USD pair extends the previous day's retracement slide from levels just above the 1.1600 mark and edges lower through the first half of trading on Wednesday. The intraday slide, however, stalls just ahead of a two-and-half-year low touched earlier this week and allows spot prices to bounce back to the 1.1500 psychological mark.

Markets appear to endorse the new UK Prime Minister Liz Truss' efforts to ease the current cost of living crisis. This, along with rising bets for more aggressive interest rate hikes by the Bank of England, acts as a tailwind for the British pound and offers some support to the GBP/USD pair. Hence, the focus remains on the BoE Monetary Policy Report Hearings, due later this Wednesday.

Investors will be looking for clues about the possibility of a supersized 75 bps rate hike in September, which, in turn, might influence sterling and provide some meaningful impetus to the GBP/USD pair. In the meantime, the prevalent strong bullish sentiment surrounding the US dollar continues to exert some downward pressure on the major, warranting caution before placing any bullish bets.

Investors seem convinced that the Fed will stick to its aggressive policy tightening path and have been pricing in a 75 bps rate hike at the next FOMC meeting on September 20-21. Hawkish Fed expectations remain supportive of elevated US Treasury bond yields. This, along with recession fears, lift the safe-haven buck to a fresh two-decade high and seems to weigh on the GBP/USD pair.

Market participants now look forward to scheduled speeches by influential FOMC members, which could drive the USD demand amid absent relevant market-moving economic releases. This, along with the broader risk sentiment, could produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch

EUR/USD hovers around the 0.99 level. In the view of economists at ING, the pair may enter Thursday’s European Central Bank (ECB) meeting from this level.

A bit of calm before the ECB?

“Markets are pricing in 66 bps of tightening by the European Central Bank at tomorrow’s announcement, but our base case remains a 50 bps hike. This obviously widens the scope for a further weakening of the euro later this week, but for today, some wait-and-see approach ahead of the big risk event could cap EUR/USD volatility, and the pair may enter tomorrow’s meeting from the 0.9900 level.”

“A thread to keep an eye is the ongoing discussion among EU members about solving the energy price problem. This may have particular relevance for the ECB as an EU-wide cap on energy bills would likely put a lid on inflation expectations, as well as offer a lifeline to the battered economic outlook. German Chancellor Olaf Scholz has continued to push for an agreement on price caps and stated yesterday that this could prove to be a relatively quick mechanism to implement.”

The next key event for the euro in the week ahead will be the European Central Bank’s (ECB) upcoming policy meeting on Thursday. Economists at MUFG Bank note that the balance of risks for the euro appear more tilted to the downside.

ECB set to deliver a 75 bps hike

“We are still sticking to our view that the ECB will deliver a 75 bps hike. If the ECB disappoints market expectations and delivers another 50 bps hike it could reinforce euro weakness in the near-term.” 

“The balance of risks for the euro appear more tilted to the downside from the policy update given the eurozone rate market is already repricing in a more aggressive rate hike profile and it has failed to provide much support for the euro.”

Here is what you need to know on Wednesday, September 7:

The greenback outperformed its rivals on Tuesday on the back of upbeat ISM Services PMI data and preserved its strength early Wednesday with the US Dollar Index reaching a new multi-decade high above 110.50. Investors remain cautious mid-week as focus shifts to central bank events. Bank of England (BoE) Monetary Policy Hearings will take place at 0900 GMT and the Bank of Canada (BoC) will announce its interest rate decision at 1400 GMT. Eurostat will release the second-quarter employment change and the Gross Domestic Product (GDP) growth data ahead of the European Central Bank's (ECB) policy announcements on Thursday. During the American trading hours, several FOMC policymakers will be delivering speeches and the Fed will publish its Beige Book.

After having opened slightly higher on the day, Wall Street's main indexes closed in negative territory on Tuesday as investors ramped up hawkish Fed bets after stronger-than-expected PMI reading. According to the CME Group FedWatch Tool, markets are currently pricing in a 74% probability of a 75 basis points Fed rate hike in September, compared to 57% early Tuesday. In turn, the benchmark 10-year US Treasury bond yield gained nearly 4% on Tuesday and touched its strongest level since-mid June before going into a consolidation phase at around 3.35%.

AUD/USD lost nearly 100 pips on Tuesday despite the Reserve Bank of Australia's decision to hike the policy rate by 50 basis points. During the Asian trading hours on Wednesday, the pair continued to push lower and touched its weakest level in six weeks at 0.6700. The data from Australia showed earlier in the day that the GDP grew at an annualized rate of 3.6% in the second quarter, slightly better than the market expectation of 3.5%, but failed to help the AUD gather strength. Meanwhile, the data from China revealed that the Exports and Imports expanded at a softer pace than expected on a yearly basis in August.

In an interview with Eurofi magazine, several ECB policymakers sounded relatively cautious with regard to aggressive policy tightening. During the American trading hours on Tuesday, EUR/USD came under renewed bearish pressure and touched its weakest level in 20 years below 0.9900. The pair clings to modest recovery gains above 0.9900 early Wednesday. 

Reports suggesting that incoming UK Prime Minister Liz Truss was planning to freeze energy prices for households for 18 months helped the British pound stay resilient against its major rivals. In a speech delivered on Tuesday, Truss reiterated that she will cut taxes to reward hard work and added that she will take action on the energy crisis and unveil her plan as early as this week. GBP/USD stays relatively quiet at around 1.1500 early Wednesday.

The unabated JPY selloff continued early Wednesday and USD/JPY reached a fresh multi-decade high above 144.00. The pair is up already more than 400 pips so far this week. When asked about currency intervention, "we will take necessary steps," Japanese Finance Minister Shunichi Suzuki said on Wednesday. This comment was largely ignored by market participants as the USD/JPY was last seen rising nearly 1% on the day at 144.15.

USD/CAD trades within a touching distance of 1.3200 on Wednesday. The BoC is widely expected to raise its policy rate by 75 basis points to 3.25%. 

BoC Preview: Will BoC take its foot off the pedal?

Gold made a sharp U-turn in the second half of the day on Tuesday and suffered heavy losses amid surging US Treasury bond yields. XAU/USD trades in negative territory slightly below $1,700 early Wednesday.

Bitcoin dropped below its weekly training range on Tuesday and was last seen trading at around $18,800. Ethereum continues to stretch lower toward $1,500 after having lost more than 3% on Tuesday.

On Tuesday, the pound was the only G10 currency holding on to gains against a rising dollar as Liz Truss took office. In the view of economists at ING, the GBP/USD could retest the 1.16 level.

EUR/GBP may edge back above 0.86

“Today, expect more GBP volatility as details about Truss's plans continue to emerge. However, the net impact of support measures may not be too straightforward as they may easily get mixed in with the implications for BoE policy.”

“EUR/GBP may edge back above 0.8600 today but seems to lack strong bearish momentum, while cable could retest 1.1600.”

Considering advanced prints from CME Group for natural gas futures markets, open interest rose by around 8.5K contracts on Tuesday. In the same direction, volume extended the uptrend and went up markedly by around 118.5K contracts.

Natural Gas could revisit the $7.50 region

Prices of natural gas dropped markedly more than 7% on Tuesday on the back of rising open interest and volume. Against that, the continuation of the downtrend appears likely in the very near term, with the next target emerging at the August low around $7.50 per MMBtu.

Liz Truss has won the Conservative Party leadership election and is set to become the UK’s new Prime Minister – the fourth in six years – succeeding Boris Johnson. Looser fiscal policy may present potential upside for GBP but greater risks are to the downside regarding the UK’s relationship with the EU and broader institutional integrity, economists at HSBC report.

New Prime Minister, same old challenges

“The new PM’s plans to loosen the purse strings should provide an upward impetus to growth and inflation, which may result in a shift higher in rate expectations. This could be positive for the GBP at the margin. But it comes with significant risks. The UK’s long-term fiscal position is a big constraint which could worry investors, and if the market sees higher inflation persisting, then it can also drag on the GBP.”

“There are few signs that Ms. Truss will take a conciliatory approach to discussions with the EU. With the EU accounting for around 50% of UK exports, any policy decisions that cause a further deterioration will weigh even more on the UK’s increasingly worrying external imbalances, thereby leaving the GBP more open to volatility and lower long-term valuations.”

“Ms. Truss has been critical of the Bank of England (BoE), suggesting there could be changes to the inflation-targeting mandate or even a review of the BoE’s independence. A big shake-up of the UK’s most important financial institution could create uncertainty for investors and weigh on the GBP.”

The Bank of Canada (BoC) will announce its monetary policy decision at 14:00 GMT. Economists at ING expect the BoC to hike by 75 bps and to maintain a hawkish tone for future tightening. However, the loonie is unlikely to benefit.

75 bps hike seen in Canada

“75 bps appears to be the call from both economic consensus and the market, and we therefore think forward-looking language will drive most of CAD's reaction today. There’s surely a risk the BoC will refrain from offering any strong hint on future policy, but a reiteration that more substantial tightening is needed could be enough to see markets push their expectations for peak rates from the current 3.8% to 4%+.”

“CAD is currently going through a rough period, and any support from the BoC today may fade rapidly. However, aggressive tightening by the central bank does raise the upside potential for the loonie beyond the short-term, when a stabilisation in sentiment and solid fundamentals may allow it to recover.”

See – BoC Preview: Forecasts from eight major banks, hiking rates again

• Gold slides back closer to the monthly low, though lack any follow-through selling.
• The relentless USD buying, aggressive Fed rate hike bets weigh on the commodity.
• Recession fears, the risk-off mood offers some support to the safe-haven XAU/USD.

Gold extends the previous day's pullback from a one-week high and continues losing ground through the first half of trading on Wednesday. The third successive day of a negative move drags the XAU/USD further below the $1,700 mark, though stalls just ahead of the monthly low touched last Thursday.

The relentless US dollar buying remains unabated and turns out to be a key factor exerting downward pressure on the dollar-denominated gold. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, hits a fresh two-decade high amid expectations for a more aggressive policy tightening by the Fed.

In fact, the current market pricing indicates over a 70% chance that the Fed will raise interest rates by 75 bps at the upcoming meeting on September 20-21. The bets were reaffirmed by Tuesday's upbeat US ISM Services PMI, which triggered a sell-off in the US government debt market and lifted the yield on the 30-year bond to its highest level since 2014.

Moreover, the yield on the benchmark 10-year US Treasury note surged to levels not seen since June 16. This, in turn, is further offering additional support to the greenback and also contributing to driving flows away from the non-yielding gold. That said, the prevalent risk-off mood helps limit deeper losses for the safe-haven precious metal, at least for now.

The prospects for rapid interest rate hikes, along with the economic headwinds stemming from fresh COVID-19 curbs in China and the ongoing war in Ukraine, have been fueling recession fears. This continues to weigh on investors' sentiment, which is evident from a generally weaker tone around the equity markets and underpins traditional safe-haven assets.

The flight to safety assists gold to bounce back to the $1,700 round-figure mark, though any further recovery still seems elusive. In the absence of any major market-moving economic releases from the US, speeches by Fed officials will play a key role in influencing the USD price dynamics. This, in turn, could produce short-term trading opportunities around the commodity.

Technical levels to watch

Silver (XAG/USD)remains close to its YTD lows. Economists at Credit Suisse expect the precious metal to decline towards the $15.56 support.

Move above $21.39 needed to negate the top

“Silver maintains a large top and with the market still below the crucial 61.8% retracement support of the whole 2020/21 upmove at $18.65/15, we expect further downside from here towards the $15.56 support from a technical analysis perspective.”

“Immediate resistance remains seen at the 55-day average, currently at $19.55. Above $21.39 remains needed to negate the top.”

Gold remains under pressure and a major “double top” continues to threaten. The yellow metal could fall as low as $1,1451/40 on a close below $1,691/76, strategists at Credit Suisse report.

Only a convincing break above $1,759 would confirm further ranging in the two-year range

“We continue to stress that a closing break below $1,691/76 would be sufficient to complete a large ‘double top’, which would turn the risks lower over at least the next 1-3 months. We note that the next support should this top be triggered is seen at $1,618/16, then $1,560 and eventually $1,451/40.”

“Only a convincing break above the 55-day average at $1,759 would confirm further ranging in the two-year range, with next resistance then seen at the even more important 200-day average, currently at $1,835.”

• GBP/JPY picks up bids to refresh multi-day high, prints three-day uptrend.
• Clear upside break of three-month-old descending trend line, key DMA confluence favor buyers.
• Monthly support line adds to the downside filters, bullish MACD signals further advances.

GBP/JPY takes the bids to refresh the monthly high near 165.60 heading into Wednesday’s London open. In doing so, the cross-currency pair justifies an upside break of the three-month-long bearish trend line, as well as the convergence of the 50-DMA and 100-DMA.

As the bullish MACD signals back the quote’s latest run-up, the upside momentum is ready to challenge the highs marked during late July around 166.30.

Following that, June’s peak and the yearly top, respectively near 167.85 and 168.75, will gain the GBP/JPY buyer’s attention.

In a case where the quote remains firmer past 168.75, the 170.00 psychological magnet will be in focus.

Alternatively, pullback moves remain elusive until staying beyond the resistance-turned-support line from early June, around 164.35 by the press time.

Even so, the convergence of the 50-DMA and the 100-DMA, around 162.90-163.00, could test the GBP/JPY bears.

It’s worth noting that a monthly ascending support line, near 161.00, appears the last defense of the pair buyers.

GBP/JPY: Daily chart

Trend: Further upside expected

Further upside in AUD/USD could drag the pair to the 0.6680 region in the next weeks, suggest FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected AUD to ‘consolidate and trade between 0.6780 and 0.6840’ yesterday. AUD subsequently rose to 0.6832 before staging a surprisingly sharp sell-off to 0.6728. Not surprisingly, the sharp and swift decline is oversold but in view of the solid downward momentum, AUD could weaken further. That said, the next major support at 0.6680 (there is a minor support at 0.6705) is likely out of reach for today. On the upside, a break of 0.6775 (minor resistance is at 0.6755) would indicate that the current weakness has stabilized.”

Next 1-3 weeks: “Last Friday (02 Sep, spot at 0.6800), we highlighted that AUD is likely to weaken and a break of 0.6750 would shift the focus to 0.6705. As AUD struggled to head lower, we indicated yesterday that downward momentum has waned and a break of 0.6870 would indicate that AUD is unlikely to head below 0.6750. We did not anticipate the subsequent volatile price actions as AUD rose to 0.6832 before plummeting to crack 0.6750 (low of 0.6728). The boost in shorter-term downward momentum is likely to lead to further AUD weakness. The next support is at 0.6680. A break of 0.6680 could potentially trigger a rapid drop to 0.6600. Overall, AUD is expected to weaken as long as it does not move above 0.6800 (‘strong resistance’ level was at 0.6870 yesterday).”

“We will set out energy plan to parliament and country this week,” Britain’s new Deputy Prime Minister and Health Minister Therese Coffey said on Wednesday.

Additional quotes

Market reaction

The above comments have put a minor bid under GBP/USD, as it is closing in on 1.1500, still down 0.18% on the day.

The S&P 500 has resumed its core downtrend. Analysts at Credit Suisse look for an eventual retest of the YTD lows.

Initial resistance seen at 4063 

“Below 3900 should clear the way for a test of the uptrend from March 2020 at 3819/17. Whilst a fresh hold here may be seen our bias remains for a break in due course for a test and then break to new lows for the year below 3637 for a test of the 200-week average at 3568.” 

“Whilst we would look for better support to show at 3568, a break can clear the way for a fall to a cluster of supports at 3634/3195, which includes the 38.2% retracement of the entire uptrend from the 2009 GFC low.”

“Resistance is seen at 4063 initially, then 4120 with 4203/4228 ideally continuing to cap.”

CME Group’s flash data for crude oil futures markets noted traders added round 12.2K contracts to their open interest positions on Tuesday. Volume followed suit and increased by more than 220K contracts, reversing at the same time three daily drops in a row.

WTI: Next target at $80.00?

Prices of the barrel of WTI left behind recent strength on Tuesday and refocused on the downside, closing once again below the $90.00 mark. The daily drop was amidst increasing open interest and volume and hinted at the likelihood the further losses remain in store for the commodity in the very near term. That said, the next target of note now emerges at the $80.00 mark per barrel.

Earlier this week, USD/ZAR rallied to a new multi-month high of 17.42. Analysts at Credit Suisse raise their USD/ZAR target range to 17.00-18.00.

Adjusting target range to a stronger USD environment

“The USD’s strength is likely to remain a common feature for now. Accordingly, we raise our USDZAR target range to 17.00-18.00 (from 16.50-17.50 previously).”

“Trading-wise, in the short run we would look to fade rallies towards the top-end of our new target range as South Africa’s balance of payments dynamics are relatively favorable and given that the next local risk event – the mid-term budget review – is due only in late October.”

GBP/USD has dived below 1.15. Economists at Citi turn more bearish in the near-term and expect the pair to plummet towards 1.05/10. 

Stepping up GBP bearish call

“We step up our bearish GBP calls this week, amid deteriorating growth outlook, likely stickier inflation and the BoE hiking into recession.” 

"We call for higher risk premia related to her pre-election promises around fiscal funding, Article 16 and the BoE, and anticipate GBP/USD falling to 1.05/1.10. In the meantime, we keep an eye on the March 2020 low of ~1.1410 as next key support.”

With the unrelenting rally in USD/JPY, Japanese Finance Minister Shunichi Suzuki has returned to the wires, via Reuters, noting that they “will take necessary steps, “when asked about the chance of currency intervention.

Additional quotes

Related reads

• Japan’s Suzuki: Recent yen moves are rather rapid and one-sided
• USD/JPY Price Analysis: Bulls ignore overbought RSI to aim for fresh 24-year high near 144.60
• BOJ: Will increase buying of JGBs at regular operations

USD/JPY has surged to a new high for the year. Analysts at Credit Suisse stay bullish for their 147.62/153.01 long-held target.

Support seen at 137.57

“We maintain our core and long-held bullish outlook for our core long-term objective at 147.62/153.01 – the 38.2% retracement of the entire fall from 1982 and price high of 1998. Our bias is for a move towards the upper end of this zone when we will then be alert to a potentially important top.”

“Support at 137.57 now ideally holds to keep the immediate risk higher.”

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, GBP/USD is now expected to navigate within the 1.1465-1.1700 range for the time being.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the rapid build-up in momentum is likely to lead to further advance in GBP’. However, we were of the view that ‘a sustained rise above 1.1605 is unlikely’. Our view was not wrong as GBP subsequently rose to 1.1609 before dropping back down to end the day little changed at 1.1517 (-0.05%). Downward momentum has improved a tad and GBP could edge lower but a sustained decline below 1.1465 is unlikely (next support is at 1.1415). On the upside, a breach of 1.1560 (minor resistance is at 1.1530) would indicate that the current mild downward pressure has eased.”

Next 1-3 weeks: “There is no change to our view from yesterday (06 Sep, spot at 1.1575). As highlighted, the recent GBP weakness has run its course and GBP is likely to consolidate and trade between 1.1465 and 1.1700 for now. Looking ahead, if GBP closes below Monday’s low near 1.1445, it would suggest the weakness in GBP has resumed.”

Economists at Credit Suisse look for an eventual conclusive break of support at 0.9900 in EUR/USD for a fall to their 0.9609/0.9592 objective and likely lower in due course.

Initial resistance seen at 1.0090/97

“EUR/USD briefly flirted with a move below the 78.6% retracement of the 2000/2008 uptrend at .9900 this week and although this has not been sustained thus far our bias remains for an eventual conclusive break. This would then be seen to clear the way for a move to our 0.9609/0.9592 next objective.” 

“Whilst we would look for a fresh consolidation phase at 0.9609/0.9592, we see no reason not to look for a break below here in due course, with support seen next at 0.9330.

“Resistance stays seen at 1.0090/97 initially, with the 55-day average at 1.0185 ideally capping further strength if seen.”

• The index adds to the recent breakout of the 110.00 mark.
• Fed’s tightening expectations continue to prop up the dollar.
• Fedspeak, Balance of Trade, Beige Book next on tap.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rivals, extends the upside and prints new highs around 110.70 on Wednesday.

US Dollar Index supported by yields, Fed

The index trades with gains for the third consecutive session and widens the positive streak for the fourth week in a row, always underpinned by expectations of further tightening by the Federal Reserve.

Higher US yields across the curve have been also bolstering the uptrend in the dollar along with positive results from key fundamentals and a solid pace of job creation, all amidst the persistent tightness in the labour market.

Later in the NA session, MBA Mortgage Applications is due in the first turn seconded by Balance of Trade and the Fed’s Beige Book. In addition, St.Louis Fed T.Barkin (2024 voter, centrist), Cleveland Fed L.Mester (voter, hawk) and Vice Chair L.Brainard (permanent voter, dove) are all due to speak.

What to look for around USD

The index keeps the bullish outlook well in place and advances to fresh tops north of the 110.00 mark so far on Wednesday.

Bolstering the dollar’s strength appears the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market. This view was 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 amidst the ongoing data-dependent stance in the Fed.

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

Key events in the US this week: MBA Mortgage Applications, Balance of Trade, Fed Beige Book (Wednesday) – Initial Claims, Consumer Credit Change, Fed Powell (Thursday) – Wholesale Inventories (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 advancing 0.25% at 110.52 and a break above 110.69 (2022 high September 5) would aim for 111.90 (weekly high September 6 2002) and then 113.35 (weekly high May 24 2002). On the other hand, the next contention turns up at 107.58 (weekly low August 26) seconded by 107.01 (55-day SMA) and then 104.63 (monthly low August 10).

Gold price is extending the previous bearish reversal to trade back under the $1,700 mark. XAU/USD eyes 2021 lows of $1,677, FXStreet’s Dhwani Mehta reports.

Gold price remains vulnerable

“Should the downside momentum extend, a test of the 2022 low of $1,681 will be inevitable. Further down, the 2021 low of $1,677 will be next on bears’ radars.”

“If bulls attempt a recovery, then it will challenge the $1,700 threshold first before recapturing the $1,710 round figure. The next upside target is seen at $1,716, the 23.6% Fibo level support-turned-resistance.”

GBP/USD has fallen to Credit Suisse’s 1.1500/1.1409 objective. Their analysts look for only a temporary pause here and further weakness to 1.1020/00.

Consolidation at 1.1500/1.1409 long-held target seen as temporary only

“Whilst we continue to look for a consolidation phase at the key low of 2020 and long-term trend support stretching back to 1985 at 1.1500/1409, we remain of the view this will be temporary only.” 

“Below 1.1409 and certainly potential trend support at 1.1350 would be seen to mark a further significant deterioration with support seen next at 1.1285, ahead of 1.1020/00 and potentially back to the 1985 lows at 1.0520/1.0483.”

“Resistance is seen at 1.1717 initially with 1.1902 ideally capping.”

• EUR/GBP seesaws around intraday top while snapping two-day downtrend.
• Germany’s Industrial Production improved on MoM, eased on YoY.
• Hawkish bets on ECB keep buyers hopeful amid risk-off mood.
• BOE’s Bailey may witness more pressure for rate hikes as Liz Truss becomes UK PM.

EUR/GBP stays defensive above 0.8600 during early Wednesday morning in Europe. In doing so, the cross-currency pair justifies mixed German data amid hawkish expectations from the European Central Bank (ECB).

That said, Germany’s Industrial Production improved to -0.3% MoM in July versus -0.5% expected and 0.8% prior. Further, the YoY details signaled that the Industrial Production growth deteriorates to -1.1% versus 0.5% previous reading.

Elsewhere, the latest Reuters poll for the ECB suggests a 0.75% rate hike versus the broad market consensus, as well as the policymakers’ previous signals that favored 50 basis points (bps) of increase in the benchmark rates during Thursday’s monetary policy meeting.

“Eurozone inflation is close to its peak,” ECB Governing Council member Yannis Stournaras said previously. Following that, ECB policymaker Martins Kazaks said in an interview with Eurofi magazine that the “ECB will hike above a neutral rate if needed.” However, he added that a broad and protracted recession could slow rate hikes. Meanwhile, Governing Council member Mario Centeno said that “the ECB may achieve inflation goal with slow normalization.”

On the other hand, the British Pound (GBP) fails to cheer the chatters surrounding the multi-billion pounds worth of stimulus from incoming Prime Minister Liz Truss.

Earlier in the week, Liz Truss won the PM candidate race, which in turn propelled chatters over her plan to freeze energy prices and help power companies in Britain. “British Prime Minister Liz Truss plans to freeze energy prices for households for 18 months and allow energy companies to take out government-guaranteed loans to make up for the difference between the wholesale and retail prices,” BBC reported on Tuesday. The news also stated that Truss is expected to unveil her plan on Thursday. With this UK PM Truss proposed to freeze roughly £130 billion in household energy bills while mulling another £40 billion for small businesses.

However, fears of the recession took clues from the firmer data and growing uncertainty over the Bank of England’s (BOE) next move as Truss has criticized the British central bank multiple times for its late reaction to the inflation woes.

It should be noted that the recession fears and energy crisis in the bloc, as well as in the UK, contradict the hawkish Fed bets to weigh on the market sentiment ahead of the second-tier EU data and speech from BOE Governor Andrew Bailey.

Technical analysis

A successful upside break of the weekly resistance line, at 0.8610 by the press time, appears necessary for the EUR/GBP bulls to keep the reins. That said, the recent top surrounding 0.8675 and the yearly peak marked in June near 0.8720 will be in focus.

The Bank of Canada (BoC) is generally expected to hike its key rate by a further 75 bps. However, the loonie is unlikely to profit from such a staggering move, in the opinion of economists at Commerzbank. 

BoC likely to add another 75 bps 

“It will yet have to become clear whether the BoC’s plan of a soft landing will work out and whether it will avoid the risk of a wage-price spiral. If inflation expectations consolidate at higher levels higher rate hikes would probably be required to weaken price pressure – which would make more pronounced effects on the economy more likely.”

“A rate hike of the expected magnitude is unlikely to impress the loonie much today. Whether it will be able to benefit at least short-term depends on how hawkish the statement seems to the market and whether it contains signals for further rate steps.”

See – BoC Preview: Forecasts from eight major banks, hiking rates again

USD/CNY continues to surge higher. Analysts at Credit Suisse stay bullish for 6.9969/7.0000.

Near-term support seen at 6.8870/8717

“We have been bullish USD/CNY since mid-April when the market broke out of a bullish ‘wedge’ structure, which was reinforced recently following completion of a further ‘triangle’ bullish continuation pattern in August, with the market honing in our next objective at 6.9969/7.0000. 

“Although 7.0000 is an important psychological resistance, where we would expect another pause, the medium-term momentum picture remains very strong and we note that a break above 7.0000 would open up 7.1849 next.” 

“Near-term support is seen at the recent ‘continuation gap’ at 6.8870/8717.”

USD/JPY trades at the level of 144. That means speculation about possible Bank of Japan (BoJ) interventions is on the up again. But as economists at Commerzbank note, the effect of interventions is usually short-lived.

JPY depreciation triggers intervention speculation

“A government official has already said that the government will take the ‘necessary responses’ if the current movement continues. And at the last monetary policy meeting, the central bankers underlined that they would pay close attention to the developments in the FX market, with one member of the monetary policy committee referring explicitly to the negative effects of rapid yen depreciation. However, the effect of interventions is usually short-lived.”

“We assume that inflation momentum will ease globally next year. If it then emerges, as we expect, that all major central banks will end their rate hike cycle in the coming months the JPY weakness is likely to end of its own accord as the gulf between the other central banks and the BoJ will then no longer expand much further.”

Open interest in gold futures markets increased by around 3.1K contracts on Tuesday according to preliminary readings from CME Group. In the same line, volume went up by around 30.8K contracts.

Gold remains focused on the 2022 low

Tuesday’s downtick in gold prices was on the back of rising open interest and volume, opening the door to extra weakness in the very near term and with the immediate target at the YTD low at $1,680 (July 21).

NZD/USD hit a fresh low for the year. In the opinion of economists at ANZ Bank, it is hard to go against the USD’s momentum.

Markets remain highly focussed on offshore factors

“The US Dollar Index hit a new high for the cycle (which was also a 20yr high), and that also put commodity prices under pressure.”

“Markets remain highly focussed on offshore factors, and while NZ interest rates here will rise in broad unison with their US counterparts, the USD’s dominance will just keep piling pressure in inflation here, which in turn speaks to a firmer policy response and more pain.”

• NZD/USD is expected to display more weakness after the conclusion of the short-lived pullback.
• Solid US ISM Services PMI data backed the DXY for printing a fresh two-decade high at 110.65.
• A hawkish stance on interest rates is expected by Fed Powell in his speech on Thursday.

The NZD/USD pair is displaying a less-confident pullback after hitting the psychological support of 0.6000 in the Asian session. The asset has remained in the grip of bears and is likely to display more weakness amid a broader strength in the US dollar index (DXY). In today’s session, the major witnessed a vertical fall after surrendering the crucial support of 0.6035.

The DXY has printed a fresh two-decade high at 110.65 as the release of an upbeat US ISM Services PMI infused adrenaline rush into the bulls. The Non-Manufacturing ISM data landed at 56.9, higher than the estimates and the prior release of 55.1 and 56.7 respectively.

This week, the speech from Federal Reserve (Fed) chair Jerome Powell will remain in the limelight. Fed Powell is expected to provide clues about the likely monetary policy action this month. It is highly likely that a ‘hawkish’ stance will be adopted on interest rates as solid US fundamentals have provided more room to the Fed for hiking interest rates unhesitatingly. Decent employment generation, stable manufacturing activities, and solid Services PMI have delighted Fed policymakers to sound hawkish without any hesitation.

On the NZ front, downbeat China’s trade balance data has weakened the kiwi bulls. Chinese imports have landed extremely lower at 0.3% against the expectations and the former release of 1.1% and 2.3% respectively.  Also, the export data have been trimmed to 7.1% vs. estimates of 12.8%. China’s Trade Balance has slipped sharply to $79.39B against the expectations of $92.7B. It is worth noting that New Zealand is a leading trading partner of China and weaker Chinese imports are capable to weaken the antipodean.

The US dollar was able to gain across the board on Tuesday. Economists at Commerzbank believe that a fresh wave in dollar appreciation would not be justified.

Start of a new dollar rally?

“Long-term inflation expectations (5x5) are still stable, and there are no indications that the market expects rampant inflation as in the 1970s/80s as a result of the early rate cuts. Nevertheless, higher inflation in the long run also implies a less strong dollar – assuming that other central banks are more determined in their fight against inflation.”

“Currently, however, there are no signs that the Fed is taking a significantly different course compared with other central banks. Hence, a renewed surge in dollar appreciation would not be justified in our eyes.”

Industrial Production in Germany dropped in July, the official data showed on Friday, suggesting that the manufacturing sector activity is fading its recovery.

Eurozone’s economic powerhouse’s industrial output fell by 0.3% MoM, the federal statistics authority Destatis said in figures adjusted for seasonal and calendar effects, vs. a -0.4% expected and 0.8% last.

On an annualized basis, German industrial production fell by 1.1% in July versus a -0.5% drop booked previously.

FX implications

The shared currency remains pressured below 0.9900 on the downbeat German industrial figures.

At the time of writing, EUR/USD is trading at 0.9889, down 0.12% on the day.

About German Industrial Production

The Industrial Production released by the Statistisches Bundesamt Deutschland measures the outputs of the German factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive (or bullish) for the EUR, whereas a low reading is seen as negative (or bearish).

The outlook for EUR/USD remains negative and could still drop to the 0.9850 region ahead of 0.9800 in the next weeks, according to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘the rebound in EUR has scope to extend but is unlikely to break 1.0005’. While our view was not wrong as EUR rose to 0.9986 during early London hours, we did not expect the subsequent sharp drop from the high (EUR plummeted to a fresh low of 0.9864). The rapid drop appears to be running ahead of itself but there is scope for EUR to test 0.9850. For today, the next support at 0.9800 is unlikely to come under threat. On the upside, a breach of 0.9955 (minor resistance is at 0.9930) would indicate that the current downward pressure has eased.”

Next 1-3 weeks: “Last Friday (02 Sep, spot at 0.9945), we highlighted that the risk for EUR has shifted to the downside. We added, EUR has to close below the major support at 0.9900 before a sustained decline is likely. After EUR dropped to 0.9875 and rebounded strongly, we highlighted yesterday that the odds for EUR to close below 0.9900 have diminished. EUR subsequently rose to 0.9986, plummeted to 0.9862 before rebounding to close at 0.9902 (-0.24%). While EUR did not close below 0.9900, shorter-term momentum has improved. In other words, the risk for EUR is still on the downside. The levels to monitor are at 0.9850 and 0.9800. Resistance wise, a breach of 0.9980 (‘strong resistance was at 1.0005 yesterday) would indicate that the downside risk has dissipated.”

EUR/USD remains on the back foot around the 19-year low marked the previous day, retreating to 0.9890 heading into Wednesday’s European session, as hawkish Fed bets join options market signals to weigh on the major currency pair.

Also keeping the pair bears hopeful is the cautious mood ahead of the European Central Bank (ECB) monetary policy meeting and a speech from Fed Chair Jerome Powell, scheduled for Thursday.

That said, one-month risk reversal (RR), a difference between the call and puts, braces for the second weekly loss, down to -0.140 at the latest, while portraying the options market’s bearish bias.

Elsewhere, the US Treasury yields rally to a fresh multi-day high to propel the US Dollar Index (DXY) towards renewing the two-decade top. The same joins hawkish Fed bets to weigh on the market sentiment and weigh on the EUR/USD prices. That said, the Fed Fund Futures print 75% chance of a 0.75% rate hike in September while the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Moving on, Germany’s Industrial Production and final reading of the Eurozone Gross Domestic Product (GDP) for the second quarter (Q2), expected to confirm 3.9% YoY initial forecasts, could entertain traders. However, Thursday’s ECB meeting and Fed Chair Powell’s speech will be crucial for the EUR/USD pair traders to watch for clear directions.

• AUD/USD licks its wounds at the lowest levels in two months.
• Australia’s Q2 GDP came in mixed, China trade data disappoints.
• Hawkish Fed bets, pessimism surrounding economic transition favor bears.
• Second-tier US data, Fedspeak will be important for fresh impulse ahead of RBA’s Lowe.

AUD/USD struggles to defend the 0.6700 intraday loss heading into Wednesday’s European session as risk-aversion joins softer data from Australia and China. Also exerting downside pressure on the Aussie pair are the hawkish Fed bets.

Although Australia’s second quarter (Q2) Gross Domestic Product rose to 3.6% YoY versus 3.5% market consensus and 3.3% prior, softer QoQ prints of 0.9% compared to 1.0% expected and 0.8% previous readings weighed on the AUD/USD prices. In doing so, the Aussie pair ignored price-positive comments from Australia’s Treasurer Jim Chalmers who said, “There are still significant reasons to be optimistic about the economy.”

That said, “China's exports growth weakened in August, as surging inflation crippled overseas demand and fresh COVID curbs and heatwaves disrupted production, reviving downside risks for the economy,” per Reuters. The news also mentioned that the exports rose 7.1% in August from a year earlier, slowing from an 18.0% gain in July, official customs data showed on Wednesday. The reading missed analysts' expectations for a 12.8% increase.

On the other hand, the US Treasury yields rally to a fresh multi-day high to propel the US Dollar Index (DXY) towards renewing the two-decade top. The same joins hawkish Fed bets to weigh on the market sentiment and weigh on the AUD/USD prices. That said, the Fed Fund Futures print 75% chance of a 0.75% rate hike in September while the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Amid these plays, S&P 500 Futures that drops to the fresh low in seven weeks, down 0.55% intraday around 3,890 at the latest.

Looking forward, the monthly prints of the US trade balance and Fed Beige Book updates could entertain AUD/USD traders ahead of early Thursday’s speech from the Reserve Bank of Australia (RBA) Governor Philip Lowe. However, major attention will be given to the various Fed speakers scheduled for public appearances in the next two days, including Fed Chairman Jerome Powell.

Technical analysis

Nearly oversold RSI conditions test AUD/USD bears near the yearly low marked in July, close to 0.6680. Even so, a one-week-old descending resistance line, around 0.6805 by the press time, challenges the recovery moves.

• Oil prices have weakened after surrendering the critical support of $86.00.
• The 20-EMA has acted as a major hurdle for bulls.
• A downside move towards the 38.2% Fibo retracement is highly expected.

West Texas Intermediate (WTI), futures on NYMEX, are tumbling after failing to defend the critical support of $86.00 in the Asian session. The black gold has refreshed its seven-month low at $85.21 and is eyeing more weakness amid an overall bearish structure.

On a daily scale, the oil prices are declining towards the 38.2% Fibonacci retracement (placed from 21 April 2020 low at $8.46 to March 3 high at 126.51) at $81.23. The black gold is auctioning in a Falling Channel chart pattern whose upper portion is placed from June 14 high at $121.02 while the lower portion is plotted from May 19 low at $102.99.

The 20-period Exponential Moving Average (EMA) at $94.06 has acted as major resistance for the counter.

Meanwhile, the Relative Strength Index (RSI) (14) is on the verge of dropping into the bearish range of 20.00-40.00, which signals a continuation of downside momentum.

A decisive drop below the round-level support of $85.00 will drag the oil prices towards the 38.2% Fibo retracement at $81.23, followed by July 6 high at $76.40.

On the flip side, bulls could defend the downside momentum and approach a bullish reversal if the asset oversteps August 29 high at $97.00. An occurrence of the same will send the asset towards the psychological resistance at $100.00 and July 8 high at $102.77.

WTI daily chart

• Copper price refresh intraday low to print the first daily loss in four.
• China’s copper imports jumped 26% YoY in August.
• Recession woes, hawkish Fed bets could be linked to the bear’s return.

Copper price drops around 1.5% intraday while marking the biggest daily fall the week during early Wednesday in Europe. In doing so, the red metal also snaps the previous three-day rebound from the six-week low.

That said, three-month copper prices on the London Metal Exchange (LME) closed at $7,801.50 a tonne on the last trading day of August, up 8.5% from a 20-month low hit on July 15 but still down 19.7% from the beginning of this year, reported Reuters.

While tracing the reasons, fears of economic slowdown in the largest customer China, as well as across the globe, gain major attention. Also exerting downside pressure on the metal prices are the increasing market bets over the Fed’s aggression. On the contrary, a jump in China’s imports of copper should have favored the metal prices but could not.

“China imported 26% more copper in August than a year earlier, customs data on Wednesday showed, as lowered prices and stocks amid power rationing enhanced the appetite for foreign supply,” said Reuters. The news also mentioned that the unwrought copper and copper product imports into China - including anode, refined, alloy and semi-finished copper products - totaled 498,188.60 tonnes in August. That compared with the year-earlier volume of 394,017.10 tonnes, a two-year low.

It should be noted that the decline in the warehouse stocks also fails to please copper buyers. “Shanghai Futures Exchange copper warehouse stocks dropped to a seven-month low of 31,205 tonnes on August 19,” reported Reuters.

On a different page, the US Treasury yields rally to a fresh multi-day high to propel the US Dollar Index (DXY) towards renewing the two-decade top. The same joins hawkish Fed bets to weigh on the market sentiment and push USD/JPY to the fresh high in 24 years, as well as the USD/CNH towards the key 7.000 threshold.

US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

With this, the commodities hold lower grounds while the US stock futures and the Asia-Pacific equities print losses at the latest.

Moving on, the monthly prints of the US trade balance and Fed Beige Book updates could entertain the commodity traders. However, major attention will be given to the various Fed speakers scheduled for public appearances in the next two days, including Fed Chairman Jerome Powell.

• USD/INR picks up bids to reverse the previous day’s losses.
• DXY refreshes 24-year high as Fed Fund Futures hint at 75% chance of 0.75% rate hike in September.
• Rupee traders fail to praise Indian FinMin optimism amid recession woes.
• Reuters poll suggests more trouble for INR, focus on Fedspeak.

USD/INR prints mild gains around 79.95 during the initial Indian trading session on Wednesday. In doing so, the rupee (INR) pair recalls the sellers amid broad US dollar strength, as well as an absence of optimism at home.

“India's digital revolution offered investment opportunities for the United States,” said Indian Finance Minister (FinMin) Nirmala Sitharaman per Reuters. The Finance Ministry report also mentioned that the external debt rose by 8.2%  YoY to USD 620.7 billion as of March 2022. The communiqué terms it sustainable but failed to impress INR buyers.

On the other hand, India's battered rupee will trade not far from its lifetime low against the U.S. dollar into next year and remain vulnerable to a worsening trade balance and an aggressive U.S. Federal Reserve rate-hiking campaign, according to a Reuters poll.

It should be noted that the latest downbeat oil prices seem to probe the USD/INR buyers, due to India’s reliance on oil imports. That said, WTI crude oil prices drop to the fresh low since late January, down 1.90% near $85.00 by the press time, whereas

US Treasury yields rally to a fresh multi-day high to propel the US Dollar Index (DXY) towards renewing the two-decade top. The same joins hawkish Fed bets to weigh on the market sentiment and push USD/INR to the north. US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

While portraying the mood, Asia-Pacific shares remain pressured while S&P 500 Futures drops to the fresh low in seven weeks, down 0.55% intraday around 3,890 at the latest.

Looking forward, a light calendar at home keeps USD/INR at the mercy of Western events and risk catalysts. Hence, the monthly prints of the US trade balance and Fed Beige Book updates could entertain traders. However, major attention will be given to the various Fed speakers scheduled for public appearances in the next two days, including Fed Chairman Jerome Powell.

Technical analysis

Although a downward sloping resistance line from late July restricts short-term USD/INR upside near 80.25, the bears need validation from the monthly support line, at 79.65 by the press time.

• EUR/JPY is expected to overstep 142.50 after a mild corrective hiatus.
• The odds of widening ECB-BOJ policy divergence are accelerating sharply.
• A decline in Japan’s Overall Household Spending data has weakened the yen bulls.

The EUR/JPY pair has displayed a perpendicular rally in the Asian session after an upside break of the consolidation formed in a narrow range of 141.33-141.50. The cross has remained in the grip of bulls for the past month on expectations of a wider European Central Bank (ECB)-Bank of Japan (BOJ) policy divergence ahead.

For Thursday’s monetary policy meeting, the ECB is set to announce a rate hike by 50 basis points (bps). ECB President Christine Lagarde is entirely focused on containing inflationary pressures. Eurozone central bank’s most preferred inflation measure, Harmonized Index of Consumer Prices (HICP) has already sky-rocketed to 9.1% and it is highly needed to tame sooner. It is worth noting that the ECB has remained a little late in escalating interest rates unlike its Western peers, which adopted a sheer pace in hiking the same due to regional imbalance.

Meanwhile, accelerating energy prices are becoming havoc for the shared currency bulls. As Russia has cut off gas supplies to Europe through Nord Stream 1 pipeline in response to western sanctions and the winter season is on doors, which will demand more energy, the eurozone energy crisis is deepening further.

On the Tokyo front, Bank of Japan (BOJ)’s failure in escalating the demand by households has weakened the yen bulls. The central bank is continuously flushing liquidity into the economy to spurt retail growth; however, a decline in Overall Household Spending has demolished the prolonged BOJ’s prudent stance. The economic data landed at 3.4%, lower than the expectations of 4.2% and the prior release of 3.5%.

• Asia-Pacific shares remain bearish as softer statistics joins broad economic woes.
• Australia’s Q2 GDP, China trade numbers fail to impress bulls, neither did the stimulus efforts.
• Markets pricing of 0.75% Fed rate hike in September increased after firmer US data.
• Fedspeak, stimulus updates could entertain traders.

Shares in the Asia-Pacific region traced Wall Street’s losses on Wednesday as economic pessimism grows after firmer US data underpins Fed’s aggression while downbeat figures at home amplify recession concerns.

While portraying the mood, the MSCI’s Index of Asia-Pacific shares outside Japan drops to the fresh low in two years, down 1.11% by the press time. That said, Japan’s Nikkei 225 lost nearly 1.0% to 6,725 by the press time of early European morning.

It’s worth noting that Hong Kong’s Hang Seng leads the Asia-Pacific bears with a 1.75% daily fall while Australia’s ASX 200 appears the second one on the bearish line. Aussie markets fell after Australia’s second quarter (Q2) Gross Domestic Product eased to 0.9% QoQ versus 1.0% expected and 0.8% prior. The YoY details suggest 3.6% growth compared to 3.5% market consensus and 3.3% in previous readings. Earlier in the day, Australia’s AiG Performance of Services Index rose past 51.7 prior to 53.3 in August.

Elsewhere, “China's exports growth weakened in August, as surging inflation crippled overseas demand and fresh COVID curbs and heatwaves disrupted production, reviving downside risks for the economy,” per Reuters. The news also mentioned that the exports rose 7.1% in August from a year earlier, slowing from an 18.0% gain in July, official customs data showed on Wednesday. The reading missed analysts' expectations for a 12.8% increase.

It should be noted that the US Treasury yields rally to a fresh multi-day high to propel the US Dollar Index (DXY) towards renewing the two-decade top. The same joins hawkish Fed bets to weigh on the market sentiment and push USD/JPY to the fresh high in 24 years, as well as the USD/CNH towards the key 7.000 threshold.

US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

On a broader front, S&P 500 Futures that drops to the fresh low in seven weeks, down 0.55% intraday around 3,890 at the latest.

Elsewhere, WTI crude oil prices drop to the fresh low since late January, down 1.90% near $85.00 by the press time, whereas

Looking forward, the monthly prints of the US trade balance and Fed Beige Book updates could entertain investors. However, major attention will be given to the various Fed speakers scheduled for public appearances in the next two days, including Fed Chairman Jerome Powell.

• Gold price is sustaining below $1,700.00 as the DXY has strengthened further.
• The DXY has printed a fresh two-decade high at 1106.65 on robust US ISM Services PMI data.
• The precious metal may find support at around $1,680.00.

Gold price (XAU/USD) has displayed a vertical downside move in the Asian session and has printed a fresh four-day low below $1,693.00. The precious metal sensed a sheer downside momentum after delivering a downside break formed the consolidation formed in a narrow range of $1,700.00-1,704.08. The yellow metal is expected to display more weakness as the US dollar index (DXY) is picking bids ahead of the speech from Federal Reserve (Fed) chair Jerome Powell, scheduled for Thursday.

Price pressures in the US economy, last recorded at 8.5% for July, indicated that the inflation rate has topped now and the downside cycle has initiated. However, the whooping figure of 8.5% has widely deviated from the desired rate of 2%. Therefore, the Fed cannot halt the rate hike cycle till the price rise index display a meaningful downside.

Meanwhile, the US dollar index has refreshed its two-decade high at 110.65. As the US economic indicators are delighting the Federal Reserve (Fed) and are providing them room for escalating the interest rates further, the DXY is marching higher. On Thursday, investors should brace for a hawkish stance on interest rates by Fed chair Jerome Powell.

Gold technical analysis

Gold prices are plummeting and may find a cushion around July 21 low at $1,680.90. The 50-period Exponential Moving Average (EMA) at $1,717.65 has acted as major resistance for the counter. Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which signals a continuation of downside momentum.

Gold four-hour chart

• GBP/USD extends the previous day’s pullback towards four-month-old support line.
• Oversold RSI (14), lower line of the monthly bearish channel acts as additional downside filters.
• 10-DMA guards immediate upside, buyers need validation from July’s low.

GBP/USD holds lower grounds near the two-year bottom, marked on Monday, as bears flirt with the 1.1450 while flashing the biggest daily loss in a week. With this, the Cable pair approaches the latest low near 1.1443 heading into Wednesday’s London open.

A downward sloping support line from May, around 1.1425, appears an immediate challenge for the GBP/USD bears considering the oversold RSI (14).

Following that, the March 2020 low near 1.1410 ad the support line of a one-month-old falling channel, near 1.1380, will be in focus.

Should the GBP/USD prices drop below 1.1380, the odds of witnessing a slump towards the early 1985 levels surrounding 1.1000.

Alternatively, recovery moves remain elusive until staying below the 10-DMA resistance near 1.1610.

Also acting as an upside hurdle is the stated channel’s top, at 1.1640 by the press time.

Even if the GBP/USD bulls manage to cross the 1.1640 hurdle, July’s low of 1.1760 could challenge the upside momentum.

To sum up, GBP/USD is likely to remain on the bear’s radar but the downside room is limited.

GBP/USD: Daily chart

Limited downside expected

“US central bank must lift interest rates to a level that restrains economic activity and keep them there until policymakers are “convinced” that rampant inflation is subsiding,” said Richmond president Thomas Barkin In an interview with the Financial Times (FT).

Key quotes

FX implications

The news adds strength to the US Dollar Index (DXY) which stays at the highest level in 20 years, up 0.36% intraday to 110.62 by the press time.

• USD/CNH renews two-year low amid softer China trade numbers, risk-off mood.
• Increasing fears of PBOC intervention, rising yields and covid woes also underpin bullish bias.
• Fedspeak appears important catalyst amid increasing hawkish bets on September rate hike.

USD/CNH prints a five-day uptrend as it rises to the fresh high since August 2020 after Chinese trade numbers favored the pair bulls during early Wednesday. Also favoring the upside momentum are the risk-aversion and hawkish Fed bets that underpin the US dollar’s strength.

“China's exports growth weakened in August, as surging inflation crippled overseas demand and fresh COVID curbs and heatwaves disrupted production, reviving downside risks for the economy,” per Reuters. The news also mentioned that the exports rose 7.1% in August from a year earlier, slowing from an 18.0% gain in July, official customs data showed on Wednesday. The reading missed analysts' expectations for a 12.8% increase.

Despite the recent easing in the covid-led lockdowns, China continues to suffer in picking up the economic transition, which in turn pushed the People’s Bank of China (PBOC) to recently cut the Reserve Ratio Requirements (RRR). “Traders and analysts said the central bank's persistent firmer-than-expected midpoint fixings could be an attempt to prevent the local currency from quickly breaching the key threshold,” Reuters also said in this regard.

On the other hand, US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

While portraying the mood, the US 10-year Treasury yields rise to a fresh high since June 15 during the three-day uptrend to 3.35%. Also portraying the risk-aversion is the S&P 500 Futures that drops to the fresh low in seven weeks, down 0.55% intraday around 3,890 at the latest.

Moving on, the monthly prints of the US trade balance and Fed Beige Book updates could entertain USD/CNH traders. However, major attention will be given to the various Fed speakers scheduled for public appearances in the next two days, including Fed Chairman Jerome Powell.

Technical analysis

A sustained upside break of the monthly resistance line, now support around 6.9820, direct USD/CNH prices towards the 7.000 threshold, as well as the July 2020 peak surrounding 7.030.

• EUR/USD has slipped to near 0.9880 as the DXY has strengthened after a rebound in Services PMI.
• Investors should brace for a 50 bps rate hike announcement by the ECB.
• The Eurozone energy crisis will deepen further as the winter season will have more gas demand.

The EUR/USD pair has dropped to near 0.9880 as the US dollar index (DXY) has strengthened after a fresh rally kicked in. The asset extended its losses in the Asian session after surrendering the round-level support of 0.9900. Considering the overall context, the asset is expected to print fresh lows in no time.

The DXY has recorded a fresh two-decade high at 110.65 in the Asian session. The asset has displayed a juggernaut rally after the release of upbeat US ISM Services PMI data on Tuesday. The Non-Manufacturing ISM data landed at 56.9, higher than the estimates and the prior release of 55.1 and 56.7 respectively. A surprising improvement in the Services PMI strengthened the mighty US dollar index (DXY).

Going forward, the speech from Federal Reserve (Fed) chair Jerome Powell will hog the limelight. As price pressures in the US economy are highly deviated from the desired rate of 2% despite showing exhaustion signals, Fed Powell will sound hawkish and will most likely discuss a third consecutive 75 basis points (bps) rate hike.

On the eurozone front, investors are awaiting the announcement of the interest rate decision by the European Central Bank (ECB). As per the consensus, ECB President Christine Lagarde will announce a rate hike by 50 basis points (bps). The ECB is required to take informed steps on restrictive monetary policies due to regional imbalance.

Also, soaring energy prices are a big concern for the trading bloc. Russia has cut off gas supplies to Europe through Nord Stream 1 pipeline in response to western sanctions levied on Russia. As the winter season is on doors and will demand more energy, the eurozone energy crisis is deepening further.

• AUD/USD is expected to surrender the 0.6700 support on lower-than-expected China import data.
• Earlier, the Australian GDP data remained a little lower than estimates on a quarterly basis.
• The DXY has refreshed its two-decade high at 110.61 on soaring hawkish Fed bets.

The AUD/USD pair is eyeing a slippage below the immediate support of 0.6700 after the release of downbeat China’s import data. Chinese imports have landed extremely lower at 0.3% against the expectations and the former release of 1.1% and 2.3% respectively.  Also, the export data have been trimmed to 7.1% vs. estimates of 12.8%. China’s Trade Balance has slipped sharply to $79.39B against the expectations of $92.7B. It is worth noting that Australia is a leading trading partner of China.

The week has remained too much volatile for the aussie bulls. First, the Reserve Bank of Australia (RBA) hiked the Official Cash Rate (OCR) by 50 basis points consecutively for fourth time and pushed the OCR to 2.35%. Also, the RBA provided a further roadmap by setting a target for interest rates at 3.85%, which will be met next year. Also, discussed the peak of the inflation rate, which is seen at 7%.

Then, Gross Domestic Product (GDP) numbers, were mostly decent. The economic data landed at 0.9%, lower than the expectations of 1% but above the prior release of 0.8% on a quarterly basis. However, the annual data has improved to 3.6% against the estimates and the prior print of 3.5% and 3.3% respectively.

Too many catalysts this week are confusing the market participants in designing positions for the AUD/USD pair. Right from the rate hike decision by the RBA to mixed GDP numbers, investors are in fix to chase downside momentum due to an upbeat US dollar index (DXY) or shift to aussie bulls.

Meanwhile, the US dollar index (DXY) has refreshed it's two-decade high at 110.61 as odds of a rate hike by the Federal Reserve (Fed) have increased significantly. The speech from Fed chair Jerome Powell, scheduled on Thursday will dictate the likely monetary policy action.

China's Trade Balance for August, in Yuan terms, came in at CNY535.91 billion versus CNY504.85 expected and CNY682.69 billion last.

The exports jumped by 11.8% last month vs. 15.7% expected and 23.9% previous.

The country’s Imports rose by 4.6% vs. 8.7% expected and 7.4% prior.

In USD terms,

China reported a big drop in the trade surplus, as exports and imports both missed expectations.

Trade Balance came in at +79.39B versus +92.7B expected and +101.26B previous.

Exports (YoY): +7.1% vs. +12.8% exp. and +18.0% prior.

Imports (YoY): +0.3% vs. +1.1% exp. and +2.3% last.

FX implications

AUD/USD is hurt by the downbeat Chinese trade figures, reverting to challenge the 0.6700 level once again. The spot is down 0.44% on the day, at the press time.

• USD/JPY remains firmer around multi-day top, cheers upside break of bullish channel.
• Overbought RSI tests bulls on their way to an ascending resistance line from late April.
• Bears need to conquer 139.40 to retake control.

USD/JPY dribbles around 143.50 after rising to the highest level since 1998 during Wednesday’s Asian session. In doing so, the yen pair cheers an upside break of the monthly bullish channel while ignoring the overbought RSI conditions.

That said, the higher-high and higher-low formation keeps USD/JPY buyers hopeful of refreshing the yearly top.

In doing so, an upward sloping resistance line from late April, near 144.60, gains major attention.

Should the USD/JPY bulls keep rushing towards the north of 144.60, tops marked during June and August of the year 1998, respectively near 146.80 and 147.70, will be in focus.

Meanwhile, pullback moves need validation from the resistance-turned-support line of the stated channel, around 142.60 by the press time.

Following that, the southward trajectory could aim for the 140.00 threshold. However, the USD/JPY bears will need a clear downside break of the 139.40 support confluence, including the stated channel’s lower line and July’s top, to retake control.

Overall, USD/JPY is ready to refresh the multi-year top but the upside room is limited.

USD/JPY: Daily chart

Trend: Limited upside expected

Australia’s Treasurer Jim Chalmers is making some optimistic comments on the economic outlook during his appearance on Wednesday.  

Key quotes

His comments come after the Australian GDP missed estimates with 0.9% QoQ in Q2. The market forecast was for a 1.0% print.

Market reaction

At the time of writing, AUD/USD is attempting a tepid bounce to near 0.6720, finding some support from the above comments from Chalmers.

• USD/CAD takes the bids to print three-day uptrend, pokes two-month high marked the last week.
• Recession woes, hopes of Fed’s aggression join OPEC+ shallow production cut to weigh on oil prices, propel USD/CAD.
• BOC is expected to announce 0.75% rate hike but the Rate Statement will be important.
• Fedspeak, second-tier US/Canada data may also entertain pair traders.

USD/CAD rises for the third consecutive day as it refreshes the weekly high near 1.3190 during Wednesday’s Asian session. In doing so, the Loonie pair cheers firmer yields and a risk-aversion wave to please buyers around the highest levels in two months ahead of the Bank of Canada (BOC) Monetary Policy Meeting.

Downbeat prices of WTI crude oil, Canada’s main export item, also propel the USD/CAD prices as traders brace for the fifth BOC rate hike of 2022.

That said, the WTI crude oil prices drop to the fresh low since late January, down 1.70% near $85.40 by the press time, as recession woes join the firmer US dollar. Also exerting downside pressure on the commodity prices could be the market’s perception of the latest output cut from the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+.

Elsewhere, firmer US data underpinned the hawkish Fedbets and joined the covid-linked pessimism in China, as well as the energy crisis in Europe, to favor the US dollar.

US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Amid these plays, the US 10-year Treasury yields rise to the fresh high since June 15 during the three-day uptrend to 3.35%. Also portraying the risk-aversion is the S&P 500 Futures that drops to the fresh low in seven weeks, down 0.55% intraday around 3,890 at the latest.

Looking forward, the firmer US dollar and softer oil prices, as well as the downbeat risk appetite, could keep the USD/CAD bulls hopeful even as the BOC is expected to lift the benchmark rate by 75 bps to 3.25%. However, hawkish comments from the BOC Rate Statement and softer Fedspeak may allow the Loonie pair to consolidate recent gains.

Also read: BoC Preview: Will BoC take its foot off the pedal?

Technical analysis

A two-month-old resistance line, at 1.3220 by the press time, joins nearly overbought RSI (14) to challenge USD/CAD buyers. The sellers, on the other hand, need a daily closing below the monthly support line, at 1.3050 as we write, to retake control.

Strategists at Citi Group project a bearish outlook for the GBP in the near term, expecting GBP/USD to extend weakness towards 1.0500 levels.

Key quotes

"CitiFX Strategy team stepped up their bearish GBP calls this week, citing the deteriorating growth outlook, likely stickier inflation, and the BoE hiking into recession.”

"CitiFX Strategist calls for higher risk premia related to her pre-election promises around fiscal funding, Article 16 and the BoE, and anticipates GBPUSD falling to 1.05-1.10. In the meantime, we keep an eye on the March 2020 low of -1.1410 as the next key support.”

• Steel price fades the previous day’s rebound from monthly low.
• Risk-off mood, hawkish Fed bets propel US dollar, weighing on steel price.
• Covid woes, emission-lined production jitters add to the negative catalysts.

Steel price holds lower ground near the monthly low, reversing the previous day’s bounce, as risk-aversion joins hawkish bias on the Fed’s next moves and pessimism surrounding China to weigh on the metal prices. That said, the mixed clues and anxiety ahead of the top-tier data/events seem to restrict the quote’s latest moves during Wednesday’s Asian session.

That said, the most active contract of steel rebar on the Shanghai Futures Exchange (SFE) drops to 3,658 yuan per tonne at the latest.

“Most base metals in Shanghai slid on Wednesday, dragged by a stronger dollar and a bearish demand outlook amid worries about a recession in major economies,” per Reuters.

Alternatively, growing fears of economic slowdown, amid the energy crisis and China’s covid woes, join the firmer US data and hawkish Fed bets to weigh on the metal prices. That said, US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high.

That said, the DXY stays firmer around the highest levels in 20 years, up 0.22% intraday near 110.50 at the latest. Recently, the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Moving on, China’s trade numbers for August will precede the Fedspeak to direct short-term moves in steel prices.

Japanese Finance Minister Shunichi Suzuki said on Wednesday that “recent yen moves are rather rapid and one-sided,” per Jiji News.

Additional quotes

“Recent forex moves are somewhat rapid.”

“Rapid fx moves not desirable.”

“Forex rates should reflect fundamentals.”

“Have strong interest whether these recent forex moves will continue.”

Meanwhile, Japanese Chief Cabinet Secretary Hirokazu Matsuno said that “watching fx moves with a high sense of urgency.”

Market reaction

At the time of writing, USD/JPY is trading at 143.23, up 0.32% on the day, little affected by the latest Japanese verbal intervention.

While speaking at the Kanga News New Zealand Debt Capital Markets Summit 2022, Reserve Bank of New Zealand (RBNZ) Assistant Governor Karen Silk said that the “bank is well placed to manage the wind-down of additional monetary policy tools.”

Additional quotes

“Stance of monetary policy is primarily determined by the level of the OCR.”

“OCR level is based on the assessment and forecast of economic conditions.”

“It is the OCR that matters for inflation targeting.”

Market reaction

NZD/USD is holding the lower ground just above 0.6000, undermind by the above comments alongside the US dollar strength, down 0.40% on the day.

Australia's Gross Domestic Product data for the second quarter has been released and is weighing on the Aussie.

• Australian GDP SA (QoQ) Q2: 0.9% (est 0.1%; prev 0.8%) - GDP (YoY) Q2: 3.6% (est 3.4%; prev 3.3%).

This is a slight weight to the Aussie that is trying to make a fresh low for the day vs the US dollar and is capped vs. the kiwi:

AUD/NZD H1 chart

Before the data, however, Analysts at ANZ bank explained that ''from a policy perspective it will be the inflation indicators in the GDP report that are key. The RBA’s preferred measure of wider labour costs – non-farm average earnings per hour – looks to have grown at an annual pace of just over 4% in the June quarter.'' 

Labour costs are clearly trending higher which could support the Aussie going forward. The analysts also note that ''household consumption deflator and broader GDP deflator also look to have risen strongly, suggesting still-intense inflationary pressures.''

The Bank of Japan (BOJ) announced on Wednesday that it will ramp up purchases of Japanese government bonds (JGBs) at its regular open market operations (OMO).

The central bank said that it will offer to buy JPY550 billion of 5-10 year bonds, increasing them from JPY500 billion in the previous round.

Additional details

Market reaction

USD/JPY is consolidating the latest upsurge around 143.25, adding 0.32% on the day. The pair hit fresh 24-year highs at 143.59 in early Asia, tracking the US Treasury yields rally.

• AUD/JPY has dropped to near 96.00 as Aussie GDP remained lower than estimates on a quarterly basis.
• Broadly, the cross is firmer as the RBA stepped up its interest rates by 50 bps fourth time.
• Japan’s Overall Household Spending has declined despite prudent BOJ.

The AUD/JPY pair has sensed barricades around 96.10 while attempting to recapture the crucial resistance of 96.10 after the release of lower-than-expected Australian Gross Domestic Product (GDP) data. The economic data has landed at 0.9%, lower than the expectations of 1% but above the prior release of 0.8% on a quarterly basis. However, the annual data has improved to 3.6% against the estimates and the prior print of 3.5% and 3.3% respectively.

On Tuesday, the cross displayed a juggernaut rally after the announcement of the interest rate decision by the Reserve Bank of Australia (RBA). RBA Governor Philip Lowe announced a fourth consecutive 50 basis points (bps) interest rate hike. The hawkish decision on interest rates was highly expected by the market participants as price pressures are soaring in the Australian economy and have not displayed any sign of exhaustion yet. Australian Official Cash Rate (OCR) has escalated to 2.35%.

Also, the guidance from the RBA on interest rates and the inflation rate was worth noting. RBA has provided a target for an interest rate of 3.85%, which will be achieved by next year. Also, the price pressures are expected to top at 7%.

Meanwhile, the yen bulls are worried over a decline in consumption levels by Japanese households. The Bank of Japan (BOJ) is continuously flushing liquidity into the market to scale up the overall spending and inflation rate. However, a decline in the Overall Household Spending data on Tuesday has indicated consumers’ pessimism in the economy. The economy data landed at 3.4% lower than the expectations of 4.2% and the prior release of 3.5%.

• AUD/USD takes offer to refresh two-month low, ignores Aussie government efforts to tame inflation, firmer GDP.
• Australia’s Q2 GDP eased to 0.9% on QoQ, improved to 3.6% on YoY.
• Risk-aversion, hawkish Fed bets also exert downside pressure on the prices.
• China trade numbers, speeches from Fed policymakers eyed for fresh impulse.

AUD/USD extends the bearish bias towards attacking the 0.6700 threshold, declining to the fresh low since July 14, amid mixed Aussie data and risk-off mood during Wednesday’s Asian session. In doing so, the risk barometer pair ignores the Aussie government’s efforts to tame inflation-led economic hardships ahead of next month’s annual budget release.

Australia’s second quarter (Q2) Gross Domestic Product eased to 0.9% QoQ versus 1.0% expected and 0.8% prior. The YoY details suggest 3.6% growth compared to 3.5% market consensus and 3.3% in previous readings. Earlier in the day, Australia’s AiG Performance of Services Index rose past 51.7 prior to 53.3 in August.

That said, the Australian government’s plans to reduce the cost of medicines and also help pensioners amid rising inflation. “In a bid to ease the pain on families and ahead of a federal budget next month, Prime Minister Anthony Albanese said the government will introduce legislation to lower the maximum co-payment to A$30 ($20) from A$42.50 per prescription on its pharmaceutical benefits scheme, helping 3.6 million people,” said Reuters. The news also stated that the government will offer financial incentives for pensioners that would make it cheaper for them to downsize homes, lessening the impact on pension money when they make profit from a property sale.

Alternatively, growing fears of economic slowdown, amid the energy crisis and China’s covid woes, join the firmer US data and hawkish Fed bets to fuel the US dollar. That said, the US Dollar Index (DXY) stays firmer around the highest levels in 20 years, up 0.22% intraday near 110.50 at the latest. Recently, the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

While portraying the mood, Wall Street closed in the red while the 10-year US Treasury yields jumped the most in a month to poke the highest levels since mid-June. It’s worth noting that the S&P 500 Futures drop half a percent while prices of the commodities like crude oil and gold remain pressured to portray the risk-aversion and weigh on the AUD/USD.

Looking forward, China’s trade numbers for August will precede the Fedspeak to direct short-term AUD/USD moves. However, major attention will be given to Thursday’s speech from Reserve Bank of Australia’s (RBA) Governor Philip Lowe and Fed Chair Jerome Powell for clear directions.

Technical analysis

Unless crossing a one-week-old descending resistance line, around 0.6805 by the press time, AUD/USD remains vulnerable to refreshing yearly low, currently near 0.6680.

Australia's Gross Domestic Product data for the second quarter has been released as follows:

Australian GDP SA (QoQ) Q2: 0.9% (est 01%; prev 0.8%) - GDP (YoY) Q2: 3.6% (est 3.4%; prev 3.3%)

This is a slight weight to the Aussie that is trying to make a fresh low for the day:

We have resistance around 0.6735 as the price currently takes on the -38.2% extension of the prior bearish impulse. Above the resistance, eyes will be on the 0.6775 area around the Wall Street opening highs. 

Prior to the release, it was explained that analysts at ANZ bank explained that ''from a policy perspective it will be the inflation indicators in the GDP report that are key. The RBA’s preferred measure of wider labour costs – non-farm average earnings per hour – looks to have grown at an annual pace of just over 4% in the June quarter.''

Despite the miss in the quarterly headline, this leaves a bullish bias on the charts for the data given that labour costs are clearly trending higher.

The analysts at ANZ Bank also note that ''household consumption deflator and broader GDP deflator also look to have risen strongly, suggesting still-intense inflationary pressures.''

About Aussie GDP

The Australian Bureau of Statistics (ABS) releases the Gross Domestic Product (GDP) on a quarterly basis. It is published about 65 days after the quarter ends. The indicator is closely watched, as it paints an important picture of the economy. A strong labour market, rising wages and rising private capital expenditure data are critical for the country’s improved economic performance, which in turn impacts the Reserve Bank of Australia’s (RBA) monetary policy decision and the Australian dollar. Actual figures beating estimates is considered AUD bullish, as it could prompt the RBA to tighten its monetary policy.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at  6.9160vs. the last close of 6.9545 and at the strongest bias on record compared to estimates

About the fix

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

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

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

• GBP/JPY has slipped sharply after facing hurdles around 165.00 ahead of BOE Bailey’s speech.
• Truss’s relief packages may return consumers’ confidence in the economy.
• BOJ’s prudent policy has failed to step up the households’ demand.

The GBP/JPY pair has witnessed a steep fall after sensing selling interest around the round-level resistance of 165.00. The asset attempted to overstep the critical resistance of 165.00 for the second time with a lack of strength, which resulted in a significant fall. On a broader note, the asset has remained in the grip of bulls after safeguarding the pound bulls from the downside move below 161.00.

Liz Truss's win for the next UK Prime Minister has brought political stability to the UK economy. Apart from that, new relief packages to safeguard households from higher energy bills, lower employment opportunities, and higher payouts for similar consumption due to price pressures are returning the confidence of consumers in the economy.

The Cabinet has announced a fund of 130 billion pounds for freezing bills. Under this, the new cabinet will set a fixed unit price for energy suppliers to sell gas & electricity to households.

And, now Truss will cut taxes for households, which will remain supportive to combat higher payouts. Apart from that, the Cabinet will focus on making more investments and scaling up the employment generation process.

In addition to that, the speech from Bank of England (BOE) Governor Andrew Bailey will remain in focus. BOE’s Bailey will dictate the likely monetary policy action, scheduled for September 15.

On the Tokyo front, the weaker spending pattern of the households is impacting the yen bulls. Tuesday’s Overall Household Spending data remained lower at 3.4% against the expectations and the prior release of 4.2% and 3.5%. It seems that the ultra-dovish monetary policy by the Bank of Japan (BOJ) is failing to make any serious impact on the slowdown prospects.

• Gold price remains pressured towards the key support line from late July during three-day downtrend.
• Recession woes, firmer US data underpin hawkish Fed bets and strong US dollar.
• China trade numbers, Fedspeak will be important for fresh clues.

Gold price (XAU/USD) remains on the back foot at around $1,695 while portraying the three-day downtrend during Wednesday’s Asian session. In doing so, the precious metal justifies firmer US dollar strength amid a risk-off mood and higher yields. Also exerting downside pressure on the bullion are the hawkish Fed bets ahead of multiple speeches from the Fed policymakers including Chairman Jerome Powell.

US Dollar Index (DXY) stays firmer around the highest levels in 20 years, up 0.22% intraday near 110.50 at the latest, as firmer US data joined growing calls of the Fed’s aggression in September.

That said, US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Additionally, the energy crisis and China’s covid woes also weigh on the XAU/USD prices as traders await the key data/events for the week, namely the European Central Bank (ECB) monetary policy meeting and Fed Chair Powell’s speech.

While portraying the mood, Wall Street closed in the red while the 10-year US Treasury yields jumped the most in a month to poke the highest levels since mid-June. It’s worth noting that the S&P 500 Futures print mild losses.

Looking forward, China’s monthly trade numbers will precede the Fedspeak to direct short-term gold price moves. Above all, fears of an economic slowdown could weigh on the XAU/USD.

Technical analysis

Gold price extends the previous day’s pullback from the 10-DMA, as well as a three-week-old resistance line, amid bearish MACD signals.

With this, the XAU/USD sellers are all set to break an upward-sloping support line from late July, around $1688.

Following that, the yearly low near $1680 may offer an intermediate halt during the metal’s slump targeting multiple lows marked during 2021 around $1677.

Alternatively, the 10-DMA and the aforementioned resistance line, around $1,718 and $1722 in that order, restrict the short-term upside of the gold price.

Gold: Daily chart

Trend: Further weakness expected

The yield on US Treasurys have taken off with the 2s as high as 3.522% and the 10s to 3.363%around  trend highs on expectations of an aggressive Federal Reserve.

US data was solid on Tuesday with the August ISM services index in the US beating expectations, rising to 56.9 (56.7 previously, 55.3 expected).

Analysts at ANZ Bank noted that the gains were led by new orders which rose to 61.8 vs 59.9. Employment was 50.2 vs 49.1 and prices paid eased a touch to 71.5 vs 72.3, but remain elevated.

''The report implies strong and firming demand. Supplier delivery times (54.5 vs 57.8) continued to ease suggesting supply chains are normalising in the services sector. The data complement the labour market’s strength and suggest that the economy remains some distance from recession.''

The outcome has been a blow for USD/JPY shorts, trapped in a rising market: Breaking: USD/JPY bulls smash through 143.50

US 10Y daily chart

The yield is creeping in on the summer highs towards 3.5%

• EUR/USD prints three-day downtrend around the lowest levels in 19 years.
• MACD, RSI suggests limited downside room, highlighting the descending support line from July.
• 61.8% Fibonacci Expansion (FE) lures sellers, nearby SMAs test the bulls.

EUR/USD remains on the back foot as bears approach a two-month-long support line, near 0.9890 by the press time of Wednesday’s Asian session. In doing so, the major currency pair remains near the 19-year low marked the previous day.

That said, the quote’s repeated failures to cross the 50-SMA and the 100-SMA joins bearish MACD signals and downbeat RSI (14) not oversold, to favor the EUR/USD bears.

It’s worth noting, however, that the RSI line is near the oversold territory and hence the stated support trend line could trigger the pair’s bounce from the 0.9875 level.

Even so, the 50-SMA and the 100-SMA, respectively near 0.9975 and 1.0010, could restrict the short-term EUR/USD rebound.

Following that, a six-week-old horizontal resistance area near 1.0085-1.0100 will be important to watch as it appears the last defense of the bears.

On the contrary, a downside break of the 0.9875 support line could quickly drag the pair towards the 61.8% Fibonacci Expansion (FE) of the EUR/USD’s August 10-26 moves, close to 0.9800.

It should be noted that the latest trough and the December 2002 bottom, close to 0.9865-60, appear an important intermediate challenge for the bears to consider.

EUR/USD: Four-hour chart

Trend: Limited downside expected

The dollar will remain a force to reckon with over the remainder of this year and into the next as U.S. interest rates rise and the economy outperforms its peers, reinforced by its safe-haven appeal when investors choose to worry, according to a Reuters poll.

Key findings

Also read: Bond market sell-off keeping equity markets on edge

• The DXY has successfully tested the consolidation breakout and is advancing to recapture 110.55.
• A surprisingly better-than-expected US ISM Services PMI data has strengthened the DXY.
• Fed’s Powell is expected to sound hawkish in his speech and may discuss a 75 bps rate hike.

The US dollar index (DXY) is aiming to recapture a two-decade high at 110.55 in the Asian session. The asset has tested the upside break of the consolidation formed in a narrow range of 110.18-110.29 and has resumed its upside journey. On Tuesday, the DXY extended its gains after overstepping the critical hurdle of 110.27. The asset picked significant bids after the release of upbeat US ISM Services PMI data.

US ISM Services PMI advanced surprisingly

The Non-Manufacturing ISM data landed at 56.9, higher than the estimates and the prior release of 55.1 and 56.7 respectively. A surprising improvement in the Services PMI strengthened the mighty US dollar index (DXY) and printed a fresh two-decade high at 110.55. US tech biggies in their earnings call announced a short-term halt in the recruitment process as companies were expecting a slowdown ahead, however, a higher-than-expected improvement in Services PMI shored up the DXY’s appeal.

Fed Powell to sound hawkish

US economic indicators are delighting the Federal Reserve (Fed) and are providing them room for escalating the interest rates further. Employment generation has remained upbeat, ISM Manufacturing PMI landed stable, and ISM Services PMI recorded higher surprisingly. As the US economic data is displaying a stellar performance, the Fed has the luxury to sound hawkish and discuss 75 basis points (bps) interest rate hike in his speech on Thursday. Apart from that, soaring odds of a recession in the UK economy and eurozone are forcing investors to channel their funds into the DXY.

• AUD/USD bears move in to sweep up the market below 0.6725 as the price extends out of a 100 pip box.
• The bulls could be waiting on the sidelines ahead of today's GDP.

The Aussie bulls are moving in at key support following a 125 pip move over the course of this week so far, falling from near 0.6835. The price would be expected to correct higher from here prior to the next potential move from the bears. The following illustrates the weekly template so far on the 1-hour chart ahead of today's key Gross Domestic Product data. 

Analysts at ANZ bank explained that ''from a policy perspective it will be the inflation indicators in the GDP report that are key. The RBA’s preferred measure of wider labour costs – non-farm average earnings per hour – looks to have grown at an annual pace of just over 4% in the June quarter.''

This leaves a bullish bias on the charts for the data as indicated above given that labour costs are clearly trending higher. The analysts also note that ''household consumption deflator and broader GDP deflator also look to have risen strongly, suggesting still-intense inflationary pressures.''

We have resistance around 0.6735 as the price currently takes on the -38.2% extension of the prior bearish impulse. Above the resistance, eyes will be on the 0.6775 area around the Wall Street opening highs. 

Australian GDP overview

Reserve Bank of Australia’s (RBA) cautious optimism, amid the virus-led lockdowns and energy crisis, highlights Australia’s second-quarter (Q2) Gross Domestic Product (GDP) figures, up for publishing at 01:30 GMT on Wednesday, for the AUD/USD pair traders.

The recent data from Australia portray a mixed picture as downbeat housing market data and labor participation rate contrasts with upbeat export growth and consumer spending. Even with these statistics in mind, the Aussie Q2 GDP is likely to print slightly better figures.

That said, forecasts suggest the annualized pace of economic growth to come in at 3.5%, above the previous period's 3.3%, while the quarter-on-quarter (QoQ) numbers could mark the 1.0% growth figures versus 0.8% prior.

Ahead of the outcome, Westpac said:

How could it affect the AUD/USD?

AUD/USD takes offers to refresh intraday low around 0.6715, rushing towards the yearly bottom surrounding 0.6680, as risk-aversion joins hawkish Fed bets to propel the US dollar during early Wednesday.

That said, Australia’s Q2 GDP is likely to carry less importance for the pair traders, considering the present focus on the risk-aversion and hawkish Fed bets. Also likely to dilute the importance of the data is the latest Reserve Bank of Australia (RBA) monetary policy meeting that stated household spending is “an important source of uncertainty,” while suggesting a slower pace of rate hikes moving forward.

Hence, positive data from Australia might offer a knee-jerk rebound in the AUD/USD prices but not affect the overall bearish trend. On the contrary, downbeat figures won’t hesitate to please bears with a fresh multi-month low.

Technically, a clear downside break of the two-month-old horizontal support area surrounding 0.6770-60 directs the AUD/USD prices towards the yearly low near 0.6680. However, any further downside won’t hesitate to test the downward sloping support line from May near 0.6550.

Key notes

AUD/USD steadies below 0.6750 as bears approach yearly low, Aussie GDP, Fed’s Powell eyed

AUD/USD Forecast: Bearish breakout of the year low on the table

About the Aussie GDP release

The Gross Domestic Product released by the Australian Bureau of Statistics is a measure of the total value of all goods and services produced by Australia. The GDP is considered a broad measure of economic activity and health. A rising trend has a positive effect on the AUD, while a falling trend is seen as negative (or bearish) for the AUD.

• GBP/USD retreats towards the yearly low marked on Monday.
• Fears that incoming UK PM won’t be able to avoid British recession, despite huge stimulus, favor bears.
• Firmer US data, hawkish Fed bets add strength to the downside bias.
• BOE Monetary Policy Hearings, comments from the BOE/Fed policymakers will be in focus for immediate directions.

GBP/USD retreats from the weekly top towards 1.1500 during Wednesday’s Asian session amid the firmer US dollar and fears surrounding the UK economy. In doing so, the Cable pair fails to cheer the chatters surrounding the multi-billion pounds worth of stimulus from incoming Prime Minister Liz Truss.

Earlier in the week, Liz Truss won the PM candidate race, which in turn propelled chatters over her plan to freeze energy prices and help power companies in Britain. “British Prime Minister Liz Truss plans to freeze energy prices for households for 18 months and allow energy companies to take out government-guaranteed loans to make up for the difference between the wholesale and retail prices,” BBC reported on Tuesday. The news also stated that Truss is expected to unveil her plan on Thursday. With this UK PM Truss proposed to freeze roughly £130 billion in household energy bills while mulling another £40 billion for small businesses.

However, fears of the recession took clues from the firmer data and growing uncertainty over the Bank of England’s (BOE) next move.

That said, US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Elsewhere, UK PM Truss’ tough stand on China also weighs on the GBP/USD prices ahead of the BOE Governor Bailey’s testimony in front of the Parliament, as well as speeches from multiple BOE policymakers.

Amid these plays, Wall Street closed in the red while the 10-year US Treasury yields jumped the most in a month to poke the highest levels since mid-June. It’s worth noting that the S&P 500 Futures print mild losses and weigh on the Cable pair of late.

In addition to the BOESpeak, multiple policymakers from the Fed are also likely to entertain GBP/USD traders ahead of tomorrow’s speech from Fed Chair Jerome Powell.

Technical analysis

Consecutive two Doji candlesticks around the lowest levels since March 2020, around 1.1410, join oversold RSI conditions to challenge the pair bears.

• NZD/USD has printed a fresh two-year low at 0.6030.
• A downside break of the 0.6035-0.6063 demand zone has weakened the kiwi bulls further.
• The RSI (14) has shifted into the bearish range of 20.00-40.00, which indicates more weakness ahead.

The NZD/USD pair has started declining after attempting a pullback move to near 0.6038 in the early Tokyo session. On a broader note, a downside break of the consolidation formed in a narrow range of 0.6034-0.6053 has strengthened the greenback bulls. The asset has refreshed its two-year low at 0.6030.

A decisive slippage below the demand zone placed in a narrow range of 0.6035-0.6063 on a four-hour scale has turned into a supply area for the kiwi bulls ahead. Also, a build-up of selling pressure while testing the demand zone has bolstered the odds of further downside in the asset.

The 20-and 50-period Exponential Moving Averages (EMAs) at 0.6077 and 0.6118 respectively are scaling lower sharply, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which signals a continuation of downside momentum.

A break below the two-year low at 0.6030 will drag the asset towards the psychological support at 0.6000, followed by 20 April 2020 low at 0.5910.

Alternatively, an upside move above the demand zone placed in a 0.6035-0.6063 range will send the asset towards the round-level resistance and Friday’s high at 0.6100 and 0.6141 respectively.

NZD/USD four-hour chart

• WTI holds lower ground at weekly low after snapping two-day uptrend the previous day.
• OPEC+ production cut appeared shallow, fears of recession exerted additional downside pressure.
• US emergency crude oil reserves fall to the lowest since 1984.
• China trade numbers, Weekly API inventories and Fedspeak will be crucial for near-term directions.

WTI crude oil prices hold lower ground near $86.50, after posting the biggest fall in a week the previous day, as traders fear demand drawdown during Wednesday’s Asian session. In doing so, the black gold ignores the output cut decision from the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+.

Fears of recession grew after firmer US data bolstered hawkish Fed bets while virus woes in China challenged energy demand from the world’s biggest industrial player. US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Elsewhere, China’s covid woes and the hawkish hopes from the European Central Bank (ECB) also weigh on the WTI prices. “China has eased some COVID-19 curbs but extended lockdowns in Chengdu, which added to worries that high inflation and interest rate hikes will hit oil demand. The European Central Bank is widely expected to lift rates sharply when it meets on Thursday,” said Reuters.

It should be noted that OPEC+ has agreed to lower oil output targets by 100,000 barrels per day in October. Even so, Reuters stated, “The decision essentially maintains the status quo as OPEC has been observing wild fluctuations in oil prices.”

Further, crude inventories in the US Strategic Petroleum Reserve (SPR) fell 7.5 million barrels (Mb) in the week to Sep. 2 to 442.5 Mb, their lowest level since November 1984, per the Department of Energy, reported Reuters, which in turn should have favored oil bulls. On the same side could have been the latest stimulus from the major economies to defend themselves from the energy crisis amid Russia versus the West tussles.

Moving on, China’s monthly trade numbers will precede the Fedspeak and weekly oil inventories from the industry source, namely the American Petroleum Institute (API), prior 0.593M, could direct short-term oil price moves. Above all, fears of an economic slowdown could weigh on the prices of black gold.

Technical analysis

WTI crude oil remains pressured between the 21-DMA and the lowest levels since early 2022, marked in August, respectively around $90.15 and $85.40.

• AUD/NZD is juggling around 1.1150 as investors await Australian GDP numbers.
• A significant improvement is expected in GDP numbers despite soaring price pressures.
• Australian OCR has elevated to 2.85% after the RBA announced the fourth 50 bps rate hike.

The AUD/NZD pair is displaying a lackluster performance as investors are awaiting the release of the Australian Gross Domestic Product (GDP) data. The asset is oscillating in a narrow range of 1.1140-1.1160 and is likely to continue a subpar performance ahead.

On Tuesday, the cross remained in a topsy-turvy mode despite the announcement of a 50 basis point (bps) interest rate hike by the Reserve Bank of Australia (RBA). RBA Governor Philip Lowe announced a fourth consecutive rate hike by 50 basis points (bps). Australia’s Official Cash Rate (OCR) now stands at 2.35%.

According to RBAWatch, markets are wagering rates could peak around 3.85% next year. Also, the inflation rate, which is currently at 6.1%, recorded for the second quarter of CY2022 is likely to top 7% by Christmas. Led by soaring price pressures, households are forced to make higher payouts despite an unchanged consumption pattern and operating margins for corporate have trimmed sharply due to inflation-adjusted inputs. Also, the corporate has failed to pass on the impact of higher input prices to the end consumers.

As per the consensus, the Australian economy will grow by 1% on a quarterly basis vs. 0.8% recorded in the prior quarter. Also, the yearly data is expected to improve to 3.5% vs. 3.3% recorded earlier. A higher-than-expected growth rate will strengthen the aussie dollar against kiwi.

This week, a light economic calendar will hold the tier-2 data responsible for guiding the kiwi dollar. Investors’ focus will remain on the Electronic Card Retail Sales data. A higher print will strengthen kiwi against aussie. Earlier, the economic data landed at -0.5% and -0.2% on a yearly and monthly basis.

• Silver price fades bounce off two-year low, stays pressured around intraday bottom of late.
• Impending bear cross on MACD joins failure to cross 50-SMA, monthly resistance line to favor sellers.
• Bulls need validation from late-August low, 200-SMA to retake control.

Silver price (XAG/USD) remains on the back foot as bears approach the two-year low marked the last Thursday, depressed around $17.95 during Wednesday’s Asian session.

In doing so, the bright metal takes clues from the looming bear cross of the MACD, as well as the downbeat RSI (14) line.

That said, the commodity’s weakness could be linked to its failure to defend the upside break of the descending trend line from mid-August, as well as the 50-SMA. Also favoring the sellers are the multiple failures to cross the 200-SMA.

Amid these plays, the XAG/USD bears are on their way to the lowest levels since June 2022 surrounding $16.95. However, the latest multi-month low near $17.55 could offer immediate support to watch.

Meanwhile, recovery needs validation from the $18.35-30 resistance confluence including the 50-SMA and the aforementioned resistance line.

Following that, the August 22 swing low and the 200-SMA, respectively near $18.75 and $19.40, could lure the silver buyers.

Silver: Four-hour chart

Trend: Further weakness expected

Traders keep lifting the offer in USD/JPY which is now taking on the laws of gravity and denying hungry bears a free lunch. Instead, the price has skyrocketed through 143.50 to score a fresh bull cycle high of 143.59 ahead of the Tokyo open. 

The move was highlighted as a prospective opportunity in analysis from the New York session as follows:

The Japanese Finance Minister Shunichi Suzuki attempted to jaw-boned the currency yesterday but that did nothing to prevent it from falling to a 24-year low on Tuesday. Even at such lofty heights, this might have fuelled the bull's appetite even more so given that the Japanese authorities will eventually need to step in and control the weakness of the currency. When pressed to comment on the impact of a weak yen on the economy, Suzuki said "a weak yen has both merit and demerit, but sharp moves are undesirable." The yen has slumped nearly 26% now since the start of the year, on diverging monetary policies between Japan and the United States. 

Suzuki reiterated that sharp yen moves were "undesirable" and that he was watching rising volatility in the exchange market with a "great sense of urgency". "It's important for currencies to move stably, reflecting economic fundamentals," Suzuki told reporters at the finance ministry.

• USD/CAD bulls are staying the course so far in early Asia.
• There is something for both the bulls and bears while below 1.3180. 

The Canadian dollar has been in the limelight ahead of the Bank of Canada policy announcement this week where the central bank is expected to raise its policy rate by three-quarters of a percentage point on Wednesday to a level of 3.25% in an effort to cool inflation.

This brings the technical landscape into focus as the US dollar surges to fresh bull cycle highs. The question is whether the greenback is about to throw in the towel or not and if so, there will be a compelling case for the downside in the pair. The following illustrates the 4-hour and 15 min time frames for a comprehensive perspective of the market structure and potential trajectory for the pair in the near and medium term.

USD/CAD H4 chart

The 4-hour outlook is a mixed bag and will depend upon the next moves in the greenback. However, with the price moving out of the trendline support, there is a case for the downside on a break of the highlighted support structures on the chart above. 1.3140 is the first key support area guarding 1.3120. A break of 1.3100 could be significant that may lead to a waterfall sell-off. On the other hand, should the bulls commit above 1.3120, then a bullish inverse head and shoulders could result in a continuation higher for the foreseeable future. 1.3180 is key in this regard. 

USD/CAD M15 chart

Meanwhile, the bulls remain in charge as we head towards the Tokyo session. The price has found support on the 15-minute 38.2% Fibonacci retracement of the recent bullish impulse and the price would be expected to continue higher. However, we have resistance overhead. 

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, extend Friday’s recovery from a three-week low while flashing 2.48% level by the end of Tuesday’s North American trading session.

In doing so, the US inflation precursor rises for the second consecutive day while taking clues from the firmer US data and hawkish Fed bets ahead of US Federal Reserve (Fed) Chairman Jerome Powell’s speech.

That said, US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high.

It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Given the recently increasing hawkish hopes from the Fed, backed by firmer data, the US dollar may witness further upside.

• AUD/JPY is eyeing a fresh seven-year high at 97.00 as RBA-BOJ policy divergence widens.
• Investors should brace for upbeat Australian GDP data ahead.
• A decline in households’ consumption indicates a loss of consumer confidence in the Japanese economy.

The AUD/JPY pair is aiming to refresh its seven-year high at around 97.00 as a rate hike announcement by the Reserve Bank of Australia (RBA) on Tuesday has widened RBA-Bank of Japan (BOJ) policy divergence. On one side, where the Australian Economy is facing the headwinds of soaring price pressures, the Japanese economy is struggling to elevate the inflation rate led by a slowdown in the overall demand.

On Tuesday, RBA Governor Philip Lowe announced a fourth consecutive rate hike by 50 basis points (bps). Australia’s Official Cash Rate (OCR) now stands at 2.35%. As price pressures have been recorded at 6.1% for the second quarter of CY2022, a spree of rate hikes is highly expected by the RBA. Adding to that, the Australian inflation rate has not revealed signs of exhaustion yet.

Brace for an upbeat Australian GDP data

In today’s session, investors’ entire focus will remain on the Australian Gross Domestic Product (GDP) data. The Australian economy is expected to grow by 1% on a quarterly basis vs. 0.8% recorded in the prior quarter. Also, the yearly data is expected to improve to 3.5% vs. the 3.3% recorded earlier. An occurrence of the same will strengthen the aussie bulls further.

A decline in households’ consumption may restrict the inflation rate

Meanwhile, yen bulls are worried over a decline in the consumption of Japanese households. The Overall Household Spending data released on Tuesday is indicating a decent drop in the households’ demand. The economic data landed at 3.4%, lower than the expectations of 4.2% and the prior release of 3.5%. This indicates households’ pessimism in the Japanese economy and also lower expenditure by the former may restrict the inflation rate.

• EUR/GBP extends the rebound from weekly low, 50-SMA.
• One-week-old resistance line, 23.6% Fibonacci retracement level limits immediate upside.
• Key SMAs, three-week-long ascending trend line appear important supports to watch during further downside.
• MACD, RSI conditions hint at the pair’s further declines.

EUR/GBP stays defensive while keeping the previous day’s bounce off a one-week low around 0.8600 during Wednesday’s initial Asian session.

The cross-currency pair dropped to the lowest levels since August 30 before taking a U-turn from the 50-SMA. The corrective pullback, however, lacks support from the MACD and RSI as it approaches the weekly resistance line near 0.8610.

With this, the EUR/GBP buyers need to wait for a clear upside break of 0.8610 to retake control.

Following that, the recent top surrounding 0.8675 and the yearly peak marked in June near 0.8720 will be in focus.

Alternatively, a downside break of the 50-SMA near 0.8585 could drag the EUR/GBP prices towards the 100-SMA level of 0.8515, before highlighting the 61.8% Fibonacci retracement of the August-September upside near the 0.8500 round figure.

It’s worth noting, however, that the quote’s weakness past 0.8500 will be tough as a convergence of the 200-SMA and an upward sloping trend line from mid-August will challenge the bears around 0.8470.

EUR/GBP: Four-hour chart

Trend: Further weakness expected