• GBP/USD picks up bids to pare the previous day’s mild losses after a volatile day.
• Fed’s Powell advocated for stronger fight with inflation, below trend growth.
• UK PM Truss announced details of her energy plan, British Queen Elizabeth II died.
• Risk catalysts will be crucial amid a light calendar, inflation eyed.

GBP/USD consolidates the recent losses around 1.1515, after an active day, as traders reassess latest catalysts during Friday’s sluggish Asian session. In doing so, the Cable pair also cheers the energy plan of UK PM Liz Truss while showing less reaction on the death of the British Monarch Elizabeth II.

British Prime Minister (PM) Truss announced on Thursday the government will introduce a two-year "energy price guarantee" and explained that a typical household will pay no more than £2,500 a year on energy bills. “Treasury announcing a joint scheme working with BOE to address extraordinary liquidity requirements faced by energy firms, worth £40 billion,” added UK PM Truss.

On a Brexit page, UK PM truss also mentioned, per the UK Express, that she wants a “negotiated solution” to the row warning it must “deliver all the things” the UK has demanded before.

Elsewhere, Fed Chairman Jerome Powell said on Thursday that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell.

It should be noted that the a sustained decline in the US Weekly Initial Jobless Claims to the lowest levels since May, with the latest figures beyond 222K, joins recent headlines concerning the US-China trade ties, to favor the market sentiment and underpin the GBP/USD rebound.

Against this backdrop, Wall Street closed with mild gains while the US 10-year Treasury yields rose to 3.32%.

Looking forward, a light calendar may restrict moves while China’s Consumer Price Index (CPI) and Producer Price Index (PPI) may offer intermediate moves ahead of next week’s US CPI. Even so, risk catalysts around the UK politics and Brexit may keep the GBP/USD traders busy.

Technical analysis

Bullish RSI divergence keeps GBP/USD buyers hopeful inside a monthly falling channel between 1.1520 and 1.1300. Also acting as an upside filter is the 50-SMA near 1.1560.

“The Biden administration is weighing an executive order to screen and possibly restrict U.S. overseas investment in cutting-edge technology development in China and other potentially hostile countries,” reported Wall Street Journal (WSJ) late Thursday.

Key quotes

FX implications

The news appears a positive one for the market sentiment and hence may help extend the US dollar’s pullback. However, the previous news quoting US Treasury Secretary Janet Yellen challenged the optimism. Even so, a lack of major data/events joins an initial hour of the trading day to restrict the market’s reaction to the news.

Also read: US Treasury Secretary Yellen expects downward pressure on US inflation

• Gold price is declining towards $1,700.00 as hawkish Fed Powell weakened gold bulls.
• The Fed is prepared to make growth sacrifices for bringing price stability.
• Falling gasoline prices may weigh pressure on headline US inflation data.

Gold price (XAU/USD) has displayed a less-confident pullback after a sheer downside move in the late New York session. The precious metal is expected to extend its weakness after dropping below the immediate support of $1,704.00. A downside break will drag the asset towards the psychological support of $1,700.00.

The gold prices witnessed a vertical drop after a hawkish speech from Federal Reserve (Fed) chair Jerome Powell. Fed Powell is ‘strongly committed to bringing price stability with odds of lower sacrifice in overall demand against prior instances of fighting inflation. Esteemed jobs demand sacrifices from growth prospects and the Fed is set to go all in to fix the inflation chaos.

Meanwhile, the US dollar index (DXY) has turned sideways as investors are shifting their focus toward the US Consumer Price Index (CPI) data, which will release on Tuesday. Well, the comments from US Treasury Secretary Janet Yellen on the inflation rate, citing that weaker gasoline prices may put further downward pressure on headline consumer price inflation for August, reported by Reuters, will trim the estimates for the headline inflation data.

Gold technical analysis

Gold prices are gyrating in 50% and 61.8% Fibonacci retracement placed at $1,709.87 and $1,705.53 respectively on the hourly scale. The touch points of the above-mentioned Fibo retracement are marked from Wednesday’s low at $1,691.47 to Thursday’s high at $1,728.27.

The 20-and 50-period Exponential Moving Averages (EMAs) are on the verge of displaying a bearish crossover at around $1,711.24.

Also, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range and will trigger a downside momentum on sliding into the bearish range of 20.00-40.00.

Gold hourly chart

• USD/CAD prepares to finish the week with decent losses of 0.27%.
• Failure at around 1.3200 spurred a double-top formation in the USD/CAD daily chart, which targets 1.2930.
• The USD/CAD in the near term is also downward biased.

The USD/CAD slides for the second consecutive day, tumbling to fresh weekly lows at around 1.3077, after failing to break the YTD high at 1.3227 twice in September. At the time of writing, the USD/CAD is trading at 1.3089, above its opening price, as the Asian Pacific session begins.

USD/CAD Price Analysis: Technical outlook

The USD/CAD daily chart indicates the pair is neutral-upwards biased. Nevertheless, price action during the last seven days witnessed a double-top formation, meaning that downside risks remain. Therefore, the USD/CAD first support would be the neckline at around 1.3074. A break below will expose an upslope trendline that passes around 1.3060, followed by the 20-day EMA at 1.3029. Once cleared, the next demand zone would be the 50-day EMA at 1.2952, followed by the double-top target at 1.2930.

Short term, the USD/CAD 4-hour chart depicts a trendline break, which also confluences with Friday’s daily pivot point at around 1.3110. However, a break below 1.3077 would exacerbate a move towards the confluence of the S1 daily pivot and the 100-EMA around 1.3048-60, which, once cleared, would pave the way towards the S2 pivot point at 1.3037, followed by the S3 daily pivot at 1.2975.

USD/CAD Key Technical Levels

• EUR/USD traders take a breather after a volatile day.
• ECB hiked interest rates by 75 bps, President Lagarde signalled more rate lifts.
• Fed’s Powell highlighted the determination to tame inflation, put growth below trend and balance labor market.
• Absence of major data from EU/US could restrict moves, next week’s US CPI in focus.

EUR/USD remains sidelined near the 1.0000 level, picking up bids of late, as traders catch some rest after an eventful day. That said, the European Central Bank’s (ECB) monetary policy announcements and Fed Chair Jerome Powell’s speech offered a volatile day while a lack of major data seems to restrict the major currency pair’s moves during Friday’s Asian session.

On Thursday, the European Central Bank (ECB) matched the market’s expectations by announcing a 75 basis points (bps) increase to the key rates. As a result, the interest rate on the main refinancing operations, the marginal lending facility and the deposit facility will be increased to 1.25%, 1.5% and 0.75% in that order.

Following the announcements, ECB President Christine Lagarde said, "It will take more than 2 meetings but less than 5 to get to the end of hikes." The policymaker also resisted confirming the next rate hike as 75 bps while highlighting the data dependency. It should be noted that ECB’s Lagarde mentioned that the downside scenario for growth includes negative growth in 2023.

Additionally, ECB’s economic forecasts unveiled a significant upward revision to the inflation projections to an average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024. The bloc’s central bank also cut growth forecasts while expecting the economy to grow by 3.1% in 2022, 0.9% in 2023 and 1.9% in 2024. The ECB’s economic update also stated, “After a rebound in the first half of 2022, recent data point to a substantial slowdown in euro area economic growth, with the economy expected to stagnate later in the year and in first quarter of 2023.”

On the other hand, Fed Chairman Jerome Powell said on Thursday that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell.

Elsewhere, a sustained decline in the US Weekly Initial Jobless Claims to the lowest levels since May, with the latest figures beyond 222K, joins recent headlines suggesting improvement in the US-China trade ties, favoring the market sentiment.

Amid these plays, Wall Street closed with mild gains while the US 10-year Treasury yields rose to 3.32%.

Moving on, a light calendar may restrict EUR/USD moves while China’s Consumer Price Index (CPI) and Producer Price Index (PPI) may offer intermediate moves ahead of next week’s US CPI.

Technical analysis

Despite crossing a three-week-old resistance line, now immediate support around 0.9990, EUR/USD buyers need to print a successful run-up beyond the 21-DMA hurdle of 1.0025 to retake control.

• AUD/USD is juggling around 0.6750 as investors await China’s CPI data.
• A higher-than-expected China’s inflation will weaken the aussie bulls.
• The DXY failed to sustain above 110.00 despite the hawkish speech from Fed Powell.

The AUD/USD pair is oscillating around 0.6750 as investors are awaiting the release of China’s inflation data. The pair is displaying a volatility contraction phase after continuous efforts of overstepping the immediate hurdle of 0.6760. On Thursday, the asset spent the trading session in a 0.6713-0.6770 range despite the release of various catalysts.

The speech from Reserve Bank of Australia (RBA) Governor Philip Lowe has provided a further roadmap for the aussie bulls. RBA Lowe advocated scaling down the pace of hiking interest rates to support the retail demand. As the RBA has set the peak for the Official Cash Rate (OCR), which is 3.85%, the deviation of 150 basis points (bps) from the current OCR will be covered easily. Also, the central bank is expected that the inflation rate will top around 7%.

Apart from that, weaker trade data also kept the antipodean in a tight range. The commodity-linked currency has reported a decline in monthly export data by 9.9% against an expansion of 5.1%. Also, imports have accelerated by 5.2% vs. 0.7% in the prior release. The Trade Balance has trimmed dramatically to 8,733M against the expectation of 14,500M.

In today’s session, investors will focus on the release of China’s Consumer Price Index (CPI) data, which is seen higher at 2.8% vs. 2.7% recorded earlier. An increment in China’s CPI may hurt the aussie bulls as a higher price rise index will force the People’s Bank of China (PBOC) to sound less dovish than expected. It is worth noting that Australia is a leading trading partner of China and higher inflation in China could scale down Australian exports.

Meanwhile, the US dollar index (DXY) failed to sustain above the psychological resistance of 110.00 despite the hawkish speech from Federal Reserve (Fed) chair Jerome Powell. The Fed will continue its path of hiking interest rates as bringing price stability is its foremost priority. Going forward, the focus will shift to the US CPI, which will release on Tuesday.

• AUD/NZD bulls could be seen moving in for the day ahead.
• A 61.8% ratio retracement could be on the cards as the last defence for a downside continuation. 

AUD/NZD has been sliding from the higher quarter of the 1.11 area on Thursday. This leaves the focus on the downside for the day ahead while the following analysis illustrates on the hourly chart:

AUD/NZD H1 chart

The price is testing a key support level that if this were to hold, then the focus will be on a restest of the resistance and a 61.8% ratio retracement for the day ahead. If this were to see the bears committing, then a downside continuation to test the sideways range towards 1.1120 will be on the cards for the last sessions of the week. 

AUD/NZD daily chart

The daily chart has seen a move into the 50% mean reverison area which leaves the prospects of a move lower for the week ahead. 

Reuters reported that US Treasury Secretary Janet Yellen explained that falling gasoline prices may put further downward pressure on headline consumer price inflation for August. He also said that there is a lot of uncertainty over the inflation outlook due to Russia's war in Ukraine and energy supplies.

Speaking to reporters in Detroit, Yellen said she also was concerned about the global outlook due to an acute energy crisis in Europe.

Meanwhile, the US dollar index, which measures the greenback vs. a basket of currencies has travelled between a low of 109.334 and a high of 110.243 so far while the 10-year Treasury yield has recovered to a 3.304% high on the day from a low of 3.201%. The two-year yield reached a high of 3.506% from a low of 3.404% and is currently up 1.45% on the day. The US dollar and shorter-dated US Treasury yields climbed on Thursday on the back of Federal Reserve Chair Jerome Powell's comments who said that the Fed was "strongly committed" to controlling inflation.

• On Thursday, WTI is advancing 1%, snapping two straight days of losses.
• China’s Covid-19 lockdowns, US oil inventories growing, and Russia’s halting oil and natural-gas flows could bolster WTI prices.
• WTI Price Analysis: Risks are skewed to the downside, but buyers reclaiming $86.00, could pave the way for higher prices.

US crude oil, also known as WTI, advances 1% during Thursday’s trading session after diving to a seven-month-old low at around $81.27 per barrel due to Russia’s halting oil and natural gas exports to some “unfriendly” buyers, while European’s energy crises worsen. At the time of writing, WTI is trading at $82.76, above its opening price.

Factors like China’s Covid-19 concerns, while US stockpiles surprisingly building more than estimates, were only two factors driving the price of the black gold down. Additionally, the US Biden administration is weighing another release of the US Strategic Petroleum Reserve (SPR).

On Wednesday, WTI plunged more than 5%, with Western Texas Intermediate (WTI) testing February’s 2022 lows. Nevertheless, even though initially the price dropped further on Thursday, it bounced off towards the daily highs at $84.24 PB before retracing to current levels.

Sources cited by Reuters attributed the jump in prices to an “oversold technical condition,” which allowed oil to shrug off news of the US stockpiles building, which accounted for nearly 9 million in the last week.

In the meantime, tensions between Europe and Russia keep energy investors uneasy. As the European Union proposed to put a lid on Russia’s oil, Russian President Vladimir Putin threatened to cut off all energy supplies if they advanced toward that path.

WTI Price Analysis: Technical outlook

Oil’s daily chart depicts the black gold as downward biased, despite bouncing from five-month lows. Unless buyers lift prices above the August 16 low-turned-resistance at $85.74 PB, risks are skewed to the downside. If WTI reclaims the latter, a test of the 20-day EMA at $89.58 is on the cards.

On the flip side, WTI’s first support would be the YTD low at $81.27. The break below will expose the $80.00 figure, followed by the January 2 daily low at $74.30.

• NZD suffers at the hand of rising US yields and the greenback.
• However, NZD/USD bulls step in at key H4 support. 

NZD/USD was ending the North American session on the back foot. The price made a low of 0.6301 and had fallen from a high of 0.6078. The US dollar and shorter-dated US Treasury yields climbed on Thursday on the back of Federal Reserve Chair Jerome Powell's comments who said that the Fed was "strongly committed" to controlling inflation.

The DXY index, which measures the greenback vs. a basket of currencies has travelled between a low of 109.334 and a high of 110.243 so far while the 10-year Treasury yield has recovered to a 3.304% high on the day from a low of 3.201%. The two-year yield reached a high of 3.506% from a low of 3.404% and is currently up 1.45% on the day. 

The move in the kiwi largely reflects short-term stability seen in the USD itself (at elevated levels) against a backdrop of a small bounce in equities and softer oil prices, analysts at ANZ Bank said. ''Technically, the fact that 0.60 has held, is, as we noted yesterday, a positive. But of course it wouldn’t take much to break it, and in that regard, next week’s duo of US CPI data on Tuesday night (NZT) and NZ Gross Domestic Product on Thursday are key risk events.''

Investors digested hawkish remarks by Powell and other policymakers that are underpinning the sentiment for a large interest rate hike later this month. In more recent trade, Chicago Fed President Charles Evans joined his fellow policymakers in saying that reining in inflation is "job one," although he said that he would prefer to raise rates and hold for some time, rather than raise too far and then have to cut. ''I'm open-minded on 50 bps or 75 bps rate hike for Sept.'' Money market traders see nearly 90% odds that the Fed will hikes rates by 75 basis points at this month's meeting. 

NZD/USD technical analysis

The bulls are holding at the W-formation's neckline support which could give rise to an impulse higher for the day ahead. 

• GBP/USD has stalled above the recently made bear cycle lows.
• GBP/USD is approaching a price imbalance on the hourly chart, bulls eye break of 1.1516. 

GBP/USD has been pressured to the lowest level since 1985 this week. However, it is trading in the middle of the week's range and as the following analyses illustrate, there are prospects of a bullish correction for the days and weeks ahead. 

GBP/USD weekly charts

The weekly chart shows that the price is stalling at old support and a correction could be underway:

The bulls will be aiming for a break of the trendline resistance and the M-formation could be the catalyst for such a scenario. This is a reversion pattern that would typically see the price retrace to restest the neckline as old support turned resistance. If the bulls commit at this juncture, then a move above the formation will crystalise the bullish outlook for the weeks ahead. 

GBP/USD daily chart

The daily chart, however, shows that 1.1600 could be a tough nut to crack as it has already resisted on the first attempt and now aligns with a 38.2% Fibonacci retracement level. 

GBP/USD H1 chart

For the immediate future, the focus is on the upside for a retest of the highs. The price has left a W-formation on the chart and a break of 1.1516, the prior candle high, could seal the deal for a grind higher towards 1.1550 and beyond the recent highs. 

What you need to take care of on Friday, September 9:

The greenback finished the day mixed across the FX board after a volatile day. The EUR/USD pair is little changed, just below parity after the European Central Bank hiked rates by 75 bps as expected.

The ECB upwardly revised the inflation projections to an average of 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024. Policymakers also expect the economy to keep growing regardless of signs of recession, with the annual GDP seen up by 3.1% in 2022, 0.9% in 2023 and 1.9% in 2024.  

The speech from President Christine Lagarde shed some light on future actions. She said it would take more than two meetings but less than five to get to the end of rate hikes, which is taking them to neutral levels. At the same time, she cooled down expectations of another 75 bps hike by saying it is not a norm but added that they could go for higher increases if needed.

US Federal Reserve Chief Jerome Powell delivered remarks on local inflation and monetary policy. Among other things, Powell said that the pandemic is the main reason behind the current situation, and repeated policymakers are strongly committed to bringing inflation down, as the longer it remains above target, the greater would be the risk.

As several other worldwide central bank leaders, Powell and Lagarde put taming inflation before stimulating growth. Lagarde diminished risks of recession but market players are well aware the energy crisis is yet to take its toll on the Union.

In the UK, the new Prime Minister Liz Truss announced a cap on household energy bills starting October 1. The government also announced it will put in place an equivalent cap for businesses' energy costs. The GBP/USD pair eased with the news, ending the day at around 1.1500.

The Canadian dollar surged against the greenback, with the pair trading at around 1.3090 as BOC officials reiterated more rate hikes are in the docket as inflation remains stubbornly high. AUD/USD trades little changed at around 0.6750.

The USD/CHF pair plunged, now trading at around 0.9700, while USD/JPY steadies at around 144.00.

Gold ended the day with losses at around $1,708 a troy ounce, while crude oil prices posted modest gains, with  WTI ending the day at $83.25 a barrel.

US Treasury yields finished the day with modest gains. The 10-year note currently yields 3.29% not enough to trigger demand for the greenback but getting close to it.

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• Gold has underperformed on the day as the US dollar and yields rise.
• Gold bulls, however, are not going down without a fight and are eyeing a third attempt of a breakout. 

The gold price is down on the day after falling heavily from a high of $1,728.23 to a low of $1,704.00. The yellow metal is trading around $1,709.33 at the time of writing and lowing some 0.5%. The US dollar index and shorter-dated US Treasury yields rose on Thursday following Federal Reserve Chair Jerome Powell's comments that the central bank was "strongly committed" to controlling inflation.

The DXY index, which measures the greenback vs. a basket of currencies has travelled between a low of 109.334 and a high of 110.243 so far while the 10-year Treasury yield has recovered to a 3.304% high on the day from a low of 3.201%. The two-year yield reached a high of 3.506% from a low of 3.404% and is currently up 1.45% on the day. 

Meanwhile, US stocks have struggled for direction as investors digested hawkish remarks by Powell and other policymakers that are underpinning the sentiment for a large interest rate hike later this month. In more recent trade, Chicago Fed President Charles Evans joined his fellow policymakers in saying that reining in inflation is "job one," although he said that he would prefer to raise rates and hold for some time, rather than raise too far and then have to cut. ''I'm open-minded on 50 bps or 75 bps rate hike for Sept.'' Money market traders see nearly 90% odds that the Fed will hikes rates by 75 basis points at this month's meeting. 

''Over the last multiple decades, gold prices have tended to outperform in the earlier stages of a hiking cycle, but have displayed a systematic underperformance when markets expect the real level of the Fed funds rate to rise above the neutral rate,'' analysts at TD Securities explained. ''In turn,'' they added, ''while gold prices may now have accurately captured the expected level of interest rates, they are not reflecting the implications of a sustained period of restrictive policy.''

This leaves the focus on the downside for gold, as the analysts have been arguing and suggesting to ''fade the technical rebound in gold prices.'' 

''While gold prices are flirting with a break of a multi-decade uptrend near $1675/oz, the stars are aligning for additional downside in precious metals to ensue. Rates markets appear to be nearing a fair pricing for Fed funds, but gold's price action is still not consistent with its historical performance when hiking cycles enter into a restrictive rates regime.''

''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.''

Meanwhile, adding insult to injury, US data showed the number of Americans filing new claims for unemployment benefits fell last week to a three-month low. This proves a robust labout market even in the face of higher levels of interest rates. In this regard, investors will be waiting for a critical last-minute US August inflation report next week ahead of the Fed meeting that will offer some final key information that could give fresh clues on whether the Fed will need to raise by 75 or 50 basis points at the next policy meeting due Sept. 20-21.

Gold technical analysis

From a 4-hour chart perspective, the harmonic pattern is playing out with the price correcting higher from the C-D lows. However, as the chart below ill show, the bulls are making hard work of it:

The price has stalled ahead of a 38.2% Fibonacci retracement level on two levels of rise. The third attempt could be more successful and a break of 1,730 might be significant. The M-formation is a reversion pattern, so the next attempt could be imminent. 

• USD/JPY advances, preparing to finish the week with gains of almost 2.80%.
• Fed policymakers are laser-focused on taming inflation towards its 2% target.
• Japanese authorities remain nervous due to high volatility in the FX markets.

The USD/JPY climbs for the fourth consecutive day, thought retreats from around YTD highs reached on Wednesday at 144.99, clinging to the 144.00 figure, after Fed officials reiterated their commitment to bringing inflation down toward its 2% goal.

During the day, the USD/JPY began trading near the 144.00 figure, climbing late in the Asian session towards the daily high. Nevertheless, it tumbled towards the daily low at 143.32, but Fed’s Powell remarks before Wall Street opened bolstered the USD/JPY above the 144.00 figure. At the time of writing, the USD/JPY is trading at 144.00.

USD/JPY rises due to upbeat mood, reaching a 24-year high around 145.00

Risk appetite is positive through the Thursday session. Fed officials throughout the day remained vocal about tackling inflation, while Fed Chair Jerome Powell emphasized the Fed needs to act forthrightly, strongly as we have been doing.”

Data-wise, the US Bureau of Labor Statistics revealed that unemployment claims for the week ending on September 3 dropped to 222K from 235K estimated, flashing the labor market remains robust. The four-week moving average, which smooths out volatile week-to-week moves, decreased to 233K – the lowest since early July.

On the Japanese side, the Vice finance minister for international affairs, Masato Kanda, said that “volatility is recently heightening in the currency market. Especially in the past few days, we’ve seen one-sided, rapid yen declines driven by speculative moves. It’s clearly a move that can be described as excess volatility.”

"The yen's recent rapid moves cannot be justified by fundamentals," Kanda added after attending a meeting with officials of the Ministry of Finance, the Bank of Japan (BoJ), and the Financial Services Agency (FSA).

Meanwhile, the USD/JPY has retreated from around 145.00 due to the overextended move towards 24-year highs. Also, the Relative Strength Index (RSI) in overbought conditions is at 78.58, but its slope still points upward, meaning that buying pressure stills. However, Japanese authorities threatening to intervene in the Forex market might refrain USD/JPY traders from opening long bets on the major.

USD/JPY Key Technical Levels

Federal Reserve Bank of Chicago President Charles Evans said policymakers could deliver a third straight jumbo increase in interest rates when they gather on September 20-21, but he is opened minded between a 50 or 75 basis point hike. 

Key notes

''I'm open-minded on 50 bps or 75 bps rate hike for Sept.''
    
''Will monitor breadth of inflation, and if anything surprises on wages may need to get to peak rate sooner.''
    
''Signs of inflation cooling won't change need to get to peak fed funds rate of 4%, but maybe not as soon.''
    
''Don't have  'heartburn' about getting to peak 3.75%-4% fed funds range by year-end or January.''
    
''Dollar strength shows the confidence we'll get inflation back down.''
    
''Hopeful that unemployment won't do all the work getting inflation down; will be special factors, supply chains.''
    
''Need to be confident inflation is heading back down to our 2% objective.''
    
'' Would prefer to raise rates and hold for some time, rather than raise too far and then have to cut.''

Meanwhile, the US dollar index and shorter-dated US Treasury yields rose on Thursday following Federal Reserve Chair Jerome Powell's comments that the central bank was "strongly committed" to controlling inflation.

The DXY index, which measures the greenback vs. a basket of currencies has travelled between a low of 109.334 and a high of 110.243.

• Silver prices advance despite higher US Treasury bond yields.
• Hawkish commentary by Jerome Powell fueled estimations that a 75 bps rate hike in September is a done deal.
• US 10-year Treasury Inflation-Protected Securities (TIPS), a proxy for real yields, approaches the 0.90% threshold, a headwind for precious metal prices.

Silver price holds to earlier gains after Federal Reserve Chair Jerome Powell emphasized that the Fed will continue to tighten monetary policy at the expense of slower economic growth. The XAG/USD is trading at $18.52, above the opening price, by 0.56%.

Sentiment has shifted mixed, with US equities fluctuating. Fed officials are crossing newswires as the Federal Reserve blackout period approaches, led by Fed Chair Jerome Powell. On Thursday, Powell commented that the Fed is “strongly committed” to bringing inflation to its 2% target and added that the Fed needs to act“forthrightly, strongly as we have been doing.”

Related to this, Barclays said now that it sees a 75 bps rate hike in September, but a 50 bps in November, via Reuters.

The US Department of Labor featured Initial Jobless Claims for the week ending on September 3, with figures falling to 222K, lower than estimates. In the meantime, the US Dollar Index, a gauge of the buck’s value measured vs. a basket of peers, gains 0.34% at 109.905.

Meanwhile, the US 10-year Treasury yield edges up two bps, sitting at 3.294%, putting a lid on the white metal gains. Also, the US 10-year TIPS, a proxy for real yields, climbed sharply, approaching the 0.90% mark, as recent Fed’s commentary fueled expectations of a 75 bps rate hike in September.

Late in the day, Chicago’s Fed Charles Evans said the labor market remains tight and added that the Fed is “increasing interest rate expeditiously.” Evans said that he expects GDP growth to remain at positive levels and commented that inflation would likely remain around 4 to 5% in core PCE and by 2023 at 3%, perhaps 2.5%.

Silver Price Forecast (XAG/USD): Technical outlook

Silver price remains neutral-to-downward biased. Even though silver buyers reclaimed the July 21 low at $18.24, downward risks remain. Additionally, solid resistance at around the 20-day EMA at $18.93, alongside the 50-day EMA at $19.24, would be challenging levels to overcome as the Relative Strength Index (RSI) turns horizontal. On the other hand, if XAG/USD registers a daily close below $18.24, it would open the door for a re-test of the YTD low at $17.56.

Bank of Canada senior deputy governor Carolyn Rogers says bank has seen early signs monetary policy is working.

''We're not where we were in July, but we're a long way from where we need to be.''

''The bank still sees a path to a stop to a soft landing, that's still our objective's.''

''Neutral territory is a range, it's an estimate, there is no magic formula.''

Asked if outsize rate hikes can still be expected, we continue to say that we think front loading is the best way to deal with the underlying causes of inflation.

The speech by Senior Deputy Governor Carolyn Rogers comes one day after the BoC hiked its benchmark interest rate to a 14-year high of 3.25%.

The Canadian dollar was rising to 1.3080 to the greenback. On Wednesday, the currency touched its weakest intraday level in nearly eight weeks at 1.3208.

On Tuesday, the Reserve Bank of Australia (RBA) raised interest rates by 50 basis points to 2.35%. Analysts at Wells Fargo see the RBA making further rate hikes in the near term but at a slower pace, which should weigh on the Australian dollar. They point out that risks in the AUD/USD exchange rate are titled to the downside. 

Key Quotes: 

“Solid growth but uncertainty regarding consumer and household trends amid high inflation reinforces our view for continued rate hikes from the RBA, albeit at a slower pace than the recent 50 bps per meeting trend.”

“Our outlook for smaller magnitude rate hikes moving forward has implications for the Australian dollar's path as well. We expect the Australian dollar to soften through the end of 2022, before a rebound as 2023 progresses. With our expectation for the RBA to hike rates at a 25 bps pace beginning in October, and as the Federal Reserve maintains its hawkish approach, RBA rate hikes should lag the Fed's and also fall short of monetary tightening currently priced by financial markets. This should contribute to Australian dollar softness versus the greenback through the end of this year and perhaps into early 2023.”

“The risks could be tilted toward less weakness in the Australian dollar than currently anticipated, as inflation pressures could lead the RBA to deliver larger rate hikes despite uncertainty surrounding the consumer sector. We see prospects for Australian dollar strength to improve as 2023 progresses, given we expect the United States to fall into recession and the Fed to cut rates.”
 

"We'll muddle through this year with positive growth but the unemployment rate likely to go up," Chicago Fed President Charles Evans said on Thursday and added that he was optimistic they will be able to avoid a recession, as reported by Reuters.

Additional takeaways

"The labor market is going to slow down."

"We are increasing interest rate expeditiously."

"Job one is to get inflation back to 2%."

"Worried about global economic slowdown, and Europe taking the brunt."

"Shouldn't be complacent about US prospects given global slowdown."

"I also worry about inflation expectations getting out of hand."

"I expect inflation will come down."

"Bringing job openings down usually means a recession, but it's different this time."

"Possible job openings can decline without a big rise in unemployment."

Market reaction

The dollar preserves its strength following these comments and the US Dollar Index was last seen rising 0.45% on the day at 110.10.

Swiss National Bank (SNB) Chairman Thomas Jordan said on Thursday that the appreciation of the Swiss franc tends to help the Swiss economy rather than hurt it, as reported by Reuters.

Additional takeaways

"We must ensure price stability over medium term."

"Exchange rates play a role in inflation, when big central banks act, this helps us."

"You should not be surprised that SNB acts independently."

"SNB decides monetary policy at regular meetings unless under severe time pressure."

"No decision yet on what to decide at September 22 policy meeting."

"Next step depends on analysis under way, need to gauge inflationary pressure, exchange rates."

"Uncertainty about inflation much higher than usual, can't say have reached peak."

"Severe gas shortages could fuel inflation."

"Price stability is our mandate, of course need to keep impact of policy on economy in mind as well."

"Experience shows it was costly to fight inflation, more costly not to fight inflation at the start."

"Real effective exchange rate of franc has been astoundingly stable."

Market reaction

USD/CHF edged lower after these comments and was last seen losing 0.5% on the day at 0.9715.

• Euro under pressure following the ECB meeting and Lagarde’s press conference.
• Japanese yen recovers some ground after days with significant losses.
• EUR/JPY again unable to hold above 144.00.

The rally of the EUR/JPY cross hit a strong resistance area around 144.25 and pulled back following the European Central Bank meeting. It recently hit a fresh daily low 143.15. The decline takes place after a 500-pip rally in three days.

Euro softens after ECB

On Thursday, the European Central Bank raised interest rates by 75 basis points as expected, to curb inflation and despite economic grow concerns in the Eurozone. The central bank said it will hike further rates. Lagarde said the next hike is not necessarily a 75 bps.

The euro weakened across the board following the press conference favoring the correction in EUR/JPY. The decline also took place amid a recovery of the yen. USD/JPY pulled back from multi-decades highs to 143.50. Higher US yield still keep the yen under pressure.

The 144.20/30 area again

Like what happened several times in June, the 144.20/30 capped the upside in EUR/JPY. The cross hit on Thursday at 144.32 the highest intraday level since January 2015 but it quickly pulled back.

The euro was unable to hold above 144.00 and lost momentum. The cross needs a consolidation above that area to open the doors to more gains over the medium term. On the flip side, below 143.00, the next support is seen at the 142.40 area (July highs).

Technical levels

• The AUD/USD to stay downward pressured post-Jerome Powell speech, reiterating the Fed’s commitment to control inflation.
• RBA’s Governor Philip Lowe opened the door for a slower pace of rate increases.
• US Initial Jobless Claims dropped, illustrating the US labor market remains tight.

The AUD/USD remains on the defensive spurred by hawkish commentary by the Federal Reserve Chair Powell on Thursday, while the European Central Bank (ECB) delivered a 75 bps rate hike.

Earlier, the AUD/USD began trading near the day high at around 0.6769 but tumbled towards its daily low at 0.6713, on remarks of the RBA’s Governor Philip Lowe. At the time of writing, the AUD/USD is trading at 0.6725, below its opening price.

AUD/USD drops on dovish RBA Lowe vs. Fed’s Powell hawkish speech

The Fed parade continued ahead of the blackout period. On Thursday, the US Federal Reserve Chair, Jerome Powell, reiterated the Fed is “strongly committed” to taming inflation and added that the Fed  needs to act “forthrightly, strongly as we have been doing.”

Before Wall Street opened, the US Labor Department unveiled Initial Jobless Claims for the week ending on September 3. Data showed that unemployment claims fell to 222K, lower than forecasts of 240K. Sources cited by Bloomberg said that “these timely data are signaling that the labor market is still strong, with layoffs declining, even as the Fed is tightening aggressively to rebalance supply and demand.”

Elsewhere, the US Dollar Index, a gauge of the greenback’s value against its peers, climbs 0.40%, last seen at 109.970, approaching the 110.000 psychological barriers, a headwind for the AUD/USD major.

On the Australian dollar side, the Reserve Bank of Australia (RBA) Governor Philip Lowe said that even though further rate hikes are needed, he’s aware that rates had already risen sharply. Lowe said that the RBA “the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises.”

AUD/USD reacted to this, sending the major towards its daily low before recouping some of those losses to current exchange rates.

What to watch

Further Fed speaking, led by Chicago’s Fed President Charles Evans, will cross wires at 16:00 GMT.

AUD/USD Key Technical Levels

The European Central Bank raised key interest rates by 75 basis points on Thursday, in line with market expectations. The statement and Lagarde’s comments suggested more rate hikes ahead. The euro lost ground across the board after the meeting while the dollar rose boosted by Fed’s Powell remarks. Analysts at Wells Fargo see more declines in the EUR/USD in the near term as the Fed tightens further and amid the economic outlook of the Eurozone. 

Key Quotes: 

“Following today's record rate increase, we now forecast the European Central Bank will raise its Deposit Rate another 50 basis points in late October and also 50 basis points in December, lifting the Deposit rate to 1.75% by the end of this year. We expect a final 25 basis point rate increase to 2.00% in early 2023.”

“From a currency perspective, we still expect some further declines in the euro in the near-term, given the Fed remains firmly in tightening mode for now and with the Eurozone economic outlook less than stellar. We do expect some rebound in the euro in 2023 as a steady ECB monetary policy outlook sees the euro outperform against the U.S. dollar, with the latter likely weighed down by the anticipation and eventual implementation of Federal Reserve monetary easing by late 2023.”

Bank of Canada (BoC) Senior Deputy Governor Carolyn Rogers reiterated on Thursday that the BoC continues to judge that the policy rate will need to rise further, as reported by Reuters.

Additional takeaways

"Recent data show inflationary pressures in Canada are increasingly broad-based."

"Getting inflation all the way back down to 2% will take some time, there could be bumps along the way."

"Governing Council discussed the ongoing risk that inflation becomes entrenched."

"There is a risk consumer spending has more momentum than we expect, making inflation more persistent."

"Demand continues to outstrip supply in many parts of the Canadian economy and short-term inflation expectations remain high."

"We remain resolute in our goal to re-establish low, stable and predictable inflation."

"Because we are in a period of excess demand we need a period of lower growth to balance things out; the reduced spending that results will ultimately lead to lower inflation."

"Bank will be keeping a close eye on how global developments and commodity prices affect exports, business investment and pricing decisions."

"Bank will watch to see if supply disruptions are improving and labor shortages are subsiding."

"Bank's decisions now and the ones taken in recent months will take up to two years to have their full effect on inflation."

Market reaction

USD/CAD edged slightly lower after these comments and was last seen posting small daily losses at 1.3115.

• The Loonie weakened after Powell’s speech reiterated the Fed’s commitment to tackling inflation.
• Unemployment claims in the US decelerated, fueling estimations that the labor market remains tight.
• Even though the BoC and Fed are tightening at the same pace, the safe-haven status of the US dollar will keep the USD/CAD under buying pressure.

The USD/CAD trims some of its Wednesday losses, climbing towards the 1.3100 area amidst a risk-on impulse, with most European and US equities rallying, despite further central bank tightening monetary conditions, with the ECB hiking 75 bps.

During the overnight session, the USD/CAD began trading near the 1.3110s area and wobbled around the 1.3100-1,3140 range before reaching the day’s highs at 1.3159. Nevertheless, it erased those gains and is currently trading at 1.3118, above its opening price by 0.01%.

USD/CAD advances modestly after hawkish Powell speech

Sentiment-wise, the market is slightly tilted positive. The Federal Reserve Chair, Jerome Powell, reiterated the Fed is “strongly committed” to taming inflation. The market’s reacted, sending the greenback higher, while the US 2-year yield, the most sensitive to interest rate increases, climbed.

In the meantime, the US Department of Labor reported that Initial Jobless Claims for the week ending on September 3 decelerated to 222K, less than estimates of 240K by street analysts. Sources cited by Reuters commented that “Nothing in these data suggest the economy is softening further, still less that it is in recession.”

In the meantime, the US Dollar Index, a gauge of the buck’s value vs. a basket of currencies, gains 0.36%, up at 109.924, approaching the 110.000 psychological barriers, a tailwind for the USD/CAD. Meanwhile, US crude oil, also known as WTI, recovers some ground at $83.28 per barrel, up 1.08%, putting a lid on USD/CAD gains.

Additionally, market players digest the recent interest rate hike by the Bank of Canada (BoC) on Wednesday. Although the BoC sounded hawkish and prepared market players, the broad safe-haven status of the greenback, and further rate hikes by the Federal Reserve, could keep the USD/CAD under upside pressure.

USD/CAD Key Technical Levels

The European Central Bank raised interest rates by 75 basis points on Thursday as expected. According to analysts from TD Securities expect the ECB to hike 50bps in October, and 25bps at each of the three meetings from December to March, reaching a terminal of 2.00% at that meeting.

Key Quotes: 

“Today's decision suggests that the ECB will slow the pace of tightening from here as it heads toward (and indeed possibly above) the neutral rate, which by most accounts lies somewhere in the 1-2% range. We expect the Governing Council to hike rates by 50bps in October, and 25bps at each of the December, February, and March meetings. This leaves the Depo Rate at 1.50% by year-end (in line with our prior forecast), and 2.00% by March 2023. From there, we expect the ECB to leave policy on hold until 2024, when it likely cuts rates back toward the mid-point of the neutral range.”

“Our forecast is for one more hike than President Lagarde suggested at the press conference, but given the meeting-by-meeting nature of the ECB's decision-making framework, and the ease with which they have eschewed guidance in the past, we'd put little weight on her specific timeline of hikes at this stage.”

• ECB raises rates by 75 bps, will hike further.
• Euro tumbles after Lagarde’s press conference.
• EUR/CHF hits ten-day lows, finds support above 0.9660.

The EUR/CHF tumbled following the European Central Bank meeting and after Lagarde’s press conference. The cross bottomed at 0.9661, the lowest level since August 29.

The combination of a weaker euro and a stronger Swiss franc across the board sent the EUR/CHF sharply lower. The decline found support above 0.9660 and it is hovering slightly below 0.9700, back above the flat 20-day Simple Moving Average, currently at 0.9680.

As expected, the ECB raised interest rates by 75 basis points and said it expects more rate hikes at their next meetings. Lagarde noted that more than two but less than five meetings are ahead to get to the end of the cycle. “We expect another 75bp hike in October. The central bank remains relatively optimistic on the growth outlook. We see higher rates, a flatter curve and a weaker EUR ahead”, said analysts at Nordea.

The Swiss franc was among the top performer prior to the ECB decision and it remained strong afterwards. The USD/CHF is hovering around 0.9730, down for the second day in a row, at the lowest level since late August.

Technical levels

Canada will release August employment figures on Friday, September 9 at 12:30 GMT and as we get closer to the release time, here are forecasts from economists and researchers at five major banks regarding the upcoming employment data. 

15K new workers are expected in August after the losses recorded in June (-43K) and July (-31K). But the unemployment rate is set to increase to 5% from 4.9%.

RBC Economics

“We expect Canadian employment rose by 5K jobs in August. This would follow two consecutive monthly declines. These recent sluggish developments stem almost entirely from a lack of available workers, not weakening demand. At over 1 million in June, job vacancies were still well above pre-pandemic levels. We look for an increase in the unemployment rate to 5.0% (which is still very low).”

TDS

“We look for the Canadian labour market to add 15K jobs in August for a muted rebound from the consecutive declines across June and July, with gains spread across goods and services. Tight labour market conditions should help wages edge higher to 5.5%, and we expect the unemployment rate to hold at 4.9%.”

NBF

“Our call is for a 15K increase. Despite this gain, the unemployment rate could increase from 4.9% to 5.1%, assuming the participation rate rose two ticks to 64.9%.”

Citibank

“We expect a rebound in jobs of 30K in August. Wages in the monthly labor force survey have been volatile and suggest inflationary pressures caused by a tight labor market could be somewhat less embedded in Canada. As tighter monetary policy acts to cool demand, moderating wage growth will be a sign that inflationary pressures could ease somewhat faster in Canada.”

CIBC

“We’re anticipating only tepid net hiring in August (5K). Slower growth within the economy later this year and into 2023 could see the unemployment rate rise moderately to 5% from its current historic low levels.”

The European Central Bank (ECB) Governing Council decided to raise its key interest rates by 75 basis points. How long will it stay on course? Further significant rate hikes in the pipeline but at some point the ECB will buckle because of the recession, economists at Commerzbank report.

This is not enough to bring inflation down to 2%

“The ECB sent a clear signal today by raising the key interest rate by 75 basis points. It held out the prospect of further interest rate hikes because of high inflation.”

“We continue to expect it to raise its deposit rate to 1.75% by the beginning of next year, but to pause the rate hike process after that because of the recession that will then be visible. However, to bring inflation back to 2%, we believe it would have to raise its deposit rate to around 4%.”

The zloty has not strengthened much despite the Polish central bank (NBP) hiking policy rates to 6.5%. Economists at Danske Bank see further upside potential on the EUR/PLN pair.

Zloty facing global headwinds

“Polish monetary tightening has been too slow in coming and too modest to curb the huge inflationary pressures. Furthermore, the global economic slowdown, the Ukraine war and USD strengthening have also hurt the PLN. With these effects likely to remain in place, we expect the PLN to weaken.”

“Forecast: 4.72 (1M), 4.74 (3M), 4.76 (6M), 4.76 (12M), 4.78 (end-2023).”

• GBP/USD retreats around 100 pips from the daily high amid resurgent USD demand.
• Fed Chair Jerome Powell reaffirms a 75 bps rate hike bets and boosts the greenback.
• The UK’s bleak economic outlook supports prospects for a further depreciating move.

The GBP/USD pair struggles to capitalize on its modest intraday uptick and attracts fresh selling near the 1.1560 area on Thursday. Spot prices refresh daily low, around the 1.1460 region during the early North American session and remain well within the striking distance of the lowest since 1985 touched the previous day.

Following a modest dip to a fresh weekly low, the US dollar regains positive traction and reverses a major part of the overnight retracement slide from a two-decade high. This turns out to be a key factor exerting downward pressure on the GBP/USD pair. Fed Chair Jerome Powell reiterated the central bank's strong commitment to bringing inflation down and reaffirmed expectations for a supersized rate hike at the September FOMC meeting.

In fact, the implied odds for a 75 bps now stands at 85%, which, in turn, pushes the US Treasury bond yields higher. Apart from this, a fresh leg down in the equity markets provides a goodish lift to the safe-haven greenback. Meanwhile, the optimism led by UK Prime Minister Liz Truss' announcement to cap energy bills for the next two years fades rather quickly amid the worsening UK economic outlook, which might continue to weigh on sterling.

The fundamental backdrop seems tilted firmly in favour of bearish traders and suggests that the path of least resistance for the GBP/USD pair is to the downside. That said, it will be prudent to wait for a sustained break below the 1.1400 round-figure mark before positioning for any extension of the recent downward trajectory witnessed over the past month or so.

Technical levels to watch

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions following the bank's decision to hike key rates by 75 basis points following the September policy meeting.

Key quotes

"Rate move increments may not decline as we get closer to the terminal rate."

"Terminal rate is not known."

"We are giving priority to the policy rate."

"It will take more than 2 meetings but less than 5 to get to the end of hikes."

Market reaction

EUR/USD is struggling to shake off the bearish pressure and was last seen losing 0.45% on a daily basis at 0.9957.

USD/CAD is overbought but holds range. Economists at Scotiabank note that the pair could suffer significant losses on a break under key support at 1.3075.

Ongoing downside pressure towards 1.31

“The USD is holding its established, short-term range but by recent standards, it is looking overbought.” 

“The charts suggest ongoing downside pressure towards 1.31 in the short run; key support is 1.3075, the early Sep low and 1.3210 double top trigger (downside potential to 1.2940 on a break under the neckline).”

Economists at Danske Bank see further upside on the EUR/SEK. They expect the pair to advance nicely towards the 11 level.

Gradual SEK weakening set to continue

“We have a negative view on the outlook for the SEK and would stress both short and long-term headwinds for the currency.” 

“A short-term risk is that fixed income markets seem to be pricing too many rate hikes from the Riksbank. A repricing of the Riksbank, together with weaker global GDP growth and volatile asset prices, would pose significant headwinds to the cyclical SEK.”

“Forecast: 10.50 (1M), 10.60 (3M), 10.80 (6M), 11.00 (12M).”

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions following the bank's decision to hike key rates by 75 basis points following the September policy meeting.

Key quotes

"Downside scenario for growth includes negative growth in 2023."

"Downside scenario sees gas rationing."

"Downside scenario is really dark."

"Premature to look at other policy instruments (quantitative tightening)."

"We have started the process of normalization."

"Noted the depreciation of the euro."

"We will resolve matter of TLTRO, other remuneration."

"We are still stimulating the economy."

• EUR/USD abandons the area of recent peaks near 1.0030.
• The ECB’s projections are quite upbeat when it comes to growth.
• Future policy decisions by the ECB remain data dependent.

Sellers seem to be regaining control around the European currency and prompt EUR/USD to surrender initial gains and slip back below parity as Lagarde’s presser is under way.

EUR/USD looks offered, Lagarde fails to surprise markets

After climbing as high as the 1.0030 region, or multi-day highs, EUR/USD could not stick to those gains and sparked a corrective move back below the parity zone.

The move lower in spot followed Chairwoman C.Lagarde’s press conference after she reiterated that future policy decisions will remain data dependent and on a meeting-by-meeting basis. Lagarde acknowledged that the labour market remains strong and weaker global demand continued to weigh on growth.

She noted that the weaker euro also collaborates with the elevated inflation as well as supply bottlenecks. Still on inflation, Lagarde suggested that food and energy costs could remain higher than expected at the time when a pick-up in inflation expectations warrant monitoring.

Regarding Thursday’s rate hike, Lagarde declined to comment whether the next interest rate raise will also be of 75 bps, adding that this is not the norm. She also suggested that the neutral rate is higher.

In light of the recent depreciation of the euro, Lagarde reiterated the central bank does not target the exchange rate.

What to look for around EUR

EUR/USD now sinks well below the parity level after the C.Lagarde fails to meet bulls’ expectations at the ECB event on Thursday.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

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: ECB Interest Rate Decision, Lagarde press conference (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 losing 0.65% at 0.9936 and a drop below 0.9863 (2022 low September 6) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low). On the other hand, the next resistance aligns at 1.0090 (weekly high August 26) ahead of 1.0161 (55-day SMA) and then 1.0202 (August 17 high).

FOMC Chairman Jerome Powell said on Thursday that they need to act forthrightly and strongly on inflation, as reported by Reuters.

Additional takeaways

"We need to keep going until we get the job done."

"My message is the Fed has and accepts responsibility for price stability."

"Longer inflation remains above target, greater the risk."

"History cautions against prematurely loosening policy."

"We are strongly committed to bringing inflation down."

"We will not be influenced by political considerations."

"We focus solely on our mandate."

"Public's expectations of inflation play an important role."

"Very important inflation expectations remain well anchored."

"Today they are pretty well anchored over longer term."

"At short end, the clock is ticking and more concerns public will incorporate higher inflation expectations."

"Wages are running at elevated levels."

"We hope to achieve a period of below-trend growth."

"We think by our policy moves we will be able to put growth below trend and get labor market back into better balance."

"In most recent labor market report, saw a welcome increase in labor force participation."

Market reaction

The dollar gathers strength against its rivals after these comments and the US Dollar Index was last seen rising 0.6% on the day at 110.20.

• Gold witnessed an intraday turnaround from over a one-week high touched earlier this Thursday.
• Aggressive rate hikes by major central banks continue to act as a headwind for the commodity.
• Retreating US bond yields keep the USD bulls on the defensive, though fail to lend any support.

Gold struggles to capitalize on its intraday positive move to a one-and-half-week high and meets with a fresh supply near the $1,728 region on Thursday. The pullback extends through the early North American session and drags spot prices to a fresh daily low, closer to the $1,710 level in the last hour.

More aggressive rate hikes by major central banks to tame inflation turn out to be a key factor that continues to act as a headwind for the non-yielding gold. It is worth recalling that the Reserve Bank of Australia raised its benchmark rates by 50 bps on Tuesday, while the Bank of Canada maintained a more hawkish bias and delivered a 75 bps hike on Wednesday.

This was followed by a supersized 75 bps rate increase on Thursday by the European Central Bank, which expects to raise interest rates further to dampen demand. Furthermore, the US central bank is also anticipated to continue to tighten its monetary policy at a faster pace. That said, a modest US dollar weakness limits the downside for the dollar-denominated gold.

The USD extends the overnight retracement slide from a two-decade high and remains on the defensive for the second successive day amid a further pullback in the US Treasury bond yields. Apart from this, the prevalent cautious mood - amid growing worries about a deeper global economic downturn - could further offer some support to the safe-haven precious metal.

The prospects for a further policy tightening by major central banks, economic headwinds stemming from fresh COVID-19 lockdowns in China and protracted 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 benefits traditional safe-haven assets.

The mixed fundamental backdrop warrants some caution before placing aggressive directional bets around gold. Even from a technical perspective, spot prices have been oscillating in a familiar range over the past week or so. Hence, a sustained move in either direction is needed to confirm the near-term trajectory for the commodity.

Technical levels to watch

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions following the bank's decision to hike key rates by 75 basis points following the September policy meeting.

Key quotes

"Policy decision was unanimous."

"We had different views around the table."

"Inflation is spreading across a whole range of products, including in services."

"Today wasn't an isolated decision."

"Next rate hike will not necessarily be 75 bps, that's not the norm."

"Given inflation, determined action had to be taken."

"Where we are is not the neutral rate, it will take further hikes to neutral."

Gold registered strong daily gains on Wednesday. However, strategists at TD Securities expect the yellow metal to move back lower.

China's appetite for gold continues to ebb

“While gold prices are flirting with a break of a multi-decade uptrend near $1,675, the stars are aligning for additional downside in precious metals to ensue.” 

“While gold prices may now have accurately captured the expected level of interest rates, they are not reflecting the implications of a sustained period of restrictive policy.”

“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.”

“Our tracking of Shanghai gold trader positioning suggests that China's appetite for gold continues to ebb, potentially adding into a liquidation vacuum.”

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions following the bank's decision to hike key rates by 75 basis points following the September policy meeting.

Key quotes

"Risks to growth are to the downside in the near term."

"Energy supply disruptions are a major risk."

"Initial signs of inflation expectations above target warrant monitoring."

"Wage growth is still contained."

"Risks to inflation are tilted to the upside."

"Future policy rate decisions are to be data-dependent."

"Credit to firms have become more expensive."

Christine Lagarde, President of the European Central Bank (ECB), is delivering her remarks on the policy outlook and responding to questions following the bank's decision to hike key rates by 75 basis points following the September policy meeting.

Key quotes

"Gas disruptions reinforce slowdown."

"Weaker global demand also weigh on growth."

"Slowing economy to lead to some increase in the jobless rate."

"The labor market has remained robust."

"Oil prices expected to moderate, wholesale gas to stay high."

"Supply bottlenecks are putting upward pressure on inflation."

"Higher inflation pressures also stem from a weaker euro."

• Initial Jobless Claims fell by 6,000 in the week ending September 3.
• US Dollar Index clings to small daily gains 109.50.

There were 222,000 initial jobless claims in the week ending September 3, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 228,000 (revised from 232,000) and came in better than the market expectation of 240,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1% and the 4-week moving average was 233,500, a decrease of 7,500 from the previous week's revised average.

"The advance number for seasonally adjusted insured unemployment during the week ending August 27 was 1,473,000, an increase of 36,000 from the previous week's revised level," the DOL said.

Market reaction

The greenback stays resilient against its major rivals after this data with the US Dollar Index posting small daily gains at 109.60.

• EUR/GBP refreshes daily low after the ECB announced its policy decision, though lacks follow-through.
• The ECB hikes interest rates by 75 bps and expects to raise interest rates further to dampen demand.
• Investors now await ECB President Lagarde’s remarks at the post-meeting presser for a fresh impetus.

The EUR/GBP cross retreats further from its highest level since mid-June touched earlier this Thursday and refreshes its daily low after the European Central Bank announced its policy decision. The downtick, however, lacks follow-through and spot prices, for now, seem to have stabilized around the 0.8670 area.

As was widely expected, the ECB hiked its benchmark rates by 75 bps this Thursday and struck a more hawkish tone, expecting to raise interest rates further to dampen demand. Given that the move was fully priced in the markets, the announcement fails to impress traders or provide any impetus to the shared currency. That said, a modest uptick in the British pound seems to exert some downward pressure on the EUR/GBP cross.

The new British Prime Minister Liz Truss announces a cap on energy bills for the next two years, which is seen as a welcome development for households. This, in turn, offers some support to sterling, though the worsening outlook for the UK economy continues to act as a headwind. Furthermore, reluctance to place aggressive bets ahead of ECB President Christine Lagarde's post-meeting presser limits the downside for the EUR/GBP cross.

Investors will look for fresh clues about the ECB's near-term monetary policy outlook amid the risk of an extreme energy crisis in Europe and growing recession fears. This, in turn, will play a key role in influencing the sentiment surrounding the shared currency and determining the next leg of a directional move for the EUR/GBP cross.

Technical levels to watch

• EUR/USD keeps the daily range around the parity zone.
• ECB raised its key rates by 75 bps, matching previous estimates.
• The ECB now sees the region’s economy expanding 3.1% in 2022.

The single currency now alternates gains with losses and motivates EUR/USD to keep hovering around the parity region after the ECB raised rates on Thursday.

EUR/USD now focuses on Lagarde

EUR/USD keeps the daily range after the ECB raised the interests rates by 75 bps, as widely expected. That said, the interest on the main refinancing operations, the interest rate on the marginal lending facility and the deposit facility are now at 1.25%, 1.50% and 0.75%, respectively.

In its statement, the ECB predicts that further interest rate hikes are on the table over the next several meetings aimed at undermining demand and tackle upside risks in inflation expectations.

The updated macroeconomic projections now forecast inflation to rise at an average 8.1% this year, 5.5% in 2023 and 2.3% in 2024. Back to the economic growth, the bank’s staff now sees the region expanding 3.1% in 2022, 0.9% in the next year and 1.9% in 2024.

Moving forward, market participants will now closely follow the usual press conference by Chairwoman Lagarde and the subsequent Q&A session, while the speech by Fed's Powell will also grab investors' attention.

What to look for around EUR

EUR/USD now clings to the parity region ahead of the always important press conference by Chair Lagarde after the ECB delivered a widely anticipated 75 bps rate hike.

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: ECB Interest Rate Decision, Lagarde press conference (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 0.06% at 1.0005 and faces the next resistance at 1.0090 (weekly high August 26) ahead of 1.0161 (55-day SMA) and then 1.0202 (August 17 high). On the other hand, a drop below 0.9863 (2022 low September 6) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low).

Slower growth and Federal Reserve are set to boost the US dollar. Therefore, economists at Danske Bank expect the EUR/USD to move downward over the coming months.

Dollar set to strengthen in 2023

“Inflation prints will probably come down in 2023 but we see little room for strong global GDP growth as long as the global economy is running close to capacity. We expect Europe to take the brunt of the hit, given its exposure to cyclical industries and large commodity imports.”

“We expect monetary policies to remain tight and price levels to stay high for a number of years, and the European economies look particularly challenged in this environment.”

“Forecast: 0.99 (1M), 0.98 (3M), 0.96 (6M), 0.95 (12M), 0.93 (end-2023).”

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 75 basis points (bps) following the September policy meeting as expected. 

With this decision, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 1.25%, 1.5% and 0.75% respectively.

Follow our live coverage of the market reaction to the ECB's policy announcements.

Market reaction

With the initial reaction, EUR/USD edged slightly higher and was last seen gaining 0.2% on the day at 1.0017.

Key takeaways from policy statement

"This major step frontloads transition from prevailing highly accommodative level of policy rates towards levels that will ensure timely return of inflation to ECB's 2% medium-term target."

"Based on current assessment, over next several meetings, ECB expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations."

"Will regularly re-evaluate its policy path in light of incoming information and evolving inflation outlook."

"Future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach."

"Soaring energy and food prices, demand pressures in some sectors owing to the reopening of the economy, and supply bottlenecks are still driving up inflation."

"Price pressures have continued to strengthen and broaden across the economy and inflation may rise further in the near term."

"As current drivers of inflation fade over time and normalisation of monetary policy works its way through to economy and price-setting, inflation will come down."

"ECB staff have significantly revised up their inflation projections and inflation is now expected to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024."

"After a rebound in first half of 2022, recent data point to a substantial slowdown in euro area economic growth, with economy expected to stagnate later in year and in first quarter of 2023."

"Very high energy prices are reducing purchasing power of people’s incomes and, although supply bottlenecks are easing, they are still constraining economic activity."

"In addition, adverse geopolitical situation, especially Russia's unjustified aggression towards Ukraine, is weighing on confidence of businesses and consumers."

"This outlook is reflected in latest staff projections for economic growth, which have been revised down markedly for remainder of current year and throughout 2023."

"Staff now expect economy to grow by 3.1% in 2022, 0.9% in 2023 and 1.9% in 2024."

"Lasting vulnerabilities caused by pandemic still pose a risk to smooth transmission of monetary policy."

"ECB will therefore continue applying flexibility in reinvesting redemptions coming due in pandemic emergency purchase programme portfolio, with a view to countering risks to transmission mechanism related to pandemic."

Cable recovers from 1.1410 low. A break below here would clear the way for a substantial drop towards 1.1270, economists at Société Générale report.

Bounce expected

“GBP/USD has revisited 2020 low near 1.1410. An initial bounce is not ruled out however July trough of 1.1760/1.1840 is likely to cap.”

“Technically, support for cable is still at 2020 low of 1.1410, break can extend the decline towards next projections at 1.1270.”

EUR/USD is currently trading just above 1.00 ahead of the European Central Bank (ECB) which is expected to hike rates by 75 bps. However, economists at BBH believe that the ECB could disappoint markets, weighing on the shared currency.

It is dangerous to go into ECB decision long euros

“We think it's dangerous to go into today's ECB decision long euros as we feel the risks are skewed (as always with the ECB) towards disappointment. We'll know more shortly.” 

“WIRP suggests nearly 75% odds of a 75 bps hike but with the hawks in control, the ECB will very likely take the plunge. Higher than expected August CPI readings certainly make the case for more aggressive tightening and it seems more and more 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.”

• DXY corrects lower and drops to multi-session lows.
• The dollar could have charted a near-term top near 110.80.

DXY trades on the defensive for the second session in a row and extends the recent breakdown of the 110.00 mark.

The short-term bullish view in the dollar, however, remains well in place for the time being and so far bolstered by the 7-month support line just below 106.00.

Further retracement in the short-term horizon could leave the recent 20-year high near 110.80 (September 7) as an interim peak. The surpass of this area could open the door to 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 101.26.

DXY daily chart

Christine Lagarde, President of the European Central Bank (ECB), is scheduled to deliver her remarks on the monetary policy outlook at a press conference at 12:45 GMT.

Follow our live coverage of ECB's policy announcements and the market reaction.

About ECB's press conference

Following the ECB´s economic policy decision, the ECB President gives a press conference regarding monetary policy. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

• EUR/USD adds to Wednesday’s uptick beyond parity.
• Gains could accelerate to the minor hurdle at 1.0090.

EUR/USD extends the upbeat mood further north of the parity zone ahead of the ECB event on Thursday.

Further upside could see the weekly high at 1.0090 (August 26) retested in the near term prior to the interim hurdle at the 55-day SMA at 1.0162. Further up, spot could see its downside pressure alleviated on a surpass of the 7-month resistance line, today near 1.0210.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0767.

EUR/USD daily chart

• EUR/JPY comes under pressure after hitting new 2022 peaks.
• The continuation of the upside could see the 2014 high revisited.

EUR/JPY prints new YTD tops in the 144.30/35 band on Thursday, although gives away some gains afterwards.

Extra gains in the cross appear well favoured for the time being. The next target, however, is not expected to emerge until the 2014 high at 149.78 (December 8).

While above the 200-day SMA at 134.82, the prospects for the pair should remain constructive.

Of note, however, is the current overbought condition of EUR/JPY, which could spark a technical drop in the near term.

EUR/JPY daily chart

ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 12:15 GMT, which will be followed by the post-meeting press conference at 12:45 GMT. The ECB is all but certain to lift interest rates for the second time in as many meetings to curb stubbornly high inflation, though investors are split over the size of the rate hike. Nevertheless, the current market pricing indicates a greater chance of a supersized 75 bps increment amid a record high inflation in the Eurozone.

Analysts at ING offer a brief preview of the key central bank event risk and explain: “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.”

How could it affect EURUSD?

Expectations for more aggressive tightening might have already set the stage for disappointment, especially if the ECB decides to opt for a gradual approach toward raising interest rates. Hence, the focus will be on the post-meeting press conference, where comments by ECB President Christine Lagarde will be scrutinized for the near-term policy outlook. This will play a key role in influencing the shared currency and provide some meaningful impetus to the EUR/USD pair.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the EUR/USD pair: “The near-term technical picture points to a bullish tilt with the Relative Strength Index (RSI) indicator on the four-hour chart holding comfortably above 50. Additionally, EUR/USD closed the last four four-hour candles above the 20-period and 50-period SMAs. Finally, the pair trades above the 10-day-old descending trendline.

Eren also outlined important technical levels to trade the EURUSD pair: “On the upside, 1.0000 (100-period SMA, psychological level) forms key resistance. In case this level is confirmed as support on a hawkish ECB outlook, the pair could target 1.0060 (static level) and 1.0100 (psychological level, 200-period SMA).”

“Supports are located at 0.9970 (50-period SMA), 0.9940 (broken trend line, 20-period SMA) and 0.9900 (psychological level),” Eren adds further.

Key Notes

  •  ECB Preview: Will tough times call for tough measures?

  •  ECB Preview: Between Putin's rock and hard inflationary place, the deck is stacked against the euro

   •  EUR/USD Forecast: Can euro stabilize above parity after ECB announcements?

About the ECB interest rate decision

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

British Prime Minister Liz Truss announced on Thursday the government will introduce a two-year "energy price guarantee" and explained that a typical household will pay no more than £2,500 a year on energy bills.

Additional takeaways

"Guarantee supersedes OFGEM price cap."

"We will deliver this by securing the wholesale price for energy."

"We will support the country through this winter and next."

"We will support all businesses, charities and public sector bodies with energy costs for 6 months."

"Vulnerable sectors including hospitality will get longer support."

"Energy bills are going to be affordable, we will not give in to calls for a windfall tax."

"Energy support scheme will boost growth."

"Energy intervention expected to curb peak inflation by up to 5 percentage points."

"Treasury announcing a joint scheme working with BOE to address extraordinary liquidity requirements faced by energy firms, worth £40 billion."

Market reaction

GBP/USD staged a rebound on these comments and was last seen trading flat on the day at 1.1525. 

Economist at UOB Group Ho Woei Chen, CFA, comments on the latest release of trade balance results in China.

Key Takeaways

“Both China’s export and import growth rates moderated by a sharper-than-expected pace in Aug to its slowest in four months. The month saw disruptions from drought and power crunch in some cities as well as higher COVID infections and resultant increase in movement curbs.”

“In USD-terms, exports rose 7.1% y/y in Jul (Bloomberg est: 13.0% y/y; Jul: 18.0% y/y) while imports barely grew as it came in at 0.3% y/y (Bloomberg est: 1.1% y/y; Jul: 2.3% y/y).”

“Export growth is likely to continue on a moderating trend for the rest of the year due to the high comparison base and weakening external demand outlook while tightening COVID curbs ahead of the 20th Party Congress (16 Oct) could also increase disruptions to the businesses in the next two months.”

“In Jan-Aug, exports and imports were up 13.5% y/y and 4.6% y/y respectively. We maintain our forecast for a more moderate growth of 10-12% for export and around 5% for import this year.”

• USD/CHF witnessed selling for the second straight day and dropped to over a one-week low.
• The downfall could be solely attributed to some technical selling amid subdued USD demand.
• Aggressive Fed rate hike bets to underpin the USD and limit losses ahead of Powell’s speech.

The USD/CHF pair extends the previous day's retracement slide from the highest level since July 14 and edges lower for the second straight day on Thursday. This also marks the fourth day of a negative move in the previous five and drags spot prices to over a one-week low, below mid-0.700s during the first half of the European session.

The overnight failure to find acceptance above mid-0.9800s turns out to be a key factor prompting some technical selling around the USD/CHF pair. A subdued US dollar price action also does little to lend any support. That said, the ongoing downfall lacks any obvious fundamental catalyst and is more likely to remain limited, at least for the time being.

Expectations that the Federal Reserve will stick to its aggressive policy tightening path should act as a tailwind for the buck and lend some support to the USD/CHF pair. This makes it prudent to wait for strong follow-through selling before confirming that the recent bullish momentum witnessed over the past month or so has run out of steam already.

Investors might also prefer to move to the sidelines and wait for a fresh catalyst from Fed Chair Jerome Powell's speech, due later during the early North American session. Powell's remarks will be scrutinized for clues about the central bank's policy outlook and reinforce bets for a supersized 75 bps rate hike at the next FOMC meeting on September 20-21.

This, in turn, will play a key role in influencing the USD price dynamics and provide a fresh impetus to the USD/CHF pair. Apart from this, the broader market risk sentiment could drive demand for the safe-haven Swiss franc and further contribute to producing short-term trading opportunities around the major.

Technical levels to watch

• AUD/USD witness fresh selling on Thursday after the less-hawkish remarks by RBA’s Lowe.
• The USD stalls the overnight pullback from a two-decade high amid hawkish Fed expectations.
• Recession fears further underpin the buck and drives flows away from the risk-sensitive aussie.
• Investors now look forward to Fed Chair Jerome Powell’s speech for some meaningful impetus.

The AUD/USD pair struggles to capitalize on the overnight goodish rebound from sub-0.6700 levels, or its lowest level since July 14 and meets with a fresh supply on Thursday. The pair remains depressed through the first half of the European session and is currently placed around the 0.6730 region.

The Australian dollar comes under renewed selling pressure after Reserve Bank Governor Philip Lowe signalled a potential end to outsized interest-rate increases. Lowe said that policy has tightened very quickly and highlighted lags in its flow-through to the economy and that the case for a slower pace of increase in interest rates becomes stronger. This, in turn, forced traders to trim bets for at least one more 50 bps rate hike in 2022.

The US dollar, on the other hand, stalls the previous day's sharp retracement slide from a two-decade high and continues to draw support from hawkish Fed expectations. In fact, the markets seem convinced that the Fed will continue to tighten its monetary policy at a faster pace to tame inflation and has been pricing in a supersized 75 bps rate hike in September. Apart from this, the cautious mood further underpins the safe-haven buck.

The prospects for rapid interest rate hikes, along with economic headwinds stemming from fresh COVID-19 curbs in China and the protracted war in Ukraine, have been fueling recession fears. This continues to weigh on investors' sentiment, which further contributes to driving flows away from the risk-sensitive aussie. The fundamental backdrop suggests that the path of least resistance for the AUD/USD pair remains to the downside.

Thursday's key focus will be on Fed Chair Jerome Powell's scheduled speech, due later during the early North American session. This, along with the broader risk sentiment, might influence the USD and provide some impetus to the AUD/USD pair. Traders will further take cues from the European Central Bank decision, which should infuse some volatility in the FX markets and assist traders to grab short-term opportunities around the major.

Technical levels to watch

• USD/CAD regains positive traction on Thursday and is supported by a combination of factors.
• Bearish crude oil prices languish near a multi-month low and continue to undermine the loonie.
• A modest USD uptick further acts as a tailwind for the pair ahead of Fed Chair Powell’s speech.

The USD/CAD pair quickly reverses an intraday dip to the 1.3100 area and climbs to a fresh daily high during the first half of the European session. The pair has now reversed a major part of the overnight losses and is currently placed just below the mid-1.3100s.

As investors digest a more hawkish Bank of Canada, weaker crude oil prices continue to undermine the commodity-linked loonie and assist the USD/CAD pair to regain positive traction on Thursday. It is worth recalling that the Canadian central bank hiked its benchmark rates by 75 bps on Wednesday and indicated the need to raise interest rates further. This, however, is overshadowed by the underlying bearish sentiment around the oil markets.

Investors remain concerned that a deeper global economic downturn and headwinds stemming from fresh COVID-19 curbs in China would result in lower fuel demand. This, to a larger extent, offset worries about tight global supply and drag crude oil prices to the lowest level since February 2022. Apart from this, the emergence of some US dollar dip-buying extends additional support to the USD/CAD pair and contributes to the intraday move up.

Expectations that the Fed will continue to tighten its monetary policy more aggressively to tame help limit the overnight USD pullback from a two-decade high. Despite the supporting factors, bulls might prefer to wait for Fed Chair Jerome Powell's speech during the early North American session before placing fresh bets around the USD/CAD pair. Nevertheless, the fundamental backdrop supports prospects for a further near-term appreciating move.

Technical levels to watch

Lee Sue Ann, Economist at UOB Group, reviews the latest GDP releases in Australia.

Key Takeaways

“The Australian economy grew 0.9% q/q in 2Q22, within expectations, and slightly higher from a revised 0.7% q/q reading in 1Q22 (0.8% q/q previously). From a year earlier, the economy expanded by 3.6% y/y, slightly higher than an estimated 3.4% y/y increase, and also higher from last quarter’s reading of 3.3% y/y.”

“The latest GDP prints continue to paint an overall positive backdrop for the Australian economy, following a rough start to the year. Our view remains for economic growth to turn softer towards 4Q22 as high inflation and rapid increases in interest rates weigh on households alongside a slowdown in global growth. We are keeping our GDP forecasts of 3.9% and 2.8% for 2022 and 2023, respectively.”

“We look for further tightening in the labour market in the next couple of months before slowing growth will likely push the jobless rate higher back towards the 3.8%-4.0% levels. Inflation remains a key risk, though we see it peaking in 4Q22, in the absence of further significant global shocks, Our full-year 2022 inflation forecast of 5.0% remains unchanged.”

• EUR/USD gives away part of Wednesday’s sharp advance.
• The ECB is broadly expected to hike rates by 75 bps.
• Extra attention will also be on the speech by Fed’s Powell.

The European currency loses some shine following Wednesday’s strong gains and forces EUR/USD to return to the sub-parity levels on Thursday.

EUR/USD focuses on ECB, Lagarde, Powell

EUR/USD so far trades with modest losses in the 0.9980 region, coming under some selling pressure after the earlier failed attempt to extend the bounce further north of the parity zone.

The renewed weakness in spot comes along a small uptick in the German 10y Bund yields, which hover around the 1.60% region prior to the ECB event.

It is worth recalling that investors remain positioned for a ¾ point rate hike from the ECB at its meeting later on Thursday. Traders’ shift from a 50 bps raise to a larger one has been magnified following higher-than-expected inflation figures in the euro area for the month of August.

In addition to the ECB’s interest rate decision, the usual press conference by Chair C.Lagarde will also take centre stage as well as the updated ECB Macroeconomic Projections.

In the US docket, Initial Claims are due seconded by Consumer Credit Change. In addition, Chief Powell will speak at a virtual event.

What to look for around EUR

EUR/USD now looks offered after piercing the key parity level earlier in the session on Thursday.

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: ECB Interest Rate Decision, Lagarde press conference (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 retreating 0.13% at 0.9989 and a drop below 0.9863 (2022 low September 6) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low). On the upside, there is initial barrier at 1.0090 (weekly high August 26) ahead of 1.0161 (55-day SMA) and then 1.0202 (August 17 high).

Japan's top currency diplomat Kanda said on Thursday that they are recently seeing speculative and one-sided rapid yen moves, as reported by Reuters.

Additional takeaways

"Recent yen falls cannot be justified based on fundamentals."

"Recent yen moves clearly described as excessive volatility."

"Won't rule out any step, ready to take action in fx market."

"Government and BoJ is extremely worried about recent yen moves."

"Hope BoJ to take appropriate policy based on its mandate."

"Coordinating closely with other nations including US."

"We are being able to communicate closely with other countries on fx moves."

Market reaction

USD/JPY showed no immediate reaction to these comments and was last seen rising 0.15% on a daily basis at 143.92.

• EUR/GBP gains traction for the second straight day and climbs to a nearly two-month high.
• A combination of factors continues to undermine the British pound and remains supportive.
• The euro bulls seem reluctant to place aggressive bets ahead of the key ECB policy decision.

The EUR/GBP cross adds to the previous day's strong gains and scales higher for the second successive day on Thursday. The steady intraday ascent lifts spot prices to the highest level since mid-June, with bulls now awaiting sustained strength beyond the 0.8500 psychological mark.

The new UK Prime Minister Liz Truss will set out her plan to tackle soaring energy bills on Thursday, which could cost as much as £130 billion over the next 18 months, running up the budget deficit. This comes amid a bleak outlook for the UK economy and reduced bets for more aggressive rate hikes by the Bank of England. The combination of the aforementioned factors contributes to the British pound's underperformance and acts as a tailwind for the EUR/GBP cross.

The shared currency, on the other hand, struggles to gain any meaningful traction as investors prefer to move to the sidelines ahead of the European Central Bank meeting. This, in turn, does little to provide any impetus to the EUR/GBP cross. The ECB is widely expected to lift interest rates for the second time in as many meetings to tame inflation. Investors, however, remain divided over the size of the hike amid the worsening economic outlook.

Nevertheless, the current market pricing indicates a greater chance of a supersized 75 bps increment amid a record high annualized inflation in the Eurozone. Apart from the rate hike announcement, the focus will be on the post-meeting press conference. Investors will closely scrutinize comments by ECB President Christine Lagarde, which should infuse some volatility around the common currency and help determine the near-term trajectory for the EUR/GBP cross.

Technical levels to watch

The European Central Bank (ECB) is expected to hike its policy rate by 75 basis points (bps). However, such a move is unlikely to lift the euro, in the opinion of economists at UBS. 

EUR/USD to slump towards 0.96 by year-end

“The euro looks unlikely to get a sustained boost, even from a large rate hike by the European Central Bank. Investors will be looking to see if ECB policymakers opt for a 75 bps hike. While top ECB officials have become more hawkish recently, we expect worries regarding growth to dominate trading in the euro, especially following Russia’s decision last week to stop gas supplies via the Nord Stream 1 pipeline.”

“We still expect the euro to decline further to 0.96 versus the USD by the end of the year.”

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

A breakout of the 7.0000 mark could prompt USD/CNH to challenge the 7.0500 area in the near term, note FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘a break of 7.0000 is not ruled out’ but we noted that ‘in view of the overbought conditions, USD may not be able to maintain a foothold above this level’. While USD subsequently soared, it did not break the 7.0000 level as it retreated sharply from 6.9967. The retreat amidst still overbought conditions suggests USD is unlikely to strengthen further. For today, USD is more likely to consolidate between 6.9450 and 6.9850.”

Next 1-3 weeks: “We highlighted yesterday (07 Sep, spot at 6.9770) that all eyes are on 7.0000 now. USD subsequently rose to 6.9967 before pulling back. Overbought shorter-term conditions could lead to a few days of consolidation first. As long as 6.9300 (no change in ‘strong support’ level from yesterday) is not breached, there is still chance for USD to break 7.0000. A break of this level would shift the focus to 7.0500.”

• The index reclaims part of the ground lost on Wednesday’s drop.
• Initial attention will be on the ECB event later on Thursday.
• Chair Powell, Initial Claims are next on tap in the calendar.

The greenback, in terms of the US Dollar Index (DXY), regains composure and trades close to the 110.00 neighbourhood on Thursday.

US Dollar Index focuses on Powell, ECB

The index manages to regain some buying interest and recoup part of the ground lost following Wednesday’s strong retracement, all after being rejected from new cycle highs in the 110.75/80 band.

The rebound in the dollar so far comes in tandem with the mixed performance of US yields across the curve and some prudence among investors ahead of the ECB interest rate decision due later in the session and the participation of Chief Powell in a virtual discussion at the Cato Institute’s 40^th Annual Monetary Conference.

In the US data space, usual weekly Initial Claims are due seconded by Consumer Credit Change for the month of July.

What to look for around USD

The index keeps the underlying bullish outlook well in place and retargets the 110.00 mark and above despite Wednesday’s decline.

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: 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 0.19% at 109.74 and a break above 110.78 (2022 high September 7) 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 107.08 (55-day SMA) and then 104.63 (monthly low August 10).

Here is what you need to know on Thursday, September 8:

Ahead of the European Central Bank's (ECB) policy announcements at 1215 GMT, markets stay relatively quiet on Thursday. The ECB is expected to hike its policy rate by 75 basis points (bps) but some experts think there is still a relatively strong chance of the bank opting for a 50 bps rate increase. The ECB will also release its updated economic projections and ECB President Christine Lagarde will deliver her remarks on the policy decisions at a press conference starting at 1245 GMT. Meanwhile, FOMC Chairman Jerome Powell's speech at 1310 GMT will be watched closely by market participants as the Fed prepares to go into the blackout period on Saturday.

ECB Preview: Between Putin's rock and hard inflationary place, the deck is stacked against the euro.

After reaching its highest level in 20 years at 110.78 on Wednesday, the US Dollar Index turned south during the American trading hours and ended up losing more than 0.5% daily. The risk-positive market environment, as reflected by the decisive rebound in Wall Street's main indexes, made it difficult for the dollar to preserve its strength. Additionally, the Fed said in its Beige Book that firms were seeing progress on labor supply and price pressures, putting additional weight on the greenback's shoulders. US stock index futures trade in negative territory in the European morning and the benchmark 10-year US Treasury bond yield is posting small losses at around 3.25%, pointing to a cautious market environment.

EUR/USD gained nearly 100 pips on Wednesday and tested the key parity mark early Thursday before going into a consolidation phase. 

ECB Preview: Will tough times call for tough measures?

GBP/USD slumped to its weakest level since March 2020 near 1.1400 on Wednesday after Bank of England officials adopted a cautious tone on the policy and economic outlook. With the dollar facing heavy selling pressure in the American session, the pair recovered toward 1.1500. As of writing, GBP/USD was down 0.35% on the day at 1.1485.

AUD/USD stays on the backfoot early Thursday and trades deep in the red below 0.6750. The data from Australia showed in the early Asian session that Exports declined by 9.9% on a yearly basis in July.

USD/JPY retreated from the multi-decade high it set at 145.00 on Wednesday but closed the day in positive territory. The pair stays relatively quiet below 144.00 early Thursday. The data from Japan showed that the economy expanded at an annualized rate of 3.5% in the second quarter, surpassing the market expectation of 2.9%.

Gold capitalized on falling US yields on Wednesday and registered strong daily gains. XAU/USD is moving sideways in a narrow channel below $1,720 in the European morning.

The Bank of Canada (BoC) hiked its policy rate by 75 bps to 3.25% as expected on Wednesday. In its policy statement, the BoC noted that rates will need to rise further given the inflation outlook. USD/CAD fell nearly 100 pips from the multi-week high it touched above 1.3200 during the American session on Wednesday and the pair was last seen fluctuating in a tight range below 1.3150.

Following Tuesday's sharp decline, Bitcoin gained nearly 3% on Wednesday but lost its bullish momentum before reaching $20,000. Ethereum found support near $1,500 and rose 4.5% on Wednesday. ETH/USD is trading in negative territory early Thursday but manages to stay above $1,600.

• Silver edges higher for the second straight day and climbs to over a one-week top on Tuesday.
• A descending trend-channel breakout supports prospects for a further appreciating move.
• A convincing break below the $18.00 mark is needed to negate the near-term positive outlook.

Silver gains traction for the second successive day on Thursday and climbs to a one-and-half-week high during the early European session. The white metal is currently trading around mid-$18.00s and seems poised to prolong the recent bounce from its lowest level since June 2020 touched last week.

The overnight strong move up pushed the XAG/USD beyond a resistance marked by the top end of an upward sloping channel extending from the August monthly swing high. This could be seen as a fresh trigger for bulls and suggests that spot prices have bottomed out, adding credence to the positive outlook.

Furthermore, technical indicators on hourly charts have just started moving in the positive territory, further supporting prospects for an extension of the appreciating move. Bulls, however, might wait for a move beyond the $18.75 area, or the 100-period SMA on the 4-hour chart, before placing fresh bets.

The XAG/USD could then easily surpass the $19.00 round-figure mark and accelerate the move towards the next relevant hurdle, around the $19.40 region. The latter coincides with the 200-period SMA on the 4-hour chart, which, in turn, should act as a key pivotal point for short-term traders.

On the flip side, immediate support is pegged near the $18.30-$18.25 region, which is closely followed by the descending channel resistance breakpoint and the $18.00 mark. A convincing break below might shift the bias back in favour of bearish traders and make the XAG/USD vulnerable.

Silver 4-hour chart

Key levels to watch

Economists at MUFG Bank expect the European Central Bank (ECB) to raise rates by 75 bps today. But in case the ECB hikes only 50 bps, the EUR/USD pair could erase its gains on Wednesday.

ECB set to deliver hawkish policy update

“We expect the ECB to meet market expectations and deliver a 75bps hike today as it moves to play catch up with other major central banks in combating upside inflation risks in the eurozone, although the decision is not as much of a done deal as priced in by the market.” 

“If the ECB disappoints and delivers another 50 bps hike today then the euro could quickly give up gains over the past day.”

“Market participants will also be watching closely to see if the ECB expresses more concern over the weakness of the euro, especially against the US dollar in light of upside inflation risks. A stronger indication of concern over the inflationary impact from the weaker euro could at least temporarily provide some more support for the euro at current weaker levels.”

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

Japan’s Deputy Chief Cabinet Secretary Kihara Seiji said on Thursday, they are ready to take necessary steps if recent FX moves continue.

Additional comments

His comments come as the meeting between the country’s Finance Ministry (MOF), the Bank of Japan (BOJ) and Financial Services Agency (FSA) officials begin at 0745 GMT.

Market reaction

At the time of writing, USD/JPY is trading at 143.77, trading 0.05% on the day.

USD/JPY has fallen below the 144.00 level as Japanese policymakers are becoming more concerned by recent yen price action. However, economists at MUFG Bank expect only a temporary pullback for the US dollar.

Risk of JPY intervention

“USD/JPY has been moving closer to the highs from 1998 when Japan last intervened to support the yen. The heightened risk of intervention should help to ease the pace of the yen sell-off in the near-term.”

“Market attention will now turn to comments from Fed Chair Powell later today when he speaks at a panel discussion on monetary policy in Washington. At the current juncture, we view the pullback for the US dollar as temporary.”

• GBP/USD fails to build on the overnight bounce from the lowest level since 1985.
• The UK’s bleak economic outlook acts as a headwind for sterling and the major.
• Subdued USD price action also does little to impress bulls or lend any support.

The GBP/USD pair struggles to capitalize on the previous day's bounce from the 1.1400 neighbourhood, or the lowest since 1985 and oscillates in a range on Thursday. The pair is seen trading around the 1.1500 mark during the early European session and seems vulnerable to prolonging a nearly one-month-old bearish trajectory.

The proposed £30bn of tax cuts and a cap on energy bills for households by the new British Prime Minister Liz Truss adds to the UK debt market concerns. Furthermore, the Bank of England policymakers, testifying before the Parliament's Treasury Committee on Wednesday, failed to reinforce bets for a more aggressive rate hike. This is seen as a key factor that continues to weigh the British pound and acts as a headwind for the GBP/USD pair.

The US dollar, on the other hand, is seen consolidating the previous day's sharp retracement slide from a two-decade high. Signs of stability in the financial markets seem to undermine the safe-haven buck, though does little to impress bullish traders or provide any meaningful impetus to the GBP/USD pair. Adding to this, expectations that the Fed continue to tighten its monetary policy to tame inflation lends some support to the greenback.

The aforementioned fundamental factors, along with the worsening outlook for the UK economy, suggest that the path of least resistance for the GBP/USD pair is to the downside. Hence, any recovery attempt might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Market participants now look forward to Fed Chair Jerome Powell's speech, which might influence the USD later during the early North American session.

Traders will further take cues from the highly-anticipated European Central Bank decision for some cross-driven movement around sterling. In the meantime, the GBP/USD pair is more likely to prolong its subdued/range-bound price action amid absent relevant market-moving economic releases from the UK.

Technical levels to watch

The dollar has entered another consolidative phase – albeit very close to the highs of the year. Economists at ING expect the US Dollar Index to stay above the 109.00/25 area.

Dollar to remain supported

“Following Fed Chair Powell's hawkish Jackson Hole speech a couple of weeks ago, the pricing of the Fed cycle has remained remarkably steady. The cycle is priced to peak around 3.90% next spring and soften to 3.60% by the end of the year. We suspect that year-end 2023 pricing of a cut still could be priced out as the Fed continues to emphasise that policy needs to be taken into restrictive territory and to be kept there for a while.”

“We are not looking for a significant reversal anytime soon and think corrections probably hold the 109.00/109.25 area.”

UK energy package will be announced today. Depending on how it is financed, private investors will be asked to increase exposure to gilts by a record amount. And that could leave the pound even more vulnerable, economists at ING report.

How fiscal package is funded will drive sterling

“The highlight of today's sterling session will be the announcement of the new UK government's energy package and in particular how it is funded. The announcement comes around lunchtime. The greater amount of public funding, the greater the Gilt supply and the greater the pressure on sovereign risk and the pound.”

“Our base case would assume that GBP/USD struggles to break 1.16 and EUR/GBP tests the June high at 0.8720.”

• GBP/JPY snaps three-day uptrend while reversing from six-week top.
• Overbought RSI facilitates pullback from short-term key hurdle.
• Bears need a 200-SMA break for conviction, buyers could aim for yearly high past 166.35.

GBP/JPY remains on the back foot around 165.30 as it stretches the day-start pullback from a short-term key hurdle during the initial European session on Thursday.

That said, the cross-currency pair’s U-turn from a horizontal area comprising tops marked since late July, around 166.25-35, takes clues from the RSI (14) pullback from the overbought territory. Even so, the higher low of the prices and the RSI line portrays the bullish case scenario.

Hence, the quote’s further downside targeting the 165.00 threshold appears more acceptable. Following that, the August 04 peak around 164.00 could lure the GBP/JPY bears.

It should, however, be noted that the pair buyers remain hopeful until witnessing a clear downside break of the 200-SMA, near 162.40 at the latest.

Meanwhile, recovery moves need to provide a successful upside break of 166.35 to please GBP/JPY bulls.

In that case, the highs marked on June 21 and 09, respectively near 167.85 and 168.75, should lure further upside momentum.

Overall, GBP/JPY remains bullish despite the latest pullback.

GBP/JPY: Four-hour chart

Trend: Limited downside expected

The highlight of today's FX session will be the European Central Bank (ECB) meeting. Economists at ING are looking for a sub-consensus 50 bps hike which in theory may see EUR/USD edge lower.

ECB to comment more directly on the euro?

“Our base case is that the ECB only hikes 50 bps versus the 75 bps consensus and the 67 bps priced by money markets. In theory, that should be a euro negative and we have a base case of EUR/USD dropping back to 0.9900.”

“It will also be interesting to see how President Christine Lagarde handles any questions on the weak euro. Any comments along the lines of the ECB is 'watching FX closely' could trigger a brief counter-trend rally in EUR/USD. That said, EUR/USD is trading down here for solid macro reasons and we doubt any intra-day rallies last.”

“We would assume that 1.0100 proves the extent of any EUR/USD short squeeze and would favour a move back to 0.9900.”

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

GBP/USD stays defensive after bouncing off the lowest levels since 1985. Economists at OCBC Bank expect the pair to remain under downside pressure.

Bearish momentum on daily chart intact

“Bearish momentum on daily chart intact but shows tentative signs of fading while RSI shows early signs of turnaround from oversold conditions.”

“Bounce not ruled out though GBP short as a stagflation proxy trade remains intact.”

“Support at 1.1406. Resistance at 1.1620, 1.17 levels.”

EUR/USD is hovering around parity ahead of the European Central Bank (ECB) meeting. Economists at OCBC Bank expect the ECB to hike rates by 50 basis points. A more hawkish ECB should keep EUR supported.

Resistance aligns at 1.0010

“Our house view leans more towards 50 bps hike though we note that markets are evenly split between 50 bps and 75 bps hike. ECB hawks want 75 bps to be considered at the upcoming meeting and QT debate to commence by year-end. A more hawkish ECB should keep EUR supported.”

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

“Support at 0.9910, 0.9850 levels.”

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

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang now see dwindling chances for USD/JPY to challenge the 147.65 level in the near term.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the outsize rally could extend to 144.00’. We added, ‘the next major resistance at 145.00 is unlikely to come into the picture for now’. The anticipated advance exceeded our expectations as USD came close to breaking 145.00 (high has been 144.98). Despite the pullback from the high, upward momentum remains strong and USD could breach 145.00 today. In view of the deeply overbought conditions, USD is unlikely able to maintain a foothold above 145.00 (the next resistance at 146.00 is unlikely to come under threat). Support is at 143.50 followed by 143.00. A break of the latter support level would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “We have expected USD to strengthen since early last week. As USD surged, in our latest narrative from yesterday (07 Sep, spot at 143.20), we indicated that the risk is clearly for further USD strength and the next level to watch is at 145.00. While our view turned out to be correct, we did not expect USD to approach 145.00 so quickly as it soared to 144.98 during London hours. USD could continue to rally but deeply overbought conditions suggests a slower pace of advance and at this stage, the chance for USD to rise to the 1998 high near 147.65 is not high. On the downside, a breach of 142.20 (‘strong support’ level was at 141.00 yesterday) would indicate that the rally in USD is ready to take a pause.”

A paper published by the German Economy Ministry on Thursday revealed that the European Union’s (EU) core points on energy price caps are largely in line with our position.

Additional takeaways

“The goal is to decouple the electricity price for consumers from the gas price.”

“We are pushing for a European solution, otherwise at the national level.”

“Basic electricity use from households will be subsidized.”

“There will also be a cheaper electricity contingent for smaller and medium-sized businesses.”

Market reaction

EUR/USD is keeping its range around 1.0000, awaiting the ECB policy decision for a fresh directional move.

US Dollar Index turned lower, breaking below the 110 handle. Economists at OCBC Bank expect the DXY to extend its move downward.

Bulls running into fatigue

“Bullish momentum on daily chart is fading while RSI is falling from overbought conditions. Risks are to the downside.”

“Support at 109.30, 108.30 levels (21 DMA).” 

“Resistance at 110.50, 111 levels.”

According to preliminary readings from CME Group for natural gas futures markets, open interest shrank by nearly 3K contracts on Wednesday, partially fading the previous build. In the same direction, volume reversed four consecutive daily builds and went down by around 41.2K contracts.

Natural Gas appears supported near $7.50

Prices of natural gas extended the weekly leg lower on Wednesday. The move was accompanied by shrinking open interest and volume and hints at the possibility of a near term rebound. In the meantime, the $7.50 region per MMBtu so far emerges as a decent contention.

USD/CNY is seemingly gunning for the psychological 7.00 level. In the view of economists at Commerzbank, the People’s Bank of China (PBoC) may not welcome such a move.

PBoC likely to keep a closer eye on CNY’s weakness

“The question on some people’s minds is whether it’ll catapult a lot higher once it breaches 7.00 e.g as per USD/JPY when it got above 140? Despite similar drivers such as a widening interest rate differential with USD rates and a strong USD, PBoC may not welcome such a move as it will exacerbate an already challenging macro backdrop.”

“A move to 7.00 is possible but a precipitous drop by 20% as per JPY vs USD so far this year is unlikely to be on the cards. A sharp CNY drop will raise concerns over capital outflows despite China’s closed capital account.”

“PBoC is likely to keep a closer eye on CNY’s weakness, particularly the pace of depreciation, than the Bank of Japan. It also has the daily fix mechanism as an anchor for CNY.”

The Bank of Canada (BoC) continued on its steepest rate-hiking path in decades with a  75 bps hike. The move was in line with expectations and lifts the overnight rate to 3.25%. Meanwhile, the move in CAD was very modest. Economists at Commerzbank expect the loonie to remain under pressure in the near-term.

No surprise from the BoC

“The 75 bps rate hike to now 3.25% had been generally expected and also a hawkish statement had clearly been largely priced in. The loonie was unable to benefit in particular.”

“As a result of weaker economic data and the prospect of a moderately active BoC, CAD will probably continue to struggle against USD in particular once increasing (global) recession fears affect market sentiment.” 

“Medium-term, the loonie should manage to benefit more from its advantages though.”

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, further weakness could force NZD/USD to slip back to the 0.5970 region in the next weeks.

Key Quotes

24-hour view: “Yesterday, we held the view that NZD ‘could break 0.6000’ but we noted that ‘oversold conditions suggest the next support at 0.5970 is unlikely to come under threat’. NZD subsequently dropped to 0.5997 before staging a rapid and robust rebound (high has been 0.6074). The rebound appears to be running ahead of itself and NZD is unlikely to advance much further. For today, NZD is more likely to trade sideways between 0.6020 and 0.6080.”

Next 1-3 weeks: “We highlighted yesterday (07 Sep, spot at 0.6035) that rejuvenated downward suggests NZD is ready to head lower to 0.5970. NZD subsequently dropped to 0.5997 before rebounding strongly. There is no change in our view for now even though oversold shorter-term conditions could lead to 1 to 2 days of consolidation first. Overall, only a break of 0.6095 (no change in ‘strong resistance’ level from yesterday) would indicate that NZD is not weakening further.”

The European Central Bank (ECB) meeting could lift the euro if rates are hiked by 75 bps. However, the move is set to be short-lived and economists at TD Securities look to fade rallies, eyeing the 0.96 level.

EUR risks skew to a larger selloff on a dovish outcome

“The outcome is near a coin toss, but ultimately we sit (just) on the 50 bps hike side for September's decision. Both outcomes are likely to share the same broad narrative and end-point; the question is more about a strategy of 75/50/25 vs 50/50/50 hikes for the rest of 2022's policy decisions.”

“EUR risks skew to a larger selloff on a dovish outcome. Markets are pricing in around 65 bps for the meeting, so a 75 bps hike could mildly support EUR in the short-term. Still, the energy outlook is key and points to fading EUR/USD rallies, eying a 0.96 level in Q4.”

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

• Gold price pares intraday losses while bouncing off 200-HMA.
• Yields probe US dollar bulls ahead of ECB, Fed Chairman Jerome Powell’s speech.
• China-linked headlines flash mixed signals to challenge XAU/USD bears.

Gold price (XAU/USD) picks up bids to renew intraday high near $1,718 as the US dollar retreats ahead of the key events during early Thursday. In doing so, the yellow metal extends the previous day’s rebound from the one-week low amid softer yields and a mixed risk profile.

The US 10-year Treasury yields extend Wednesday’s pullback from the highest levels since mid-June to 3.23%, which in turn weighed on the US Dollar Index (DXY) which retreats to 109.50, stretching the previous day’s losses from the 20-year high.

The recent fall in yields could be linked to the market’s rush towards the bonds ahead of the all-important European Central Bank (ECB) Monetary Policy Meeting and Fed Chair Jerome Powell’s speech. That said, chatters surrounding Japan’s likely intervention to defend the domestic currency via the bond market seem to have weighed on the yields.

Elsewhere, mixed headlines from China also should have contributed to the XAU/USD rebound, due to Beijing’s status as one of the world’s biggest gold consumers.

Reuters mentioned three sources with knowledge of the matter while stating positive news for China’s housing market. “Zhengzhou vowed to start building all stalled housing projects within 30 days, by making good use of special loans, asking developers to return misappropriated funds, and encouraging some real estate firms to file for bankruptcy,” mentioned Reuters.

Even so, the risk-negative headlines concerning covid and Taiwan seemed to exert downside pressure on the metal prices. The South China Morning Post (SCMP) mentioned previously, “Shenzhen reduces entry quota for Hong Kong travelers.” Following that, Reuters’ news that Taiwan and the US are bracing for stronger ties also weighs on the sentiment.

While portraying the mood, the S&P 500 Futures print mild gains but the Asia-Pacific stocks trace mixed at the latest.

To sum up, the ECB’s 75 bps rate hike can restrict a short-term fall of the XAU/USD before the fresh downside, in a case where Fed’s Powell sounds hawkish. Overall, the gold price is likely to remain on the bear’s radar as ECB’s capacity to tighten monetary policy is limited compared to the Fed. Also, economic fears emanating from Europe aren’t off the table and keep gold bears hopeful.

Technical analysis

Gold price (XAU/USD) defends the latest bounce off the 200-HMA amid firmer RSI (14), which in turn directs the metal towards printing one more attempt to cross the downward sloping resistance line from August 29, at $1,718 by the press time.

Given the recent higher lows and a rebound from the 200-HMA, the XAU/USD is likely to cross the immediate hurdle to aim for the weekly top surrounding $1,727. Following that, the late August swing high near $1,745 appears the last defense of the gold sellers.

Alternatively, a downside break of the 200-HMA support near $1,714 becomes necessary for the gold bears to retake control. Even so, an upward sloping trend line from the previous day, around $1,708 at the latest, precedes the $1,700 threshold to challenge the downside.

Following that, the south-run towards the monthly low of $1,688 and the yearly bottom close to $1,680 can’t be ruled out.

Gold: Hourly chart

Trend: Further upside expected

USD/JPY rose to almost 145 on Wednesday and is aiming for the 150 mark. Economists at Commerzbank believe that the Japanese yen is unlikely to recover.

Bank of Japan has no choice but to threaten interventions against a weak yen

“The BoJ and the Ministry of Finance have no choice but to threaten interventions against a weak yen. However, as long as the BoJ maintains its monetary policy while the process of normalisation continues in the other currency areas these interventions will only remain a leaning against the wind and a drop in the ocean.”

“Short-term, I see few opportunities for the yen to recover – with the exception of brief periods of price corrections. Other central banks would have to consider renewed rate cuts as a result of reduced inflation momentum for that to happen. That is only likely to happen next year. In my view, the yen remains the largest underperformer this year as a result.”

The highlight today will be the European Central Bank (ECB) meeting. In the view of economists at Commerzbank, the euro is unlikely to strengthen even if the central bank delivers a 75 basis points rate hike.

A 50 bps step would be disappointing for the market

“A 50 bps step would be disappointing for the market, above all if the ECB also sounds cautious as far as future steps are concerned. The ECB cannot realistically deliver more than the market has priced in already, i.e. a 75 bps step. So even if it fulfills market expectations the euro would unlikely benefit further from the decision.”

If the ECB were to have converted into a decisive adversary of inflation after all and hike by 75 bps while also sounding restrictive, thus surprising the market, the euro would jump above parity quite quickly. However, the likelihood of that happening is quite small.”

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

CME Group’s flash data for crude oil futures markets noted traders increased their open interest positions for the third session in a row on Tuesday, this time by around 31.2K contracts, the largest daily build since May 26. Volume, in the same line, rose by around 18.5K contracts, adding to the previous build.

WTI: Another test of $80.00 is possible

WTI prices dropped markedly on Wednesday and returned to levels last seen in late January in the sub-$82.00 area. The sharp move was amidst rising open interest and volume, leaving the door open to a probable deeper pullback to the key $80.00 mark per barrel in the short-term horizon.

The Bank of Canada (BoC) hiked by 75 bps. The BoC meeting was a non-event for USD/CAD. In the opinion of economists at TD Securities, the near-term outlook will hinge on next week's US inflation report.

Fading rallies ahead of 1.32

“The BoC hiked 75 bps, as expected, and noted that further rate hikes are coming.” 

“Overall, there isn't much to chew on for CAD besides that the Fed/BoC terminal rate level should work in favor of the USD over the medium-term. That setup should reinforce the recent ranges, but ultimately CAD remains a function of risk appetite and broad USD trends.” 

“Most of our tools anchor USD/CAD around 1.30 so we would look to start fading rallies ahead of 1.32. 

“The near-term setup will hinge on next week's US inflation report. Another downside miss would be supportive of risk sentiment, supporting a near-term USD pullback, while a stronger number would reinforce the USD's topside momentum.”

• EUR/JPY has slipped sharply after failing to cross the critical hurdle of 144.00.
• ECB Lagarde may hike the interest rates by 75 bps to tame soaring price pressures.
• An upbeat Japanese GDP data has strengthened the yen bulls.

The EUR/JPY pair has picked significant offers after attempting to cross the critical resistance of 144.00 in the early Tokyo session. The cross has turned imbalance on the downside after a break of the inventory distribution in a 143.78-144.33 range in which institutional investors distribute their asset inventories to the retail participants. The asset is expected to remain volatile as investors are focusing on the interest rate decision by the European Central Bank (ECB).

Soaring energy prices in eurozone have resulted in higher energy bills, inflation rate, and a deepening energy crisis. After the gas supply was cut off from Russia citing western sanctions responsible for an unexpected halt, the energy crisis deepened further. Apart from that, the Harmonized Index of Consumer Prices (HICP), ECBs preferred inflation indicator, is skyrocketing, and growth prospects are vulnerable amid regional imbalance.

Considering the varied catalysts, the ECB is needed to take necessary precautions before hiking the interest rates. As per the expectations, ECB President Christine Lagarde will elevate the interest rates by 75 basis points (bps) to 1.25%.

On the Tokyo front, an unscheduled meeting of Japan’s Ministry of Finance with the Financial Services Agency (FSA), and the Bank of Japan (BOJ) has created anxiety for market participants. It is highly likely that the officials will discuss containing the Japanese yen from more carnage. A weaker yen is helping to accelerate export numbers, however, its repercussions are impacting corporate margins.

Earlier today, the Japanese Cabinet Office released the Gross Domestic Product (GDP) data. Japan’s GDP data landed higher than expectations significantly. The economic data improved meaningfully to 3.5% against the expectations and the prior print of 2.9% and 2.2% respectively on an annual basis. Also, the quarterly data has been recorded higher at 0.9% against the forecasts of 0.7% and the prior release of 0.5%.

NZD/USD fell below 0.60 but has bounced. The pair may have formed a base but economists at ANZ Bank expect more volatility ahead.

FX markets remain focussed on the Fed and global factors

“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). 

“Technically, 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.”

Gold price turns cautious. As FXStreet’s Dhwani Mehta notes, the downside appears more compelling.

Daily closing above $1,718 to confirm a bearish reversal in the near term

“Gold price is challenging the critical daily trendline resistance at $1,718, which has capped the recovery for now. Daily closing above the latter is needed to confirm a bearish reversal in the near term. The next upside hurdle is seen at around $1,720 the round figure. Further up, the August 31 high of $1,727 will come into play.”

“A sustained move below the $1,700 mark is critical to unleashing the additional downside. On a breach of the strong support of around $1,690, sellers will again target the 2022 low of $1,681.”

FX option expiries for Sept 8 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9800 1.3b
• 0.9850 964m
• 0.9865 558m
• 0.9900 909m
• 0.9950 648m
• 1.0000 2.2b
• 1.0050 604m
• 1.0070 658m
• 1.0150 406m

- GBP/USD: GBP amounts        

• 1.1400 593m
• 1.1550 409m
• 1.1600 312m
• 1.1625 349m
• 1.1800 332m
• 1.1900 331m

- USD/JPY: USD amounts                     

• 139.00 342m
• 140.00 1.9b
• 142.00 502m
• 143.00 561m
• 144.50 320m
• 144.85 330m

- USD/CHF: USD amounts        

• 0.9425 500m
• 0.9850 370m

- AUD/USD: AUD amounts  

• 0.6900 722m

- USD/CAD: USD amounts       

• 1.3200 650m

- NZD/USD: NZD amounts

• 0.6400 300m

- EUR/GBP: EUR amounts

• 0.8650 421m

GBP/USD is seen trading within the 1.1420-1.1620 range in the next few weeks, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we held the view that GBP ‘could edge lower but a sustained decline below 1.1465 is unlikely’. We did not anticipate the subsequent choppy price actions as GBP plunged briefly below the Mar 2020 low of 1.1415 (low of 1.1407) before snapping back up to end the day higher by 0.16% (NY close of 1.1535). While the strong bounce could extend, any advance is viewed as part of a higher trading range of 1.1460/1.1560.”

Next 1-3 weeks: “Two days ago (06 Sep, spot at 1.1575), we highlighted that the recent weakness in GBP has run its course and we expect GBP to consolidate and trade between 1.1465 and 1.1700. We did not anticipate the brief drop below the pandemic low of 1.1415 yesterday and the subsequent strong bounce. The price actions still appear to be part of a consolidation and GBP is likely to trade within a range of 1.1420/1.1620 for now.”

• Steel price remains mildly positive even as US dollar rebounds, risk dwindles.
• Chinese city of Zhengzhou said it would start building stalled housing projects.
• Covid fears, US-China tussles over Taiwan join pre-ECB, Powell sluggish move test metal buyers.

Steel price remain on the front foot despite sluggish sentiment as headlines from housing markets in China appear promising amid early Thursday morning in Europe. Also likely to have favored the metal buyers could be the recent lackluster moves of the US dollar, after refreshing the multi-year high.

Retures mentioned three sources with knowledge of the matter while saying, “Zhengzhou vowed to start building all stalled housing projects within 30 days, by making good use of special loans, asking developers to return misappropriated funds, and encouraging some real estate firms to file for bankruptcy.”

The news also states that Homebuyers in at least 80 cities in China have threatened to halt making mortgage payments as liquidity problems or COVID-19 restrictions hampered projects, adding to worries about an ailing property market.

It should be noted that Steel rebar on the Shanghai Futures Exchange (SFE) rose 1.6%, while hot-rolled coil climbed 1.1%. Further, the prices of stainless steel gained 1.8% by the press time.

US Dollar Index (DXY) retreats to 109.70 but stays mildly bid while reversing the previous day’s pullback from a two-decade top. In doing so, the greenback gauge faces hurdles due to the US 10-year Treasury yields which extend Wednesday’s pullback from the highest levels since mid-June to 3.23%.

The risk-negative headlines concerning China exert downside pressure on steel prices. That said, the South China Morning Post (SCMP) mentioned previously, “Shenzhen reduces entry quota for Hong Kong travelers.” Following that, Reuters’ news that Taiwan and the US are bracing for stronger ties also weighs on the sentiment. On the other hand, Reuters mentioned, “Chengdu, capital of the southwestern Chinese province of Sichuan, extended the lockdown of most of its districts on Thursday.”

Looking forward, the art of Fed Chair Powell’s defense of the aggressive rate hikes will be at test during today’s speech, especially due to the hawkish hopes from the ECB. Ahead of that, the ECB’s ability to please the policy hawks will be important to watch as there still prevails indecision between 50 bps and 75 bps move.

The Japanese yen is finding fresh demand after the country’s Finance Ministry (MOF) reported that the Ministry, the Bank of Japan (BOJ) and the Financial Services Agency (FSA) are due to meet on Thursday at 0745 GMT.

Japan’s top currency diplomat said that he will brief media after the meeting.

developing story ...

Open interest in gold futures markets remained choppy for another session on Wednesday and shrank by around 1.6K contracts considering advanced prints from CME Group. Volume followed suit and dropped by around 31.5K contracts, offsetting the previous daily build.

Gold: Another test of $1,680 is not ruled out

Gold prices posted decent gains on Wednesday and closed once again above the $1,700 mark. The uptick, however, was on the back of shrinking open interest and volume, leaving the potential upside somewhat limited in the very near term. On the downside, the big magnet for gold bears emerges at the 2022 low around $1,680 per ounce troy (July 21).

• AUD/USD picks up bids to pare daily loss but stays on the bear’s radar around yearly low.
• Downbeat yields challenge US dollar buyers at 20-year high.
• Softer Aussie trade numbers, RBA’s Lowe favored downside earlier in the day.
• Market sentiment dwindles as traders await ECB, Fed’s Powell.

AUD/USD extends the bounce off intraday low to 0.6745, down 0.42% intraday heading into Thursday’s European session. In doing so, the Aussie pair traces the US dollar’s latest pullback, due to softer yields, while portraying an overall cautious mood in the market ahead of the key events namely, European Central Bank (ECB) Monetary Policy Meeting and Fed Chair Jerome Powell’s speech.

That said, the US Dollar Index (DXY) retreats to 109.70 but stays mildly bid while reversing the previous day’s pullback from a two-decade top. The US 10-year Treasury yields extend Wednesday’s pullback from the highest levels since mid-June to 3.23%.

Reserve Bank of Australia (RBA) Governor Philip Lowe recently rejected plans to unveil the Quantitative Tightening (QT) and favored the AUD/USD bears. On the same line were his previous comments stating, “Further rate rises will be required but not on a pre-set path.”

Earlier in the day, Australia’s Trade Balance dropped to 8,733M in July versus 14,500 M market forecasts and 17,670 prior. Further details suggest that the Imports jumped by 5.2% compared to 0.7% prior while Exports slumped with the -9.9% figures versus 5.1% previous readings.

It should be noted that the risk-negative headlines concerning China also exert downside pressure on the AUD/USD prices. That said, the South China Morning Post (SCMP) mentioned previously, “Shenzhen reduces entry quota for Hong Kong travelers.” Following that, Reuters’ news that Taiwan and the US are bracing for stronger ties also weighs on the sentiment.

While portraying the mood, S&P 500 Futures fades the bounce off the lowest levels since July 19 as it seesaws around 3,980 by the press time.

Elsewhere, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day, which in turn weighs on the AUD/USD prices.

Alternatively, the cautious mood and the market’s rush towards the bond for risk-safety, amid fears of disappointment from the Fed’s Powell, seem to have triggered the latest recovery moves.

Moving on, the 0.75% ECB rate hike can restrict a short-term fall before the fresh downside, in a case where Fed’s Powell sounds hawkish. Overall, the pair is likely to remain on the bear’s radar as ECB’s capacity to tighten monetary policy is limited compared to the Fed.

Technical analysis

AUD/USD remains bearish unless crossing the 0.6780 resistance confluence, including the one-week-old resistance line and 78.6% Fibonacci retracement level of July-August upside.

• Asian indices are mostly trading positive amid a weaker DXY.
• Japanese equities have soared on higher-than-expected GDP data.
• Fed Powell will adopt a hawkish stance on interest rate guidance.

Markets in the Asian domain are displaying varied responses as investors are awaiting the interest rate decision by the European Central Bank (ECB) and guidance on US interest rates by Federal Reserve (Fed) chair Jerome Powell. Although, markets are majorly positive, however, the extent of gains is highly deviated.

At the press time, Japan’s Nikkei225 soared 2.28%, China A50 added 0.16%, Nifty50 gained 0.70% and Hang Seng slipped 0.59%.

Japanese equities are been infused with an adrenaline rush after the release of upbeat Gross Domestic Product (GDP) data. The economic data has improved meaningfully to 3.5% against the expectations and the prior print of 2.9% and 2.2% respectively on an annual basis. Also, the quarterly data has been recorded higher at 0.9% against the forecasts of 0.7% and the prior release of 0.5%.

Outside Tokyo, in the Asia-Pacific region, a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe impacted the commodity-linked currency. RBA Lowe has trimmed down the extent of the ‘hawkish’ stance. The RBA believes that the rate hike cycle will continue further, however, the pace of hiking the Official Cash Rate (OCR) will slow down. In its monetary policy meeting on Tuesday, RBA Lowe dictated that the OCR will peak at 3.85%.

In today’s session, the interest rate policy of the European Central Bank (ECB) will be keenly watched. As price pressures are soaring dramatically, ECB President Christine Lagarde will announce a rate hike of 75 basis points (bps). This will hike the borrowing rates to 1.25%.

Meanwhile, the US dollar index (DXY) is juggling in an extremely narrow range ahead of Fed Powell’s speech. Investors should brace for a hawkish stance on interest rate guidance as price pressures are still beyond the whooping figure of 8%.

According to the latest Reuters poll of analysts and fund managers, investors raised their short positions on the Asian FX to the highest on record amidst the relentless rally in the US dollar on aggressive Fed tightening expectations.

Key findings

“Short positions on the Chinese yuan, the South Korean won, the Singaporean dollar and the Taiwanese dollar all hit their highest levels on record.”

Short bets on the Indonesian rupiah, one of the better-performing currencies in the region this year, were at their highest since late July after the country raised subsidized fuel prices by about 30%.

• USD/INR Price News: Indian rupee slides below 80.00 with eyes on Fed’s Powell

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, EUR/USD is now expected to navigate between 0.9900 and 1.0090 in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the rapid drop appears to be running ahead of itself but there is scope for EUR to test 0.9850’. However, EUR did not test 0.9850 as it dipped to 0.9874 before staging a surprising strong rebound (high has been 1.0010). The rebound has room to extend to 1.0030. The next resistance at 1.0080 is unlikely to come into view. Support is at 0.9970 followed by 0.9945.”

Next 1-3 weeks: “EUR rebounded strongly to a high of 1.0010 yesterday before closing higher by 0.98% (NY close of 0.9999), its largest 1-day advance in 3 months. The break of our ‘strong resistance’ level at 0.9980 indicates that the downside risk in EUR has dissipated. We view the current movement as part of a consolidation phase and expect EUR to trade between 0.9900 and 1.0090. Looking ahead, a clear break of 1.0090 would signal the start of a more sustained and sizeable recovery in EUR.”

• EUR/GBP remains mildly bid around 12-week top ahead of ECB’s verdict.
• Firmer EU data, BOE policymakers’ testimony and hawkish ECB bets favored buyers the previous day.
• Pullback in yields, sluggish markets supersede UK’s readiness for more stimulus.
• UK PM Liz Truss will unveil her aid plan on Thursday, ECB to announce one more rate hike amid recession fears.

EUR/GBP stays firmer around 0.8685 heading into Thursday’s European session, after rising the most in three months, amid hawkish hopes from the European Central Bank (ECB). Also keeping the cross-currency pair on the front foot could be the fears of disappointment from incoming UK PM Liz Truss.

That said, Britain's new Prime Minister Liz Truss will on Thursday scrap the country's fracking ban and will seek to make more use of North Sea reserves, the Telegraph newspaper reported, per Reuters. The report also mentioned that the reported moves are part of what her office said will be a "bold plan of action" to support households and businesses with soaring energy bills while also seeking to boost the domestic energy supply.

Elsewhere, the market bets suggest that the ECB is almost certain to announce the 75 basis points (bps) rate hike during today’s monetary policy meeting.

Even so, the EUR/GBP bulls need validation from Fed Chair Jerome Powell’s speech and hawkish comments from ECB Chairman Christine Lagarde.

On Wednesday, firmer EU data and Bank of England (BOE) policymakers’ testimony seemed to have propelled the pair.

That said, 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. Also, the YoY figures improved to 4.1% in Q2 vs. 3.9% marked in the initial forecasts.

Elsewhere, BOE policymakers appear to fail in defending their present monetary policy stance. “I would expect headline inflation to decline in short term,” said Bank of England (BOE) Chief Economist Huw Pill testifying on the bank’s Monetary Policy Report (MPR) before Parliament's Treasury Select Committee. "If we think quantitative tightening (QT) is causing too much tightening, we can offset that with less interest rate increases," Added BOE’s Pill.

BOE policymaker Catherine Mann also testified in front of the Parliament's Treasury Select Committee and said, “More forceful bank rate moves open door for policy hold or reversal later.”

Furthermore, BOE’s Silvana Tenreyro was also among the policymakers to testify before the Parliament's Treasury Select Committee as she mentioned, “I will consider further rate rises until we have clear evidence of impact on inflation.”

Above all, BOE Governor Andrew Bailey’s comments in front of the Parliament's Treasury Select Committee gained major attention as he said, “Putin is putting the UK into recession, not the BOE MPC.” The BOE Boss also stated that he welcomes the fact that there will be announcements on fiscal policy this week.

Looking forward, UK PM Truss’ plan and the ECB’s monetary policy meeting will be important for the EUR/GBP traders for fresh impulse.

Technical analysis

A daily closing beyond July’s peak surrounding 0.8680 enables EUR/GBP to aim for the yearly top marked in June, close to 0.8720.

Goldman Sachs economists led by Jan Hatzius, in a research note on Thursday, rasied their forecasts for the Fed’s tightening pace.

Key takeaways

“Now expect the Fed to hike by 75 basis points this month and 50 basis points in November, up from their previous forecasts of 50 basis points and 25 basis points respectively.”

“Fed officials have sounded hawkish recently and have seemed to imply that progress toward taming inflation has not been as uniform or as rapid as they would like.” 

“The tighter policy will keep growth below potential in the second half of this year.”

“How the drag from tighter financial conditions will net out with other key growth impulses in 2023 is more uncertain, and we could imagine the hiking cycle extending beyond this year.”

• EUR/USD is juggling below the 1.0000 parity as investors have sidelined ahead of ECB policy.
• ECB Lagarde is expected to hike the interest rates by 75 bps to 1.25%.
• A hawkish stance on interest rate guidance is expected from Fed Powell to trim inflation impact.

The EUR/USD pair is auctioning back and forth in a narrow range of 0.9979-0.9994 in the Asian session. The asset has shifted into a time-correction phase after failing to sustain above the magical figure of 1.0000. A lackluster performance is expected from the asset till the announcement of the interest rate decision by the European Central Bank (ECB).

As the ECB is bound to combat the dual threat of soaring price pressures and bleak economic growth, the extent of a rate hike will be critical for the old continent. ECB’s preferred inflation indicator, Harmonized Index of Consumer Prices (HICP) has crossed the whopping figure of 9%. Thanks to the soaring energy prices, which are scaling energy bills higher and eventually, price pressures.

While, growth prospects in eurozone are dim amid supply chain bottlenecks, regional development imbalance, and a deepening energy crisis ahead of the winter season. Therefore, a bumper rate hike could trim the growth prospects significantly.

Considering the market consensus, ECB President Christine Lagarde will announce a rate hike of 75 basis points (bps). This will step up the interest rates to 1.25%.

Meanwhile, the US dollar index (DXY) is auctioning in a balanced market profile which will demolish after the speech from Fed chair Jerome Powell. Fed Powell is expected to dictate the likely monetary policy action this month and adaptation of a ‘hawkish’ stance is highly expected as households are still facing the headwinds of higher payouts and inflation-adjusted paychecks. The inflation rate is needed to scale down sooner otherwise consumer confidence will drop significantly.

• USD/JPY holds onto the previous day’s pullback form 24-year top.
• Break of two-day-old ascending trend line, bearish MACD signals favor sellers.
• 50-HMA, fortnight-old support line restrict short-term downside.
• Bulls need validation from 145.00 to refresh multi-year top.

USD/JPY remains on the back foot around 144.00, despite recently bouncing off the intraday low, heading into Thursday’s European session.

In doing so, the yen pair keeps the previous day’s pullback from the highest levels since 1998 while breaking a two-day-old ascending trend line. Also favoring the pair sellers are the bearish MACD signals.

It should be noted that the RSI portrays a bullish case as a higher low in prices joins the higher low of the indicator, which in turn suggests limited downside room for the pair.

That said, the 50-HMA level surrounding 143.30 could challenge the short-term declines of the USD/JPY. Following that, an upward sloping support line from August 26, close to 141.60, appears important support for the pair traders to watch.

Should the quote drops below 141.60, the odds of witnessing the 140.00 threshold on the chart can’t be ruled out.

Alternatively, a downward sloping resistance line from the previous day, near 144.50, restricts immediate upside moves. Following that, the recent top near 145.00 will be in focus.

In a case where USD/JPY bulls cross the 145.00 hurdle, tops marked during June and August of the year 1998, respectively near 146.80 and 147.70, may flash on their radar.

USD/JPY: Hourly chart

Trend: Limited downside expected

• Copper price is marching towards the critical hurdle of $3.50 amid various tailwinds.
• A decline in copper production in Peru will result in a deviation in a demand-supply mechanism.
• The DXY has turned sideways ahead of Fed Powell’s speech.

Copper price is scaling gradually higher after concluding its correction to near $3.4020. The base metal is aiming to capture the crucial resistance of $3.50 as escalating production cuts have soared supply worries. On a broader note, the asset has rebounded firmly after refreshing the monthly low near $3.3600. The rebound still lacks clarity, therefore, the odds of a resumption in the downside journey will remain intact.

Major catalysts for a rebound in copper prices are the stimulus packages promised by the Chinese administration, the decline in copper production in Peru, and a steep fall in the US dollar index (DXY).

The investing community is aware of the fact that the Chinese economy is going through a severe slowdown due to China plus one approach by Western leaders, a decline in economic activities due to lockdown curbs to contain the Covid-19 spread, and a falling inflation rate. To tackle the headwinds, the economy is pouring liquidity into the economy. The administration has already announced stimulus packages to scale up economic activities, which will kick-start this quarter. Also, the Covid-19 cases have trimmed dramatically.

Meanwhile, the statistics department of Peru's economy has reported a decline in copper output for July month. The copper output has been trimmed by 6.6% on an annual basis as two of their largest copper mines Compañía de Minera Antamina S.A. and Southern Peru Copper Corporation have reported a decline in productivity.

On the dollar front, the US dollar index (DXY) witnessed a steep fall after the release of the minutes from the Federal Reserve (Fed) Beige Book. The DXY is expected to remain lackluster ahead of the speech from Fed chair Jerome Powell. Investors should brace a hawkish stance on interest rate guidance.

• USD/CHF remains sidelined after reversing from two-month high.
• Cautious mood ahead of the key events probes momentum traders.
• Swiss Unemployment Rate and ECB are also important for near-term directions.

USD/CHF licks its wounds near 0.9750, after falling the most in a month the previous day, as traders await the week’s crucial catalysts during early Thursday. Also challenging the Swiss currency pair could be the mixed risk signals.

While portraying the mood, the US 10-year Treasury yields extend Wednesday’s pullback from the highest levels since mid-June to 3.23% whereas the S&P 500 Futures fades the bounce off the lowest levels since July 19 as it seesaws around 3,980 by the press time.

The main catalyst is the anxiety ahead of the all-important European Central Bank (ECB) Monetary Policy Meeting and Fed Chair Jerome Powell’s speech. Also weighing on the sentiment could be the hawkish Fed bets, covid fears emanating from China and the likely escalation in the Sino-American tussles.

On Wednesday, the market’s optimism spread by the firmer data from the major economies and Fed’s Beige Book, not to forget the mixed Fedspeak, seemed to have weighed on the USD/CHF pair.

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. Also, the YoY figures 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.

Elsewhere, 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. On the other hand, Cleveland Federal Reserve Bank President Loretta Mester said, "I will decide my preferred size of rate hike at the September meeting itself." On the other hand, EU President von Der Leyen sounds pessimistic as she said the previous day that 50% of the EU's aluminum and zinc capacity has already been forced offline due to the power crisis.

Additionally, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day.

Looking forward, the Swiss Unemployment Rate for August, expected to remain unchanged at 2.2%, could offer immediate directions ahead of the ECB’s monetary policy meeting which is likely to unveil 0.75% rate hike from the bloc’s central bank and weigh on the US dollar. However, broad pessimism surrounding the old continent and the ECB’s limited capacity to become hawkish, as compared to Fed, seems to favor the USD/CHF buyers.

Technical analysis

Unless breaking a one-month-old support line, at 0.9750 by the press time, USD/CHF remains on the buyer’s radar.

• NZD/USD fades the previous day’s bounce off the lowest levels since May 2020.
• Impending bear cross on MACD, bearish Doji candlestick keep sellers hopeful.
• Convergence of two-week-old resistance line, 200-HMA challenges buyers.

NZD/USD remains pressured around mid-0.6000s heading into Thursday’s European session. In doing so, the Kiwi pair reverses the previous day’s recovery moves from the nearly 2.5-year low ahead of the all-important European Central Bank (ECB) Monetary Policy Meeting and Fed Chair Jerome Powell’s speech.

The quote’s latest weakness could well be linked to the bearish candlestick formation, called Doji, around the recent tops.

Also teasing NZD/USD bears is the looming bear cross of the MACD, as well as the RSI that struggles to extend the rebound from the oversold territory.

Even if the pair defy the bearish signals flashed by the Doji candlestick, by crossing the 0.6090 hurdle, a convergence of the 200-HMA and a downward sloping resistance line from August 25, close to the 0.6100 threshold challenges the upside momentum.

Following that, the weekly high near 0.6130 and Friday’s top surrounding 0.6140 could lure the NZD/USD buyers.

Alternatively, pullback moves need to break the immediate support line around 0.6020 to recall the bears and attack the 0.6000 psychological magnet.

Should the NZD/USD sellers keep reins past 0.6000, the 61.8% Fibonacci Expansion (FE) of August 30 to September 07 moves, near 0.5950, will gain the market’s attention.

NZD/USD: Hourly chart

Trend: Further weakness expected

• USD/INR snapped two-day downtrend as US dollar regains upside momentum ahead of the key events.
• Oil prices also rebound from multi-day low, exerting downside pressure on rupee.
• RBI’s stance joins downbeat oil prices in the last few days to keep bears hopeful.
• Powell needs to win ECB vs. Fed battle to defend DXY bulls.

USD/INR prints mild gains around 79.70 while consolidating the two-day losses during the initial Indian trading session on Thursday. In doing so, the Indian rupee (INR) pair takes clues from the market’s rush toward the US dollar amid a cautious mood ahead of the key events. Also fueling the pair prices could be the recent rebound in WTI crude oil, as well as the sluggish sentiment.

US Dollar Index (DXY) pares the biggest daily loss in a month around 109.85 even as the US 10-year Treasury yields extend Wednesday’s downside to 3.23%, after taking a U-turn from the highest levels since mid-June the previous day. On the other hand, S&P 500 Futures fades the bounce off the lowest levels since July 19 as it seesaws around 3,980 by the press time. Additionally, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day.

It should be noted that the WTI crude oil extends late Wednesday’s rebound from a nearly eight-month low to $82.60 at the latest. In doing so, the black gold takes a U-turn from the downward sloping support line from May. It’s worth noting that India’s reliance on oil imports and record deficit make USD/INR prone to oil price moves.

While talking about the risk catalysts, the cautious mood ahead of the monetary policy meeting by the European Central Bank (ECB) and Fed Chair Jerome Powell’s speech gains major attention. Following that, hawkish Fed bets, covid fears emanating from China and the likely escalation in the Sino-American tussles also weigh on the market sentiment and fuel the USD/INR prices.

The market’s optimism spread by the firmer data from the major economies and Fed’s Beige Book, not to forget the mixed Fedspeak, seemed to have weighed on the USD/INR pair the previous day. On the same line could be the oil’s downside move and optimism of the Indian politicians to post notable growth numbers despite global recession fears.

Moving on, USD/INR traders may witness a volatile day wherein the 0.75% ECB rate hike can offer a short-term fall before the fresh downside, in a case where Fed’s Powell sounds hawkish. Overall, the pair is likely to remain on the bull’s radar as ECB’s capacity to tighten monetary policy is limited compared to the Fed. Also, Indian reliance on oil and pessimism in the Asia-Pacific zone, led by China, seems to keep the pair buyers hopeful.

Technical analysis

A monthly bullish channel keeps USD/INR buyers hopeful between 80.40 and 79.40.

Reserve Bank of Australia (RBA) Governor Philip Lowe is responding to the Q&A at the Anika Foundation Fundraiser on Thursday.

Key quotes

more to come ...

Market reaction

At the time of writing, AUD/USD is keeping its range at around 0.6720, as Lowe’s Q&A is underway. The spot is down 0.70% on the day.

• Gold prices are displaying topsy-turvy moves as the focus shifts to Fed Powell’s speech.
• Softening consumption by US households has weakened the DXY.
• The Fed will continue its restrictive policy stance until it sees months of a slowdown in the inflation rate.

Gold price (XAU/USD) is displaying a lackluster performance as investors are awaiting the speech from Federal Reserve (Fed) chair Jerome Powell. The precious metal is oscillating in a range of $1,713.53-1,719.50 in the Asian session.

On Wednesday, the gold prices delivered a stellar rally after hitting a low of $1,691.46. Investors poured funds into the precious metal after oscillators turned extremely oversold on lower timeframes. Apart from that, the minutes from Fed’s Beige Book weakened the greenback. Fed banks believe that price pressures have softened the consumption pattern. The households have postponed the demand for durable goods due to higher payouts.  

Meanwhile, the US dollar index (DXY) has displayed a pullback move after a vertical fall. The DXY has scaled to near 109.80 but is likely to display back-and-forth moves ahead of Fed Powell’s speech. The minutes from Beige Book dictate that price pressures have moderated in a few districts, however, the impact is far from over. Despite sensing exhaustion in inflationary pressures, the Fed will continue its restrictive policy stance until it sees months of a slowdown in the inflation rate.

Gold technical analysis

On an hourly scale, gold prices have rebounded firmly after successfully testing the previous lows near $1,690.00 with lower selling pressure. A Double Bottom formation is followed by a strong rally, which indicates a bullish reversal, and more gains are expected ahead.

The 20-and 50-period Exponential Moving Averages (EMAs) have delivered a bullish crossover at $1,707.00, which indicates more upside ahead. Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which signals a continuation of upside momentum.

Gold hourly chart

Responding to the Q&A at the Anika Foundation Fundraiser, the Reserve Bank of Australia (RBA) Governor Philip Lowe said that he is hopeful that they can navigate the narrow path to a soft landing.

Additional comments

Market reaction

In an immediate reaction to the above comments, AUD/USD is testing daily lows near 0.6715, losing 0.72% on the day.

• AUD/USD has slipped sharply to near 0.6700 as RBA Lowe trims its hawkish stance on rate guidance.
• RBA Lowe cited that consumer spending is showing resilience after remaining vulnerable.
• A hawkish stance is expected from Fed Powell on interest rate guidance ahead.

The AUD/USD pair has plunged to near 0.6700 after surrendering the critical support of 0.6734. The asset has witnessed a vertical drop as Reserve Bank of Australia (RBA) Governor Philip Lowe has favored for slow down the pace of hiking the Official Cash Rate (OCR). Also, the RBA policymaker sees resilience in consumer spending after remaining lower due to the higher inflation rate.

On Tuesday, the RBA announced a fourth consecutive 50 basis points (bps) rate hike and elevated the Official Cash Rate (OCR) to 2.85%. Apart from that, RBA Lowe cited that the central bank sees interest rates at 3.85% and the inflation rate will top around 7%.

In the early Tokyo session, the asset witnessed a steep fall after the release of the Australian trade data. The commodity-linked currency reported a decline in monthly export data by 9.9% against an expansion of 5.1%. Also, imports have accelerated by 5.2% vs. 0.7% the prior release. The Trade Balance has trimmed dramatically to 8,733M against the expectation of 14,500M. It is worth noting that the Australian economy is highly sensitive to external trade data and a significant decline in the same is critical for the aussie bulls.

Meanwhile, the US dollar index (DXY) has turned sideways after a rebound move to near 109.60. The asset is expected to continue its lackluster movement further as investors are awaiting the speech from Federal Reserve (Fed) chair Jerome Powell. As the price rise index is highly deviated from the desired rate, Fed Powell will continue its ‘hawkish’ stance on interest rates guidance. Apart from that, a third consecutive rate hike by 75 bps could be discussed for September monetary policy meeting.

The Reserve Bank of Australia (RBA) Governor Philip Lowe is speaking about the economic outlook and monetary policy at the Anika Foundation Fundraiser, in Sydney.

Key quotes

Market reaction

The less hawkish comments from RBA Governor Lowe are not boding well for the aussie dollar, as AUD/USD extends losses below 0.6750.

The pair was last seen trading at 0.6730, down 0.55% on a daily basis. The US-China trade headlines are also weighing negatively on the anitpodean.

Explaining July's 50 bps rate hike, the Bank of Korea (BOK), the South Korean central bank, said that it is “necessary to raise rates fast and by a large margin "for now."

Additional quotes

Market reaction

The South Korean won (KRW) met fresh demand on the above comments, knocking down USD/KRW to $1,380 from near-daily highs of $1,384.31. The pair is adding 0.43% on the day, as of writing.

• EUR/USD treads water after bouncing off 19-year low.
• Anxiety ahead of ECB’s rate hike, Powell’s speech restricts latest moves.
• European energy crisis keeps bears hopeful even if ECB turns hawkish.
• Fed Chair Powell’s capacity to defend rate hikes will be eyed for further US dollar strength.

EUR/USD portrays the typical pre-event anxiety as it takes rounds to 0.9990-1.000 during early Thursday morning in Europe. Also keeping pair traders on the edge is the mixed nature of the latest risk catalysts and sluggish yields of late.

Even so, the quote prints mild losses while fading the previous day’s bounce off the lowest levels since late 2002. The reason could be likely to the traders’ preference for the US dollar amid the rush for risk-safety ahead of the week’s key events, namely the monetary policy meeting by the European Central Bank (ECB) and Fed Chair Jerome Powell’s speech. Also supporting the greenback could be the recent pause in the US Treasury yields, after reversing from the multi-day high, as well as hawkish Fed bets.

US Dollar Index (DXY) pares the biggest daily loss in a month around 109.80 as the US 10-year Treasury yields pause Wednesday’s downside by taking rounds to 3.27%, after taking a U-turn from the highest levels since mid-June. On the other hand, S&P 500 Futures fade bounced off the lowest levels since July 19 as it seesaws around 3,980 by the press time. Additionally, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day.

It should be noted that covid fears emanating from China and the likely escalation in the Sino-American tussles also on the market sentiment and the EUR/USD prices. Recently, Reuters came out with the news stating that Taiwan President Tsai Ing-wen told a delegation of US lawmakers on Thursday that the island will continue to work with the United States to forge closer trade and economic ties. Earlier in the day, the South China Morning Post (SCMP) said, “Shenzhen reduces entry quota for Hong Kong travelers.”

On Wednesday, the market’s optimism spread by the firmer data from the major economies and Fed’s Beige Book, not to forget the mixed Fedspeak, seemed to have triggered the EUR/USD pair’s rebound from the multi-year low.

Looking forward, EUR/USD traders may witness a volatile day wherein the 0.75% ECB rate hike can offer short-term recovery before the fresh downside, in a case where Fed’s Powell sounds hawkish. Overall, the pair is likely to remain on the bear’s radar as the European energy crisis is far from over and hence the ECB’s capacity to tighten monetary policy compared to the Fed is limited.

Also read: ECB Preview: Between Putin's rock and hard inflationary place, the deck is stacked against the euro

Technical analysis

A descending sloping support line from mid-July, near 0.9880 at the latest, restricts immediate EUR/USD downside. The recovery moves, however, need validation from the 20-DMA hurdle, around 1.0025 by the press time.

US President Joe Biden has postponed a final decision to withdraw any Trump-era tariffs on China imports, Bloomberg reports, citing people familiar with the matter.

One administration official said, “the Office of the US Trade Representative announced a tariff review last Friday that will allow businesses the opportunity to seek relief by weighing in on whether they think any particular tariff is costing US jobs or competitiveness.”

Meanwhile, Taiwan's President Tsai Ing-Wen while visiting the US lawmakers, said that “Taiwan will collaborate with the US to strengthen economic and commercial ties.”

Responding to the Taiwanese President, representative Stephanie Murphy of the US noted that “one of the most essential things congress can do is improve economic relations with Taiwan, including through a high-quality free trade agreement between the US and Taiwan.”

Market reaction

Poor Australian trade data combined with these discouraging US-China headlines are keeping AUD/IUSD under sellers’ radars. The pair was last seen trading at 0.6745, down 0.33% so far.

The new estimates from a team of researchers, including two staff economists from the International Monetary Fund (IMF), showed on Wednesday that the US unemployment rate needs to reach 7.5%, double its current level, to bring down raging inflation.

Key takeaways

“That would entail job losses of perhaps 6 million people, but the research found that only under “quite optimistic assumptions” about the behavior of the US job market and inflation would the US Federal Reserve be able to tame current price pressures with a smaller blow to employment.”

“If either the labor market doesn’t behave, or (inflation) expectations don’t behave, the small increase in unemployment the Fed projects won’t be enough. Either inflation will stay substantially higher, or we will have higher unemployment and a substantial economic slowdown.” 

Related reads

• Explainer: Three drivers for dollar domination, where things stand and what could change

• GBP/USD stays defensive after bouncing off the lowest levels since 1985.
• Four-month-old bearish channel’s bottom adds strength to the 1.1400 support.
• Bearish MACD signals keep sellers hopeful, RSI hints at corrective pullback.
• Buyers need validation from 29-month-old horizontal resistance to keep reins.

GBP/USD clings to mild losses around 1.1510 while fading the previous day’s bounce off the 37-year low during Thursday’s Asian session.

In doing so, the Cable pair justifies bearish MACD signals while staying inside a downward sloping trend channel since May.

However, the oversold RSI and lower line of the stated channel, as well as the pair’s hesitance in breaking the 1.1400 during 2020, as well as on the previous day, seem to suggest a short-term rebound of the GBP/USD prices.

That said, July’s low of 1.1760 gained the immediate attention of traders before the multi-day-old channel’s upper line, around 1.2080 by the press time.

It’s worth noting, though, that a horizontal area comprising multiple levels marked since April 2020, around 1.2650-75, will be a tough nut to crack got the pair buyer and holds the key for their control-taking ceremony.

Alternatively, pullback moves need to break the 1.1400 support level to recall the bears.  Following that, a quick slump to the January 1985 peak of 1.1300 can’t be ruled out.

Overall, GBP/USD remains on the bear’s radar but a short-term rebound can’t be ruled out.

GBP/USD: Weekly chart

Trend: Further recovery expected

Analysts at Barclays now see the European Central Bank (ECB) raising rates by 75 bps on Thursday even though markets are not fully pricing an outsized increase s.o far

Key quotes

"The markets are pricing a 68bp hike at this week's meeting, 123bp by the October meeting and 174bp by year-end, cumulatively. We have also changed our ECB call and are now forecasting a 75bp hike at this week's meeting, followed by 50bp and 25bp hikes in October and December, respectively, bringing the depo rate to 150bp by year-end.”

We also expect that President Lagarde could indicate during the press conference that a discussion on the end of reinvesting proceeds of the APP portfolio could take place in coming meetings, signaling another hawkish normalisation step.”

"As the markets are not fully pricing 75bp at September's meeting, such hawkish results could push EUR higher in the short term, but the sanguine economic forecasts for the euro area and ongoing energy concerns should keep the EUR under pressure in the medium term. If the ECB underdelivers, for example if it hikes by 50bp, the implication for the EUR could be a lot different and EUR/USD could test the lows again.”

• USD/CAD pares the biggest daily loss in two weeks amid sluggish Asian session.
• Oil rebounds from nearly eight-month low, market sentiment dwindles ahead of ECB, Powell’s speech.
• BOC hikes rates by 75 bps, showed readiness for more.
• Fed Chair Powell’s ability to defend aggressive rate lifts will be crucial to watch.

USD/CAD picks up bids to refresh its intraday high near 1.3135 as it consolidates its recent downside during Thursday’s Asian session. In doing so, the Loonie pair pays little heed to the improvement in prices of Canada’s main export, WTI crude oil.

WTI crude oil extends late Wednesday’s rebound from a nearly eight-month low to $82.35 at the latest. In doing so, the black gold takes a U-turn from the downward sloping support line from May.

That said, the US dollar regains buyer’s love even as market sentiment remains sluggish as traders rush for risk-safety ahead of the week’s key events, namely the monetary policy meeting by the European Central Bank (ECB) and Fed Chair Jerome Powell’s speech. Also supporting the greenback could be the recent pause in the US Treasury yields, after reversing from the multi-day high, as well as hawkish Fed bets.

US Dollar Index (DXY) pares the biggest daily loss in a month around 109.80 as the US 10-year Treasury yields pause Wednesday’s downside by taking rounds to 3.27%, after taking a U-turn from the highest levels since mid-June. On the other hand, S&P 500 Futures fade bounced off the lowest levels since July 19 as it seesaws around 3,980 by the press time. Additionally, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day.

It should be noted that covid fears emanating from China also weigh on the market sentiment and favor the USD/CAD bulls as the South China Morning Post (SCMP) said, “Shenzhen reduces entry quota for Hong Kong travelers.”

On Wednesday, the Bank of Canada’s (BOC) 75 basis points (bps) rate hike and readiness to announce some more dragged the USD/CAD from a nearly two-month high. On the same line could be the market’s optimism spread by the firmer data from the major economies and Fed’s Beige, not to forget the mixed Fedspeak.

Looking forward, comments from the BOC’s Senior Deputy Governor Carolyn Rogers and Fed Chairman Powell will be crucial for the USD/CAD traders to watch for fresh impulse.

Technical analysis

Any pullback remains elusive unless the USD/CAD pair provides a daily closing below the monthly support line, at 1.3045 by the press time.

Amidst the deepening energy crisis, Britain's new Prime Minister Liz Truss is considering plans to grant 'dozens' of new North Sea oil and gas exploration licenses, Reuters reported, citing unnamed sources.

 The UK government is seeking to lift domestic production to help ease the country's energy crisis.

Additional details

Meanwhile, the UK Telegraph also reported that the country's fracking ban will be removed on Thursday, September 8.

Market reaction

Despite the government’s efforts to curb soaring energy costs, GBP/USD is struggling to extend its recovery.

At the time of writing, the pair is trading at 1.1507, down 0.15% on the day, retreating from a daily high of 1.1541.

• AUD/USD reverses the previous day’s corrective pullback after downbeat Aussie trade data.
• Aussie Trade Balance eased in July, risk aversion remains in play.
• Anxiety ahead of ECB, speech from Fed Chair Powell recalls the US dollar bulls despite sluggish yields.
• Hawkish Fed bets, recently firmer US data keep bears hopeful even as Powell’s ability to defend rate hikes is at test.

AUD/USD takes offers to refresh intraday low around 0.6740 after downbeat Aussie trade numbers joined the US dollar rebound during early Thursday. Also exerting pressure on the pair is the cautious mood before the key catalysts up for publishing from Europe and the US.

Australia’s Trade Balance dropped to 8,733M in July versus 14,500 M market forecasts and 17,670 prior. Further details suggest that the Imports jumped by 5.2% compared to 0.7% prior while Exports slumped with the -9.9% figures versus 5.1% previous readings.

On the other hand, Reserve Bank of Australia (RBA) Governor Philip Lowe tried to defend the latest rate hike

Even so, the Aussie pair remains pressured amid broad anxiety ahead of the week’s key events, namely the monetary policy meeting by the European Central Bank (ECB) and Fed Chair Jerome Powell’s speech.

Also challenging the AUD/USD buyers are the fresh covid fears emanating from China, Australia’s biggest customer as the South China Morning Post (SCMP) said, “Shenzhen reduces entry quota for Hong Kong travelers.”

Previously, firmer data from the key economies and optimistic statements from the Fed’s Beige Book seemed to have triggered the risk barometer pair’s rebound from the lowest levels since the mid-July, which is also the yearly low.

Furthermore, mixed comments from the Fed policymakers also might have favored the AUD/USD rebound the previous day. That said, 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. On the other hand, Cleveland Federal Reserve Bank President Loretta Mester said, "I will decide my preferred size of rate hike at the September meeting itself."

While portraying the mood, US 10-year Treasury yields pauses Wednesday’s downside by taking rounds to 3.27%, after taking a U-turn from the highest levels since mid-June. On the other hand, S&P 500 Futures fade bounced off the lowest levels since July 19 as it seesaws around 3,980 by the press time.

Looking forward, speech from Reserve Bank of Australia (RBA) Governor Philip Lowe and the art of Fed Chair Powell’s defense of the aggressive rate hikes will be at test during today’s speech.

Also read: ECB Preview: Between Putin's rock and hard inflationary place, the deck is stacked against the euro

Technical analysis

A convergence of the one-week-old resistance line and 78.6% Fibonacci retracement level of July-August upside, near 0.6780, restricts short-term AUD/USD rebound.

• AUD/JPY has dropped to near 97.00 as Australian exports have declined by 9.9%.
• Aussie Trade Balance has landed at 8,733M vs. the estimates of 14,500M.
• Japan’s stellar performance on the GDP front has strengthened the yen bulls.

The AUD/JPY pair has witnessed a sheer downside move after weaker trade data by the Australian Bureau of Statistics. The cross has slipped to near 97.00 as Australian exports have trimmed dramatically. The commodity-linked currency has reported a decline in monthly export data by 9.9% against an expansion of 5.1%. Also, imports have accelerated by 5.2% vs. 0.7% in the prior release. The Trade Balance has trimmed dramatically to 8,733M against the expectation of 14,500M.

This week, plenty of triggers have strengthened the antipodean against the Japanese yen.  First, the Reserve Bank of Australia (RBA) hiked its Official Cash Rate (OCR) to 2.85% after announcing a fourth consecutive 50 basis points interest rate hike. As price pressures in the Australian economy have not displayed any sign of making top yet, RBA Governor Philip Lowe sticks to its ‘restrictive’ stance on interest rates.

In the monetary policy announced, the RBA also dictated the roadmap of scaling down the inflation rate to the desired levels. The guidance on interest rates and inflationary pressures was worth watching. RBA policymakers are expecting that the OCE will escalate further to 3.85%. While the inflation rate will top around 7% and from next year it will start declining. No doubt, this will widen the RBA-Bank of Japan (BOJ) policy divergence further.

And, then the release of the mixed Gross Domestic Product (GDP) data. 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.

On the Tokyo front, Japan’s upbeat GDP data have strengthened the yen bulls. The economic data has improved meaningfully to 3.5% against the expectations and the prior print of 2.9% and 2.2% respectively on an annual basis. Also, the quarterly data has been recorded higher at 0.9% against the forecasts of 0.7% and the prior release of 0.5%.

 Australia’s trade Balance has been released and the surplus is a big disappointment after having reached a record high $17.7bn in June.

There is a surplus of just AUD8.733bn vs. the expected +14.5bn vs. the previous +17.7bn.

 Massive trade surpluses have driven 13 consecutive quarters of current account surpluses, a record since records beginning in 1959.

However, the Aussie is under pressure on this release, losing ground into 0.6740 at the time of writing from near 0.6750 prior to the release.

The bears are in control while below the prior lows near 0.6750 that would be expected to act as resistance for the near term, leaving the emphasis on a test of 0.6730 that guards 0.67 the figure for the day ahead. A break there will open the prospects of a downside extension on the daily chart:

About the Trade Balance

The trade balance released by the Australian Bureau of Statistics is the difference in the value of the imports and exports of Australian goods. Export data can give an important reflection of Australian growth, while imports provide an indication of domestic demand. Trade Balance gives an early indication of the net export performance. If a steady demand in exchange for Australian exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the AUD.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.9148 vs. the last close of 6.9652.

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.

• WTI picks up bids to extend the bounce off short-term key support line.
• MACD, RSI favor bears, 61.8% Fibonacci retracement is the short-term key hurdle.
• 50-DMA holds the key to buyer’s conviction, bears may aim for 78.6% Fibonacci retracement level.

WTI crude oil extends the previous day’s rebound from nearly eight-month low to $82.50 during Thursday’s Asian session. In doing so, the black gold takes a U-turn from the downward sloping support line from May.

Although nearly oversold RSI and the key support line might have triggered the quote’s latest rebound, bearish MACD signals and a pause in the RSI recovery seems to challenge the WTI bulls.

That said, the recovery moves also would have found the 61.8% Fibonacci retracement level of December 2021 to January 2022 upside, near $86.85, as strong resistance.

Even if the quote crosses the $86.85 hurdle the $90.00 threshold and the 50-DMA level surrounding $93.30 could test the WTI buyers before giving them control.

On the contrary, a downside break of the stated support line, near $80.50, needs validation from the $80.00 round figure to please bears.

Following that, the 78.6% Fibonacci retracement level of $76.00, will be in focus.

Overall, WTI crude oil prices are likely to remain bearish but a short-term rebound can’t be ruled out.

WTI: Daily chart

Trend: Limited recovery expected

• Gold price has turned sideways around $1,716.00 as focus shifts to Fed Powell’s speech.
• Fed Powell may sound hawkish on interest rate guidance amid soaring price pressures.
• The DXY witnessed an intense sell-off on softening retail demand.

Gold price (XAU/USD) is displaying a time-based correction after sensing exhaustion at around $1,720.00 in the Asian session. Earlier, the precious metal witnessed a decent rally after sustaining above the psychological support of $1,700.00. The market participants poured liquidity into the yellow metal after the minutes from Federal Reserve (Fed)’s Beige Book indicated moderation in the inflation rate in a few districts.

A major highlight which forced the market participants to trim positions in the US dollar index (DXY) was softening demand. As escalating price pressures have forced households to make higher payouts keeping the quantity unchanged, households have postponed demand for durables but are sticking to unchanged necessity goods quantities. US Manufacturing activities have remained subpar in the past few months and a similar trend is expected further amid softening demand.

Meanwhile, the US dollar index (DXY) has attempted a rebound after hitting a low below 109.60. The DXY is expected to remain volatile as investors are awaiting the speech from Fed chair Jerome Powell. A hawkish stance is expected on interest rate guidance as the interest rate has widely deviated from the desired rate of 2%.

Gold technical analysis

Gold prices have rebounded firmly after successfully testing the previous lows near $1,690.00 with lower selling pressure. A Double Bottom formation is followed by a strong rally, which indicates a bullish reversal, and more gains are expected ahead.

The 20-and 50-period Exponential Moving Averages (EMAs) have delivered a bullish crossover at $1,707.00, which indicates more upside ahead. Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which signals a continuation of upside momentum.

Gold hourly chart

• Market sentiment dwindles ahead of the week’s top-tier events.
• S&P 500 Futures struggle to extend the bounce off seven-week low, yields dribble after reversing from 2.5-month high.
• Cautious mood joins central bank, economic concerns to weigh on sentiment, recently firmer data tames pessimism.

The risk profile remains unclear during early Thursday as traders await the key events scheduled for release during the week. Also challenging the traders are mixed concerns over the central bank moves and the latest economics.

That said, US 10-year Treasury yields reverse the previous day’s losses by taking rounds to 3.27%, after taking a U-turn from the highest levels since mid-June. On the other hand, S&P 500 Futures fade bounced off the lowest levels since July 19 as it seesaws around 3,980 by the press time.

Hawkish bets on the US Federal Reserve’s (Fed) and the European Central Bank’s (ECB) next moves join the fears emanating from the energy crisis and China’s covid conditions, not to forget the Sino-American tussles, to weigh on the market’s mood. On the contrary, recently firmer data from Europe, the US and Japan appeared to have triggered cautious optimism. On the same line could be the Fed’s Beige Book which signaled a recovery in the supply chain and slowing price growth.

Recently, Japan’s second-quarter (Q2) Gross Domestic Product (GDP) came in as 0.9% QoQ versus 0.7% expected and 0.5% prior. Further, the Annualized GDP also rose to 3.5% versus 2.9% market forecasts and 2.2% in previous readings.

Before that, 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. Also, the YoY figures 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.

It should be noted that 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. On the other hand, Cleveland Federal Reserve Bank President Loretta Mester said, "I will decide my preferred size of rate hike at the September meeting itself." On the other hand, EU President von Der Leyen sounds pessimistic as she said the previous day that 50% of the EU's aluminum and zinc capacity has already been forced offline due to the power crisis.

Talking about the market’s bets on the Fed and the ECB’s next moves, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day. Further, Reuters said that the market pricing in ECB 75 bp hikes for its key policy interest rates.

Given the indecision in the market, the US dollar regains upside momentum and hence commodities and Antipodeans witness pressure weakness.

Moving on, the art of Fed Chair Powell’s defense of the aggressive rate hikes will be at test during today’s speech, especially due to the hawkish hopes from the ECB. Ahead of that, the ECB’s ability to please the policy hawks will be important to watch as there still prevails indecision between 50 bps and 75 bps move.

Also read: ECB Preview: Between Putin's rock and hard inflationary place, the deck is stacked against the euro

• AUD/USD bulls have thrown in the towel following key correction. 
• The bears are moving in, but we have key resistance and support to consider prior to the next potential bearish extension. 

AUD/USD As per the prior analysis, AUD/USD Price Analysis: Bears move in at key support ahead of GDP data, AUD/USD that was projected to correct to the upside has reached a key resistance area on the hourly and 4-hour charts, leaving prospects to the downside once again.

AUD/USD prior analysis

It was explained that there was a bias to the upside, noting that there was resistance around 0.6735 with eyes on the 0.6775 area around the Wall Street opening highs above there.

AUD/USD H4 and H1 live charts

The price has since been resisted in the targetted area and is under pressure again. The hourly M-formation's neckline near 0.6750 could be revisited in the immediate sessions ahead. 

 On the 4-hour chart, however, the W-formation's neckline aligns with a 50% mean reversion area near 6736. This guards the risk of a move below the lows of 0.6698.

AUD/USD daily chart

On the daily outlook, the price could be coiling for a bearish extension for the days ahead. 

• EUR/USD fades rebound from nearly two-decade low, sidelined of late.
• Cautious mood ahead of the key events join firmer yields, hawkish Fed bets to weigh on prices.
• Optimistic US data, Beige Book joined pre-ECB consolidation to favor buyers previously.
• ECB’s ability please hawks, Powell’s defense of aggressive rate hikes will be critical to watch for clear directions.

EUR/USD slips to 0.9990, after bouncing off a 19-year low the previous day, as the US dollar regains upside momentum amid a cautious mood ahead of the key events. Also exerting downside pressure on the major currency pair could be the economic hardships for the bloc, as well as indecision over the size of the European Central Bank’s (ECB) rate hike.

The latest pullback rebound in yields and hawkish Fed bets could have weighed on the EUR/USD prices, as well as downbeat comments from European Commission President Ursula von der Leyen.

US 10-year Treasury yields reverse the previous day’s losses by around 3.27%, after taking a U-turn from the highest levels since mid-June. It should be noted that the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day.

On the other hand, EU President von Der Leyen sounds pessimistic as she said the previous day that 50% of the EU's aluminum and zinc capacity has already been forced offline due to the power crisis.

On Wednesday, the pair marked the biggest daily jump in 2.5 months as firmer data from the Eurozone joined optimistic statements of the Fed’s Beige Book. Also favoring the buyers were mixed comments from the Fed policymakers.

That said, 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. Additionally, the Fed’s Beige Book signaled a recovery in the supply chain and slowing price growth, which in turn triggered the risk-on mood and favored the pair buyers.

It should be noted that 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. On the other hand, Cleveland Federal Reserve Bank President Loretta Mester said, "I will decide my preferred size of rate hike at the September meeting itself."

Amid these plays, Wall Street closed positive and the yields retreated whereas the S&P 500 Futures print mild losses by the press time.

Looking forward, the art of Fed Chair Powell’s defense of the aggressive rate hikes will be at test during today’s speech, especially due to the hawkish hopes from the ECB. Hence, the EUR/USD pair’s further downside hinges on how well Powell manages to convince markets of further rate hikes. Ahead of that, the ECB’s ability to please the policy hawks will be important to watch as there prevails indecision between 50 bps and 75 bps move.

Also read: ECB Preview: Between Putin's rock and hard inflationary place, the deck is stacked against the euro

Technical analysis

The 20-DMA hurdle, around 1.0025 by the press time, challenges the EUR/USD pair’s rebound from a downward sloping support line from mid-July, near 0.9880 at the latest. That said, RSI and MACD hint at corrective pullback.

• GBP/USD starts to correct from the lowest levels since 1985.
• The focus remains on the BoE and a new government. 

GBP/USD is perched in the lower quarter of the 1.15 area following a firm correction from the lowest level since 1985 that was scored on Wednesday that was reached in the face of a worrying outlook for the British economy. UK politics are taking a bite out of the pound as investors weigh prospects of tax cuts under a new government as well as surging inflation. 

GBP/USD fell to 1.1405 overnight while the DXY, an index that measures the greenback vs. a basket of currencies, surged to a fresh bull cycle high of 110.786, falling just shy of a weekly 2002 level.  In this regard, the Bank of England will make for an important event as the UK faces months of astoundingly high inflation levels.

Despite a path of rate hikes, the warnings on growth over-rides any support for the currency at the same time that PM Truss's policies are not necessarily in line with investors’ needs nor bullish for the pound that is already down more than 15% against the dollar so far this year. The BoE meets next week and is expected to hike interest rates by 50 or even 75 basis points.

Ahead of the BoE, attention will turn to Truss' economic plans in the coming days. Markets will be on the lookout for how she intends to tackle soaring energy bills for households in particular with regard to government borrowing.

GBP/USD technical analysis

The price has moved in on the 2020 lows, taking on the lowest levels since 1985 from where a correction could be underway. The weekly M-formation is a bullish pattern that could result in a reversion towards the prior lows near 1.1760 in the coming weeks. 

• EUR/JPY has rebounded firmly after dropping to near 144.00 despite upbeat Japan’s GDP data.
• The quarterly and annual data have landed at 0.9% and 3.5% respectively.
• A hawkish stance is expected on interest rates by the ECB.

The EUR/JPY pair has bounced back quickly after slipping to near 144.00. The cross turned volatile after the Japanese Cabinet Office releases Gross Domestic Product (GDP) data. Japan’s GDP data has landed higher than expectations significantly.

The economic data has improved meaningfully to 3.5% against the expectations and the prior print of 2.9% and 2.2% respectively on an annual basis. Also, the quarterly data has been recorded higher at 0.9% against the forecasts of 0.7% and the prior release of 0.5%.

The asset is expected to remain bullish on a broader note as the market participants are expecting an escalation in European Central Bank (ECB)-Bank of Japan (BOJ) policy divergence. The Eurozone economy is going through the double threat of accelerating price pressures and bleak economic growth.

ECBs preferred inflation tool, Harmonized Index of Consumer Prices (HICP) landed at 9.1% for July as the central bank is responsible for a delayed response. The Russia-Ukraine tussle restricted the ECB to sound hawkish as the decision of hiking interest rates at times when supply chain bottlenecks were at a peak could have harmed the economic activities dramatically.

Meanwhile, soaring energy prices after Russia cut off the gas supply from its major Nord Stream 1 pipeline under the Baltic Sea to Germany have trimmed growth prospects significantly. Also, the winter season is arriving which will demand more energy to run heating appliances.

In today’s session, the interest rate decision by ECB President Christine Lagarde will be keenly watched. As per the consensus, the ECB will hike its interest rates by 75 basis points (bps). An occurrence of the same will lift the interest rates to 1.25%. This will widen the ECB-BOJ policy divergence and may weaken the yen bulls further.

• US Dollar Index pares the biggest daily loss in a month while reversing the pullback from a two-decade high.
• Pullback in yields, US data joined Fed’s Beige book to underpin consolidation ahead of the key events.
• Hawkish Fed bets, rebound in bond coupons keep buyers hopeful.
• Powell needs to defend the rate hikes to keep DXY directed towards the north.

US Dollar Index (DXY) picks up bids to pare the biggest daily loss in a month around 109.75 during Thursday’s Asian session. The greenback gauge’s latest gains could be linked to the firmer yields and hawkish Fed bets. That said, the cautious mood ahead of the monetary policy meeting by the European Central Bank (ECB) and Fed Chair Jerome Powell’s speech tests the buyers.

US 10-year Treasury yields reverse the previous day’s losses by around 3.27%, after reversing from the highest levels since mid-June. It should be noted that the CME’s FedWatch Tool signals 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day.

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. On the same line could be the Fed’s Beige Book which signaled a recovery in the supply chain and slowing price growth in nine of the 12 districts. That said, 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.

While portraying the mood, Wall Street closed positive and the yields retreated whereas the S&P 500 Futures print mild losses by the press time.

Moving on, the art of Fed Chair Powell’s defense of the aggressive rate hikes will be at test during today’s speech, especially due to the hawkish hopes from the ECB. Hence, the DXY's further upside will hinge on how well Powell manages to convince markets of further rate hikes. Ahead of that, the ECB’s ability to please the policy hawks will be important to watch as well. It should be noted, however, that the ECB's anticipated 0.75% rate hike may not be able to tame the DXY for long amid recession fears and energy crisis concerning the old continent.

Technical analysis

Despite the previous pullback, the DXY remained beyond a two-month-old ascending support line, at 109.20 by the press time, which in turn favors the bulls to aim for the fresh multi-year high above 110.00.

• GBP/JPY has surrendered the immediate support of 166.00 on higher-than-expected Japan GDP data.
• UK next PM Liz Truss has picked battle against higher energy prices and inflation rate.
• The BOJ has failed in accelerating household spending despite a prudent monetary policy.

The GBP/JPY pair has sensed selling pressure after failing to sustain above 166.20 in the early Tokyo session. The asset has slipped below 166.00 after the release of upbeat Japanese Gross Domestic Product (GDP) data. The Japanese GDP data has landed at 0.9%, higher than the forecasts of 0.7% and the prior release of 0.5%. Also, the annual data has improved meaningfully to 3.5% against the expectations and the prior print of 2.9% and 2.2% respectively.

This week, downbeat Japan’s Overall Household Spending data weakened the yen bulls. The economic data declined to 3.4% than the expectations of 4.2% and the prior release of 3.5%. Despite the prolonged efforts of the Bank of Japan (BOJ) in accelerating overall demand by flushing liquidity into the economy continuously, household expenditure remained vulnerable.

Earlier, the cross displayed a sheer upside move right from a low of 161.00 after Liz Truss was declared as the next UK Prime Minister. The announcement brought a sense of political stability to the UK economy as UK political environment was filthy after the resignation of ex-UK PM Boris Johnson. Apart from that, Truss picked a battle with accelerating energy prices and inflation rate, which strengthened the pound bulls.

Conservative party leader 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. Adding to that, taxes for households will be trimmed, which will remain supportive for them to combat higher payouts. Also, the Cabinet will focus on making more investments and scaling up the employment generation process.

• USD/JPY remains firmer near the highest levels in 24 years despite the latest pullback.
• US Treasury yields reverse the previous day’s downside move amid cautious optimism.
• Upbeat Q2 Japan GDP contrasts with US data, Beige Book but Fed vs. BOJ divergence to favor bulls.
• Fed’s Powell need to defend 0.75% rate hike in September to back US dollar strength.

USD/JPY steps back from the daily top, also near the highest levels since 1998, on firmer Japan data as Tokyo opens on Thursday. Even so, the yen pair remains on the bull’s radar.

That said, Japan’s second-quarter (Q2) Gross Domestic Product (GDP) came in as 0.9% QoQ versus 0.7% expected and 0.5% prior. Further, the Annualized GDP also rose to 3.5% versus 2.9% market forecasts and 2.2% in previous readings. Following the data, USD/JPY retreats from the intraday high but prints mild gains while keeping buyers hopeful.

The reason for the bullish bias towards the USD/JPY could be linked to a rebound in the 10-year US Treasury yields ahead of the key monetary policy meeting by the European Central Bank (ECB) and Fed Chairman Jerome Powell’s speech.

It should be noted that the USD/JPY pair’s status as the risk barometer also underpins the quote’s latest run-up as optimism surrounding US economics and the US dollar pullback seemed to have triggered the market’s firmer sentiment of late.

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. On the same line could be the Fed’s Beige Book which signaled a recovery in the supply chain and slowing price growth in nine of the 12 districts. That said, 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.

While portraying the mood, Wall Street closed positive and the yields retreated whereas 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.

Moving on, the art of Fed Chair Powell’s defense of the aggressive rate hikes will be at test during today’s speech, especially due to the hawkish hopes from the ECB. Hence, the USD/JPY pair’s further upside will hinge on how well Powell manages to convince markets of further rate hikes. It’s worth mentioning that the chatters over the Japanese central bank’s intervention to defend the yen and the Bank of Japan’s (BOJ) favor for easy money, versus the hawkish Fed, keep the USD/JPY buyers hopeful.

Technical analysis

A daily closing beyond an upward sloping resistance line from late April 2022, around 144.75 by the press time, becomes necessary for the USD/JPY bulls to keep reins. Otherwise, overbought RSI (14) could play its role to trigger the pullback towards July’s high near 139.40.

Japan's Gross Domestic Product has been released showing that the economy grew an annualised 3.5% in the second quarter, better than the initial estimate of a 2.2% expansion, in revised government data.

The revised figure for gross domestic product (GDP) released by the Cabinet Office compared with economists' median forecast for a 2.9% gain in a Reuters poll.

The data has had a limited impact on the yen which is underperforming, extending above 144.00, encouraging the prospects of central bank intervention.

About Gross Domestic Product

The Gross Domestic Product released by the Cabinet Office shows the monetary value of all the goods, services and structures produced in Japan within a given period of time. GDP is a gross measure of market activity because it indicates the pace at which the Japanese economy is growing or decreasing. A high reading or a better-than-expected number is seen as positive for the JPY, while a low reading is negative.

• AUD/NZD holds lower ground near the short-term key support after falling the most in a week.
• Failure to cross the previous support joins downbeat oscillators to favor the bears.
• Two-week-old descending trend line adds strength to the 1.1175-80 hurdle.

AUD/NZD drops back to 21-DMA after a failed attempt to cross the three-month-old previous support. That said, the cross-currency pair holds lower ground near 1.1140 during Thursday’s Asian session.

That said, the quote’s weakness could well take clues from the bearish MACD signals and the downward-sloping RSI (14), not oversold.

With this, the AUD/NZD prices are likely to break the immediate DMA support near 1.1130, which in turn could direct the quote towards the 38.2% and 50% Fibonacci retracement of April-August upside, respectively near 1.1090 and 1.1040.

However, a four-month-old support line near 1.1020 and the 1.1000 psychological magnet appear to be the key challenges for the bears.

Alternatively, an upward-sloping resistance line from June joins the two-week-old descending trend line to highlight the 1.1175-80 area as the short-term key resistance.

Following that, the 1.1220 level may offer an intermediate halt during the run-up towards the yearly top marked in August around 1.1255.

Overall, AUD/NZD bears flex muscles ahead of a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe.

AUD/NZD: Daily chart

Trend: Further downside expected

• Silver price advanced more than 2.50% on Wednesday, courtesy of a weaker US dollar and falling US T-bond yields.
• The US trade deficit narrowed, according to the Department of Commerce.
• US Fed officials reiterated the Fed’s commitment to tackling inflation.

Silver price rises during the day amidst a risk-on impulse and broad US dollar weakness ahead of the European Central Bank (ECB) monetary policy meeting, spurring USD buyers to book profits. That, alongside increased demand for risk appetite, kept US dollar buyers at bay. XAG/USD is trading at $18.45, slightly up by 0.09% at the time of writing.

On Wednesday, the US Department of Commerce announced that the US trade deficit narrowed to $-70.6 billion. Exports of goods and services rose by 0.2%, to $259 billion, while imports dropped 2.9%, to $329.9 billion. Even though the data was positive, traders’ reaction was muted, as they remained focused on the ECB’s monetary policy decision.

In the meantime, Fed speakers crossing newswires reiterated their commitment to tame inflation, even if the US economy is going to slow down. Fed Vice Chair Lael Brainard said, “We are in this for as long as it takes to get inflation down.”

Earlier, the Boston Fed President Susan Collins said, “we’ve not yet seen significant declines in prices, and that’s what we’re going to be looking for,” while the Cleveland Fed President Loretta Mester commented that she was not convinced that “inflation had peaked yet.”

Elsewhere the US Dollar Index collapsed more than 0.65%, down at 109.630, a sign of traders booking profits ahead of volatile events. Also, a tailwind for the white metal price is the US 10-year Treasury yield, losing eight bps, down at 3.265%.

What to watch

The US economic calendar on Thursday will feature the Initial Jobless Claims for the week ending on September 3. However, the spotlight would be on Federal Reserve Chair Jerome Powell later in the day.

Silver (XAG/USD) Key Technical Levels

• AUD/JPY prints six-day uptrend as it rises to the fresh high since January 2015.
• Risk-on mood favors the pair ahead of the key catalysts.
• Japan’s Q2 GDP, yields will be eyed for immediate directions.
• RBA’s Lowe will be traced for clear monetary policy guidance.

AUD/JPY clings to mild gains around the highest levels in seven years as it pokes 97.50 during the initial Asian session on the key Thursday. In doing so, the cross-currency pair rises for the sixth consecutive day amid a risk-on mood.

While the firmer sentiment favors the quote, anxiety ahead of Japan’s second-quarter (Q2) Gross Domestic Product (GDP), expected 0.7% QoQ versus 0.5% prior seems to test the bulls of late. Also important is a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe.

The market’s risk-on mood could be linked to the recently firmer data from the US, Australia and Europe. Also favoring the sentiment could be a pullback in the US Treasury yields from the multi-day high, as well as the Fed’s Beige Book.

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.

On the other hand, Australia’s Q2 GDP rose to 3.6% YoY versus 3.5% market consensus and 3.3% prior while the QoQ figures eased to 0.9% compared to 1.0% expected and 0.8% previous readings.

Furthermore, the Fed’s Beige Book signaled a recovery in the supply chain and slowing price growth in nine of the 12 districts.

It’s worth mentioning that the chatters over the Japanese central bank’s intervention to defend the yen and the Bank of Japan’s (BOJ) favor for easy money, versus the RBA’s rate hikes, keep the AUD/JPY buyers hopeful.

Against this backdrop, Wall Street closed positive and the yields retreated, which in turn weighed on the gold price.

That said, a firmer print of Japan’s Q2 GDP may offer immediate pullback to the pair but the overall direction remains firmer unless RBA’s Lowe sounds too dovish.

Technical analysis

AUD/JPY brace for the late 2014 high near 98.40 unless declining back below May 2022 peak surrounding 96.90.

• USD/CHF is expected to display more downside on slippage below 0.9760.
• A shift in the consumption pattern of US households has weakened the greenback bulls.
• The speech from Fed Powell and the Swiss franc jobless rate will hog the limelight.

The USD/CHF pair is displaying a hiatus after a perpendicular fall on Wednesday. The asset is witnessing back-and-forth moves in a narrow range of 0.9758-0.9770 in the early Asian session and is likely to record more weakness after a downside break of the same. Earlier, the asset witnessed an extreme sell-off while re-testing the previous week’s high near 0.9860. The major sensed sell-off after the release of the minutes from the Federal Reserve (Fed) Beige Book.

The economic report from banks that dictate a qualitative review of economic conditions in the US indicated a shift in the consumption pattern of the households. As individuals are bound to make higher payouts due to a higher price rise index, a decline in consumption of durable goods has been observed whose demand can be postponed. While demand for necessities remained the same as their requirements cannot be postponed.

However, hawkish commentary from Fed Vice Chair Lael Brainard failed to support the greenback bulls. Fed policymakers cited 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.

In today’s session, the speech from Fed chair Jerome Powell will remain in the spotlight. Investors should brace for a hawkish commentary from Fed Powell on interest rates as price pressures are still highly deviated from the desired rate.

On the Swiss franc front, investors are awaiting the release of the Unemployment Rate. The jobless rate is seen as stable at 2.2% on a monthly basis. A lower-than-expected jobless rate will strengthen the Swiss franc bulls.