• NZD/USD consolidates recent gains around weekly top, sidelined of late.
• RBNZ Governor Orr favored multiple rate hikes but appears cautious over economic growth.
• China’s stimulus, US data and Fedspeak favored buyers previously.
• US Core PCE Price Index, Fed Chair Jerome Powell’s Jackson Hole Speech are crucial for fresh impulse.

NZD/USD fades the upside momentum as it declines to 0.6215 after the Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr sounds cautious during his speech at the Jackson Hole on early Friday morning in Asia. Also exerting downside pressure on the Kiwi pair are the latest geopolitical headlines, as well as a cautious mood ahead of Fed Chair Jerome Powell’s speech at the aforementioned symposium event.

RBNZ Governor Orr initially mentioned that we think there will be at least another two rate hikes. The policymaker also said, “Our core view is we won't see a technical recession.” However, his comments like, “Central banks may need to push towards zero growth,” seemed to have weighed on the NZD/USD prices.

Also read: RBNZ Orr: At least another couple of rate hikes to come

Additionally favoring the NZD/USD sellers are the geopolitical headlines surrounding China, the US and Iran. The US has suspended 26 Chinese carrier flights in response to China's action, per Reuters. On the other hand, a letter got viral quoting US President Joe Biden as saying, “The US struck Iran-backed forces in Syria in order to safeguard American civilians both at home and abroad.”

It should be noted that China’s heavy stimulus and mildly firmer US data, as well as Fedspeak, favored the NZD/USD buyers previously. China’s nearly one trillion yuan worth of stimulus and a holistic approach by the domestic institutions to safeguard the world’s second-largest economy renewed market optimism earlier.

That said, New Zealand’s ANZ Consumer Confidence for August rose to 85.4 versus 81.9 but failed to impress the pair buyers. As per the US data, the second estimate of the US Gross Domestic Product (GDP) Annualized improved to -0.6% in the second quarter (Q2) versus -0.9% flash estimations and -0.8% market forecasts. Further, US Initial Jobless Claims dropped to the lowest levels in seven weeks, to 243K for the week ended on August 19 versus 253K expected and a revised down prior of 245K.

Moving on, Kansas City Fed President Esther George said on Thursday, "For the near-term thinking about higher interest rates seems reasonable to me." The policymaker also mentioned that (it’s) too soon to say what to expect in September (as) more key data coming. Philadelphia Fed President Patrick Harker was on the same line while he noted, per Reuters, that he wants to see the next inflation reading before deciding on the September rate decision but added that a 50 basis points rate hike would still be a substantial move. Further, Philadelphia Fed President Patrick Harker noted on Thursday that he wants to see the next inflation reading before deciding on the September rate decision but added that a 50 basis points rate hike would still be a substantial move, per Reuters.

Against this backdrop, Wall Street marked the biggest daily jump in a week while the US 10-year Treasury yields dropped back to 3.03%, after rising to 3.10% the previous day.

Moving on, the US Core Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, may entertain the markets. Forecasts suggest that the YoY print is to ease to 4.7% from 4.8% while the monthly figures may drop to 0.3% while 0.6% prior. However, more important will be Fed Chair Powell’s speech at the Jackson Hole.

Also read: Jackson Hole Symposium Preview: Will Powell power dollar bulls?

Technical analysis

NZD/USD pulls back from a 50-DMA level surrounding 0.6235 but the bears remain cautious until witnessing a clear break of the 0.6150 horizontal support.

Adrian Orr, the governor of the Reserve Bank of New Zealand has stated that he thinks there will be at least another couple of rate hikes. This is being reported by Bloomberg TV covering Jackson Hole. 

Key comments

• Retail Sales decline a sign higher rates are biting.
• Our core view is won't see a technical recession.

Federal Reserve chair Jerome Powell’s speech is going to be key, but the bears are moving into the kiwi currently. The onus is on the chairman to strike a tone that is hawkish enough to allay fears of an inflation blowout. However, it will need to be a well-balanced delivery so as not to stoke recession fears.

• AUD/USD grinds higher at weekly top, steady after rising the most in two weeks.
• Market sentiment improves on mostly firmer data, China stimulus and mixed Fedspeak.
• Yields dropped but Wall Street pleased buyers amid hopes of Powell’s not-so-hawkish remarks.
• US Core PCE Inflation numbers may entertain traders ahead of Fed Chair Powell’s speech at Jackson Hole.

AUD/USD floats in the air around 0.6980 after posting the biggest daily jump in a fortnight. The Aussie pair’s gains could be linked to the market’s optimism led by multiple factors surrounding China and the US. However, the latest geopolitical headlines and cautious mood ahead of Fed Chair Jerome Powell’s appearance at the Jackson Hole Symposium seems to have probed the bulls.

China’s one more stimulus and a holistic approach by the domestic institutions to safeguard the world’s second largest economy renewed market optimism earlier. On the same line could be the mildly positive US data and the Federal Reserve (Fed) policymakers’ speeches that sounded cautiously optimistic. It’s worth noting, however, that the US-China political tussles and US President Joe Biden’s response to Iran seems to have tamed the market’s optimism, as well as the AUD/USD prices, of late.

Talking about the US data, the second estimate of the US Gross Domestic Product (GDP) Annualized improved to -0.6% in the second quarter (Q2) versus -0.9% flash estimations and -0.8% market forecasts. Further, US Initial Jobless Claims dropped the lowest levels in seven weeks, to 243K for the week ended on August 19 versus 253K expected and a revised down prior of 245K.

Elsewhere, Kansas City Fed President Esther George said on Thursday, "For the near-term thinking about higher interest rates seems reasonable to me." The policymaker also mentioned that (it’s) too soon to say what to expect in September (as) more key data coming. Philadelphia Fed President Patrick Harker was on th same line while he noted, per Reuters, that he wants to see the next inflation reading before deciding on the September rate decision but added that a 50 basis points rate hike would still be a substantial move. Further, Philadelphia Fed President Patrick Harker noted on Thursday that he wants to see the next inflation reading before deciding on the September rate decision but added that a 50 basis points rate hike would still be a substantial move, per Reuters.

It’s worth noting that the US has suspended 26 Chinese carrier flights in response to China action, per Reuters. On the other hand, A letter got viral quoting US President Joe Biden as saying, “The US struck Iran-backed forces in Syria in order to safeguard American civilians both at home and abroad.”

Amid these plays, Wall Street marked the biggest daily jump in a week while the US 10-year Treasury yields dropped back to 3.03%, after rising to 3.10% the previous day.

Looking forward, the AUD/USD pair traders may witness a choppy session amid the market’s anxiety ahead of Fed Chair Powell’s speech. However, the US Core Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, may entertain the markets. Forecasts suggests, the YoY print to ease to 4.7% from 4.8% while the monthly figures may drop to 0.3% while 0.6% prior.

Also read: Jackson Hole Symposium Preview: Will Powell power dollar bulls?

Technical analysis

An impending bear cross on the four-hour chart keeps AUD/USD sellers hopeful to witness the latest swing low around 0.6855. However, the early-month top near 0.7050 guards the pair’s immediate upside.

• Gold price is eyeing a break above $1,760.00 for more upside.
• The Fed has the luxury to scale down its hawkish tone on policy guidance.
• The US Core PCE data is expected to trim by 10 bps to 4.7% on an annual basis.

Gold price (XAU/USD) is advancing gradually higher after correcting to $1,752.30 on Thursday. The precious metal witnessed a vertical fall as the FX domain turned volatile ahead of Jackson Hole Economic Symposium. The yellow metal has rebounded and has advanced to near $1,758.00, however, more gains will be recorded if the asset oversteps the immediate hurdle of $1,760.00.

The gold prices are likely to dance to the tunes of commentary from Fed chair Jerome Powell at Jackson Hole on Friday. After a steep contraction in the US economic activities and a slump in overall demand indicated by weak US Durable Goods Orders, the street believes that the Fed should scale down the pace of hiking interest rates.

Fed policymakers have evidence of exhaustion in the price pressures and also the global supply chain risks have trimmed sharply. Therefore, the Fed has the luxury to scale down its hawkish tone slightly till the time the US economic activities could get to a restoration level.

Apart from that, investors will focus on the US Core Personal Consumption Expenditure (PCE) data, which is expected to decline to 4.7% from the prior print of 4.8%. This may weaken the US dollar index (DXY) further.

Gold technical analysis

On an hourly scale, gold prices are struggling to surpass 38.2% Fibonacci retracement (placed from the August 10 high at $1,807.93 to Monday’s low at $1,727.87) at $1,758.40. The gold prices are entirely focusing on sustaining above the 200-period Exponential Moving Average (EMA) at $1,757.18, which will bolster the odds of a bullish reversal.

Also, the 50-period EMA at $1,754.00 has remained a major supportive tool for the asset.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range, which indicates that bulls are not strengthened enough for a while. However, a break above 60.00 will kick-start a fresh bullish impulsive wave.

Gold hourly chart

The European Central Bank (ECB) could soon start talks on ending reinvestments of cash maturing in its 3.3 trillion euro ($3.3 trillion) Asset Purchase Programme (APP), but a decision is not urgent and is unlikely to be taken next month, sources close to the discussion said to Reuters on Thursday.

Key quotes

EUR/USD retreats

EUR/USD remains sidelines, recently retreating towards 0.9950, as traders await Fed Chair Powell’s key speech at the Jackson hole Symposium.

• The shared currency extended its gains in the week, though closed below parity for the fourth consecutive day.
• EUR/USD rejection at parity sent the pair towards its daily lows before climbing towards 0.9970.

The EUR/USD begins the Asian session on the right foot, carrying on Thursday’s upbeat sentiment of the pair after posting gains of 0.11%. However, price action in the last week shows thin liquidity conditions, as traders remained on the sidelines until Fed’s Chief Jerome Powell hits the stand at the Jackson Hole symposium on Friday. At the time of writing, the EUR/USD is trading at 0.9976.

On Thursday, the EUR/USD price action witnessed the shared currency opening around the 0.9960s area. The major climbed towards its daily high at 1.0000 before erasing its gains, retreating towards current exchange rates.

EUR/USD Price Analysis: Technical outlook

The daily scale shows that the EUR/USD is in a consolidation phase. After hitting a year-to-date low at 0.9899, the EUR/USD reclaimed the 0.990 figure and hasn’t looked back, posing threats of reclaiming parity. The lack of strength keeps the major hovering around the 0.9960-90 area. It is worth noting that in reclaiming parity, its first resistance would be the 1.0100 figure, immediately followed by the 20-day EMA at 1.0137. On the flip side, a fall towards the YTD low at 0.9998 is on the cards, ahead of December 2002 lows at 0,9859, ahead of the October 2002 lows at 0.9685.

EUR/USD Key Technical Levels

• USD/CAD is likely to display more losses if the asset drops below 1.2900.
• Fed’s Powell is expected to adopt a less-hawkish tone while discussing over policy guidance.
• Oil prices have turned into a correction mode after printing a high near $95.00.

The USD/CAD pair is displaying a lackluster performance after slipping below the crucial support of 1.2940 in the late New York session. The asset is expected to extend its losses if it surrenders the round-level support of 1.2900. The pair is attracting a lot of offers as the US dollar index (DXY) is likely to display more weakness amid uncertainty over Jackson Hole Economic Symposium.

As the investing community is expecting that the Federal Reserve (Fed) will choose a less-hawkish tone while discussing the guidance over interest rates at Jackson Hole, the DXY is losing its strength. No doubt, the asset displayed a decent pullback move on Thursday after refreshing a two-day low at 108.00. But that short-lived pullback could turn into a fresh bearish impulsive wave if Fed chair Jerome Powell’s commentary matches street expectations.

The consequences of using a higher pace for hiking interest rates are visible to the market participants. US private sector has contracted, especially the service sector, which carries the potential of accelerating fears of a slowdown in tech companies globally. Also, a decline in US Durable Goods Orders indicates that the overall demand is going through a bumpy ride.

Meanwhile, oil prices have witnessed a mild correction after a juggernaut rally over the past few trading sessions. The black gold has surrendered more than 3% after printing a high to near $95.00 as the announcement of production cuts by OPEC has started fading away and investors are realizing that dismal global Purchasing Managers Index (PMI) numbers are the outcome of a slowdown in overall demand.

Investors should be aware of the fact that Canada is a leading exporter of oil to the US. And, higher oil prices will bring higher revenues to Canada and will strengthen its fiscal balance sheet.

• USD/JPY weekly W-formation is a reversion pattern (the lower time frame H4 Gartley), which leaves a bearish tendency on the charts.
• The neckline of the formation opens risk to a move below 38.2% and towards the 50% mean reversion point near 134.70.

As per the prior analysis, USD/JPY Price Analysis: Bears are stepping on the gas and a move to 135.50 could be on the cards,  the bears stepped in and remain in charge while below critical resistance as per the following analysis:

USD/JPY H4 chart

The Gartley is a reversion pattern that predicts that the price will reverse from point D. The price, in this instance, is finding resistance and could be above to make a significant move to the downside as follows:

The price has met the resistance of an M-formation and is now decelerating there with sights on a move to test the W-formation's neckline near 136.70. A break of that will open prospects of a move to test the recent lows of the last bullish leg around 136.20 that is guarding the 38.2% Fibonacci level of the weekly bullish impulse near 135.50:

USD/JPY weekly chart

The weekly W-formation is a reversion pattern (the lower time frame H4 Gartley). The neckline of the formation opens risk to a move below 38.2% and towards the 50% mean reversion point near 134.70. This makes 135 a compelling round-figure target for the week ahead. 

• NZD/USD appears to have bottomed after seesawing around 0.6150 for three days.
• Despite trading in the green, the NZD/USD daily chart shows oscillators and moving averages tilted to the downside.
• The NZD/USD is neutral-upwards and might retest the 0.6300 figure if it conquers 0.6260; otherwise, a fall towards 0.6100 is on the cards.

The NZD/USD rose to fresh weekly highs around 0.6251 on Thursday, spurred by broad US dollar weakness courtesy of a fall in US T-bond yields, ahead of Powell’s keynote on Friday at the Jackson Hole Symposium. At the time of writing, the NZD/USD is trading at 0.6223, above its opening price by 0.63%.

Wall Street finished with solid gains, reflecting an upbeat mood. Nevertheless, trading liquidity conditions remained thin as investors prepared for other Fed policymakers’ remarks.

NZD/USD Price Analysis: Technical outlook

The NZD/USD edged higher during the day, briefly piercing the 50-day EMA at 0.6248 but retraced towards current exchange rates. Even though the NZD/USD trades positive in the week, moving averages above the price action, with a downward slope, suggest the opposite, further reinforced by the RSI in negative territory.

Short term, the NZD/USD 4-hour scale illustrates the major bottoming around the 0.6160 area, though as of writing, the major is trading below August’s 23 daily high at 0.6264. A breach of the latter is needed so the pair can retest the figure at 0.6300. Once cleared, the next resistance area will be the August 16 swing high at 0.6383. On the other side, the NZD/USD first support would be the 20-day EMA at 0.6197, below the 0.6200 figure. Break below will expose the August 22 daily low at 0.6156, followed by the psychological 0.6100.

NZD/USD Key Technical Levels

What you need to take care of on  Friday, August 26:

The greenback ended Thursday mixed across the FX board, although there were no significant changes among major pairs. Investors are mildly optimistic as macroeconomic figures were upbeat but cautious ahead of central banks' governors, set to speak within the Jackson Hole Economic Symposium.

Germany reported that the Q2 Gross Domestic Product rose by 1.7% YoY, better than the 1.4% previously estimated. In the quarter, it was up by 0.1%, revised from 0% previously. Also, the August IFO survey showed the Business Climate reached 88.5, better than the 86.8 expected. Expectations and the assessment of the current situation were better than anticipated.

The European Central Bank released the minutes of its latest meeting, which showed that a "very large number" of Governing Council members agreed that it was appropriate to raise key rates by 50 basis points while also noting that members agreed that it was "appropriate to take further steps on the path of monetary policy normalisation."

The US published the second estimate of the Q2 GDP, which was upwardly revised from -0.9% to -0.6%. Additionally, Initial Jobless Claims for the week ended August 19 declined to 243K, beating the market expectations.  

The EUR/USD pair briefly traded above parity but could not retain gains and stabilised around 0.9970, unchanged for a third consecutive day. GBP/USD holds above the 1.1800 figure. The USD/CAD pair is at around 1.2920, while the Australian dollar was the best performer vs the greenback, now trading at around 0.6980.

Spot gold is up for a third consecutive day and currently trades at around $1,757 a troy ounce. Crude oil prices, on the other hand, gave back some ground, and WTI stands at $93.10 a barrel.

Bitcoin Price Prediction: How Biden's debt relief program could trigger the next BTC rally

• EUR/JPY consolidates into the Jackson Hole at a key point in financial markets.
• The focus turns to the BoJ, ECB and Fed as central banks throw the kitchen sink at inflation risks. 

EUR/JPY is down 0.38% at the time of writing and has fallen from a high of 136.98 to a low of 136.01 on the day so far as the market consolidated in the main ahead of keynote speeches at the Jackson Hole that started today. The dollar index and the euro both slipped on Thursday in choppy trading as investors waited on a speech by Federal Reserve Chairman Jerome Powell on Friday for further clues about the ongoing pace of the US central bank’s rate hikes.

Meanwhile, despite the economic difficulties, the inflationary implications of higher energy prices in the eurozone are keeping the euro bulls in check despite prospects of higher rates. Another rate hike is widely expected in September but is only likely to provide fleeting support for the EUR given the stagflation fears. 

This makes for a very compelling Jackson Hole this year, considering Much of the world is facing many of the same problems as the early 1980s with strong price growth and the fears of a repeat of that era's wage-price spiral phenomenon and double-digit interest rates. The outlook is probably much worse for the energy-importing Europe which may give the yen the edge as the US dollar continues to pick up the safe haven bid. Russia's invasion of Ukraine has led to sky-rocketing energy prices that look set to keep on accelerating. This has led to the ECB last month needing to raise interest rates for the first time in 11 years.

As for the Bank of Japan, considering the current increase in headline inflation readings, the central bank is expected to exit its unsustainable policy, Yield Curve Control, or YCC. However, due to the rise of commodity prices and Japanese imports, an exit may only be temporary as wages struggle to keep up with the pace, leading to a deflationary environment. With Japanese interest rates still at minus 0.1 per cent, a divergence in global yields earlier this year sent the yen to a 24-year low against the US dollar and there could be more to go as the BoJ continues its effort to hit and sustain its 2% inflation target. 

• Gold price advances almost 0.30% on Thursday, courtesy of an upbeat sentiment and overall buck’s weakness.
• Investors mulled on mixed US economic data, released ahead of Powell’s speech.
• Fed officials expect a 50 or 75 bps rate hike at the next meeting; awaiting September’s data.
• Gold Price Forecast (XAU/USD): Neutral above $1800; otherwise, a re-test of the YTD lows below $1700 is on the cards.

Gold price trades in the green, spurred by overall US dollar weakness across the board, and falling US Treasury bond yields, amidst an upbeat trading session. XAU/USD opened near the day’s lows, around $1750, and rallied towards the high of the day at $1763.71 before retracing to current price levels. At the time of writing, XAU/USD is trading at $1755.93, above its opening price.

Global equities portray an upbeat sentiment. Incoming economic data from the US revealed that growth in the country improved but is stills in contractionary territory. The Gross Domestic Product (GDP) for the second quarter dropped 0.6%, less than estimates of minus 0.8%. That said, if the final reading comes negative, it would confirm that the US is in a technical recession, though today’s figures are still susceptible to revision.

In the meantime, the US Department of Labor revealed unemployment claims for the week ending on August 20. Initial Jobless Claims rose by 243K, less than the estimated 253K. This week’s report and the previous one further confirmed the robust labor market, as mentioned by some Fed officials, which had emphasized the need for further rate hikes amidst a high inflation environment.

The US Dollar Index, a gauge of the buck’s value vs. a six currencies basket, creeps lower by 0.12%, down at 108.476, undermined by the US 10-year Treasury bond yield dip to 3.028%, losing eight bps, ahead of Fed’s Chair Powell Jackson Hole speech.

Meanwhile, some Fed officials crossing wires have opened the door for additional rate hikes, led by Kansas City’s Fed Esther George, who said that she foresees rates above 4%.

Earlier, Atlanta’s Fed President Raphael Bostic commented that he’s undecided about going 50 or 75 but added that a Fed pivot is misguided. Contrary to Esther George’s opinion, Patrick Harker of the Philadelphia Fed noted that he expects to raise and hold rates at 3.4% while supporting a 50 bps increase for September.

Later, the St, Louis Fed President James Bullard reiterated that he expects the Federal funds rate (FFR) around 3.75% to 4% for 2022, adding that risks may have to be higher for longer.

What to watch

The US economic calendar will release the Fed’s favorite measure of inflation, July’s PCE, headline, and core figures before Wall Street opens. Later, the US Federal Reserve Chair Jerome Powell will hit the stand.

Gold Price Forecast (XAU/USD): Technical outlook

XAU/USD remains neutral-to-downward biased, confirmed by several factors. The daily moving averages (DMAs) above the spot price, and the Relative Strength Index (RSI) at 47.08, in the negative territory, are just two signs confirming the previously-mentioned. Also, gold buyers need to reclaim the $1800 figure to test the 100 and 200-day EMAs, around $1822-$1838. Failure to achieve the aforementioned will pave the way for further downside, opening the door for a fall to August’s 22 daily low at $1727.90, followed by $1700.

The second estimate of Q2 GDP showed the US economy contracted at a slower-than-expected rate of 0.6%. Upward revisions to underlying demand and a first read from the income side weakens the argument that the economy is currently in recession, point out analysts at Wells Fargo. 

Key Quotes: 

“The U.S. economy contracted at a 0.6% annualized rate in the second quarter according to the second estimate of GDP, which is slightly better than previously thought. While Q2 still marks the second-consecutive decline in real GDP growth, the upward revisions weaken the current recession argument.”

“Despite some upward revisions, second quarter weakness still reflects a genuine slowing in economic activity. Real final sales to domestic purchasers, an indication of underlying demand, still came in negative, contracting at a 0.2% annualized pace during the quarter.”

“But when measured from the income side, real GDI grew at an annualized rate of 1.4% in the second quarter, suggesting an expansion in economic activity. In theory, growth in GDP and GDI should be identical, but they rarely are due to data errors and omissions. Growth on the income side of the national income and product accounts (NIPA) is more in line with the "core" parts of the spending side, and further adds to the argument that the economy is slowing but not yet broadly contracting.”

• AUD/USD bulls are hanging in there following a very strong move to the upside. 
• China stimulus boosted risk sentiment and the proxy AUD.
• The Jackson Hole is now the main focus that started today. 

AUD/USD is 1% higher on the day as the US dollar continues to find sellers ahead of a keynote speech from the Federal Reserve chairman, Jerome Powell. At the time of writing, AUD/USD is trading at 0.6976 and has been moving between a low of 0.6902 and a high of 0.6991. 

The Australian and New Zealand dollars were trying to pick up on Thursday as a buoyant greenback paused for breath amid caution ahead of the US Federal Reserve's Jackson Hole conference this week. The antipodeans were supported further as China's stimulus announcement in the Tokyo session boosted risk sentiment. 

China announced a massive CNY1 trln stimulus package to help shore up the economy.  The State Council outlined a 19-point package that is mostly focused on infrastructure spending, including another CNY300 bln that state banks can invest in infrastructure projects which comes on top of another CNY300 bln that was already announced in June. This accompanied the weakest fix in the yuan vs the US dollar since August 2020. In turn, the Aussie rallied to a key target area on the hourly chart, 0.6945, and then burst through it to print highs in London of 0.6991. 

However, while the measures will help at the margin, ''we can’t help but feel that policymakers there are pushing on a string,'' analysts at Brown Brothers Harriman argued. ''Infrastructure spending is the tried and true method that has helped China muddle through in the past but we suspect it won’t be enough to truly offset the impact of Covid Zero lockdowns, persistent energy shortages from drought, and strains on the financial system from the collapsing property market.''

Meanwhile, it will soon come back to domestic data and next week will see the release of retail trade, building approvals, private sector credit and some of the building blocks for the Q2 22 national accounts. For now, however, the focus is on the Jackson Hole Economic Symposium has begun today.

All eyes on the US economy 

In the build-up to the event, there has been a plethora of US economic data that has been less inflationary, including today's first revision for the second quarter Gross Domestic Product which fell by 0.6% annualized and not by the 0.9% previously thought during the second quarter, following a 1.6% retreat in the first quarter. The market expectations in a Bloomberg survey were for a decline of 0.7%.

The first round of data that moved the needle in financial markets came in a report on Tuesday that showed US private sector activity contracted for a second-straight month in August. Then, data on Wednesday showed that new orders for US-made capital goods increased at a slower pace in July from the prior month, suggesting that business spending on equipment could struggle to rebound after contracting in the second quarter.  Due to the less inflationary data, Fed funds futures traders were pricing in a 59% chance that the Fed will hike rates by another 75 basis points at its September meeting, and a 41% probability of a 50 basis points increase.

Fed Chair Powell gives his keynote speech tomorrow at 10 AM ET.  In the past, the Fed has used this symposium to announce or hint at policy shifts.  However, analysts at Brown Brothers Harriman argue that this year is very different and they do not think the Fed will paint itself into a corner ahead of the September 20-21 FOMC meeting.  

''Rather, we expect Powell to try and manage market expectations by maintaining the Fed’s hawkish tone.  Between now and the September 20-21 FOMC meeting, we will get all the major August data and some of the early September surveys such as the preliminary S&P Global PMI readings and regional Fed surveys.  The Fed will also have a better idea then of how the economy is doing in Q3.''

Federal Reserve's president and CEO of the Federal Reserve Bank of St. Louis James Bullard: in a CNBC interview has said rates aren't high enough now.

Key notes

• 3.75% - 4% is my target for this year.
• Says he likes the idea of front loading; it ‘shows you are serious about inflation fight’.
• Rates aren't high enough now.
• Labour market is strong right now.
• Front loading shows you are serious about the inflation fight.
• Rates aren't high enough now.
• Need to get the policy rate to where it pushes downward pressure on inflation.
• After rates get above 3.75%-4%, not quite sure what's next.    
• My baseline is that inflation will be more persistent than many expect.    
• Inflation will be higher for longer.    
• That risk is underpriced in the market. 
• Markets are showing outstanding confidence in the Fed, hope they are right.
• The risk is that we may have to be higher for longer.    
• Asked about the stock market, says he tries to stay away from equity pricing.    
• I don't want to take too much signal from the stock market.    
• Bond markets give a little better pricing of the risk we will have to do more.   
• You should be able to hit the inflation target even if there are factors out of Fed's control.
• Recessions are not that predictable.    
• We are of course taking recession risk, but we don't know one way or the other.    
• GDP was positive for the 2Q, consistent with what businesses say about hard-to-hire
• After the pandemic, we set out a path on asset-buying that was 'overboard'.    
• Now we have to switch back; the Fed has to get inflation back to 2%.

Meanwhile, Fed funds futures traders are pricing in a 59% chance that the Fed will hike rates by another 75 basis points at its September meeting, and a 41% probability of a 50 basis points increase. The US dollar slipped on Thursday in choppy trading as investors waited on a speech by Federal Reserve Chairman Jerome Powell on Friday for further clues about the ongoing pace of the US central bank’s rate hikes.

• USD/CHF exchanges hands under its opening price, despite recovering from daily lows.
• The USD/CHF is range-bound through a break of the top of the range will pave the way above the 0.9700 figure; otherwise, a fall towards 0.9550 is on the cards.

The USD/CHF drops into negative territory after refreshing five-week highs around 0.9650s, courtesy of broad US dollar weakness across the board, amidst an upbeat market mood. After hitting a daily high at 0.9626, the USD/CHF dived below the 50-day EMA at 0.9612, the day’s lows, before jumping to current price levels. At the time of writing, the USD/CHF trades at 0.9645, below its opening price.

USD/CHF Price Analysis: Technical outlook

A bearish-harami candle chart pattern emerged in the USD/CHF daily chart. Even though the pattern has bearish implications, oscillators and moving averages (MAs) portray the opposite. Albeit the RSI has a downslope, it remains in positive territory. Meanwhile, all the daily Exponential Moving Averages are below the USD/CHF spot price, suggesting that buyers are in charge.

In the near term, the USD/CHF one-hour chart depicts the pair as range-bound within the 0.9603-0.9692 area for the last three days. Further confirmation of the previously mentioned is that the 20, 50, and 100 exponential moving averages (EMAs), are located within the 0.9632-46 area. Also, the Relative Strength Index (RSI) at 52 is almost flat.

Therefore, if the USD/CHF breaks above the range, the first resistance would be the 0.9700 figure. Once cleared, the next resistance would be the R2 daily pivot at 0.9733, followed by 0.9800. On the flip side, the USD/CHF first support would be the 0.9600 mark, followed by the confluence of the 200-EMA and the S2 pivot at 0.9570, and then the August 19 daily low at 0.9553.

USD/CHF Key Technical

• GBP/USD fluctuates during the day, with traders waiting for Powell to take the stand on the sidelines.
• US growth in the second quarter improved but remains below the 0% threshold; a US recession looms.
• Money market futures expect the BoE to hike rates 250 bps by May of 2023.

The GBP/USD slightly advanced in the North American session, staying a comeback after piercing below the 1.1800 figure for the fourth time in the week, but a shift in sentiment augmented the appetite for the Sterling. Factors like China’s stimulus to the housing and construction markets underpinned worldwide stocks.

The GBP/USD reached a daily low of around 1.1783 during the Asian session before climbing towards the day’s high at 1.1864. Nevertheless, it retreated towards current exchange rates. At the time of writing, the GBP/USD trades at 1.1817, registering marginal gains of 0.18%.

Before Wall Street opened, the US Department of Commerce reported that the US Gross Domestic Product for Q2 improved, by -0.6%, higher than estimates of -0.8%, and above the advanced reading. At the same time, the Bureau of Labor Statistics (BLS) revealed that Initial Jobless Claims for the week ending on August 20 were lower than foreseen, at 243K from 253K.

Elsewhere, Fed policymakers led by Kansas City Fed Esther George said that the US central bank would hold rates above 4% and wanted to see a full quarter of consistent inflation data to know where things are going.

Earlier, Atlanta’s Fed Raphael Bostic said he’s undecided to go 50 or 75 bps and emphasized that expectations of a Fed pivot are “misguided.” Echoing his comments was Philadelphia’s Fed Patrick Harker, who said that he likes to see the Federal funds rate (FFR) at 3.4%, and then perhaps stay for a while there. He supports a 50 bps increase but wants to see the next inflation report.

Meanwhile, a gloomy economic outlook in the UK, with energy bills pushing higher, Bank of England (BoE) recession projections for at least 18 months, and a slowing economy, would make BoE’s job harder, with inflation levels at double digits. Nevertheless, as shown by STIRs, money market futures expect 250 bps of further hikes by May of 2023, meaning investors expect the Bank’s Rate to hit 4.25%.

What to watch

The US economic calendar will release the Fed’s favorite measure of inflation, July’s PCE, headline, and core figures before Wall Street opens. Later, the US Federal Reserve Chair Jerome Powell will hit the stand.

GBP/USD Price Analysis: Technical outlook

The GBP/USD trades below the midline of a parallel descending channel, pierced earlier in the day but retraced, trading below August’s 24 daily close. Even though the major trades above its opening price, a daily close below 1.1795, would pave the way for a re-test of the YTD lows at around 1.1716. Otherwise, a break above 1.1878, the high of the week, will pave the way towards 1.1900.

• US dollar gains momentum after US data and as Wall Street trims gains.
• Market participants await Fed Chair Powell’s speech.
• NZD/USD moving between 0.6250 and 0.6150.

The NZD/USD peaked at 0.6250, the highest level since August 19, then pulled back toward 0.6200. The decline from the multi-day high took place amid a recovery of the US dollar.

The greenback started to gain momentum following the release of US economic data. The second reading of Q2 GDP showed the economy contracted at a 0.6% annualized rate, better than the previous estimate of -0.9%. A different report showed Jobless Claims (initial and continuing) dropped to the lowest level in weeks.

The Jackson Hole symposium started on Thursday. The key event will be Jerome Powell’s speech on Friday. His words are likely to have a significant impact across financial markets. Market participants will look for clues about the trajectory of the Fed’s monetary policy. Philadelphia Fed President Patrick Harker said on Thursday that he wants to see the next inflation reading before deciding what to do on the September FOMC meeting.

Earlier on Thursday, a report showed retail sales in New Zealand declined 2.3% in the second quarter. “It was the second straight quarter of weaker sales and raises the odds that the overall economy will also contract. Q2 GDP data will be reported on September 15.  There is no consensus yet but the contraction will likely be worse than the -0.2% q/q posted in Q1”, mentioned analysts at Brown Brothers Harriman.

Short-term outlook

The NZD/USD continues to trade near the weekly low and the crucial support at 0.6150. If broken, a bearish acceleration seems likely. On the upside, the recovery found resistance at 0.6250 containing the 200-hour Simple Moving Average.

Ahead of the Asian session, a slide below 0.6200 would expose the daily low at 0.6175 and then the recent low. While a break above 0.6250 should clear the way for an extension of the recovery.

Technical indicators in the daily chart as still biased to the downside, despite the consolidation of the last four days. Under 0.6150, a test of the year-to-date low at 0.6057 seems likely.

Technical levels

• USD/CAD dropped 0.15% on Thursday as market players prepare for further hawkish rhetoric by the Fed.
• US GDP Q2 figure, albeit better than expected, is still in recessionary territory.
• USD/CAD Price Analysis: Traders reclaiming 1.3000 to open the door for YTD high tests; otherwise, a fall towards 1.2800 is feasible.

The USD/CAD slides towards new weekly lows in the North American session amidst a positive market mood, spurred by China’s 1 trillion CNY stimulus, aimed to fix the housing and construction crisis. Meanwhile, traders prepare for Fed Chair Jerome Powell’s Jackson Hole speech on Friday.

The USD/CAD hit a daily high of around 1.2975, before diving, towards its daily low, around 1.2895, while crude oil prices edged higher. However, it bounced off the lows, above the 1.2900 psychological figure. At the time of writing, the USD/CAD is trading at 1.2947, down 0.15%.

The USD/CAD slid on broad US dollar weakness. The US Dollar Index, a gauge of the buck’s value vs. a basket of peers, loses 0.18%, down at 108.405, courtesy of market participants moving to the sidelines or profit taking before Powell’s speech. In the meantime, US Treasury bond yields receded from weekly highs, particularly the 10-year T-note rate down one bps, at 3.095%.

Growth in the US, as measured by the Gross Domestic Product (GDP) for the second quarter of 2022, on its second reading, beat expectations. Still, flashes recessionary signs at -0.6%, higher than 0.8% estimates.

At the same time, Initial Jobless Claims for the week ending on August 20 came lower than estimates, at 243K, vs. 253K expected by market analysts. The fall in unemployment claims continued showing a robust labor market, further fueling expectations of a 75 bps Federal Reserve rate hike.

In the meantime, Fed officials led by Kansas City Fed Esther George said that the US central bank would hold rates above 4%, and want to see a full quarter of consistent inflation data to know where things are going.

Earlier, Atlanta’s Fed Raphael Bostic said he’s undecided to go 50 or 75 bps and emphasized that expectations of a Fed pivot are “misguided.” Echoing his comments was Philadelphia’s Fed Patrick Harker, who said that he likes to see the Federal funds rate (FFR) at 3.4%, and then perhaps stay for a while there. He supports a 50 bps increase but wants to see the next inflation report.

What to watch

With Jerome Powell’s speech at Jackson Hole, an absent Canadian docket will leave traders leaning on US dollar dynamics. Still, earlier, US inflation figures, namely the PCE Price Index and core PCE, would shed some light, as it’s the Fed’s favorite gauge of inflation.

USD/CAD Price Analysis: Technical outlook

The USD/CAD exchanges hands nearby the 50-day EMA, at around 1.2912, even though it reached a daily low of 1.2864. From a daily chart perspective, the USD/CAD remains tilted upwards, despite the Relative Strength Index (RSI) aiming down towards the 50-midline, signaling selling pressure gathering momentum. However, if the RSI breaks the midline, expect some downward pressure, putting into play the 50 and 20-day EMAs, each at 1.2912 and 1.2883, respectively. On the other side, if the USD/CAD breaks above 1.3000, a retest of the YTD highs is on the cards.

• US dollar moving sideways on Thursday, DXY post marginal losses.
• Market participants await Powell’s speech on Friday.
• EUR/USD rejected from above 1.0000, supported by 0.9950.

The EUR/USD is moving without a clear direction on Thursday ahead of a key speech from Jerome Powell at the Jackson Hole symposium. The pair failed to hold above parity and then pulled back, finding support above 0.9950.

The US dollar gained momentum following the release of US economic data. The Q2 GDP growth rate was revised higher from -0.9% to -0.6% and jobless claims declined more than expected. US yields peaked after the reports and then retreated.

Despite the numbers, market participants await Powell’s speech to be delivered on Friday. His words could bring clary regarding the path of the Fed’s monetary policy. “We expect Powell to try and manage market expectations by maintaining the Fed’s hawkish tone. Between now and the September 20-21 FOMC meeting, we will get all the major August data and some of the early September surveys such as the preliminary S&P Global PMI readings and regional Fed surveys. The Fed will also have a better idea then of how the economy is doing in Q3”, explained analysts at Brown Brothers Harriman.

Regarding the European Central Bank, the minutes from the latest meeting showed a “large number” of members agreed it was appropriate to raise interest rates by 50 basis points. “The ECB is now fully in a data-dependent mode with chains from past guidance severed. Most Governing Council members are preoccupied with inflation risks, and large rate hikes are set to continue”, said Jan von Gerich, Chief Analyst at Nordea.

Unable to recover 1.0000

The EUR/USD shows no clear signs in the very short term. The euro continues to show weakness by being unable to hold above 1.0000. A recovery surpassing 1.0030 would add support to the euro. On the flip side, the immediate support stands at 0.9950. A slide below would expose the next barrier around 0.9900.

The main trend in EUR/USD remains bearish and the euro still looks vulnerable. It is on its way to the second weekly slide in a row, and the lowest close since November 2002.

Technical levels

Philadelphia Fed President Patrick Harker noted on Thursday that he wants to see the next inflation reading before deciding on the September rate decision but added that a 50 basis points rate hike would still be a substantial move, per Reuters.

Additional takeaways

"We need to get to a restrictive stance, which we'll be by year-end."

"I'd like to see us get to above 3.4% and then perhaps sit for a while."

"But if data keeps indicating we need to raise more, we should do that."

"We need to get inflation under control no matter what."

"I don't think we can call the current environment a recession."

"Supply chain constraints are starting to heal."

"Started to hear very early last fall that inflation was not transitory."

"I'm not in the camp of taking rates way up and then right back down."

"I don't see a risk of sustained recession."

"Medium to long-term neural rate is somewhere around 2.5%."

Market reaction

The US Dollar Index edged slightly lower on these remarks and was last seen losing 0.07% on a daily basis.

• AUD/USD meets with some supply at higher levels and trims a part of its intraday gains.
• A goodish USD rebound from the weekly low exerts downward pressure on the major.
• Any subsequent slide is likely to find decent support near the 0.6935-0.6925 confluence.

The AUD/USD pair attracts some selling in the vicinity of the 0.7000 psychological mark and trims a part of its early gains to over a one-week high touched earlier this Thursday.

The US dollar rebounds swiftly from the weekly low following the release of better-than-expected US macro data, which reaffirms hawkish Fed expectations. Apart from this, an intraday turnaround in the equity markets further benefits the greenback's safe-haven status and acts as a headwind for the risk-sensitive aussie.

From a technical perspective, the AUD/USD pair struggles to find acceptance above the 100-period SMA on the 4-hour chart. The intraday positive move stalls near the 50% Fibonacci retracement level of the recent decline witnessed over the past two weeks or so. The latter should now act as a pivotal point for short-term traders.

Meanwhile, neutral oscillators on the daily chart warrant caution before placing aggressive directional bets. This, in turn, suggests any subsequent pullback is more likely to find decent support near the 0.6935-0.6925 confluence support. The said region comprises the 200-period SMA on the 4-hour chart and the 23.6% Fibo. level.

Sustained weakness below the latter will suggest that this week's recovery move has run out of steam and make the AUD/USD pair vulnerable. Spot prices could then break through the 0.6900 mark and test the 0.6860-0.6855 horizontal support. Some follow-through selling will be seen as a fresh trigger for bearish traders.

On the flip side, the 50% Fibo. level, just ahead of the 0.7000 mark, now seems to act as an immediate strong resistance, above which the AUD/USD pair could climb to the 0.7030 area (61.8% Fibo. level). The momentum could further get extended and allow spot prices to aim to reclaim the 0.7100 round-figure mark.

AUD/USD 4-hour chart

Key levels to watch

The accounts of the European Central Bank's (ECB) July policy meeting showed that a large number of members agreed it was appropriate to raise rates by 50 basis points (bps). Therefore, economists at Nordea expect the ECB to hike rates by another 50 bps in September.

All doors are open

“The ECB is now fully in a data-dependent mode with chains from past guidance severed.”

“Most Governing Council members are preoccupied with inflation risks, and large rate hikes are set to continue.”

“We continue to think that the ECB will hike rates by another 50 bps at the next meeting on 8 September, but would not exclude an even larger hike.” 

“The benchmark rate at zero remains extremely low and the inflation situation is increasingly worrying, so it is not difficult to find arguments in favour of fast hikes at least in the next few monetary policy meetings.”

• The index fully reverses the initial drop to the 108.00 zone.
• US Q2 GDP revision surprised to the upside at -0.6% QoQ.
• All the attention remains on the start of the Jackson Hole Symposium.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, manages to back-pedal the initial pessimism and returns to the 108.60 area.

US Dollar Index regains composure after data

Following a drop to as low as the 108.00 zone – or weekly lows – the index regains some balance and now flirts with the 108.60 area despite declining US yields and following upbeat results from the US calendar.

Indeed, another revision of the GDP Growth Rate now sees the economy contracting 0.6% QoQ in the April-June period, while Initial Claims rose by 243K in the week to August 20, also surpassing estimates.

In the meantime, the Jackson Hole Symposium will kick in later in the session amidst investors’ preference now tilted towards a 75 bps rate hike in September and expectations of further support for the Fed’s tightening plans from Chief Powell at his speech on Friday.

What to look for around USD

The resumption of the risk-on mood among investors drags the dollar from the recent test of yearly peaks north of the 109.00 barrier.

Bolstering the dollar’s strength appears the firm conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

DXY, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, namely a 50 bps or 75 bps hike in September.

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

Key events in the US this week: Jackson Hole Symposium, Advanced Q2 GDP Growth Rate, Initial Claims (Thursday) - Jackson Hole Symposium, PCE, Personal Income, Personal Spending, Fed Powell, Final Consumer Sentiment (Friday) - Jackson Hole Symposium (Saturday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict.

US Dollar Index relevant levels

Now, the index is retreating 0.06% at 108.53 and faces the next support at 107.99 (weekly low August 25) seconded by 106.21 (55-day SMA) and then 104.63 (monthly low August 10). On the upside, a break above 109.29 (2022 high July 15) would aim for 109.77 (monthly high September 2002) and then 110.00 (round level).

• GBP/USD meets with a fresh supply at higher levels amid a modest pickup in the USD demand.
• Mostly upbeat US data, elevated US bond yields, hawkish Fed expectations underpin the USD.
• The UK’s bleak economic outlook acts as a headwind for sterling and favours bearish traders.

The GBP/USD pair struggles to capitalize on its intraday positive move back closer to the weekly high and attracts some sellers near the 1.1865 area on Thursday. The intraday pullback picks up pace during the early North American session and spot prices retreat to the 1.1815-1.1820 region in reaction to the upbeat US macro data.

The Preliminary US GDP report, the second reading, showed that the world's largest economy contracted by 0.6% annualized pace during the second quarter as compared to the 0.9% fall estimated previously. Adding to this, the Weekly Initial Jobless Claims unexpectedly edged lower to 243K in the week ended August 19 from the previous week's downwardly revised print of 245K. Apart from this, elevated US Treasury bond yields, bolstered by hawkish Fed expectations, assists the US dollar to trim a part of its intraday losses to the weekly low. This turns out to be a key factor that exerts some downward pressure on the GBP/USD pair.

The British pound, on the other hand, continues to be underpinned by a bleak outlook for the UK economy. It is worth recalling that the Bank of England earlier this month indicated that a prolonged recession would start in the fourth quarter. This, to a larger extent, overshadows expectations for a 50 bps rate hike by the BoE in September, suggesting that the path of least resistance for the GBP/USD pair is to the downside. Traders, however, might refrain from placing aggressive bearish bets and prefer to wait for a more hawkish message by Fed Chair Jerome Powell's appearance at the Jackson Hole Symposium on Friday.

Powell's comments will be closely scrutinized for clues about the possibility of a supersized 75 bps Fed rate hike move at the September meeting. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the GBP/USD pair. In the meantime, the US bond yields and the broader market risk sentiment could drive the greenback demand, allowing traders to grab short-term opportunities.

Technical levels to watch

• EUR/USD loses upside momentum after climbing to 1.0030.
• Another test of the 0.9900 region appears well on the cards.

EUR/USD quickly fades the earlier uptick to the area north of the parity level, or new 3-day highs.

The lack of conviction of the earlier bullish attempt leaves the door open to the resumption of the downtrend. Against that, another visit to cycle lows around 0.9900 remains in store in the not-so-distant future. A drop below the 2022 low at 0.9899 (August 23) could sponsor a deeper pullback to the December 2002 low at 0.9859.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0832.

EUR/USD daily chart

• Initial Jobless Claims fell by 2,000 in the week ending August 20.
• US Dollar Index trades flat on the day above 108.50.

There were 243,000 initial jobless claims in the week ending August 20, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 245,000 (revised from 252,000) and came in better than the market expectation of 253,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1% and the 4-week moving average was 247,000, an increase of 1,500 from the previous week's unrevised average.

"The advance number for seasonally adjusted insured unemployment during the week ending August 13 was 1,415,000, a decrease of 19,000 from the previous week's revised level," the DOL further announced.

Market reaction

The US Dollar Index edged higher after this data and was last seen trading virtually unchanged on the day at 108.56.

• US Q2 GDP growth got revised higher to -0.6% in the second estimate.
• US Dollar Index trades modestly lower on the day near 108.50.

The US economy contracted at an annualized rate of 0.6% in the second quarter, the US Bureau of Economic Analysis' (BEA) second estimate showed on Thursday. This reading came in higher than the flash estimate of -0.9% and surpassed the market expectation of -0.8%.

"In the advance estimate, the decrease in real GDP was 0.9%," the BEA explained in its publication. "The update primarily reflects upward revisions to consumer spending and private inventory investment that were partly offset by a downward revision to residential fixed investment."

Market reaction

The US Dollar Index edged slightly higher after this data and was last seen losing 0.1% on the day at 108.50.

• USD/JPY meets with a fresh supply on Thursday amid broad-based USD weakness.
• The Fed-BoJ policy divergence should continue to act as a tailwind for the major.
• The technical set-up also favours bulls and supports prospects for some dip-buying.

The USD/JPY pair comes under some renewed selling pressure on Thursday and slips back below the mid-136.00s during the mid-European session. The pair is currently hovering around the 23.6% Fibonacci retracement level of the recent rally witnessed over the past two weeks or so.

The US dollar hits a one-week high amid some repositioning trade ahead of the Jackson Hole Symposium and turns out to be a key factor exerting downward pressure on the USD/JPY pair. Bearish traders further take cues from a softer tone surrounding the US Treasury bond yields, though the Fed-BoJ policy divergence should help limit any further losses for the major.

The positive outlook is reinforced by the fact that technical indicators on the daily chart are still holding comfortably in bullish territory. Hence, any subsequent downfall is more likely to attract some buyers near the 136.00 mark. This is closely followed by the weekly low, around the 135.80 region and the 135.65-135.55 resistance breakpoint, now turned support.

The latter marks a confluence - comprising the 50-day SMA and the 38.2% Fibo. level - and should act as a strong base for the USD/JPY pair. A convincing break below would suggest that a two-week-old positive trend has run out of steam and set the stage for further losses. The USD/JPY pair might then slide to the 135.00 psychological mark en route to the 50% Fibo. level.

On the flip side, the 137.00-137.10 region seems to have emerged as immediate resistance. Sustained strength beyond has the potential to lift the USD/JPY pair back towards the monthly high, around the 137.70 area. Some follow-through buying would be seen as a fresh trigger for bullish traders and set the stage for an extension of the positive move beyond the 138.00 mark.

USD/JPY daily chart

Key levels to watch

• DXY seems to have met quite a decent support around 108.00.
• A visit to the 2002 high should not be ruled out near term.

DXY loses momentum and revisits the area of weekly lows in the 108.00 neighbourhood on Thursday.

Despite the corrective move, further still appears in store for the index. That said, bouts of weakness could be deemed as buying opportunities ahead of a probable retest of 109.00 and a potential new visit to the 2022 high at 109.29 (July 14). Above the latter comes the September 2002 top at 109.77 before the round level at 110.00.

In the meantime, while above the 6-month support line around 105.20, the index is expected to keep the short-term positive stance.

Looking at the long-term scenario, the bullish view in the dollar remains in place while above the 200-day SMA at 100.61.

DXY daily chart

GBP/USD has reclaimed 1.1800 following Wednesday's choppy action. The pair needs to clear 1.1870 to extend its rebound, FXStreet’s Eren Sengezer reports.

Cable could face stiff resistance at 1.1870

“On the upside, 1.1870 (Fibonacci 23.6% retracement of the latest downtrend) aligns as initial resistance. With a four-hour close above that level, additional recovery gains toward 1.1900 (50-period SMA, psychological level) and 1.1940 (Fibonacci 38.2% retracement) could be witnessed.”

“Key technical support is located at 1.1800 (20-period SMA, psychological level). If that level fails, sellers could take action and drag the pair lower toward 1.1750 (static level, end-point of the downtrend) and 1.1720 (Aug. 23 low).”

The Australian dollar is Thursday’s top currency. Kit Juckes, Chief Global FX Strategist at Société Générale, expects the aussie to strengthen as Australia’s terms of trade out-performance vs the US persists.

AUD also to outperform European currencies

“We warned at the end of July that August is often a tough month for AUD, and a good month for the dollar. In the event, AUD is only marginally weaker against the dollar than it was at the end of July, and it has done better than the yen (which is unusual for the time of year). However, our desire to get long AUD for the Autumn/|Winter is intact and AUD/USD is still below 0.70.”

“Australia’s terms of trade out-performance vs the US persists. The more the Chinese authorities do to stabilize the economy with fiscal measures, and the less they use a weaker currency to help, the better for the AUD.” 

“We’re long-term bulls, vs the USD, but also against the European currencies.”

• EUR/JPY keeps the choppy trade around the 136.00 zone.
• The positive outlook remains unchanged above the 200-day SMA.

EUR/JPY fades Wednesday’s downtick and resumes the downside amidst the prevailing erratic performance so far this week.

Extra weakness now appears in store for the cross, with the immediate support at the weekly low at 134.94 (August 16). The loss of this level should expose a deeper pullback to the 200-day SMA, today at 134.18.

While above the latter, the prospects for the pair should remain constructive.

EUR/JPY daily chart

USD/JPY is trading around 136.50 after it was unable to break above 138 earlier this week. Still, economists at BBH expect the pair to eventually test the July 14 high near 139.40.

Bank of Japan to maintain powerful monetary easing

“With risk sentiment improving from China stimulus plans and the BoJ remaining ultra-dovish, the USD/JPY pair should move higher to eventually test the July 14 high near 139.40.”

“MPC member Nakamura said that the current state of the economy doesn’t allow for a change in the bank’s easing bias. We believe Nakamura’s view represents the consensus and supports our view that current policy will be maintained for the foreseeable future. Next meeting is September 21-22 and no change is expected then.”

US Q2 GDP Overview

Thursday's US economic docket highlights the release of the Preliminary GDP print for the second quarter, scheduled at 12:30 GMT. The first revision is expected to show that the world's largest economy contracted by 0.8% annualized pace during the April-June period as against the 0.9% decline estimated previously.

How Could it Affect EUR/USD?

The backwards-looking data might do little to push back against expectations for a further policy tightening by the Fed and fail to provide any meaningful impetus. That said, a downward revision will add to growing worries about a deeper economic global downturn and take its toll on the already weaker risk sentiment. This, in turn, should support the safe-haven greenback.

Conversely, a stronger-than-expected print should reaffirm hawkish Fed expectations and lift the US Treasury bond yields, along with the USD. Apart from this, concerns about an extreme energy crisis in Europe suggest that the path of least resistance for the EUR/USD pair is to the downside and any positive move runs the risk of fizzling out rather quickly.

Eren Sengezer, Editor at FXStreet, offered a brief technical outlook for the EUR/USD pair: “On the four-hour chart, the Relative Strength Index (RSI) indicator recovered to 50, suggesting that sellers refrain from committing to additional losses for the time being. Moreover, EUR/USD broke above the descending regression channel coming from August 12 and the last four-hour candles closed above the 20-period SMA, pointing to a bullish shift in the near-term outlook..”

Eren also outlined important levels to trade the EUR/USD pair: “In case the pair manages to hold above parity and starts using that level as support, 1.0020 (Fibonacci 23.6% retracement of the latest downtrend) aligns as immediate resistance ahead of 1.0060 (50-period SMA) and 1.0080 (Fibonacci 38.2% retracement).”

“On the downside, a four-hour close below parity could open the door for an extended slide toward 0.9960 (20-period SMA) and 0.9920 (end-point of the downtrend),” Eren added further.

Key Notes

   •  EUR/USD Forecast: Parity proves to be a tough resistance to crack

   •  EUR/USD could still weaken further – UOB

   •  EUR/USD: The risk is of a short squeeze all the way to 1.0135 – ING

About US GDP

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

Kansas City Fed President Esther George said on Thursday that they still had more work to be done on inflation.

Additional takeaways

"You'd want to see at least 3 months of consistent data to know where things are going."

"Too soon to say what to expect in September, more key data coming."

"Full effects of recent rate hikes may not be seen for some time."

"Want to see more broad-based relief in prices to know inflation is coming off its highs."

"Not hearing things that are consistent with what you hear in a recession."

"Bringing inflation back to our target remains the focus."

"For the near-term thinking about higher interest rates seems reasonable to me."

"Unclear if that will be the case in the longer term."

Market reaction

The US Dollar Index edged slightly higher after these comments and was last seen at 108.38, where it was down 0.2% on a daily basis.

The accounts of the European Central Bank's (ECB) July policy meeting showed that a "very large number" of Governing Council members agreed that it was appropriate to raise key rates by 50 basis points (bps), as reported by Reuters.

Additional takeaways

"Members agreed that it was appropriate to take further steps on the path of monetary policy normalisation."

"Medium-term inflation risks had also increased."

"Persistently high inflation posed an increasing risk of longer-term inflation expectations becoming unanchored."

"Members unanimously supported the TPI."

"A larger than expected increase, a 50 basis point interest rate hike provided more clarity for market participants."

"Decision to raise interest rates by 50 basis points at the present meeting should be regarded as frontloading the exit."

"The Governing Council was not changing its assessment regarding the terminal rate in the hiking cycle."

Market reaction

The EUR/USD pair showed no immediate reaction to this publication and was last seen rising 0.27% on the day at 0.9992.

• Gold price extends its recovery rally into a fourth straight day on Thursday.
• Profit-taking on US dollar longs ahead of Jackson Hole supports the bullion.
• XAU/USD eyes $1,782 on a sustained break above the key $1,765 level. 

Gold price is extending its three-day recovery rally on Thursday, capitalizing on the ongoing correction in the US dollar across the board. China announced additional economic stimulus to support growth late Wednesday, which has lifted the overall market mood and reduced the safe-haven demand for the greenback. Further, investors are resorting to position readjustment ahead of the critical US events, in the form of the Fed’s Jackson Hole Symposium and Friday’s Chair Jerome Powell’s speech. The US Treasury yields are retreating from multi-week highs, offering additional support to the non-yielding bullion. Markets are eagerly awaiting the remarks from Powell for fresh clues on the Fed’s tightening path and his outlook on the economy as well as on inflation.

Also read: Gold Price Forecast: Will the XAU/USD recovery extend ahead of Jackson Hole?

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is challenging powerful resistance at $1,765, the convergence of the Fibonacci 61.8% one-month, pivot point one-day R2 and the previous high four-hour.

The next immediate hurdle is seen at $1,767, the SMA10 one-day, above which the confluence of the SMA50 one-day and the pivot point one-day R3 is aligned at $1,772.

A sustained move above the latter will kickstart a fresh upswing towards the Fibonacci 61.8% one-week at $1,782.

Alternatively, the metal could find some comfort at around $1,759, the Fibonacci 23.6% one-week. The Fibonacci 23.6% one-day at $1,754 could come to the rescue of buyers should the retreat extend.

A dense cluster of support levels around $1,750 will be next on sellers’ radars. That demand area is the intersection of the SMA200 four-hour, SMA5 one-day and Fibonacci 61.8% one-day.

Here is how it looks on the tool

About Technical Confluences Detector

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

• Silver catches strong bids on Thursday and jumps to a fresh weekly high.
• Sustained strength beyond the 23.6% Fibo. level favours bullish traders.
• Mixed technical indicators on daily/hourly charts warrant some caution.

Silver gains strong positive traction on Thursday and climbs to a fresh weekly high, around the $19.40 region during the first half of the European session.

The momentum lifts the XAG/USD beyond the 23.6% Fibonacci retracement level of the $20.88-$18.75 slide and supports prospects for additional gains. The constructive outlook is reinforced by the fact that oscillators on hourly charts have been gaining positive traction.

That said, technical indicators on the daily chart are yet to confirm a bullish bias, suggesting that any subsequent move up might confront stiff resistance near the $19.50 confluence. The said barrier comprises 38.2% Fibo. level and the 200-period SMA on the 4-hour chart.

Some follow-through buying, however, will set the stage for an extension of the recent bounce from a multi-week low, around the $18.70 region touched on Monday. The XAG/USD might then test the 50% Fibo. level, around the $19.80 region, aim to reclaim the $20.00 psychological mark.

On the flip side, the $19.20 area (23.6% Fibo. level) now seems to protect the immediate downside ahead of the $19.00 round figure. A decisively break below could make the XAG/USD vulnerable to accelerate the fall back towards the weekly low, around the $18.70 region.

The next relevant support is pegged near the $18.45-$18.40 area, below which the downward trajectory could get extended and drag the XAG/USD to the YTD low, around the $18.15 zone touched in July.

Silver 4-hour chart

Key levels to watch

In an interview with the Wall Street Journal (WSJ),  Atlanta Fed President Raphael Bostic said that “at this point, I'd toss a coin between 50 bps and 75 bps,” adding that “if data remains strong and inflation doesn't soften, it may make a case for another 75 bps.”

Additional quotes

Market reaction

The greenback is uninspired by the above comments, with the US dollar index keeping its renewed upside intact near 108.30. The gauge is still down 0.39% so far.

• EUR/USD rebounds to 3-day and advances above the parity level.
• Germany Business Climate came almost unchanged in August,
• The Jackson Hole Symposium will take centre stage in the next days.

The generalized better tone in the risk complex lifts EUR/USD back above the parity level, although the bull run has so far stalled around 1.0030 on Thursday.

EUR/USD now looks to USD and Jackson Hole

EUR/USD extends further the rebound from cycle lows in the 0.9900 neighbourhood recorded earlier in the week on the back of the renewed offered stance in the greenback.

Indeed, the US Dollar Index (DXY) retreats from the area of recent peaks north of 109.00 the figure, as investors appear to have priced in a 75 bps rate hike in September as well as a hawkish speech from Chief Powell on Friday.

In the domestic calendar, Germany’s Business Climate tracked by the IFO Institute receded marginally in August to 88.5 (from 88.6), while Business Confidence in France eased to 104 for the same month (from 106) and final figures saw the GDP Growth Rate in Germany expand 1.7% YoY and 0.1% inter-quarter in Q2. Later in the session, the ECB will publish its Accounts of the latest meeting.

Across the Atlantic, another revision of the US GDP Growth Rate is due along with weekly Initial Claims.

What to look for around EUR

EUR/USD reclaims part of the ground lost in recent sessions and regains the parity zone and beyond against the backdrop of the loss of upside traction in the buck.

Price action around the European currency, in the meantime, 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 and the incipient slowdown in some fundamentals.

Key events in the euro area this week: Germany Final Q2 GDP Growth Rate, Germany IFO Business Climate, ECB Accounts (Thursday) – Germany GfK Consumer Confidence.

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 on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is up 0.44% at 1.0006 and faces the next resistance at 1.0202 (high August 17) followed by 1.0256 (55-day SMA) and finally 1.0368 (monthly high August 10). On the other hand, a break below 0.9899 (2022 low August 23) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2022 low).

• USD/CAD drops to a one-week low on Thursday amid the emergence of fresh USD selling.
• Hawkish Fed expectations to lend support to the USD and the pair amid a dip in oil prices.
• Mixed oscillators on daily/hourly charts warrant some caution for aggressive bearish traders.

The USD/CAD pair meets with a fresh supply on Thursday and continues losing ground through the early part of the European session. Spot prices drop to a one-week low in the last hour, with bearish traders now awaiting a sustained break below the 1.2900 round figure.

The risk-on impulse drags the safe-haven US dollar further away from a two-decade high touched earlier this week and exerts downward pressure on the USD/CAD pair. Bulls seem rather unimpressed by a modest downtick in crude oil prices, which tend to undermine the commodity-linked loonie.

From a technical perspective, the 1.2900 mark represents confluence support, comprising 200-period SMA on the 4-hour chart and the 50% Fibonacci retracement level of the 1.2728-1.3063 rally. This should now act as a pivotal point, which if broken will be seen as a fresh trigger for bears.

Oscillators on the daily chart, meanwhile, have just started drifting into the negative territory and support prospects for an eventual breakdown. That said, RSI (14) on hourly charts is already flashing overstretched conditions and warrants some caution amid hawkish Fed expectations.

This makes it prudent to wait for a convincing break through the said handle before positioning for any further decline. The USD/CAD pair might then accelerate the downfall towards the 1.2855 area (61.8% Fibo. level) en route to the next relevant support near the 1.2830-1.2825 zone.

On the flip side, the 38.2% Fibo. level, around the 1.2935 area, now seems to act as an immediate hurdle. Some follow-through buying beyond the mid-1.2900s could lift the USD/CAD pair towards the 1.2980 region (23.6% Fibo. level) before bulls aim to reclaim the 1.3000 psychological mark.

USD/CAD 4-hour chart

Key levels to watch

After rising sharply, the prices of many commodities and transport prices have fallen markedly again. Analysts at Natixis believe that many mechanisms are driving us towards such a regime of scarcity. It is therefore difficult to believe in a return to a regime of abundance. 

OECD countries will not return to the previous regime of abundance

“Despite the current fall in the prices of many commodities (oil, metals, agricultural products, transport, etc.), we believe that OECD countries, for a number of reasons (energy transition, restoration of wage earners’ bargaining power, reshoring, shift in the structure of demand, geopolitical tensions), will remain in a regime of scarcity, and therefore inflation.”

“This will result in continued relatively high inflation, income distribution conflicts and a more restrictive monetary policy.”

• AUD/USD regains strong positive traction on Thursday and jumps to over a one-week high.
• China’s stimulus measures boost investors’ confidence and benefit the risk-sensitive aussie.
• The risk-on impulse further weighs on the safe-haven USD and provides an additional lift.
• Hawkish Fed expectations might limit the USD losses and cap any further upside for the pair.

The AUD/USD pair catches fresh bids on Thursday and builds on this week's bounce from the 0.6860-0.6855 support zone. The intraday positive move prolongs through the early part of the European session and pushes spot prices to over a one-week high, around the 0.6980-0.6985 region.

Investors turned optimistic after China earlier this Thursday announced a stimulus package worth one trillion yuan ($146 billion) - roughly 1% of its overall GDP - to shore up its economy. This is evident from a generally positive tone around the equity markets, which prompts fresh selling around the safe-haven US dollar and benefits the risk-sensitive aussie.

It, however, remains to be seen if bulls are able to capitalize on the move or if the AUD/USD pair meets with a fresh supply at higher levels amid worries about a global economic downturn. Moreover, firming expectations that the Fed will stick to its policy tightening path should limit any deeper USD pullback and warrants some caution for aggressive traders.

In fact, the markets are pricing in at least a 50 bps rate hike at the September FOMC policy meeting and the bets were reaffirmed by the recent hawkish remarks by several Fed officials. This remains supportive of elevated US Treasury bond yields, which, in turn, supports prospects for the emergence of some USD dip-buying and should cap the AUD/USD pair.

Market participants now look forward to the US economic docket - featuring the release of the Prelim, or the second estimate of Q2 GDP print and Weekly Initial Jobless Claims. This, along with the US bond yields and the broader market risk sentiment, might influence the USD price dynamics and provide some impetus to the AUD/USD pair.

The focus, however, will remain on Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday. Investors will look for fresh clues about the possibility of a supersized 75 bps Fed rate hike move in September. This will play a key role in driving the USD demand and help determine the near-term trajectory for the AUD/USD pair.

Technical levels to watch

Following the release of the German IFO Business Survey, the institute’s Economist Klaus Wohlrabe said that “a recession is still on the cards.”

Additional quotes

Market reaction

EUR/USD was last seen trading at around 1.0000, adding 0.35% on the day.

• German IFO Business Climate Index came in at 88.5 in August.
• IFO Current Economic Assessment for Germany dropped to 97.5 this month.
• August German IFO Expectations Index arrived at 80.3, a big beat.

The headline German IFO Business Climate Index ticked down slightly to 88.5 in August versus the previous month's 88.7 and the market consensus of 86.8.

Meanwhile, the Current Economic Assessment dropped to 97.5 points in the reported month as compared to July's 97.7 and 96.0 expected.

The IFO Expectations Index – indicating firms’ projections for the next six months, fell to 80.3 in August from the last month’s 80.4 and against the estimates of 78.6.

Market reaction

EUR/USD remains uninspired by the upbeat German IFO survey. At the time of writing, the pair is trading at 1.0000, up 0.37% on the day.

About German IFO

The headline IFO business climate index was rebased and recalibrated in April after the IFO Research Institute changed the series from the base year of 2000 to the base year of 2005 as of May 2011 and then changed the series to include services as of April 2018. The survey now includes 9,000 monthly survey responses from firms in the manufacturing, service sector, trade and construction.

• GBP/USD catches fresh bids on Thursday and climbs back closer to the weekly high.
• The risk-on impulse undermines the safe-haven USD and offers support to the major.
• Hawkish Fed expectations, recession fears to limit the USD losses and cap the upside.

The GBP/USD pair regains positive traction on Thursday and is looking to build on its recovery from the 1.1715 area, or the lowest level since March 20 touched earlier this week. The pair steadily climbs back above the mid-1.1800s, closer to the weekly high, and is supported by the emergence of fresh selling around the US dollar.

The risk-on impulse - as depicted by a generally positive tone around the equity markets - turns out to be a key factor weighing on the safe-haven greenback. The market sentiment gets a lift on Thursday after China announced a stimulus package worth one trillion yuan ($146 billion) - roughly 1% of its overall GDP - to shore up its economy. This, along with some repositioning trade ahead of the Jackson Hole Symposium, drags the USD Index, which measures the greenback's performance against a basket of currencies, to a fresh weekly low.

That said, worries about a global economic downturn - amid headwinds stemming from China's COVID-19 lockdowns and energy crisis in Europe - should keep a lid on any optimism in the markets. Furthermore, growing acceptance that the Fed will stick to its policy tightening path to tame inflation should limit any meaningful downside for the greenback. In fact, the markets are pricing in at least a 50 bps rate hike at the September FOMC meeting and the bets were reaffirmed by the recent hawkish remarks by several Fed officials.

The market expectations are reaffirmed by elevated US Treasury bond yields, holding steady near a two-month high, which, in turn, favours the USD bulls. Apart from this, the UK's bleak economic outlook should act as a headwind for the British pound and cap gains for the GBP/USD pair. It is worth recalling that the Bank of England earlier this month indicated that a prolonged recession would start in the fourth quarter. This warrants caution for aggressive bullish traders and before positioning for any further appreciating move.

Market participants now look forward to the US economic docket - featuring the release of the Prelim, or the second estimate of Q2 GDP print and Weekly Initial Jobless Claims. This, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and provide some impetus to the GBP/USD pair. The focus, however, will remain glued to Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday.

Technical levels to watch

Commenting on China’s latest support measures to stabilize the country’s property markets, Fitch Ratings said that these policy reforms are unlikely to drive a strong recovery in the sector.

Key takeaways

“We believe this is a sign of the government providing greater support to private developers that are not in distress to avoid further defaults in the sector that could increase the number of stalled residential projects.”

“More private developers that are not in distress may benefit from similar funding support in the near term, supporting their liquidity.”

“However, the programme’s capacity to improve their debt maturity coverages significantly will depend on its scale.”

“Such policies may provide liquidity relief for some developers, but we still expect the recovery in housing sales to be the key to a sustainable improvement in developers’ liquidity more broadly.” 

Market reaction

At the time of writing, USD/CNY is cutting losses to trade near 6.8510 while the AUD/USD pair clings to sizeable gains around 0.6970.

The likeliness of USD/CNH to advance to the 6.9000 region now seems to have lost momentum, suggest FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we expected USD to consolidate and trade within a range of 6.8350/6.8750. However, USD rose to 6.8869 before dropping back down quickly. Despite the advance, upward momentum has not improved. In other words, the current movement still appears to be part of consolidation. For today, USD is likely to trade sideways between 6.8500 and 6.8800.”

Next 1-3 weeks: “There is no change in our view from yesterday (24 Aug, spot at 6.8630). As highlighted, the rapid loss in shorter-term upward momentum has diminished the odds for USD to advance further to 6.9000. However, only a break of 6.8330 (no change in ‘strong support’ level from yesterday) would indicate that USD strength that started early last week has run its course.”

Investors continued to remain short on most Asian currencies but bearish bets on the Chinese yuan shot up to three-month highs, according to the latest Reuters poll of analysts and fund managers.

Key findings

Related reads

• USD/CNH reverses from two-year high towards 6.8500 but bears are far
• USD/INR: Bulls need to wait for more for printing a fresh all-time high above 80.20

• The index drops further and revisits the 108.00 area.
• The Jackson Hole Symposium kicks in later on Thursday.
• GDP Growth Rate, weekly Claims next on tap in the calendar.

The dollar gives away almost all its weekly gains and retreats to the 108.00 neighbourhood when tracked by the US Dollar Index (DXY) on Thursday.

US Dollar Index looks capped near 2022 highs

The index rapidly fades Wednesday’s small gains and refocuses on the downside amidst the improvement in the appetite for the risk complex on Thursday.

Indeed, the dollar loses further traction and corrects lower after being rejected from the area of cycle tops near 109.30 earlier in the week (August 23). The move comes amidst marginal weakness in US yields as market participants get ready for the start of the Jackson Hole Symposium later in the day.

In the meantime, investors are expected to closely follow Chief Powell’s speech on Friday against the backdrop of rising speculation of a 75 bps rate hike at the Fed’s September gathering. On the latter, CME Group’s FedWatch Tool now sees the probability of such a scenario at nearly 60% (from around 40% a week ago).

Data wise in the US, another revision of the Q2 GDP Growth Rate is due later seconded by usual Initial Claims for the week ended on August 20.

What to look for around USD

The resumption of the risk-on mood among investors drags the dollar from the recent test of yearly peaks north of the 109.00 barrier.

Bolstering the dollar’s strength appears the firm conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

DXY, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, namely a 50 bps or 75 bps hike in September.

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

Key events in the US this week: Jackson Hole Symposium, Advanced Q2 GDP Growth Rate, Initial Claims (Thursday) - Jackson Hole Symposium, PCE, Personal Income, Personal Spending, Fed Powell, Final Consumer Sentiment (Friday) - Jackson Hole Symposium (Saturday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict.

US Dollar Index relevant levels

Now, the index is retreating 0.44% at 108.13 and faces the next support at 107.99 (weekly low August 25) seconded by 106.21 (55-day SMA) and then 104.63 (monthly low August 10). On the upside, a break above 109.29 (2022 high July 15) would aim for 109.77 (monthly high September 2002) and then 110.00 (round level).

China has stepped up its economic stimulus. Furthermore, the People’s Bank of China (PBoC) has fixed the yuan stronger than model-based estimates had suggested. Nonetheless, economists at MUFG Bank expect the CNY to remain under pressure against the US dollar.

China growth concerns remain in focus

“The latest developments suggest that the fresh infrastructure stimulus announced will provide only a short-term boost for market sentiment towards the Chinese economy. 

“The Chinese renminbi has strengthened following the PBoC’s decision to set a stronger expected daily fixing rate. It sends a signal to market participants that policymakers in China are unhappy about the recent faster pace of renminbi depreciation. The pushback from the PBoC is though unlikely to reverse the weakening trend that is currently in place.” 

“Heightened concerns over economic weakness in China and the PBoC’s decision to lower rates further should keep downward pressure on the renminbi against the US dollar.”

Further range bound trade within 135.20-138.00 is probable in USD/JPY, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we held the view that the outlook is mixed and we expected USD to trade in a choppy manner within a broad range of 135.70/137.70. However, USD traded in a relatively quiet manner between 136.16 and 137.24. The relatively quiet price actions offer no fresh clues and we expect USD to trade between 136.30 and 137.35 for today.”

Next 1-3 weeks: “There is no change in our view from yesterday (24 Aug, spot at 137.00). As highlighted, the outlook is mixed and USD could trade in a choppy manner, likely within a broad range of 135.20/138.00.”

• USD/JPY edges lower on Thursday amid the emergence of fresh selling around the USD.
• A combination of factors favours bullish traders support prospects for some dip-buying.
• Hawkish Fed expectations and elevated US bond yields should limit losses for the buck.
• The Fed-BoJ policy divergence, the risk-on impulse could undermine the safe-haven JPY.

The USD/JPY pair struggles to capitalize on the overnight goodish rebound of over 100 pips and meets with a fresh supply on Thursday. Spot prices extend the steady intraday descent through the early European session and drop to a fresh daily low, below mid-136.00s in the last hour.

The US dollar hits a fresh weekly low amid some repositioning trade ahead of the Jackson Hole Symposium and turns out to be a key factor exerting some downward pressure on the USD/JPY pair. Apart from this, the intraday downtick lacks any obvious fundamental catalyst and is more likely to remain limited in the wake of hawkish Fed expectations.

Market participants seem convinced that the Fed will stick to its policy tightening to tame inflation. The bets were reaffirmed by the recent hawkish remarks by several Fed officials and reinforced by elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond holds steady near a two-month high.

In contrast, Bank of Japan (BoJ) board member Toyoaki Nakamura reiterates on Thursday that the central bank must patiently maintain powerful monetary easing. This reinforces expectations that the BoJ is unlikely to move toward policy normalization. This marks a big divergence in comparison to a more hawkish Fed, which could undermine the Japanese yen.

Apart from this, the risk-on impulse - as depicted by a strong rally in the US equity futures - might weigh on the safe-haven JPY and lend support to the USD/JPY pair. Furthermore, expectations that Fed Chair Jerome Powell will deliver a hawkish message on Friday support prospects for the emergence of some dip-buying and warrant caution for bearish traders.

Market participants now look forward to the US economic docket - featuring the release of the Prelim, or the second estimate of Q2 GDP print and Weekly Initial Jobless Claims. This, along with the US bond yields, might influence the USD price dynamics. Traders will also take cues from the broader risk sentiment to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch

The pound has continued to underperform over the summer period. The lack of follow through to a stronger pound from the improvement in risk sentiment and higher UK yields has disappointed, economists at MUFG Bank report.

BoE’s policy rate still appears relatively unattractive in real terms

“The pound’s failure to derive support from the recent improvement in risk sentiment and higher UK yields could reflect that growth concerns remain a heavy weight on the pound.”

“Even more restrictive BoE policy rates would act to deepen the economic downturn in the UK. At the same time, even if the BoE does deliver higher rates they are still expected to remain well below inflation and deeply negative in real terms.”

Here is what you need to know on Thursday, August 25:

The positive shift in risk sentiment weighed heavily on the dollar in the early European session and caused the US Dollar Index to decline toward 108.00. Reflecting the upbeat mood, US stock index futures are up between 0.65% and 1% on the day. IFO will release the finding of its business sentiment survey for Germany and the European Central Bank will publish the accounts of its July policy meeting. Later in the day, the US Bureau of Economic Analysis' second estimate of the second quarter GDP and the weekly Initial Jobless Claims data will be featured in the US economic docket. Central bankers could also be giving interviews to news outlets on the sidelines of the Jackson Hole Symposium.

Following China’s Cabinet introduction of a stimulus package worth $146 billion on Wednesday, Li Zhong, China’s Vice Minister of Human Resources and Social Security, said Beijing will focus on expanding jobs and promoting fiscal and monetary policies. The Shanghai Composite Index was last seen rising 1% daily.

In the meantime, crude oil prices rose for the third straight day on Wednesday on uncertainty surrounding the revival of the Iran nuclear deal. The barrel of West Texas Intermediate (WTI) was last seen consolidating its daily gains at around $95.

EUR/USD has gathered recovery momentum early Thursday and advanced beyond parity. The shared currency seems to be capitalizing on risk flows in the second half of the week. In an interview with Madame Figaro, European Central Bank President (ECB) Christine Lagarde said that there will be repercussions on prices, insurance premiums and on the financial sector if more and more climate disasters occur. Meanwhile, the data from Germany showed that the economy expanded at an annualized rate of 1.8% in the second quarter, higher than the flash estimate of 1.5%.

GBP/USD failed to register daily gains despite a recovery attempt during the American trading hours on Wednesday. With the dollar facing broad selling pressure, the pair gained traction and advanced to the mid-1.1800s in the early European session.

USD/JPY stays under bearish pressure and edges lower toward 136.50 in the early European morning. Bank of Japan (BOJ) board member Toyoaki Nakamura reiterated earlier in the day that the BOJ must patiently maintain powerful monetary easing.

Gold extended its rebound into a third straight day and was last seen trading near $1,760. 

Bitcoin extends its sideways grind near mid-$21,000s and Ethereum trades at around $1,700, gaining nearly 3% on a daily basis.

• USD/CHF prints the biggest daily loss in two weeks as US dollar eases ahead of the key data/event.
• Stimulus from China, hopes of less hawkish central bankers underpin cautious optimism.
• Options market signals also favor intraday bears amid sluggish session.
• US GDP, Core PCE will decorate the calendar but risk catalysts are the key.

USD/CHF takes offers to refresh intraday low near 0.9625 during early Thursday morning in Europe. In doing so, the Swiss currency (CHF) pair drops the most in nearly two weeks amid broad US dollar weakness.

That said, the US Dollar Index (DXY) slides half a percent as bears attack the 108.00 mark as risk-on mood dampens the greenback’s safe-haven demand. Also exerting downside pressure on the DXY is the recently softer US Treasury yields.

While tracing the catalysts, mixed data and the impending economic slowdown concerns, which are likely to push markets towards hoping for an absence of the major hawkish announcement from Fed Chair Jerome Powell during Friday’s speech, seem to have favored the DXY fall.

On the same line could be stimulus from China amid economic optimism in the world’s second-largest economy. China’s Cabinet, State Council, outlined a 19-point policy package while announcing economic stimulus measures worth CNY1 trillion ($146 billion) to stimulate growth affected by covid lockdowns and property market crisis, per Bloomberg. Additionally, Li Zhong, Vice Minister of the Ministry of Human Resources and Social Security, said on Thursday that China will focus on expanding jobs and promote fiscal, monetary and industrial policies to support job market stabilization.

Amid these plays, the market sentiment improves and weighs on the US Dollar. That said, the US 10-year Treasury yields rose the most in a week the previous day while refreshing a two-month high to around 3.10%. However, mixed concerns seem to have probed the US bond sellers of late. That said, the Wall Street benchmarks printed mild gains, which in turn helped S&P 500 Futures to remain mildly bid at around 4,150 at the latest.

Moving on, the second version of the US Q2 GDP will join the US Personal Consumption Expenditure (PCE) for the said period will be important. However, major attention will be given to Fed Chair Powell’s showdown on Friday.

Considering the likely upbeat expectations from the scheduled data, any positive surprise could help the USD/CHF prices to consolidate the latest losses. Even so, major moves appear less likely to happen.

Technical analysis

A clear downside break of a two-week-old ascending trend line, at 0.9625 by the press time, appears necessary for the USD/CHF bears to retake control.

The dollar is slightly softer today. Economists at ING expect the US Dollar Index (DXY) to stage a correction on a break under the 108.10/15 support.

The hawkish Fed should keep the dollar supported 

“108.10/15 looks important intra-day support and should determine whether DXY needs a correction back to the 107.00 area.”

“We remain bullish on the dollar on the back of the Fed and the energy story, but heavy positioning is probably the biggest risk to the dollar right now.”

Economists at ING expect the EUR/HUF to move higher towards 415 in the short-term. However, positive headlines regarding the negotiations between the Hungarian government and the European Commission should drag the pair down to 400.

The forint will still have a tough time

“A move back towards 415 EUR/HUF is not out of the question over the coming days.”

“Still, the forint is the only currency in the region currently supported by a rising interest rate differential and we should see a HUF rally back below EUR/HUF 400 in the case of positive news from the European Commission. However, this is certainly not a matter for the next few days and the forint will still have a tough time.”

GBP/USD grinds higher above mid-1.18s. A break past 1.1880 would clear the way towards the 1.20 level, eocnomists at ING report.

Cable is at risk of a short squeeze

“With the market long dollars, cable is at risk of a short squeeze. We see 1.1880 as key intra-day resistance here above which we could be looking at a retest of 1.20.”

“For EUR/GBP, we would still favour the 0.8400 area as higher GBP rates force foreign holders of UK Gilts to lower rolling forward hedge ratios.”

EUR/USD is enjoying the slightly softer dollar environment and re-challenging parity. Economists at ING note that the pair could test 1.0135.

German IFO and ECB minutes in focus

“1.0015/20 looks key intra-day resistance. Above there, the risk is of a short squeeze all the way to 1.0135. Determining whether we get that short squeeze today will be the US data, the August German IFO, and the release of the minutes of the July ECB minutes in which it hiked 50 bps.”

“Notably, yield spreads have been moving in favour of EUR/USD this week. Conditions could be ripe for a short squeeze. But major challenges from the gas crisis and the Fed remaining hawkish suggest EUR/USD rallies may stall in the 1.01/1.02 area this month.”

The Chinese yua has fallen sharply by over 2% in the past two weeks and to the weakest level in two years. Nevertheless, acquiescence of weaker CNY does not mean free fall, as economists at Commerzbank note.

People's Bank of China has the ammunition to support CNY if needed

“We suspect PBoC is acquiescing to a weaker CNY but it will continue to keep a close eye on it.” 

“It is not unusual for FX rates to overshoot in the short-term and this could play out for USD/CNY.” 

“We need to bear in mind that PBoC has the ammunition to support CNY if needed and the pace of CNY depreciation will dictate PBoC intervention.”

Wednesday’s inflation data illustrated that South African inflation accelerated further in July but was unable to provide much momentum to the rand exchange rates. Economists at Commerzbank expect the ZAR to struggle to gain ground.

Core inflation rises more significantly than expected

“Even though the rise in overall inflation corresponded to Bloomberg consensus expectation at 7.8%, the core rate rose more steeply than expected to 4.6% (consensus: 4.5%), which means it is now slightly above the mean of the central bank’s target range of 3% to 6%. So far only the overall rate exceeded the corridor.”

“There is a lot to suggest that the South African Central bank (SARB) will stick to its hawkish course for now. The next meeting will be held in September. A second 50 bps rate step seems largely priced in on the market, with some even expecting the SARB to take an even larger step.”

“The most important drivers remained global factors (fears of a recession, Fed rate expectations) and above all general risk sentiment. As a result, it is likely to remain difficult for the rand to gain significant ground against the USD.”

• EUR/JPY has advanced firmly to near two-day high near 137.00 on ECB’s Lagarde speech.
• A potential German energy crisis will continue to remain havoc for the Eurozone bulls.
• The BOJ will stick to its prudent policy even if inflation hits 3%.

The EUR/JPY pair has given an upside break of the consolidation formed in a narrow range of 136.37-136.80 in the early European session. The asset has refreshed its intraday high near 137.00 as investors are sensing optimism amid ongoing European Central Bank (ECB) Christine Lagarde’s speech in an interview with Madame Figaro.

In her speech, ECB’s Lagarde is favoring neo-globalization rather than opting for de-globalization. A state of neo-globalization indicates an environment of a minimal cost of investments and the entire focus remains on prosperity through the inter-transfer of technology, capital, and labor force among nations. Also, she added that “If more and more climate disasters, droughts, and famines occur throughout the world, there will be repercussions on prices, on insurance premiums, and on the financial sector,”.

Well, soaring fears for the energy crisis in Germany will continue to keep the shared currency bulls on the tenterhooks.  It is worth noting that Germany is a core member of the European Union (EU) and the energy crisis in Germany will have higher repercussions on the entire Eurozone.

On the Tokyo front, the yen bulls are expected to shift into the negative trajectory again for a prolonged period. The street believes that the Bank of Japan (BOJ) will not shift its ‘prudent’ stance to ‘neutral’ even if inflation hits 3%. Higher price pressures are not the sole criterion for halting liquidity injection into the economy. The labor cost index should be hiked firmly as higher payouts for goods and services due to a higher inflation rate will demand higher paychecks.

Open interest in natural gas futures markets shrank for the third session in a row on Wednesday, this time by more than 1K contracts considering advanced prints from CME Group. Volume followed suit and went down by more than 116K contracts.

Natural Gas remains capped by $10.00 so far

Prices of natural gas recorded decent gains on Wednesday amidst diminishing open interest and volume and suggest that extra upside appear unlikely for the time being. in the meantime, further upside in the commodity seem limited by the key $10.00 mark per MMBtu.

The Swiss National Bank’s (SNB) surprising decision in June to hike rates by 50 bps and signal more to come transformed its attitude to the franc. Therefore, economists at HSBC expect the EUR/CHF pair to extend its downfall.

Stable USD/CHF

“We expect the CHF is likely to strengthen further against the EUR and ‘risk on’ currencies, given the SNB’s shift in strategy, Eurozone growth concerns, and lingering Italian political risks.”

“We look for a more stable USD/CHF rate.”

There is little prospect of a swift pivot from the Bank of Canada (BoC) at the 7 September meeting. Economists at HSBC expect the USD/CAD pair to see modest gains ahead.

CAD to outperform other “risk on” currencies in the short-term

“The market is appropriately priced for a debate between 50 bps and 75 bps at BoC’s September meeting. The decision may dictate the knee-jerk reaction, but the hawkish tone of delivery should allow the CAD to outperform other ‘risk on’ currencies in the short-term, but not enough to outpace the USD, not least because the USD will be supported by the tailwind of risk aversion.” 

“While USD/CAD may grind higher, we do not look for new ground to be explored.”

NZD/USD could now trade between 0.6125 and 0.6260 in the next weeks, suggest FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that ‘momentum indicators are flattish’ and we expected NZD to ‘consolidate and trade within a range of 0.6160/0.6220’. Our view was for consolidation was correct even though NZD traded within a slightly narrower range than expected (0.6164/0.6219). The relatively quiet price actions suggest further consolidation would not be surprising. Expected range for today, 0.6160/0.6220.”

Next 1-3 weeks: “Our update from yesterday (24 Aug, spot at 0.6195) still stands. As highlighted, NZD is unlikely to weaken further. From her, NZD could trade between 0.6125 and 0.6260 for a period of time.”

FX option expiries for August 25 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9950-55 1.24b
• 1.0000-10 2.7b
• 1.0020 280m
• 1.0090-00 1.05b
• 1.0145-55 970m

- GBP/USD: GBP amounts        

• 1.1820 574m

- USD/JPY: USD amounts                     

• 135.75-85 499m
• 135.90-00 760m
• 136.25-30 300m
• 137.00 633m

- USD/CHF: USD amounts        

• 0.9600 302m

- AUD/USD: AUD amounts  

• 0.6945-50 482m

- USD/CAD: USD amounts       

• 1.2850-55 700m

• EUR/USD picks up bids to pierce one-week-old descending channel’s resistance.
• Monthly horizontal resistance lure buyers, receding bearish bias of MACD favors upside moves.
• Sellers to have a bumpy road while refreshing 19-year low.

EUR/USD renews its weekly top to 1.0025 as it defies the eight-day-old bearish trend during the early Thursday morning in Europe.

The upside break of the short-term bearish trend channel also takes clues from the receding bearish bias of the MACD signals and the recent rebound of the RSI (14).

With this, the EUR/USD buyers are on their way to a one-month-long horizontal resistance around 1.0100. However, the 21-DMA near 1.0155 could challenge the major currency pair’s further upside.

It should be noted, however, that the sellers could keep the reins until the quote remains below the monthly high near 1.0370.

Alternatively, pullback moves may need to slip beneath the 0.9990 level to reverse the latest bullish breakout.

Following that, the recently flashed multi-year low near 0.9900 could entertain the EUR/USD bears.

However, the 61.8% Fibonacci Expansion (FE) of the pair’s May-August moves and the stated channel’s support line, respectively near 0.9855 and 0.9815, could challenge the pair’s further downside.

In a case where the EUR/USD seller remains in control after 0.9815, the 78.6% FE and a downward sloping support line from May, close to 0.9700 and 0.9680 in that order, will be important to watch.

EUR/USD: Daily chart

Trend: Further upside expected

Power shortages have re-emerged in China. Strategists at ANZ Bank expect rising power grid investment to support metals demand in China.

Metals to benefit from increased investment

“China’s energy shortages highlight the need for increased investment in its power grid. And that could lead to a pick-up in demand for both copper and aluminium, especially the former.”

“We see the markets of both metals going into deficit next year.”

CME Group’s flash data for crude oil futures markets noted traders trimmed their open interest positions by around 9.1K contracts on Wednesday, partially reversing the previous build. On the other hand, volume extended the choppy activity and went up by nearly 70K contracts.

WTI: Further gains look likely above the 200-day SMA

Wednesday’s gains in prices of the WTI were accompanied by declining open interest, which is indicative that the ongoing recovery could lose traction in the very near term. So far, there is a strong resistance around the 200-day SMA, today at $95.86.

The Bank of Korea (BoK) decided unanimously to raise its policy rate by 25 bps. Economists at ANZ Bank expect the BoK to deliver another 25 bps hike in October and November.

BoK signals more hikes despite rising growth risks

“The BoK’s decision today to hike its policy rate by 25 bps to 2.50% was unanimous and widely expected. It marked a slowing pace of tightening following the BoK’s 50 bps rate hike in July and reflected the central bank’s desire to continue addressing inflation risks, while balancing increased downside risks to growth.

“Importantly, the BoK signalled that more rate hikes are needed, as inflation pressures and expectations remain high.”

“We are sticking with our baseline scenario for a terminal policy rate of 3.0%, which pencils in a 25 bps rate hike at each of the central bank’s two remaining policy meetings this year.”

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, GBP/USD is now expected to navigate within the 1.1720-1.1930 range in the near term.

Key Quotes

24-hour view: “We highlighted yesterday that GBP ‘is unlikely to advance much further’ and we expected it to ‘trade sideways within a range of 1.1760/1.1885’. GBP subsequently traded within a narrower range than expected (1.1757/1.1836). Further sideway-trading appears likely, expected to be within a range of 1.1760/1.1845.”

Next 1-3 weeks: “There is no change in our view from yesterday (24 Aug, spot at 1.1830). As highlighted, GBP is unlikely to weaken further. GBP is more likely to consolidate and trade between 1.1720 and 1.1930.”

“If more and more climate disasters, droughts and famines occur throughout the world, there will be repercussions on prices, on insurance premiums and on the financial sector,” European Central Bank (ECB) President Christine Lagarde said in an interview with Madame Figaro.

Additional comments

Market reaction

Lagarde’s comments failed to move the needle around EUR/USD, as it continues to trade around 1.000, retaining 0.35% on the higher side.

The Hong Kong dollar (HKD) has been under pressure trading around the weak end of its convertibility undertaking (7.75-7.85) vs. USD consistently since early May. Economists at TD Securities expect the USD/HKD pair to test 7.82 in the near-term.

HK to eventually align the exchange rate with the CNY

“We think there is scope for USD/HKD spot rate to move lower in the short term, with scope for a test of 7.82.”

“The currency board mechanism means that Hong Kong will not escape higher rates and likely ongoing bouts of pressure on the HKD especially as the Fed continues to tighten policy.”

“We still think its highly unlikely that the HKMA dismantles the peg mechanism anytime soon. However, we maintain our view that eventually Hong Kong aligns the exchange rate with the CNY though we still think this is a long way off and only likely as China moves more significantly towards capital account convertibility.”

WTI crude prices are back above $95. However, direction is not clear yet, in the view of strategists at TD Securities.

The big uncertainty is demand

“While we believe the risks have convincingly tilted to the upside, the possibility that Iran may still remove its new conditions to make the deal with the US possible, and the uncertainty surrounding demand next year leave us unwilling to upgrade our forecast just yet. But we are thinking hard about it.”

“The Saudis and friends seem ready to adjust supply quickly in order to keep prices high. They don’t need to worry about competition from US shale or Russia. The end of the US strategic petroleum reserve release program also represents a risk of higher price over the winter.”

The German economy expanded by 0.1% on the quarter in the three months to June of 2022 vs. 0.0% prior, the final revision confirmed on Thursday. The expectation was for a reading of 0% in the reported period.

On an annualized basis, Europe’s economic powerhouse’s GDP expanded 1.7% in Q2 2022 vs. 1.4% booked in Q1 while beating 1.4% estimates.

Meanwhile, the GDP rate w.d.a arrived at 1.8% YoY in Q2 vs. 1.5% expected and 1.5% previous.

FX implications

EUR/USD was last seen trading at 0.9994, up 0.30% on the day. The euro failed to find any inspiration from the upbeat German GDP revision, as it clings to the parity mark.

About German GDP

The Gross Domestic Product released by the Statistisches Bundesamt Deutschland is a measure of the total value of all goods and services produced by Germany. The GDP is considered as a broad measure of the German economic activity and health. A high reading or a better-than-expected number has a positive effect on the EUR, while a falling trend is seen as negative (or bearish).

• NZD/USD has witnessed a mild correction after printing an intraday high of 0.6226.
• Investors are moving forward with a higher risk appetite for the event of Jackson Hole.
• RBNZ’s Orr speech at Jackson Hole will be keenly watched.

The NZD/USD pair has displayed a stalwart rally to near 0.6230 after remaining lackluster in the early Tokyo session. The asset auctioned in a 0.6186-0.6192 range and an upside break of the same has resulted in decent intraday gains. The major is expected to extend its gains after overstepping the delicate resistance around 0.6230.

The pair has got an adrenaline rush as the US dollar index (DXY) has surrendered the critical support of 108.40 and is declining further to near the round-level support of 108.00. Investors have preferred to dump the DXY and move forward with a higher risk appetite for the event of the Jackson Hole Economic Symposium.

The rationale behind the improved risk appetite of the market participants is the declining odds for the third consecutive 75 basis points (bps) interest rate hike by the Federal Reserve (Fed) in September. Considering the recent decline in top-tier US economic data, the Fed is expected to slow down the pace of hiking interest rates and may discuss a 50 bps rate hike at Jackson Hole.

On the kiwi front, investors have ignored the vulnerable NZ Retail Sales data, released in the Asian session. The economic data has landed at -2.3%, lower than the prior release of -0.5%. It is worth noting that higher price pressures should result in higher Retail Sales as households are needed to make more payouts to offset the increment in prices. However, the overall Retail Sales have declined, which indicates a serious slowdown in retail demand.

Going forward, investors will focus on the speech from Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr at Jackson Hole. RBNZ’s Orr is expected to discuss soaring pressures and may share the strategy of the RBNZ to combat the same.

Economists at Goldman Sachs offered their afterthoughts on the Bank of Korea’s (BOK) 25 bps rate hike decision, citing that the South Korean central bank will hike the rates by another 25 bps in October.

Also read: Bank of Korea raises key interest rate to 2.50% from 2.25% as expected

Key quotes

"The BoK Governor reiterated previous guidance that the MPC will focus more on inflation risks for the time being and hike the policy in 25bp increments to around 2.75-3.00% by year-end.”

“Beyond the near term, the MPC will keep a data-dependent approach. We continue to expect one more 25bp policy rate hike in October but a pause in November on a sharp slowdown in growth and further progress in disinflation.”

“That said, it would be important to monitor growth momentum closely given that the BoK might choose to raise the policy rate in November, should activity remain as resilient as in BoK's revised forecasts."

Gold price is posting sizeable gains so far this Thursday. Will the XAU/USD recovery extend ahead of Jackson Hole? FXStreet’s Dhwani Mehta analyzes the yellow metal’s outlook.

Bulls stay cautious ahead of Jackson Hole event

“If bulls manage to find a strong foothold above $1,760, the 38.2% Fibonacci Retracement (Fibo) level of the recovery from yearly lows of $1,681 to the August 10 high of $1,808, then a test of the 21 and 50-Daily Moving Averages (DMA) at $1,769 will be inevitable. Further up, the 23.6% Fibo resistance of the same ascent at $1,778 will challenge the bearish commitments.”

“Bulls remain cautious, as the 14-day Relative Strength Index (RSI) still remains beneath the midline. Investors also remain wary of the 21 and 50 DMAs crossover, as indecision prevails ahead of the Jackson Hole Symposium.”

“The immediate support is pegged at the daily low of $1,750, below which the 50% Fibo level at $1,744 will be retested. The next critical downside cap is aligned at $1,729, which is the golden ratio – 61.8% Fibo level.”

Bank of Japan (BOJ) board member Toyoaki Nakamura is back on the wires now, via Reuters, expressing his view on the yen and the impact of the Fed rate hikes on the economy.

Key quotes

Market reaction

At the time of writing, USD/JPY keeps its range around 136.70, unfazed by these comments. The spot is down 0.32% on the day.

• Gold price rises for the third consecutive day to refresh weekly top.
• Sluggish yields, hopes of less-hawkish central bankers exert downside pressure on DXY.
• China’s status as the key XAU/USD consumer favors the metal buyers in times of stimulus.

Gold price (XAU/USD) prints a three-day uptrend while renewing the weekly high around $1,760 heading into Thursday’s European session. In doing so, the precious metal cheers softer US dollar, as well as stimulus news from China, as traders await the interest rate guidance from the Jackson Hole Symposium.

China’s Cabinet, State Council, outlined a 19-point policy package while announcing economic stimulus measures worth CNY1 trillion ($146 billion) to stimulate growth affected by covid lockdowns and property market crisis, per Bloomberg. Additionally, Li Zhong, Vice Minister of the Ministry of Human Resources and Social Security, said on Thursday that China will focus on expanding jobs and promote fiscal, monetary and industrial policies to support job market stabilization.

Given the dragon nation’s status as one of the world’s biggest XAU/USD users, positive news from China often favors the gold buyers.

On the other hand, mixed US data and recently sluggish US Treasury yields also underpin the commodity’s upside momentum. That said, the impending economic slowdown concerns push markets towards hoping for an absence of the major hawkish announcement from Fed Chair Jerome Powell during Friday’s speech. Even so, Fed funds futures traders are pricing in a 61% chance that the Fed will hike rates by another 75 basis points (bps) at its September meeting, and a 39% probability of a 50 basis points increase, per Reuters.

Against this backdrop, the market sentiment improved and exerted downside pressure on the US Dollar. That said, the US 10-year Treasury yields rose the most in a week the previous day while refreshing a two-month high to around 3.10%. However, mixed concerns seem to have probed the US bond sellers of late. Moving on, the Wall Street benchmarks printed mild gains, which in turn helped S&P 500 Futures to remain mildly bid at around 4,150 at the latest.

For the intraday directions, the second version of the US Q2 GDP will join the US Personal Consumption Expenditure (PCE) for the said period will be important. However, major attention will be given to Fed Chair Powell’s showdown on Friday.

Technical analysis

Gold price remains firmer after crossing the downward sloping trend line from August 12, as well as the 200-SMA. The upside momentum also takes clues from the bullish MACD signals and upbeat RSI, not overbought.

It’s worth noting, however, that a three-week-old horizontal resistance area near $1,770-72 restricts short-term XAU/USD upside ahead of directing the bulls towards the monthly peak of $1,808.

Meanwhile, a convergence of the 200-SMA and the weekly support line, close to $1,749, restricts short-term declines of the yellow metal.

Following that, the 61.8% Fibonacci retracement level of late July to early August upside, near $1,730, appears the last defense of the gold buyers.

Gold: Four-hour chart

Trend: Further upside expected

According to preliminary readings from CME Group for gold futures markets, open interest rose for the second session in a row on Wednesday, this time by around 2.7K contracts. Volume, instead, shrank for the second straight day, now by around 32.8K contracts.

Gold: Next target comes at $1,800

Wednesday’s uptick in gold prices was amidst rising open interest and expose further gains in the very near term. That said, further upside in the commodity now retargets the key resistance zone around $1,800 in the very near term.

EUR/USD still risks further losses in the next few weeks, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘downward pressure has eased’ and we expected EUR to ‘consolidate and trade between 0.9920 and 1.0010’. EUR subsequently dipped to 0.9908, rebounded quickly to 0.9999 before closing largely unchanged at 0.9965 (-0.02%). The price actions still appear to be part of a consolidation phase and EUR is likely to trade between 0.9925 and 1.0010 for today.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (24 Aug, spot at 0.9965). As highlighted, while shorter-term downward momentum has waned, there is still room for EUR to weaken. Only a breach of 1.0035 (no change in ‘strong resistance’ level from yesterday) would indicate that the EUR weakness that started last week (see annotations in the chart below) has run its course. Meanwhile, oversold conditions could lead to a couple of days of consolidation first. Looking ahead, support levels are at 0.9870 and 0.9830.”

Former Bank of Japan (BOJ) Chief Economist Seisaku Kameda said in an MNI interview on Thursday, he sees Japanese inflation rising to around 3% towards the end of this year but that is unlikely to prod the BOJ to alter its ultra-easy monetary policy stance.

Key quotes

“BOJ is unlikely to respond directly to cost-push inflation and the yen's short-term fall, awaiting the appointment of a new BOJ governor and deputies in Spring 2023.“

“BOJ could examine or review monetary policy, including the impact of cost-push inflation developments, he did not elaborate.”

"Upward pressure from high food and durable goods on consumer prices will continue during the current fiscal year (to March 2023), paving the way for core CPI to rise to around 3%.”

“But higher core CPI would not lead to a policy adjustment by the BOJ as it would not be consistent with the central bank's 2% goal in a stable and sustainable manner.”

Also read: BOJ’s Kuroda would hold policy even if inflation hits 3% – Bloomberg survey

Market reaction

USD/JPY is off the lows but remains below 137.00 heading into the European morning. The spot was last seen trading at 136.66, losing 0.32% on the day.

• EUR/GBP takes offers to refresh intraday low, pares the biggest daily gains in a week.
• A jump in German gas prices, fears of extended economic woes due to Russia-Ukraine tussle weigh on prices.
• Firmer British car output, political optimism appears to favor sellers.
• German IFO, final readings of Q2 GDP could entertain traders.

EUR/GBP fades bounce off weekly low, marked the previous day, as energy crisis in Germany amplifies recession calls. Also exerting downside pressure on the cross currency pair is the recently firmer UK data and hopes of a strong government in Britain.

British car production rose for a third straight month in July, 8.6% higher than a weak comparative last year, when car makers were struggling with acute shortages of chips and COVID-related absences, the Society of Motor Manufacturers and Traders (SMMT) said on Thursday, reported Reuters.

Elsewhere, recently increased odds favoring ex-Chancellor Rishi Sunak to become the next UK Prime Minister (PM) keep the EUR/GBP bears hopeful as he defends the Bank of England (BOE) while also braces for less spending and control of the power bill. Also favoring Sunak’s chances of being the UK PM is the medium bias towards Brexit and his financial knowledge, especially at the time of the recession fears.

Britain's next prime minister must adopt radical ideas - such as discounted power tariffs, energy bill freezes or a "solidarity" tax hike for higher earners - to cushion the energy price shock for a broad swathe of households, Reuters quotes the UK’s think tank the Resolution Foundation on Thursday.

On the other hand, rallying prices of the Dutch Title Transfer Facility (TTF) natural gas futures portray the energy crisis in Germany, as well as in the bloc, amid recently increased sanctions on Russian oil. On the same line were comments from an influential economist Marcel Fratzscher of the German Institute for Economic Research mentioned, per Reuters, “The economic impact on Germany of Russia's invasion of Ukraine will last years.”

Looking forward, the final readings of Germany’s second quarter (Q2) GDP and IFO sentiment figures for August may entertain EUR/GBP traders.

Technical analysis

EUR/GBP buyers remain hopeful of refreshing the monthly high, currently around 0.8510, unless the quote provides a daily close below an upward sloping support line from August 02, around 0.8415 by the press time.

• USD/CAD is declining to near two-day low at 1.2933 as DXY faces selling pressure.
• The odds of a slowdown in the pace of hiking interest rates by the Fed are accelerating.
• Oil prices are advancing firmly after the oil cartel announced production cuts.

The USD/CAD pair has surrendered Wednesday’s low at 1.2948 and is expected to drop to near two-day’s low at 1.2933. The asset is displaying signs of bearish reversal as the US dollar index (DXY) has extended its losses after failing to cross the critical hurdle of 108.80 at open. At the press time, the DXY has slipped to near 108.26 and is expected to slip further to near the round-level support at 108.00.

The mighty DXY is attracting a lot of offers as odds of a less-hawkish commentary by the Federal Reserve (Fed) chair Jerome Powell at the Jackson Hole Economic Symposium are accelerating. After a steep contraction in the US economic activities and a slump in overall demand indicated by weak US Durable Goods Orders, the street believes that the Fed should scale down the pace of hiking interest rates.

Fed policymakers have evidence of exhaustion in the price pressures and also the supply chain risks are trimming sharply. Therefore, the Fed has the luxury of scaling down its hawkish tone slightly till the time the economic activities could get to a restoration level.

On the oil front, oil prices are advancing dramatically as the oil cartel is discussing production cuts to scale up prices again. For the oil cartel, lower oil prices are an imbalance as it generates lower revenues for the oil-producing countries. Therefore, a decline in the overall oil supply will accelerate prices further. It is worth noting that Canada is a leading exporter of oil to the US. And, higher oil prices will bring higher revenues to Canada and will strengthen its fiscal balance sheet.

• Silver price picks up bids to refresh weekly high after crossing short-term moving average.
• RSI rebound, easing bearish bias of MACD adds strength to the XAG/USD recovery.
• Convergence of 50-DMA, 38.2% Fibonacci retracement appears strong resistance.
• Six-week-old ascending support line restricts immediate downside.

Silver prices (XAG/USD) remain firmer at the weekly top as a clear upside break of the 5-DMA joins upbeat oscillators to favor bulls during Thursday morning in Europe.

Given the easing bearish bias of the MACD and the RSI recovery near the oversold territory, the bright metal’s latest breakout of the 5-DMA is likely to favor the bulls.

That said, the early August swing low, near $19.55, appears immediate resistance for the silver buyers to cross to justify the bullish momentum strength. However, a convergence of the 50-DMA and 38.2% Fibonacci retracement of the June-July downside, around $19.85, could challenge the XAG/USD bulls afterward.

Should the silver price remains firmer past $19.85, the odds of witnessing an upswing towards the monthly peak of $20.87 can’t be ruled out.

Alternatively, the 5-DMA and an upward sloping support line from mid-July, around $19.10 and $18.75 could challenge the short-term XAG/USD bears.

Following that, the yearly low marked in July at around $18.10 might lure the silver sellers.

Silver: Daily chart

Trend: Limited upside expected

Li Zhong, China’s Vice Minister of the Ministry of Human Resources and Social Security, said on Thursday that Beijing will focus on expanding jobs and promote fiscal, monetary and industrial policies to support job market stabilization.

Key quotes

“Overall job employment remains stable, but pressure has been persisting.”

“Over 2.6 trillion yuan reserves available in national social security fund, can ensure pensions are paid out on time and in full.”

Also read: China announces additional stimulus worth CNY1 trillion to rescue economy

Market reaction

The Chinese stimulus-led market optimism is boding well for the aussie, as AUD/USD adds 0.77% on the day to trade at 0.6977, as of writing. Meanwhile, USD/CNY drops 0.19% to 6.8453, extending its retreat from two-year highs.

• Asian equities have rebounded firmly after the DXY turns volatile ahead of Jackson Hole.
• Back-to-back poor performances by the top-tier US data have weakened the DXY.
• Oil prices have crossed the critical hurdle of $95.00 firmly.

Markets in the Asian domain have rebounded sharply after a weak Wednesday, following the footprints of Wall Street. Asian equities have displayed a decent upside as the US dollar index (DXY) has slipped to near 108.50 and is expected to display more weakness ahead.

At the press time, Japan’s Nikkei225 jumped 0.60%, China A50 added 0.28%, and Nifty50 gained 0.54%. Hang Seng's morning session has been canceled because of a severe storm warning.

The DXY has turned sideways after a downside move in the Asian session. Investors are dumping the DXY after back-to-back dismal performances by the US on its economic data front. From poor US Purchasing Managers Index (PMI) data that indicates contraction in the private sector to vulnerable US Durable Goods Orders, which signifies a slowdown in the overall demand.

Also, the decline in the top-tier US economic data has accelerated the odds of trim in the extent of interest rate hikes by the Federal Reserve (Fed). There is no denying the fact that the foremost priority of the Fed is to contain soaring price pressures. However, the economic activities seek an immediate response, which may compel the Fed to slow down the pace of hiking interest rates. Therefore, investors should brace for more retracement in the DXY after the commentary of Fed chair Jerome Powell at the Jackson Hole Economic Symposium.

Meanwhile, oil prices are driving higher like there is no tomorrow. After the announcement from OPEC that the cartel is considering production cuts to offset the recent carnage in the black gold, oil prices have got an adrenaline rush. Also, investors have ignored the downbeat global PMI numbers, which accelerates demand worries ahead.

• AUD/USD renews daily top as buyers poke 100-DMA for the third consecutive day.
• China announced one more stimulus to avoid looming recession.
• Softer US data, sluggish yields joined hopes of less hawkish central bank talks in Jackson Hole to favor buyers.
• Second-tier US data, risk catalysts are the key for fresh impulse.

AUD/USD rise half a percent as it dribbles around the intraday top of 0.6955 during Thursday’s Asian session. The Aussie pair’s latest gains could be attributed to the Chinese efforts to defend the world’s second-largest economy from slipping into recession, as well as expectations of witnessing less aggression of central bankers at the Jackson Hole Symposium.

On late Wednesday, China’s Cabinet, State Council, outlined a 19-point policy package while announcing economic stimulus measures worth CNY1 trillion ($146 billion) to stimulate growth affected by covid lockdowns and property market crisis, per Bloomberg.

Additionally, Li Zhong, Vice Minister of the Ministry of Human Resources and Social Security, said on Thursday that China will focus on expanding jobs and promote fiscal, monetary and industrial policies to support job market stabilization.

It should be noted, however, that global rating giant Fitch mentioned that the Chinese land market has yet to recover in a sustainable manner. On the same line could be the comments from Sara Johnson, Executive Director of Economic Research at S&P Global Market Intelligence, who said in a statement on Wednesday, that global growth is likely to remain subdued in late 2022 and 2023 while inflation is seen moderating over the next two years.

Considering the close trade ties between Australia and China, positive headlines from Beijing helps AUD/USD buyers.

Other than China headlines, mixed US data and recently sluggish US Treasury yields also underpin the Aussie pair’s upside momentum. That said, the US Durable Goods Order for July dropped to 0.0% versus 0.6% expected and an upwardly revised 2.2% previous reading. However, Nondefense Capital Goods Orders ex Aircraft rose past 0.3% market consensus to 0.4%, versus 0.9% prior. Further, Pending Home Sales improved to -1.0% MoM in July versus -4.0% expected and -8.9% prior (revised down from -8.6%). On a yearly basis, the Pending Home Sales decreased by 19.9%, versus the previous contraction of 20.0%.

Given the mixed US data and impending economic slowdown concerns, markets are hopeful that Fed Chair Jerome Powell might refrain from the hawkish stand during Friday’s speech. Even so, Fed funds futures traders are pricing in a 61% chance that the Fed will hike rates by another 75 basis points (bps) at its September meeting, and a 39% probability of a 50 basis points increase, per Reuters.

Against this backdrop, the market sentiment improved and exerted downside pressure on the US Dollar. That said, the US 10-year Treasury yields rose the most in a week the previous day while refreshing a two-month high to around 3.10%. However, mixed concerns seem to have probed the US bond sellers of late. Moving on, the Wall Street benchmarks printed mild gains, which in turn helped S&P 500 Futures to remain mildly bid at around 4,150 at the latest.

Moving on, the risk-on mood may help AUD/USD pair to remain firmer. However, the final readings of Germany’s second quarter (Q2) GDP and the second version of the US Q2 GDP will join the US Q2 Personal Consumption Expenditure (PCE) will direct intraday moves.

Technical analysis

Although a bounce from an upward sloping support line from June 14, around 0.6875 by the press time, favors short-term AUD/USD buyers, the 100-DMA level surrounding 0.6960 challenges the quote’s further advances.

• USD/INR is advancing sharply to recapture its all-time-high at 80.21.
• An ascending triangle formation indicates that bulls need to wait for more for a fresh rally.
• Ascending 200-EMA indicates that the upside bias is intact.

The USD/INR pair has displayed a firmer rebound from a low near 79.75 in the Asian session. On a broader note, the asset is oscillating in a tad wider range of 79.68-80.11 from the past week. Investors are expected to adopt a wait-and-watch approach ahead of Jackson Hole Economic Symposium.

On a four-hour scale, the asset is oscillating in an Ascending Triangle chart pattern that favors consolidation with a positive bias. The upward-sloping trendline of the above-mentioned chart pattern is placed from August 2 low at 78.41. While the horizontal resistance is plotted from all-time highs at 80.21.

The 50-period Exponential Moving Average (EMA) at 79.71 has acted as major support for the counter. Also, the 200-EMA at 79.43 is scaling gradually higher, which adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00, which indicates a consolidation ahead.

A minor correction to near 50-EMA at 79.71 will trigger a bargain buy as oscillators will get oversold. An occurrence of the same will send the asset towards 80.21. A break above 80.21 will send the asset into unchartered territory and will drive the asset towards a crucial resistance at 80.50.

On the flip side, a downside move below the August 16 low at 79.14 will drag the asset towards July 7 low at 78.90, followed by the August 2 low at 78.42.

USD/INR four-hour chart

• GBP/USD grinds higher around daily top after trashing one-week-old bearish chart formation.
• Bullish MACD signals, firmer RSI also favor buyers to aim for weekly top.
• Sellers have a bumpy road to return, 200-SMA holds the key to buyer’s conviction.

GBP/USD clings to mild gains around 1.1820 after crossing the short-term bearish channel ahead of Thursday’s London open. In doing so, the Cable pair pares the weekly gains after declining to the lowest levels since March 2020.

In addition to the channel breakout, bullish MACD signals and upward sloping RSI (14), not overbought, also underpins the GBP/USD pair’s upside bias.

As a result, the quote remains on the way to challenging the weekly top surrounding 1.1880, a break of which could quickly propel it towards the 50% Fibonacci retracement of the August 01-23 downturn, near 1.2000. However, the 1.1900 round figure may act as a buffer during the expected rise.

It’s worth noting, though, that the 200-SMA level surrounding 1.2020 appears an important hurdle for the GBP/USD bulls to cross as the clear rise beyond the same could give control to the buyers.

Alternatively, pullback moves need to drop back below the 1.1780 support confluence, comprising the previous resistance line of the stated channel, now support, as well as the two-day-old ascending trend line.

Following that, a south-run towards the recently flashed multi-month low near 1.1720 seems imminent.

However, a sustained trading below 1.1720 won’t hesitate to drag GBP/USD towards the support line of the aforementioned channel, near 1.1590 by the press time.

GBP/USD: Four-hour chart

Trend: Further upside expected

• Copper price consolidates the biggest daily loss in over a week, grinds higher around monthly top.
• China announces one more stimulus package to battle recession woes.
• Hopes of less hawkish central bank speeches at the Jackson Hole also underpin firmer sentiment.

Copper price edge higher as stimulus from the world’s largest industrial player joins cautious optimism surrounding the Jackson Hole symposium to favor the bulls during early Thursday morning in Europe. Also keeping the red metal positive is a deficit in the global refined copper market, per the latest International Copper Study Group (ICSG) monthly bulletin, published the previous day.

That said, copper futures on COMEX printed 0.15% intraday gains near the $3.6445 level by the press time whereas the three-month copper on the London Metal Exchange (LME) was up 0.2% at $8,052 a tonne, as of 02:28 GMT, per Reuters. However, the most-traded September copper contract on the Shanghai Futures Exchange (SFE) lost 0.7% to 62,910 yuan ($9,178.72) a tonne at the latest as Chinese currency rises across the board.

China’s Cabinet, State Council, outlined a 19-point policy package on Wednesday while announcing economic stimulus measures worth CNY1 trillion ($146 billion) to stimulate growth affected by covid lockdowns and property market crisis, per Bloomberg. Even so, global rating giant Fitch mentioned that the Chinese land market has yet to recover in a sustainable manner. Previously, Reuters came out with the news suggesting that various Chinese state media agencies are coming to the rescue of the local currency, the yuan, after the recent depreciation, justifying that the country’s strong exports should offset a stronger dollar and hawkish Fed rate hikes.

The mixed US data and hopes that the global central bankers would refrain from comments suggesting aggressive rate hikes, mainly due to the looming recession fears, also seemed to have favored the copper buyers. On the same line was the latest ICSG bulletin that said, “The global refined copper market showed a 66,000 tonne deficit in June, compared with a 30,000 tonne deficit in May,” per Reuters.

While portraying the mood, the US 10-year Treasury yields remain sidelined around the two-month high near 3.10% but stocks in the Asia-Pacific region and S&P 500 Futures remain mildly bid by the press time.

Looking forward, the second version of the US Q2 GDP will join the US Personal Consumption Expenditure (PCE) for the said period to decorate the calendar. However, major attention will be given to Jackson Hole for fresh impulse.

• EUR/USD picks up bids to consolidate recent losses around 19-year low.
• Hopes of likely neutral comments from Fed’s Powell at Jackson Hole favor US dollar weakness.
• German energy crisis battles China stimulus to tame recession woes.
• German/US GDP, Germany’s IFO Sentiment figures and US Core PCE data to decorate the calendar.

EUR/USD marches towards parity, up 0.20% intraday near 0.9990, as the US dollar fades upside momentum during Thursday’s European session. The major currency pair’s recent run-up could also be attributed to the market’s hopes of dovish central bankers’ speeches during the all-important Jackson Hole Symposium. It should be noted, however, that the energy crisis in Europe appears to challenge the pair bulls ahead of the second-tier data from the US and Germany.

Global markets portray cautious optimism of late as mixed US data joined hopes that the global central bankers would refrain from comments suggesting aggressive rate hikes, mainly due to the looming recession fears. Also likely to have favored the market consensus could be the recently easy PMIs and inflation signals.

Adding strength to the risk-on mood could be the headlines from China as their Cabinet, State Council, outlined a 19-point policy package on Wednesday while announcing economic stimulus measures worth CNY1 trillion ($146 billion) to stimulate growth affected by covid lockdowns and property market crisis, per Bloomberg. Even so, global rating giant Fitch mentioned that the Chinese land market has yet to recover in a sustainable manner. Previously, Reuters came out with the news suggesting that various Chinese state media agencies are coming to the rescue of the local currency, the yuan, after the recent depreciation, justifying that the country’s strong exports should offset a stronger dollar and hawkish Fed rate hikes.

It’s worth noting that the US Dollar Index (DXY) began Wednesday on a firmer footing before retreating towards 108.50 on a lack of too-strong US data. That said, the DXY drops 0.20% to 108.40 at the latest. Among the scheduled data, an improvement in US Durable Goods Orders and mixed housing figures gained major attention.

On the contrary, rallying prices of the Dutch Title Transfer Facility (TTF) natural gas futures portray the energy crisis in Germany, as well as in the bloc, amid recently increased sanctions on Russian oil. On the same line were comments from an influential economist Marcel Fratzscher of the German Institute for Economic Research mentioned, per Reuters, “The economic impact on Germany of Russia's invasion of Ukraine will last years.”

Amid these plays, the US 10-year Treasury yields rose the most in a week the previous day while refreshing a two-month high to around 3.10%. However, mixed concerns seem to have probed the US bond sellers of late. That said, the Wall Street benchmarks printed mild gains, which in turn helped S&P 500 Futures to remain mildly bid at around 4,150 at the latest.

Looking forward, the final readings of Germany’s second quarter (Q2) GDP and the second version of the US Q2 GDP will join the US Q2 Personal Consumption Expenditure (PCE) to decorate the calendar. Also important to watch will be the monthly prints of Germany’s IFO sentiment figures. However, major attention will be given to updates on the German energy crisis and Jackson Hole for fresh impulse.

Technical analysis

EUR/USD bulls struggle to retake control inside an eight-day-old bearish channel, currently between 0.9990 and 0.9920. Even if the quote crosses the 0.9990 hurdle, the 1.0000 psychological magnet and late July’s swing low near 1.0100 could test the upside momentum.

• Gold price has established above $1,750.00 and is driving higher as DXY slips sharply.
• Fed’s Powell is expected to keep an extremely hawkish stance at Jackson Hole.
• The core PCE data for the second quarter is seen as stable at 4.4%.

Gold price (XAU/USD) is advancing gradually and has recorded a fresh four-day high of $1,756.77 in the Asian session. The precious metal is enjoying bids as the US dollar index (DXY) is witnessing a self-off ahead of the Jackson Hole Economic Symposium. The DXY has displayed a bearish open test-drive session and has declined to near Tuesday’s low at 108.36.

As investors are getting mixed responses from analysts over expected commentary from Federal Reserve (Fed) chair Jerome Powell at Jackson Hole, the FX domain is expected to remain volatile. No doubt, the evidence from data speaks that the price pressures are about to find their peak, and contraction in private sector activities compels the Fed should slow down its velocity of hiking interest rates.

However, the inflation rate still holds above 8% and in order to tame the same, the Fed’s laborious job of hiking borrowing rates is far from over.

Apart from that, investors will focus on the Core Personal Consumption Expenditures (PCE) data for the second quarter, which is expected to remain steady at 4.4%.

Gold technical analysis

On an hourly scale, gold prices are attempting a break above the 38.2% Fibonacci retracement (placed from August 10 high at $1,807.93 to Monday’s low at $1,727.87) at $1,758.40. The precious metal has poked the 200-period Exponential Moving Average (EMA) at $1,756.20. Also, the 50-EMA at $1,748.46 is advancing higher, which adds to the upside filters.

Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates more upside ahead.

Gold hourly chart

Inflation hitting 3% is unlikely to budge Bank of Japan (BOJ) Governor Haruhiko Kuroda to move towards monetary policy normalization, the latest Bloomberg survey of economists showed.

Key findings

“16 of 19 analysts said that a further acceleration to 3%, the highest since 1991 excluding tax-hike years, wouldn’t increase the likelihood of policy change before Kuroda’s term ends in April.” 

“That’s because economists say inflation needs to remain at 3% or more for at least half a year before a policy shift can happen.”

“Economists have flagged that inflation isn’t the sole metric that would trigger a policy shift. “

“The need to also look at the state of paychecks, the impact from any slowdown in the global economy and moves in the yen.”

“While economists say that half a year of core inflation at 3% may trigger a policy shift, that’s not their base case. Japan forecasters expect inflation to hit 2.5% in the final three months of 2022 and then peak out toward 1% at the end of next year.”

Analysts at Societe Generale provide a bearish outlook on EUR/USD in the near term amidst the deepening European gas crisis.

Key quotes

“As oil prices rose in the run-up to the GFC, both European and US terms of trade suffered, but this time around, the relative effect is completely different.”

“From a US perspective, this highlights the positive impact on the dollar of rising energy prices; for the euro, it just highlights the scale of the challenge confronting the continent.”

“I can’t see a significant rebound for any European currency until we get through the gas crisis.”

“Our current forecasts look for EUR/USD to trough in Q3, in a 0.95-1.00 range, and while that level may be about right, it’s harder now, to see a bounce before the end of the year.”

• The formation of a Bullish Flag bolsters the odds of recapturing all-time highs at 139.40.
• Advancing 200-EMA claims that the uptrend is intact.
• For a decisive upside, the RSI (14) needs to violate 60.00.

The USD/JPY pair has witnessed a steep fall after facing barricades around 137.20 in the Asian session. The pair has slipped to near 136.60 and is expected to display topsy-turvy moves as the asset is oscillating inside Tuesday’s trading session continuously.

On an hourly scale, the asset is forming a Bullish Flag chart pattern that signals for a continuation of a bullish move after an upside break of the consolidation zone. Usually, the consolidation phase serves as an inventory adjustment in which those participants initiate longs, which prefer to enter an auction after the establishment of a bullish bias.

The 50-period Exponential Moving Average (EMA) near 137.00 has turned sideways, which indicates a consolidation ahead. While the 200-EMA at 136.00 is still advancing, this signals that the long-term trend is bullish.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range. It conveys the unavailability of a potential trigger for a conviction move.

A break above the August 24 high at 137.25 will drive the asset towards all-time highs at 139.40, followed by the round-level resistance at 144.00, which also serves as Gann’s square resistance methodology.

On the flip side, a downside move below Tuesday’s low at 135.81 will drag the asset towards the August 8 low at 134.39. A breach of the latter will drag the asset towards the August 11 low at 131.73.

USD/JPY hourly chart

• AUD/JPY picks up bids to refresh weekly top.
• China announced more stimulus to battle recession woes, Fitch doubts Beijing’s recovery.
• Yields retreat from two-month high amid hopes that policymakers may step back from hawkish mode at Jackson Hole Symposium.

AUD/JPY remains on the front foot at the highest levels since August 15 as bulls cheer China's stimulus and mildly positive market sentiment during Thursday’s Asian session.

China’s Cabinet, State Council, outlined a 19-point policy package on Wednesday while announcing economic stimulus measures worth CNY1 trillion ($146 billion) to stimulate growth affected by covid lockdowns and property market crisis, per Bloomberg. Even so, global rating giant Fitch mentioned that the Chinese land market has yet to recover in a sustainable manner.

Previously, Reuters came out with the news suggesting that various Chinese state media agencies are coming to the rescue of the local currency, the yuan, after the recent depreciation, justifying that the country’s strong exports should offset a stronger dollar and hawkish Fed rate hikes.

Elsewhere, the US 10-year Treasury yields rose the most in a week the previous day while refreshing a two-month high to around 3.10%. However, mixed concerns seem to have probed the US bond sellers of late.

That said, global traders have recently turned positive, even if mildly, amid hopes that the global central bankers may refrain from hawkish signals while speaking at the Jackson Hole Symposium. The expectations could also be witnessed in the latest comments suggesting recession woes by the policymakers from the US Federal Reserve (Fed), European Central Bank (ECB) and the Bank of Japan (BOJ). Recently, Bank of Japan (BOJ) board member Nakamura stated that BOJ must patiently maintain powerful monetary easing.

Amid these plays, the Wall Street benchmarks printed mild gains, which in turn helped S&P 500 Futures to remain mildly bid at around 4,150 at the latest.

Looking forward, a light calendar may restrict AUD/JPY moves but the pair’s risk barometer status may help it stay on the bull’s radar.

Technical analysis

A clear upside break of the one-month-old descending trend line, around 94.70 by the press time, directs AUD/JPY bulls towards July’s peak near 95.70. However, the monthly high of 95.15 may probe the intraday buyers.

• GBP/JPY takes offers to refresh intraday low, down for the second consecutive day.
• Market sentiment improves on mixed US data, China stimulus.
• Cautious optimism of Japan government, challenges for BOJ’s easy money policy seem to underpin JPY strength of late.
• A light calendar keeps risk catalysts in the driver’s seat, Jackson Hole in focus.

GBP/JPY drops for the second consecutive day as bears attack 161.50 during Thursday’s Asian session. The cross-currency pair’s latest weakness could be linked to the sluggish US Treasury yields and risk-positive headlines from China and Japan.

That said, the US 10-year Treasury yields rose the most in a week the previous day while refreshing a two-month high to around 3.10%. However, mixed concerns seem to have probed the US bond sellers of late.

Elsewhere, Bloomberg came out with the news suggesting that China’s Cabinet, State Council, outlined a 19-point policy package on Wednesday while announcing economic stimulus measures worth CNY1 trillion ($146 billion) to stimulate growth affected by covid lockdowns and property market crisis.

On the other hand, the Japanese government’s monthly economic report kept the view that its economy is "moderately picking up" pace while raising the outlook for factory output. Earlier in the day, a Reuters poll mentioned,” If Prime Minister Fumio Kishida finds inflation well above target too painful for households and businesses, he could still put the central bank under pressure.”

It should be noted that the political uncertainty in the UK and chatters that the latest inflation fears could push the Bank of Japan (BOJ) towards higher rates also seem to have exerted downside pressure on the GBP/JPY prices of late. Even so, Bank of Japan (BOJ) board member Nakamura recently stated that BOJ must patiently maintain powerful monetary easing.

Moving on, a light calendar keeps the market’s focus on the Jackson Hole Symposium. Though, headlines from China and Japan, not to forget news over the UK politics and Brexit, may also entertain GBP/JPY traders.

Technical analysis

Unless bouncing back beyond the previous support line from early March, around 163.00 by the press time, GBP/JPY remains on the back foot and can approach the 200-SMA support surrounding 159.00.

Bank of Japan (BOJ) board member Nakamura made some comments on the economic, inflation and monetary policy outlook during his appearance on Thursday.

Key quotes

Related reads

• Japanese government maintains view that economy is gradually improving

• AUD/USD bulls run with it to target, but bears could be about to move in.
• Eyes on the Gartley upside target and neckline for the day ahead. 

AUD/USD bulls have stayed the course and are homing in on the aforementioned targets that were highlighted in the prior analysis, AUD/USD Price Analysis: Bulls eye 0.6950 for Thursday's business, bears need to get below 0.6880.

The following illustrates the progress made so far within a range of 0.6902 and 0.6941:

AUD/USD Prior analysis

It was explained that the W-formations were bottoming patterns where the price had been supported by the necklines. This was a bullish scenario for the Tokyo open and the day ahead. The Gartley pattern was a bullish feature on the hourly chart whereby the target aligns with a 78.6% Fibonacci retracement o the current corrective range between recent highs and lows of 0.6965 and 0.6880. The prior structure aligns with this target as being the 0.6945/50 area on the chart. We have already seen a high of 0.6941 so far:

AUD/USD live update

As illustrated, the price has rallied towards the target area. Now the bears will be looking to take advantage of the rally:

The price will eventually run out of steam, quite possibly around the target area and there will be prospects of opportunities on the lower time frames from bearish structure to target towards the neck line of the Gartley between a 38.2% ratio and a 50% mean reversion for the day ahead.

In its monthly economic report, Japan’s government kept the view that its economy is "moderately picking up" pace while raising the outlook for factory output.

Key points

"The economy is picking up moderately.”

“It is expected to pick up ahead as we stand ready to take all possible steps to prevent infections as socioeconomic activity normalizes.”

“We are maintaining our economic view that the economy is gradually improving.”

“We are raising our forecast for factory output for the first time in seven months, as production appears to be improving.”

“Production bounced back from declines seen in April and May as China's anti-coronavirus lockdowns eased.”

"Downward deviation in world economy stemming from the global monetary tightening is emerging as risks that weigh on Japan's economy.”

"Attention needs to be fully paid to supply constraints and a price-hike impact on households and corporations."

Market reaction

USD/JPY is under heavy selling pressure in Asia this Thursday, undermined by broad US dollar weakness and risk-off market environment, as investors remain cautious ahead of the Jakcson Hole Symposium.

The spot was last seen trading at 136.73, down 0.27% on the day.

• USD/CNH takes offers to refresh intraday low around the highest levels since August 2020.
• Sustained trading beyond May’s peak, bullish MACD signals favor buyers.
• Ascending resistance line from April 2021 lures buyers, two-month-old previous trend line resistance adds to downside filters.

USD/CNH stands on slippery grounds near 6.8565 as it consolidates the recent gains around the highest levels in two years during Thursday’s Asian session.

Even so, the offshore Chinese yuan (CNH) pair remains well above the previously key resistances, which in turn joins the bullish MACD signals to keep buyers hopeful.

That said, May 2022 high near 6.8385 appears the immediate support for the USD/CNH bears to watch. It’s worth noting that a two-week-old support line near 6.8340 could also restrict the pair’s short-term downside.

In a case where the quote drops below 6.8340, it can approach the resistance-turned-support line from late May, close to the 6.8000 psychological magnet.

Meanwhile, recovery moves may initially aim for the latest peak of 6.8876 before targeting the 6.9000 round figure.

Following that, an upward sloping resistance line from April 2021, close to 6.9030 at the latest, appears the important hurdle for the USD/CNH bulls to cross.

It should be noted that the pair’s successful run-up beyond 6.9030 could help it aim for the late 2018 peak surrounding 6.9800.

USD/CNH: Daily chart

Trend: Bullish

China’s Cabinet, State Council, outlined a 19-point policy package on Wednesday while announcing economic stimulus measures worth CNY1 trillion ($146 billion) to stimulate growth affected by covid lockdowns and property market crisis, per Bloomberg.

Key takeaways

The stimulus measures will include “another 300 billion yuan that state policy banks can invest in infrastructure projects, on top of 300 billion yuan already announced at the end of June. Local governments will be allocated 500 billion yuan of special bonds from the previously unused quota.”

“Vowed to make use of “tools available in the toolbox” to maintain a reasonable policy scale in a timely and decisive manner.”

“The economy won’t be flooded with excessive stimulus and china won’t overdraw on its future policy room.”

“Pledged to approve a batch of infrastructure projects. Local authorities are encouraged to use city-specific credit policies to support reasonable housing demand.”

“Pledged to continue lowering financing costs and introduce measures to support the development of private businesses and platform companies.”

Market reaction

USD/CNY was last seen trading at 6.8474, down 0.16% on the day. The spot retreats from two-year highs of 6.8694 reached a day before.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.8536 vs the last close of 6.8579 and at the weakest level since Aug. 31, 2020.

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.

USD/CHF pares weekly gains around 0.9655, mildly offered after failing to refresh the monthly peak the previous day.

That said, the one-month risk reversal (RR) of USD/CHF, a gauge of calls to puts, paused a six-day uptrend with the latest 0.00 figures for Wednesday, per the data source Reuters.

It’s worth noting that the options market gauge still braces for the second weekly positive, in line with the USD/CHF prices, despite recent weakness in the numbers.

The options market bias could be attributed to the broad US dollar pullback ahead of second-tier US data and the all-important speech from Fed Chairman Jerome Powell at the Jackson Hole symposium, on Friday.

It should be observed that mixed US data and the market’s anxiety ahead of the key event seemed to have probed USD/CHF bulls of late.

On Wednesday, US Durable Goods Order for July dropped to 0.0% versus 0.6% expected and an upwardly revised 2.2% previous reading. However, Nondefense Capital Goods Orders ex Aircraft rose past 0.3% market consensus to 0.4%, versus 0.9% prior. Further, Pending Home Sales improved to -1.0% MoM in July versus -4.0% expected and -8.9% prior (revised down from -8.6%). On a yearly basis, the Pending Home Sales decreased by 19.9%, versus the previous contraction of 20.0%.

Looking forward, the second version of the US Q2 GDP will join the US Personal Consumption Expenditure (PCE) for the said period to decorate the calendar. However, major attention will be given to RBNZ Governor Orr’s speech at the Jackson Hole for fresh impulse.

Also read: USD/CHF Price Analysis: Clears the 50/100-DMAs on its way to 0.9700

South Korea's central bank said that its Monetary Policy Board hiked the key rate to 2.50% from 2.25% as expected.

The central bank raised its key interest rate on Thursday in a bid to keep inflation under control and prevent capital outflows as the U.S. Federal Reserve gears up for more hikes.

The Bank of Korea raises the 2022 CPI forecast to 5.2% from 4.5% in May and cut the 2022 GDP forecast to 2.6% from 2.7%.

All but one of the 36 analysts in a Reuters poll expected the bank to go for the quarter-point hike, while one expected a half-point hike.

• NZD/USD bulls are making their moves in the Tokyo open.
• The price is being resisted but a break of  0.6195 will open the risk of an upside continuation for the day ahead.

NZD/USD is a compelling playbook on the hourly chart. The price has been attempting to break higher but bouts of US dollar strength have so far kept the bulls in check. Nevertheless, the technicals lean bullish as per the following analysis:

NZD/USD H1 chart

The price is has left a Gartley pattern and the upside target aligns with prior resistance and structure. The bulls have moved in during the Tokyo open and are attempting to take out the first resistance near 0.6195. The support is now the neckline of the W-formation near 0.6190, give or take. Should this hold, then a break of the Tokyo highs will open the risk of an upside continuation for the day ahead.

• GBP/USD picks up bids to print mild gains, pares weekly losses.
• US dollar bears the burden of market’s cautious optimism ahead of the key event.
• Power bill crisis in the UK, Brexit pessimism adds to the upside barriers.
• US Q2 GDP, Core PCE data may entertain traders ahead of Powell’s showdown at Jackson Hole.

GBP/USD renews intraday high around 1.1815 as it consolidates the weekly losses amid the US dollar pullback during Thursday’s Asian session. The cable pair’s latest gains could also be linked to the hopes that the next UK government will be better in shape and action.

Britain's next prime minister must adopt radical ideas - such as discounted power tariffs, energy bill freezes or a "solidarity" tax hike for higher earners - to cushion the energy price shock for a broad swathe of households, Reuters quotes the UK’s think tank the Resolution Foundation on Thursday.

It’s worth noting that the recently increased odds favoring ex-Chancellor Rishi Sunak to become the next UK Prime Minister (PM) keep the GBP/USD buyers hopeful as he defends the Bank of England (BOE) while also braces for less spending and control to the power bill. Also favoring Sunak’s chances of being the UK PM is the medium bias towards Brexit and his financial knowledge, especially at the time of the recession fears.

On the other hand, US Dollar Index (DXY) began Wednesday on a firmer footing before retreating towards 108.50, down 0.15% at the latest, as equities pared recent losses amid a lack of too-strong US data. Also exerting downside pressure on the greenback’s gauge versus the six major currencies was the indecision among the latest Fedspeak and market chatters that Fed Chair Powell may repeat his economic fears and may refrain from too hawkish comments at the Jackson Hole Symposium.

US Durable Goods Order for July dropped to 0.0% versus 0.6% expected and an upwardly revised 2.2% previous reading. However, Nondefense Capital Goods Orders ex Aircraft rose past 0.3% market consensus to 0.4%, versus 0.9% prior. Further, Pending Home Sales improved to -1.0% MoM in July versus -4.0% expected and -8.9% prior (revised down from -8.6%). On a yearly basis, the Pending Home Sales decreased by 19.9%, versus the previous contraction of 20.0%.

Amid these plays, the US 10-year Treasury yields rose the most in a week while refreshing a two-month high of around 3.10% whereas the Wall Street benchmarks printed mild gains, which in turn helped S&P 500 Futures to remain mildly bid at around 4,150 at the latest.

Looking forward, the second version of the US Q2 GDP will join the US Personal Consumption Expenditure (PCE) for the stated period to decorate the calendar. However, major attention will be given to Jackson Hole for fresh impulse. It's worth noting that Morgan Stanley recently mentioned in its analytics that they continue to see the weak growth outlook weighing on GBP. However, we do not see a material leg lower in GBP from here given how low growth expectations already are and how bearish sentiment is already on GBP. 

Technical analysis

GBP/USD bears seem running out of steam around the multi-month low but the buyers need validation from June’s low of 1.1933 to retake control.

• EUR/USD is scaling higher towards 1.0000 amid uncertainty over Fed’s commentary at Jackson Hole.
• Two schools of thought on the Fed’s commentary have brought volatility in the DXY.
• German energy supply issues could heat up further on supply cut from Nord Stream 1 pipeline.

The EUR/USD pair has sensed buying interest after remaining sideways around 0.9960 in the Tokyo session. The pair is marching north to recapture the magical figure of 1.0000 as the US dollar index (DXY) is trading vulnerable at the open. The DXY has slipped to near 108.50 after facing selling pressure around 108.50.

Mixed responses from the market participants on Federal Reserve (Fed) chair Jerome Powell's commentary at Jackson Hole Economic Symposium on guidance over interest rates is bewildering investors. Two schools of thought on the Fed’s stance over interest rates after a contraction in the private sector are resulting in volatile moves in the DXY.

The consequences of hiking interest rates vigorously by the Fed have resulted in a meaningful decline in the PMI data. Therefore, one school of thought believes that the Fed should slow down the pace as a decline in economic activities could affect the confidence of the private sector in the economy. And, the second school of thought favors the continuation of pace in hiking interest rates as achieving price stability is the foremost priority.

On the Eurozone front, the odds of a German energy crisis are scaling higher as Nord Stream 1 pipeline for energy supply to Germany from the Baltic Sea is going under unscheduled maintenance for the last three days of August. In times, when the German energy market is already facing supply issues, more supply tightening may elevate the energy prices significantly.

Early Thursday, Reuters unveiled survey details of analysts who cut year-end predictions for most major indices from three months ago and warned the risks to that already-dull outlook were skewed to the downside. “It will be a chilly winter for global stocks,” adds the survey findings.

Key quotes

Also read: US 10-year inflation expectations print six-day uptrend to refresh 2.5-month high

• Gold price struggles to defend two-day uptrend, picks up bids of late.
• Mixed US data, cautious mood ahead of the key data/events also test XAU/USD buyers.
• US Q2 GDP, Core PCE may entertain traders ahead of Friday’s speech from Fed’s Powell.
• Powell will be scrutinized for clues on Fed’s next moves amid recession fears.

Gold price (XAU/USD) stays defensive at around $1,752 during Thursday’s Asian session, after a two-day uptrend. In doing so, the yellow metal portrays the market’s anxiety ahead of the key data/events, as well as due to the mixed outcome of the recently released statistics.

That said, US Durable Goods Order for July dropped to 0.0% versus 0.6% expected and an upwardly revised 2.2% previous reading. However, Nondefense Capital Goods Orders ex Aircraft rose past 0.3% market consensus to 0.4%, versus 0.9% prior. Further, Pending Home Sales improved to -1.0% MoM in July versus -4.0% expected and -8.9% prior (revised down from -8.6%). On a yearly basis, the Pending Home Sales decreased by 19.9%, versus the previous contraction of 20.0%.

On the other hand, economic fears underpin the US dollar’s safe-haven demand as Sara Johnson, Executive Director of Economic Research at S&P Global Market Intelligence, said in a statement on Wednesday, that global growth is likely to remain subdued in late 2022 and 2023 while inflation is seen moderating over the next two years.

However, expectations that China may overcome the recession woes and Fed’s Powell may repeat his cautious statements at the Jackson Hole also seemed to have tested the DXY bulls. “Various Chinese state media agencies are coming to the rescue of the local currency, the yuan, after the recent depreciation, justifying that the country’s strong exports should offset a stronger dollar and hawkish Fed rate hikes,” mentioned Reuters on Wednesday. Concerns about China become important for gold traders due to the dragon nation’s status as one of the world’s largest gold consumers.

Given the recently mixed market conditions, coupled with the US dollar’s resistance to refresh the multi-year high, XAU/USD may witness a pullback should Fed Chair Jerome Powell surprise markets with a hawkish tone despite the recession fears.

For intraday, the second version of the US Q2 GDP will join the US Personal Consumption Expenditure (PCE) for the said period to decorate the calendar. However, major attention will be given to Jackson Hole for fresh impulse.

Technical analysis

Gold price holds onto the bounce off the previous resistance line from mid-April, despite the latest inaction, suggesting further upside momentum towards a 10-week-old resistance line near $1,788.

However, the 38.2% Fibonacci retracement level of the June-July downturn, around $1,757, appears the immediate hurdle for the XAU/USD buyers to cross.

On the contrary, the aforementioned resistance-turned-support line could restrict the immediate downside of the bullion to around $1,720.

Following that, a horizontal area between $1,715 and $1,711, comprising multiple levels marked during July, will be important before directing gold sellers towards the yearly low near $1,680.

It’s worth noting that the bearish MACD signals and steady RSI also tests the XAU/USD bulls.

Gold: daily chart

Trend: Further recovery expected

• USD/JPY is struggling to overstep 137.20 as the focus shifts to Jackson Hole Economic Symposium.
• The DXY may recapture its weekly high at 109.27 on an expectation of hawkish Fed commentary.
• A dismal Japan PMI despite a prudent BOJ policy is a big reason to worry.

The USD/JPY pair is facing barricades around the immediate hurdle of 137.20 in the Asian session. The asset is likely to surpass the immediate barrier as pre-anxiety ahead of Jackson Hole Economic Symposium may underpin the US dollar index (DXY). Earlier, the asset rebounded firmly after printing a low of 135.81 on Tuesday. A decent buying interest near lower levels pushed the asset above 137.00 and more upside seems favored ahead.

The US dollar index (DXY) is aiming to recapture its weekly high at 109.27 as investors are expecting a continuation of the extreme hawkish stance by the Federal Reserve (Fed) chair Jerome Powell. There is no denying the fact that recent evidence of exhaustion in the price pressures has brought a sigh of relief for Fed policymakers. However, the road to achieving price stability is still far from over and the Fed will continue hiking interest rates with similar velocity.

On the Japan front, the downbeat Purchasing Managers Index (PMI) numbers released this week is a big reason to worry. The Bank of Japan (BOJ) is continuously flushing liquidity in the economy to spurt the overall growth. Despite, the continuation of a prudent monetary policy, a contraction in economic activities is worrisome for BOJ policymakers.

It looks like a shift stance by the BOJ will postpone for a prolonged period as a survey by Bloomberg indicates that the BOJ will stick to its loose policy even if inflation hits 3%.

• AUD/USD is pressured in the open vs bullish technicals.
• The bears are moving in but the price is primed for a rally.
• The Jackson Hole and US data will take precedent. 

AUD/USD is flat in the Tokyo open around 0.69 the figure, stuck in a 12 pip range so far. The US dollar has been pushed and pulled by sentiment surrounding the US economy and the Federal Reserve. The US dollar gave up some gains later in the US session on Wednesday into the London fix which enabled the Aussie firm early in the day, although the price melted thereafter and has consolidated.

Due to the less inflationary data, Fed funds futures traders are pricing in a 59% chance that the Fed will hike rates by another 75 basis points at its September meeting, and a 41% probability of a 50 basis points increase as traders get set for the Jackson Hole. Before then, we have Thursday's US Gross Domestic Product, Initial Jobless Claims and Personal Consumption Expenditures will be key ahead of the speech by Fed chair Powell at 10.00 ET Friday. 

In the past, the Fed has used this symposium to announce or hint at policy shifts. However, analysts at Brown Brothers Harriman argued that they do not think the Fed will paint itself into a corner ahead of the September 20-21 FOMC meeting. ''Rather, we expect the Fed to try and manage market expectations by maintaining the hawkish message it has perfected since the July FOMC meeting. The Fed will also have a better idea of how the economy is doing in Q3''

"The dollar's still well bid and I think that the market's concluding that these data are not going to change the Fed's position about what's going to happen next month," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

"While the market might be swinging back and forth between inflation and recession, the central banks aren't. They are focused, it seems to be nearly exclusively, on inflation," Chandler said.

Going forward Australian growth is set to slow

Analysts at Rabobank noted that the Reserve Bank of Australia forecasts growth at 3¼ per cent over 2022, underpinned by growth in consumption and a recovery in investment and service exports. ''Growth is then expected to slow to around 1¾ per cent over both 2023 and 2024. This outlook compares favourably with the Eurozone, UK and the US all of which are at risk of recession next year.  We had anticipated a pullback to AUD/USD0.69 on the back of dollar strength.  We continue to see scope for AUD/USD to clamber back to 0.71 on a 6-month view.''

AUD/USD technical analysis

The Gartley pattern is a bullish feature on the hourly chart and bulls eye a structure target that meets the 78.6% Fibonacci retracement of the current corrective range between recent highs and lows of 0.6965 and 0.6880. The prior structure also aligns with this target as being the 0.6945/50 area on the chart. The resistance until there are 0.6912, 0.6922 and 0.6931.

• US Dollar Index steadies after bulls retreated earlier in the week.
• Mixed US data, anxiety ahead of Jackson Hole symposium tests buyers.
• Market sentiment remains mildly positive, yields stay firmer around two-month high.
• Second version of US Q2 GDP, Core PCE data will be in focus ahead of Powell’s key speech.

US Dollar Index (DXY) seesaws around 108.65-70, picking up bids of late, as traders struggle for clear directions during Thursday’s Asian session.

The greenback’s gauge versus the six major currencies marked another failure to refresh the multi-year top the previous day, despite posting mild gains, as mixed data and cautious mood as the Jackson Hole symposium begins.

US Durable Goods Order for July dropped to 0.0% versus 0.6% expected and an upwardly revised 2.2% previous reading. However, Nondefense Capital Goods Orders ex Aircraft rose past 0.3% market consensus to 0.4%, versus 0.9% prior. Further, Pending Home Sales improved to -1.0% MoM in July versus -4.0% expected and -8.9% prior (revised down from -8.6%). On a yearly basis, the Pending Home Sales decreased by 19.9%, versus the previous contraction of 20.0%.

It’s worth noting that the economic fears, however, underpinned the US dollar’s safe-haven demand as Sara Johnson, Executive Director of Economic Research at S&P Global Market Intelligence, said in a statement on Wednesday, that global growth is likely to remain subdued in late 2022 and 2023 while inflation is seen moderating over the next two years.

On the other hand, hopes that China may overcome the recession woes and Fed’s Powell may repeat his cautious statements at the Jackson Hole also seemed to have tested the DXY bulls. “Various Chinese state media agencies are coming to the rescue of the local currency, the yuan, after the recent depreciation, justifying that the country’s strong exports should offset a stronger dollar and hawkish Fed rate hikes,” mentioned Reuters on Wednesday.

That said, the US 10-year Treasury yields rose the most in a week while refreshing a two-month high of around 3.10% whereas the Wall Street benchmarks printed mild gains, which in turn helped S&P 500 Futures to remain mildly bid at around 4,150 at the latest.

Moving on, the second version of the US Q2 GDP will join the US Personal Consumption Expenditure (PCE) for the said period to decorate the calendar. However, major attention will be given to Jackson Hole for fresh impulse. “Jerome Powell's speech in Jackson Hole will be scrutinized for any indication that an economic slowdown might alter the Fed’s strategy,” mentioned Reuters ahead of the key speech from Fed’s Powell. The update also mentioned that the US dollar could give back some gains on Friday if Powell expresses any concerns about the impact of the monetary tightening.

Technical analysis

DXY remains sidelined unless crossing the range between 109.30 and 108.30, comprising the yearly peak and a two-week-old support line respectively.

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, rose for the sixth consecutive day at the latest as bulls prepare for Friday’s key Jackson Hole speech from Fed Chair Jerome Powell.

That said, the inflation precursor marched to 2.62% by the end of Wednesday’s North American session, after crossing July’s high on Friday.

The jump in the US inflation expectations could push Fed Chair Powell to sound hawkish as it stays well beyond the Fed's 2% target, not to forget the actual Consumer Price Index (CPI) data that is around 8.5% YoY at the latest.

“Jerome Powell's speech in Jackson Hole will be scrutinized for any indication that an economic slowdown might alter the Fed’s strategy,” mentioned Reuters. The update also mentioned that the US dollar could give back some gains on Friday if Powell expresses any concerns about the impact of the monetary tightening.

Also read: EUR/USD treads water around mid 0.9900s with eyes on Jackson Hole

• WTI seesaws around three-week high, picks up bids of late.
• EIA oil inventories dropped more than expected during the week ended on August 19.
• Concerns about US resistance to additional concessions to Iran also favor oil buyers.
• Mixed sentiment surrounding China and global growth tests the oil buyers.

WTI crude oil prices defend the 200-DMA breakout around $95.10 during Thursday’s initial Asian session. In doing so, the black gold justifies downbeat inventory numbers and expectations of no sooner arrival of Iranian oil to the markets.

The weekly stockpile data from the US Energy Information Administration (EIA) mentioned that the inventories dropped by 3.282M during the week ended on August 19, versus -0.933M expected and -7.056M prior.

On the other hand, the concerns that the US will not consider additional concessions to Iran in its response to a draft agreement that would restore Tehran's nuclear deal - and potentially the OPEC member's crude exports, per Reuters, also favor the black gold prices. The news also adds, “Oil was also supported after Saudi Arabia suggested this week that the Organization of the Petroleum Exporting Countries (OPEC) could consider cutting output, though bearish economic signals from central bankers and falling equities weighed.”

Furthermore, the US dollar’s resistance to refresh the multi-year high, mixed US data and hopes that China may overcome the economic woes add strength to the energy benchmark’s upside momentum.

US Dollar Index (DXY) began Wednesday on a firmer footing before retreating towards 108.50 as equities pared recent losses amid a lack of too-strong US data. Talking about the US data, Durable Goods Order for July dropped to 0.0% versus 0.6% expected and an upwardly revised 2.2% previous reading. However, Nondefense Capital Goods Orders ex Aircraft rose past 0.3% market consensus to 0.4%, versus 0.9% prior. Further, Pending Home Sales improved to -1.0% MoM in July versus -4.0% expected and -8.9% prior (revised down from -8.6%). On a yearly basis, the Pending Home Sales decreased by 19.9%, versus the previous contraction of 20.0%.

“Various Chinese state media agencies are coming to the rescue of the local currency, the yuan, after the recent depreciation, justifying that the country’s strong exports should offset a stronger dollar and hawkish Fed rate hikes,” mentioned Reuters on Wednesday.

Amid these plays, Wall Street printed mild gains and helps the S&P 500 Futures to remain mildly bid at around 4,150. That said, the US Treasury yields remain sidelined after refreshing the two-month peak near 3.10%.

Moving on, risk catalysts are the key while the second version of the US Q2 GDP will join the US Personal Consumption Expenditure (PCE) for the said period to decorate the calendar.

Technical analysis

A daily closing beyond the 200-DMA level surrounding $94.90, as well as crossing the $95.00 hurdle, keeps WTI buyers hopeful.

• AUD/JPY is facing barricades around 94.80 for the entire week.
• Higher interest rates by the RBA have resulted in a contraction in economic activities.
• The BOJ will stick to its prudent monetary policy even if inflation hits 3%

The AUD/JPY pair is continuously struggling to surpass the immediate hurdle of 94.80 for the entire week. The risk barometer is displaying topsy-turvy moves in a 94.10-94.83 range and a potential trigger is required for a decisive movement. This week, the release of the Purchasing Managers Index (PMI) numbers by Australia and Japan has failed to bring a significant impact on the asset.

The Australian Manufacturing PMI slipped sharply to 54.5 vs. expectations of 57.3 and the prior release of 55.7. Also, the Services PMI data landed lower to 49.6 against the forecasts of 54 and the former figure of 50.9. Not only the Australian economy has recorded a downward shift in the PMI data, other Western leaders have also displayed a vulnerable performance.

As price pressures are not displaying signs of exhaustion and the central banks are hiking their interest rates vigorously to contain the former, the private sector is becoming the major victim of the entire process. The unavailability of cheap money is forcing them to have caution while picking the investment opportunities and executing the expansion plans. This has led to a serious contraction in economic activities.

On the Tokyo front, the cross wires from Bloomberg are announcing that the Bank of Japan (BOJ) will stick to its prudent monetary policy even if inflation hits 3% after a survey. The economists believe that the rising price rise index is not the sole purpose for shifting to a neutral stance. Japan’s economy is also facing the headwinds of lower paychecks to the households. So continuous higher labor cost index along with price pressures for a decent period is required to shift the BOJ’s stance.

Going forward, investors' focus will remain on the Tokyo Consumer Price Index (CPI), which will release on Friday. The plain-vanilla and core CPI are expected to remain steady at 2.5% and 1.5% respectively.

The latest survey of economists by Bloomberg, published late Wednesday, showed that Bank of Japan (BOJ) Governor Haruhiko Kuroda is unlikely to move toward normalization in the final months of his term, even if inflation hits 3%. The findings also raised the possibility of a policy change if the inflation marks a prolonged spell at that level (3.0%).

Key findings

"While economists say that half a year of core inflation at 3% may trigger a policy shift, that’s not their base case. Japan forecasters expect inflation to hit 2.5% in the final three months of 2022 and then peak out toward 1% at the end of next year."

"BOJ watchers have seen Japan’s key price measure come in above the central bank’s 2% target for four straight months and continue to pick up speed."

"But 16 of 19 analysts said that a further acceleration to 3%, the highest since 1991 excluding tax-hike years, wouldn’t increase the likelihood of policy change before Kuroda’s term ends in April."

"Economists have flagged that inflation isn’t the sole metric that would trigger a policy shift. They cite the need to also look at the state of paychecks, the impact from any slowdown in the global economy and moves in the yen."

"If Prime Minister Fumio Kishida finds inflation well above target too painful for households and businesses, he could still put the central bank under pressure."

"Bond market expectations that Kuroda’s replacement may consider tweaking policy in the first few months after he steps down next April have begun to edge higher again."

Also read: USD/JPY Price Analysis: Bears are stepping on the gas and a move to 135.50 could be on the cards

• AUD/NZD has sensed buying interest after the release of the vulnerable NZ Retail Sales data.
• The NZ Retail Sales have declined to -2.3% vs. the former release of -0.5%.
• Dismal improvement in the labor cost index is a major reason behind weaker Retail Sales.

The AUD/NZD pair has picked significant bids near 1.1160 as Statistics New Zealand has reported vulnerable Retail Sales figures. The economic data has landed at -2.3%, lower than the prior release of -0.5%. This indicates that the overall demand in the kiwi zone is declining sharply led by soaring price pressures.

It is worth noting that higher price pressures should result in higher Retail Sales as households are needed to make more payouts to offset the increment in prices. However, the overall Retail Sales have declined, which indicates a serious slowdown in retail demand. Investors should be aware of the fact that the labor cost index is not rising as per the responsiveness in the price rise index. Therefore, households are buying the necessity goods as their demand cannot be postponed but are ditching the purchase of durable goods.

No doubt, to tame high price pressures, the Reserve Bank of New Zealand (RBNZ) is continuously hiking its Official Cash Rate (OCR). The OCR has stepped up to 3% after four consecutive 50 basis points (bps) rate hikes announcement by RBNZ Governor Adrian Orr. More rate hike announcements are on cards as the inflation rate is still far from the desired rate.

On the aussie front, investors have ignored the downbeat Australian PMI numbers. The S&P Global Manufacturing PMI slipped sharply to 54.5 vs. expectations of 57.3 and the prior release of 55.7. While the Services PMI data landed lower to 49.6 against the forecasts of 54 and the former figure of 50.9.