Federal Reserve Governor Christopher Waller said on Friday that it was too soon to say whether inflation was moving meaningfully and persistently downward, as reported by Reuters.

Key takeaways

"I support another significant hike in two weeks."

"The pace of tightening is uncertain; it will depend on the data."

"Fears of a recession have faded; robust US labor market is giving us the flexibility to be aggressive in our fight against inflation."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen losing 0.6% on a daily basis at 109.00.

"A steady path of rate hikes, predictable adjustments based on data could improve market functioning, facilitate balance sheet runoff," Kansas City Fed President Esther George said on Friday, as reported by Reuters.

Additional takeaways

"For interest rate hikes, steadiness and purposefulness over speed."

"Case for continuing to remove policy accommodation is clear cut, but peak policy rate is likely just speculation at this point."

"Sustained policy response required to address inflation; only careful observation of the economy will show how much more tightening is required."

"Fed should clearly signal resolve to shrink the balance sheet."

"There may be benefits to announcing desired reserve levels as the balance sheet shrinks."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen losing 0.6% on the day at 109.00.

The recent pullback of the US dollar makes analysts at MUFG Bank more cautious over chasing the greenback further to the upside in the near term. They warn that next week’s US CPI report for August poses another downside risk for USD.

Key Quotes:

“It has been a volatile week in the foreign exchange market. In the first half of the week the dollar extended its recent advance hitting fresh year to date highs against other major currencies. EUR/USD hit a fresh year to date low of 0.9864 on Tuesday followed by cable hitting fresh year to date low at 1.1406, and USD/CNY and USD/JPY hitting fresh year to date highs at 6.9799 and 144.99 respectively on Wednesday. After putting in place fresh year to date highs the USD has since corrected sharply lower in recent days. It has been the largest sell-off for the dollar index since July.”

“The pullback for the USD has made us more cautious over chasing further USD upside in the near-term. We are not convinced that it is the start of a more sustained reversal lower for the USD, but there is a risk it could drop further in the near-term.”

“One potential downside risk in the week ahead for the USD is the release of the latest US CPI for August. The Fed has already downplayed the weaker US CPI report for July, but another weaker CPI report for August could challenge market expectations for a third consecutive 75bps hike later this month.”
 

The Canadian employment report released on Friday showed weaker-than-expected numbers, with an unexpected  decline in net employment. Analysts at CIBC point out the weak headline figures may have the Bank of Canada questioning its apparent commitment to even higher interest rates but they noted numbers could rebound in the months ahead due to education employment. 

Key Quotes: 

“Summer lulling continued in the Canadian labour market, with a 40K drop in jobs marking the third consecutive monthly decline. However, unlike the prior two months, the latest drop can't be easily brushed aside as a consequence of reduced labour supply. Indeed, the participation rate actually edged up in August, meaning that the decline in employment took the jobless rate up to 5.4%, from 4.9% in the prior month. Yet with the decline in employment partly a result of a large drop in education, which often sees volatility in summer months, we doubt that today's weak headline numbers will change the Bank of Canada's commitment towards raising interest rates further.”

“The decline in jobs during August was focussed on full-time (-77k) and public sector (-28k) positions. By sector, a 28K drop in construction jobs (a sector previously booming) shows that interest rate hikes are having an impact on the labour market. However, the near 50K decline in education employment is more likely to represent difficulties in seasonal adjustments within this sector, and as a result we should see a rebound in the months ahead.”

“The weak headline figures may have the Bank of Canada questioning its apparent commitment to even higher interest rates. However, with the large drop in education employment potentially reversing ahead, and with one more labour force survey before the Bank's October meeting, it still seems likely that at least one more rate hike will be in store before a pause is seen.”

Analysts at Wells Fargo continue to see further US dollar strength through the end of this year. They point out that despite a more aggressive pace of tightening from foreign central banks, they doubt international policymakers will be able to keep pace with the tightening cycle laid out by the Federal Reserve.

Key Quotes: 

“Despite a more aggressive pace of tightening from select international central banks, the Federal Reserve is still likely to lead the charge toward tighter monetary policy. In that sense, we continue to forecast a stronger U.S. dollar through the end of this year. That dollar strength should materialize as the Fed raises interest rates an expected 75 bps in September and continues to shrink its balance sheet.”

“We believe the dollar will strengthen against both G10 and emerging market currencies, only peaking once Fed policymakers start to consider unwinding rate hikes as the U.S. economy enters recession.”

• Aussie among top performers on Friday.
• AUD/USD retreat from near 0.6880 found support at 0.6820.
• AUD/NZD prints one-week highs around 1.1200.

The AUD/USD peaked during the European session at 0.6877, the highest level since August 31 and then pulled back amid a stabilization of the greenback. The retreat found support at 0.6820 and the pair is about to end the week on a positive note with gains.

A broad-based correction of the US dollar, higher commodity and equity prices are helping the aussie confirm weekly gains. The Australian dollar is among the top performers on Friday. Against the kiwi hit one-week highs, with AUD/NZD testing levels above 1.1200.

On a weekly basis, the AUD/USD managed to rebound from under 0.6700 and is it about to end the week with gains. Most important, it is avoiding a weekly close below 0.6770 that would have been the lowest since 2020, opening the doors to fresh lows.

Inflation and employment

Two critical reports are due next week for the AUD/USD pair. In the US, will be August inflation on Tuesday. The figures will have critical implications for market expectations regarding the next Federal Reserve meeting. Powell remained hawkish during the week, although a slowdown in the annual inflation rate could start to alleviate rate hike expectations, not necessarily for the September FOMC meeting.

On Thursday, Australian labor market data will be released. After a disappointment in July, the August report is expected to show an improvement. Market consensus is for a 35K increase in jobs. Another weak number could weigh on the aussie, as market participants would see more likely a 25 basis points rate hike from the Reserve Bank of Australia, rather than a larger increase.

AUD/USD weekly chart 

Technical levels

• Sharp reversal in gold shows recovery is not an easy road.
• The dollar trims losses on Friday amid risk appetite and a rebound in US yields.
• The daily chart shows XAUUSD in a bearish channel, hovering around $1710.

Gold turned to the downside again after approaching the $1730 area and pulled back sharply toward $1710, erasing daily gains on Friday. Stabilization of the US Dollar and a rebound in yields weighed on the yellow metal.

XAUUSD failed to break the critical resistance around $1730 and weakened. A break above would strengthen the outlook for gold, targeting first $1745 and then exposing a downtrend line at $1760. On the flip side, a daily close below $1695 would expose the long term support area at $1675 (2021 and 2022 lows).

Dollar down, but off lows

The greenback moved off lows, with the DXY rising back toward 109.00 and the US 10-year yield recovering 3.30%. Those moves, made the barrier around $1730 in gold stronger.

Not even the better tone in Wall Street capped the retreat. XAUUSD found support at $1710$ and it is about to end the week hovering around $1715, below key resistance levels but also holding above $1700.

On Thursday, Fed Chair Powell continued with the hawkish tone. Next week, the key number will be August US CPI on Tuesday. If market participants see in the numbers that a peak has been reach, gold could benefit.

XAUUSD daily chart

• EUR/USD extends the recovery to 3-week highs past 1.0100.
• Further gains lie ahead once the 7-month resistance line is cleared.

EUR/USD regains upside traction and climbs to levels beyond 1.0100, or multi-week highs, on Friday.

Further upside should now meet the temporary hurdle at the 55-day SMA at 1.0152 ahead of the 7-month resistance line, today near 1.0200, an area also coincident with a minor up barrier at 1.0202 (August 17). The pair should see its downside pressure mitigated once this region is cleared.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0760.

EUR/USD daily chart

Gold has managed to attracts fresh buying on the last day of the week. However, strategists at TD Securities expect the yellow metal to remain under downside pressure.

Money managers continue to sell their length

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

“Gold tends to outperform in the earlier stages of a hiking cycle, but have displayed a systematic underperformance when markets expect the real level of the Fed funds rate to rise above the neutral rate. In turn, while gold prices may now have accurately captured the expected level of interest rates, they are not reflecting the implications of a sustained period of restrictive policy.”

“Money managers continue to sell their length, while ETF holdings of gold remain in a sustained downtrend which will soon erode all safe-haven-led gains since the war in Ukraine.”.

In a report published on Friday, the Financial Times said that the European Central Bank (ECB) policymakers have agreed to start discussions on shrinking its balance sheet in early October.

The ECB is likely to decide by the end of the year to reduce the amount of maturing bonds it replaces in a portfolio of mostly government securities.

Market reaction

The shared currency failed to benefit from this headline. As of writing, the EUR/USD pair was trading at 1.0055, where it was up 0.6% on a daily basis.

The Canadian Labour Force Survey delivered more bad news in August. There is always a sense of caution in extrapolating implications from monthly jobs report to the CAD, but with USD/CAD finding its way back down to 1.30, that level may look attractive for many to fade, economists at TD Securities report.

Canadian employment down for third straight month

“Employment fell by another 39.7K in August, well below expectations for a 15K increase, to build on the loss of 74K jobs over the previous two months. We also saw a sharp rise in the unemployment rate to 5.4%, although stronger wage growth will cloud the broader implications for the Bank of Canada.”

“We doubt this number is the catalyst to instigate CAD weakness, but it may start to kick off the domino effect of bad news. That should keep the shelf life of CAD rallies short-lived.”

“USD/CAD near 1.30 should be solid support and a base to leg into longs.”

• USD/CAD recovers around 50 pips from over a one-week low touched earlier this Friday.
• Aggressive Fed rate hike bets assist the USD to trim a part of its heavy intraday losses.
• Disappointing Canadian jobs data weighs on the domestic currency and offers support.
• Rallying crude oil prices continue to underpin the loonie and cap the attempted bounce.

The USD/CAD pair stages a goodish rebound from the 1.2980 region, or over a one-week low touched this Friday, though remains in the negative territory for the third successive day. The pair is seen trading near the 1.3025 region during the early North American session, still down nearly 0.50% for the day.

Expectations that the Federal Reserve will tighten its monetary policy at a faster pace assist the US dollar to trim a part of its heavy intraday losses to a fresh monthly low. The Canadian dollar, on the other hand, is undermined by disappointing domestic employment data. This, in turn, offers some support to the USD/CAD pair and contributes to the intraday recovery of over 50 pips.

Statistics Canada reported this Friday that the number of employed people declined by 39.7K in August against expectations for an addition of 15K. Further details of the publication revealed that full-time employment declined by 77.2K and the Unemployment Rate rose from 4.9% in July to 5.4% during the reported month. This, however, was offset by a strong rally in crude oil prices.

Against the backdrop of a symbolic output cut by OPEC+, Russia's threat to cut oil flows to any country that backs a price cap on its crude raises concerns about tight global supply. Rising oil prices offer support to the black liquid, which is underpinning the commodity-linked loonie amid a more hawkish Bank of Canada. This, in turn, keeps a lid on any further recovery for the USD/CAD pair.

Furthermore, the markets already seem to have fully priced in a supersized 75 bps rate hike at the next FOMC meeting on September 20-21. This, along with subdued action around the US bond yields, might hold back the USD bulls from placing aggressive bets. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further appreciating move for the USD/CAD pair.

In the absence of any relevant economic releases from the US, scheduled speeches by Fed officials will play a key role in influencing the USD demand. Apart from this, oil price dynamics will be looked upon to grab short-term trading opportunities. Nevertheless, the USD/CAD pair remains on track to register heavy weekly losses and snap a four-week winning streak to the 1.3200-1.3210 strong barrier.

Technical levels to watch

• DXY adds to the weekly decline and revisits the 108.40/35 band.
• A deeper drop to the 107.60 area should not be ruled out.

DXY intensifies the weekly retracement and breaks below the key 109.00 support with certain conviction on Friday.

Despite the corrective decline, the underlying bullish view in the dollar remains unchanged. That said, the index could allow a deeper drop to, initially, the weekly low at 107.58 (August 26). The proximity of the temporary 55-day SMA, today at 107.17, also reinforces this support zone.

In the meantime, the short-term constructive perspective remains bolstered by the 7-month support line just below 106.00.

Looking at the long-term scenario, the bullish view in the dollar remains in place while above the 200-day SMA at 101.33.

DXY daily chart

• USD/JPY stages an intraday bounce from a multi-day low touched earlier this Friday.
• The USD trims a part of heavy intraday losses and offers some support to the major.
• The risk-on impulse undermines the safe-haven JPY and contributes to the recovery.

The USD/JPY pair rebounds swiftly from a three-day low touched earlier this Friday, though struggles to capitalize on the attempted recovery move. The pair is currently trading around the 142.30-142.25 area, still down nearly 1.25% for the day.

The US dollar trims a part of its heavy intraday losses to a fresh monthly low and continues to draw support from rising bets for a more aggressive policy tightening by the Fed. Apart from this, the risk-on impulse - as depicted by a generally positive tone around the equity markets - undermines the safe-haven Japanese yen and assists the USD/JPY pair to attract some buying near the mid-141.00s.

The markets, however, already seem to have priced in a supersized 75 bps rate hike at the September FOMC meeting. Furthermore, speculations that authorities may soon step in to arrest the freefall in the JPY hold back traders from placing aggressive bets around the USD/JPY pair. This, in turn, might keep a lid on any meaningful upside for spot prices, at least for the time being.

That said, a big divergence in the monetary policy stance adopted by the Bank of Japan and the US central bank warrants some caution before confirming that the USD/JPY pair has topped out. Hence, Friday's sharp downfall might still be categorized as a corrective pullback amid extremely overbought conditions, especially after a strong rally of nearly 30% since the beginning of the year.

There isn't any major market-moving economic data due for release from the US on Friday. Hence, the focus will remain on scheduled speeches by Fed officials, which will play a key role in influencing the USD price dynamics. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch

The Unemployment Rate in Canada rose to 5.4% in August from 4.9% in July, Statistics Canada reported on Friday. This reading came in worse than the market expectation of 5%.

Further details of the publication revealed that the Net Change in Employment was -39.7K, compared to the market expectation of +15K. Full-time employment declined by 77.2K and part-time employment increased by 37.5K in the same period.

The Participation Rate improved modestly to 64.8% from 64.7% in July.

Market reaction

With the initial reaction, USD/CAD gathered recovery momentum and erased a portion of its daily losses. As of writing, the pair was still down 0.5% on the day at 1.3028.

EUR/USD has surged above parity. However, the pair is unlikely to extend its race higher, in the opinion of economists at MUFG Bank.

Energy crisis will continue to cap the euro

“We still believe the energy crisis in Europe will continue to limit how far the euro can strengthen on the back of a hawkish ECB, and eventually limit how far the ECB will be to hike rates beyond this year.”

“We remain sceptical over EUR/USD’s ability to extend its advance much further above parity.”

The pullback for USD/JPY has gathered momentum. However, economists at MUFG Bank expect this move to run out of steam without action from the Bank of Japan (BoJ).

Japan is considering intervening to support the yen

“The heightened risk of intervention and/or a shift in BoJ policy has already helped the yen to rebound in recent days but the comments will need to be backed up by action for the pullback in USD/JPY to prove sustainable.”

“Without policy action from Japan, USD/JPY’s upward trend could quickly resume on the back of expectations for monetary policy divergence from the BoJ and Fed. There has been no indication that the Fed is considering scaling back their own plans for policy tightening in the near-term.”

In the view of Kit Juckes, Chief Global FX Strategist at Société Générale, GBP/USD may trade in a low range for now, but King Chares III is set to see the British pound value falling.

Next 10% move in USD/JPY more likely to be down than up

“The aggressive fiscal reactions to higher energy prices support a view that while we may not have seen the dollar’s peak, it isn’t very far away.”

“There’s a lot of bad news embedded in current FX levels and a period of EUR/USD and GBP/USD trading in low ranges is more likely than fresh 10% fall from here. It’s now much more likely the next 10% move in USD/JPY is down than up, too.”

“The long run sterling outlook is, however, a different story. There’s a strong chance that King Charles III will be the first British monarch to pay more than a pound for a dollar, or more than a pound for a euro or both. Neither is likely this year, but sterling’s post-GFC downtrend won’t end until there’s a seismic change in the direction of economic policy and the economy.”

• EUR/JPY comes under pressure following earlier new cycle tops.
• The ongoing corrective decline could extend to the 138.70 region.

EUR/JPY advances to new tops near 144.70, an area last traded back in January 2015, before embarking on a corrective drop.

The cross comes down from the overbought territory and the ongoing technical move carries the potential to extend to the 138.70 region, an area coincident with the September low and the 55-day SMA.

In the meantime, while above the 200-day SMA at 134.84, the prospects for the pair should remain constructive.

EUR/JPY daily chart

The Bank of England (BoE) announced on Friday that they postponed the interest rate announcement by a week to September 22 from September 15, as reported by Reuters.

No additional details had been shared yet on the matter.

Market reaction

With the initial market reaction, the British pound seems to have lost some interest. As of writing, the GBP/USD pair, which touched a daily high of 1.1650 earlier in the day, was trading at 1.1590, where it was still up 0.8% on a daily basis. 

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group review the latest interest rate decision by the BNM.

Key Takeaways

“As widely expected, Bank Negara Malaysia (BNM) raised the Overnight Policy Rate (OPR) today (8 Sep) by 25bps to 2.50%. This marks the third back-to-back rate hike since BNM started the hiking cycle in May this year as the economy recovered at a stronger pace. To date, BNM has hiked 75bps, which partly reversed the 125bps of rate cuts since the start of the pandemic in Jan 2020.”

“In the latest monetary policy statement (MPS), BNM continues to expect the domestic economy to expand, supported by private sector spending amid the transition to endemicity, positive labour market conditions, resumption of tourism activities and investments. However, BNM cautioned that external demand is expected to moderate amid softer global growth. BNM expects inflation to peak in 3Q22 before moderating thereafter amid abating base effects and easing global commodity prices.”

“BNM highlighted that there is no ‘pre-set course’ and the monetary policy committee (MPC) will continue to assess developments and their impact on domestic inflation and growth. BNM also reiterated that any adjustments will be done in a ‘measured and gradual’ manner. We think BNM may have signalled a temporary pause for rate hikes pending forward-looking growth and inflation dynamics. As such, we maintain our OPR target at 2.50% by year-end, and 3.00% by mid-2023. The next and final monetary policy meeting for the year is on 2-3 Nov.”

Canadian employment details overview

Statistics Canada is scheduled to publish the monthly employment details for August later this Friday at 12:30 GMT. The Canadian economy is anticipated to have added 15K jobs during the reported month, up sharply from the 30.6K fall reported in July. Meanwhile, the unemployment rate is expected to edge higher to 5.0% in August from the 4.9% previous.

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

How could the data affect USD/CAD?

Ahead of the key release, the USD/CAD pair plunges below the 1.3000 psychological mark, hitting over a one-week low and is pressured by a combination of factors. A further recovery in crude oil prices from a multi-month low touched the previous day continues to underpin the commodity-linked loonie. Apart from this, the risk-on impulse drags the safe-haven US dollar further away from a two-decade high and further contributes to the heavily offered tone surrounding the major.

A stronger domestic data should provide an additional lift to the Canadian dollar and confirm a near-term bearish breakdown for the USD/CAD pair. Some follow-through selling below the 1.2970-1.2960 area, or the 50% Fibonacci retracement level of the August-September rally, will pave the way for additional losses. Spot prices might then accelerate the fall further towards testing the 1.2900 round figure.

Conversely, any disappointment from the Canadian jobs report is more likely to be overshadowed by the Bank of Canada's hawkish bias, indicating the need to raise interest rates further. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the downside. That said, worries about a deeper global economic downturn and hawkish Fed expectations should limit the downside for the buck, which, in turn, might lend support to the major.

Key Notes

  •  Canadian Jobs Preview: Forecasts from five major banks, gains again after two months of losses

  •  USD/CAD Analysis: Double-top, ascending channel breakdown in play ahead of Canadian jobs data

  •  USD/CAD: Prospects for a loonie rebound will improve in 2023 – Wells Fargo

About the Employment Change

The employment Change released by Statistics Canada is a measure of the change in the number of employed people in Canada. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive, or bullish for the CAD, while a low reading is seen as negative or bearish.

About the Unemployment Rate

The Unemployment Rate released by Statistics Canada is the number of unemployed workers divided by the total civilian labour force. It is a leading indicator for the Canadian Economy. If the rate is up, it indicates a lack of expansion within the Canadian labour market. As a result, a rise leads to weaken the Canadian economy. Normally, a decrease of the figure is seen as positive (or bullish) for the CAD, while an increase is seen as negative or bearish.

European Central Bank (ECB) President Christine Lagarde is responding to the Q&A at a press conference at the Eurogroup Meetings, in Prague.

Key quotes

Related reads

• Lagarde speech: ECB will deliver on price stability, its top priority
• EU’s Gentiloni: Recession is not inevitable, but risk of one has increased

European Central Bank (ECB) President Christine Lagarde is speaking at a press conference at the Eurogroup Meetings, in Prague.

Key quotes

Market reaction

EUR/USD remains unfazed by Lagarde’s comments, keeping its range below 1.0100. The pair is preserving a 1% gain on the day.

• Gold gains strong positive traction on Friday amid aggressive USD long-unwinding trade.
• Aggressive Fed rate hike bets, elevated US bond yields should help limit the USD losses.
• The risk-on impulse could further contribute to capping the safe-haven precious metal.

Gold attracts fresh buying on the last day of the week and climbs to a nearly two-week high during the early part of the European session. The XAU/USD is currently placed just below the $1,730 level and is looking to build on its recent bounce from the lowest level since July 21 touched last week.

The US dollar comes under heavy selling pressure on Friday and retreats further from a two-decade high, which turns out to be a key factor boosting demand for the dollar-denominated commodity. The steep USD downfall to a fresh monthly low could be solely attributed to some long-unwinding and is more likely to remain limited amid hawkish Fed expectations.

In fact, the US central bank is anticipated to tighten its monetary policy at a faster pace to tame inflation and the bets were reaffirmed by Fed Chair Jerome Powell on Thursday. Speaking at a Cato Institute conference, Powell reiterated the central bank's strong commitment to bringing inflation down and added that the Fed needs to keep going until it gets the job done.

Powell's remarks reaffirmed market bets for a supersized 75 bps rate hike at the next FOMC meeting on September 20-21. This remains supportive of elevated US Treasury bond yields, which should help limit any meaningful USD corrective slide. Moreover, other major central banks, except the Bank of Japan, have also maintained a more hawkish bias.

Apart from this, the risk-on impulse - as depicted by a generally positive tone around the equity markets - might further contribute to capping the upside for the safe-haven metal. This, in turn, warrants some caution for aggressive bulls. Nevertheless, gold remains on track to register weekly gains and snap a three-week losing streak.

Technical levels to watch

European Union (EU) Economics Affairs commissioner Paolo Gentiloni is speaking at a press conference at the Eurogroup Meetings, in Prague.

Key quotes

Related reads

• ECB asks bank to analyze the gas-stop impact
• Eurogroup Head Donohoe: We are united in putting in place a level of response that will reduce inflation

Eurogroup President Paschal Donohoe is speaking at a press conference at the Eurogroup Meetings, in Prague.

Key quotes

Market reaction

At the time of writing, EUR/USD is little changed around 1.0084, higher by 0.90% on the day.

• Silver scales higher for the third successive day and climbs to a two-week high on Friday.
• Mixed technical set-up warrants caution for bulls, before positioning for further move up.
• A convincing break below the $18.00 mark is needed to shift the bias in favour of bears.

Silver prolongs its recent recovery move from the lowest level since June 2020 and gains traction for the third successive day on Friday. This also marks the fifth day of a positive move in the previous six and lifts the white metal to a two-week high, closer to the $19.00 mark during the first half of the European session.

This week's breakout through the top end of a nearly one-month-old descending channel and a subsequent strength beyond the 100-period SMA on the 4-hour chart is seen as a key trigger for bullish traders. This might have set the stage for additional near-term gains, though mixed oscillators on hourly/daily charts warrant some caution.

Technical indicators on the daily chart - though have been recovering from the negative territory - as yet to confirm a bullish bias. Moreover, RSI (14) on the 4-hour chart is already flashing slightly overbought conditions. This makes it prudent to wait for some consolidation or a modest pullback before positioning for the next leg up.

From current levels, any meaningful slide is likely to find decent support near the $18.60-$18.50 region ahead of the descending trend-channel breakpoint, currently around the $18.20-$18.15 zone. Some follow-through selling below the $18.00 mark will negate the positive bias and suggest that the corrective bounce has run out of steam.

On the flip side, momentum beyond the $19.00 round figure is likely to confront stiff resistance near the 200-period SMA on the 4-hour chart. The said barrier, currently around the $19.35 region, should now act as a key pivotal point. Sustained strength beyond will reaffirm the constructive outlook and pave the way for further upside.

Silver 4-hour chart

Key levels to watch

Reuters is reporting on Friday that the European Central Bank (ECB) has written to banks telling them to analyze the gas-stop impact.

Additional takeaways

“The ECB is to discuss readiness with executives by the end of September.”

“The ECB is concerned over potential wave of defaults via energy crisis.”

The European Union (EU) energy ministers are meeting this Friday to discuss ways to tame energy prices, which have surged as Russia has halted most gas flows to Europe in response to European sanctions.

Market reaction

EUR/USD is trading at 1.0084, retreating from daily highs of 1.0112 following the recent ECB commentary. The spot is still up 0.90% on the day.

• USD/CAD remains under intense selling pressure for the third successive day on Friday.
• Recovering oil prices underpin the loonie and exert pressure amid a heavy USD sell-off.
• Investors now eye Canadian employment details for some meaningful trading impetus.

The USD/CAD pair prolongs this week's sharp pullback from levels just above the 1.3200 mark and remains under intense selling pressure for the third successive day on Friday. The steep intraday descent drags spot prices below the 1.3000 psychological mark during the first half of the European session and is sponsored by a combination of factors.

Crude oil prices build on the previous day's modest bounce from a multi-month low amid growing worries about tight global supply. Against the backdrop of a symbolic output cut by OPEC+, Russia's threat to cut oil flows to any country that backs a price cap on its crude adds to market concerns and acts as a tailwind for the black liquid. This, in turn, underpins the commodity-linked loonie, which along with aggressive US dollar selling, exerts heavy downward pressure on the USD/CAD pair.

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 buck. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, retreats further from a two-decade high touched earlier this week and dives to a fresh monthly low. That said, expectations that the Fed will continue to tighten its monetary policy at a faster pace should help limit the USD downside.

In fact, the implied odds for a 75 bps Fed rate hike move in September now stands at 85%. The bets were reaffirmed by the overnight hawkish remarks by Fed Chair Jerome Powell, reiterating the central bank's strong commitment to bringing inflation down. This remains supportive of elevated US Treasury bond yields and should act as a tailwind for the USD. Furthermore, concerns that a deeper global economic downturn will hurt fuel demand should cap oil prices and lend some support to the USD/CAD pair.

Market participants now look forward to the release of the monthly Canadian employment figures, due later during the early North American session. This, along with oil price dynamics, will influence the Canadian dollar and provide a fresh impetus to the USD/CAD pair. Traders will further take cues from scheduled speeches by Fed officials. Apart from this, the US bond yields and the market risk sentiment will drive the USD demand, allowing traders to grab short-term opportunities around the pair.

Technical levels to watch

European Central Bank (ECB) Governing Council member Madis Muller said on Friday, “rapid inflation required a robust response.”

Muller appears to be justifying the 75 bps rate hike announced by the ECB on Thursday.

His colleagues have also tried to sound hawkish earlier this Friday but the ECB commentary has failed to extend the EUR/USD recovery.

The pair is trading at 1.0087, adding 0.98% on the day, at the time of writing.

FX option expiries for Sept 9 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9925 429m
• 1.0000 760m
• 1.0015 379m
• 1.0050 398m
• 1.0065 303m
• 1.0100 558m
• 1.0200 387m

- GBP/USD: GBP amounts        

• 1.1500 310m
• 1.1875 995m

- USD/JPY: USD amounts                     

• 141.50 310m
• 142.50 476m
• 143.00 650m

- USD/CHF: USD amounts        

• 0.9600 400m

- AUD/USD: AUD amounts  

• 0.6940 365m

"For our next policy move, we have our hands completely free," European Central Bank (ECB) policymaker Francois Villeroy de Galhau said on Friday, as reported by Reuters.

Additional takeaways

"We cannot exclude a limited recession."

"We decided to frontload on our monetary policy normalisation because inflation is too high, especially core inflation."

"Our will and our capacity to deliver on our mandate cannot be subject to any doubt whatsoever."

"Nobody should speculate about the magnitude of the next step – we did not create a new jumbo habit."

"The neutral rate can be estimated in the euro area at below or close to 2% according to me."

Market reaction

The EUR/USD pair preserves its bullish momentum following these comments and it was last seen rising 1.1% on the day at 1.0105.

EUR/USD has gathered bullish momentum following Thursday's volatile session. The pair could extend its rebound if it manages to clear 1.0100, FXStreet’s Eren Sengezer reports.

Next recovery target aligns at 1.0160

“In case the pair starts using 1.0100, where the 200-period SMA is located, as support, it could target 1.0160 (Fibonacci 61.8% retracement of the latest downtrend) and 1.0200 (psychological level).”

“Buyers could stay on the sidelines if EUR/USD fails to hold above 1.0100. In that scenario, 1.0050 (Fibonacci 50% retracement) could be seen as interim support ahead of 1.0100 (psychological level, 100-period SMA).”

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest results from the foreign portfolio inflows.

Key Takeaways

“Foreign buying interest returned to Malaysian capital markets in Aug, with the highest non-resident portfolio inflows since Aug 2021 at MYR7.6bn (Jul: -MYR3.4bn). The resumption of foreign purchases was seen across Malaysian debt securities (Aug: +MYR5.6bn, Jul: -MYR3.5bn) and equities (Aug: +MYR2.0bn, Jul: +MYR0.1bn).”

“Bank Negara Malaysia (BNM)’s foreign reserves reversed course and declined by USD1.0bn m/m to USD108.2bn as at end-Aug (end-Jul: +USD0.2bn m/m to USD109.2bn). It marked the lowest level since Dec 2020. The latest reserves position is sufficient to finance 5.4 months of imports of goods & services and is 1.1 times total short-term external debt.”

“Apart from gloomier global growth prospects and tighter global financial conditions, greater exchange rate volatility will also spur volatility of foreign capital flows to emerging markets including Malaysia in the near term. With USD strength and CNY weakness expected to continue, we think that the MYR will still be on the defensive against the USD, hitting 4.58 by year-end and 4.60 by mid2023.”

• EUR/USD quickly gathers traction and surpasses 1.0100.
• The greenback accelerates losses amidst prevailing risk-on mood.
• EU Energy Ministers will meet later in the session.

The single currency regains the smile and fresh buying interest and lifts EUR/USD to new 3-week highs past the 1.0100 level at the end of the week.

EUR/USD bolstered by risk appetite

EUR/USD seems to have broken above the recent consolidative phase and advances north of the 1.0100 hurdle on the back of the solid improvement in the risk-linked galaxy on Friday.

Extra upside in the pair also derives fresh oxygen from the intense selling pressure in the greenback, which currently forces the US Dollar Index (DXY) to confront multi-session lows in the 108.40 zone, all following new cycle highs near 110.80 recorded just a couple of sessions ago.

As market participants continue to digest Thursday’s unprecedented interest rate hike by the ECB, Friday’s focus of attention is expected to shift to the EU Energy Ministers emergency meeting amidst the ongoing energy cruch in the region.

Across the pond, the only release will be Wholesale Inventories for the month of July along with speeches by Fed’s Evans, George and Waller.

What to look for around EUR

EUR/USD fully reverses the recent weakness and advances on quite a convincing fashion well north of the parity level to print new multi-week tops following the renewed offered stance in the buck.

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

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

Key events in the euro area this week: Eurogroup Meeting, Emergency Energy Meeting (Friday).

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

EUR/USD levels to watch

So far, the pair is advancing 1.09% at 1.0103 and now faces the initial barrier at 1.0153 (55-day SMA) followed by 1.0202 (August 17 high) and then 1.0344 (100-day SMA). On the flip side, the breakdown of 0.9863 (2022 low September 6) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low).

• GBP/USD catches aggressive bids on Friday amid broad-based USD weakness.
• The risk-on impulse prompts some long-unwinding around the safe-haven buck.
• Aggressive Fed rate hike bets, the UK’s bleak economic outlook might cap gains.

The GBP/USD pair gains strong positive traction on Friday and continues scaling higher through the early part of the European session. The momentum lifts spot prices to a one-and-half-week high, closer to mid-1.1600s, and is sponsored by the heavily offered tone surrounding the US dollar.

A goodish recovery in the risk sentiment - as depicted by a positive tone around the equity markets - drags the safe-haven buck further away from a two-decade high touched earlier this week. In fact, the key USD Index, which measures the greenback's performance against a basket of currencies, dives to a fresh monthly low and turns out to be a key factor behind the GBP/USD pair’s intraday momentum to the upside.

The British pound, on the other hand, draws support from the new UK Prime Minister Liz Truss's plans to cap energy bills for the next two years, which is seen as a welcome development for households. That said, the worsening outlook for the UK economy might continue to act as a headwind for sterling. Apart from this, hawkish Fed expectations should limit the USD corrective slide and cap the GBP/USD pair.

The markets seem convinced that the Fed will stick to its aggressive policy tightening path to tame inflation and have been pricing in a greater chance of a 75 bps rate hike at the September meeting. The bets were reaffirmed by Fed Chair Jerome Powell's hawkish remarks on Thursday, which remain supportive of elevated US Treasury bond yields and support prospects for the emergence of some USD dip-buying.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the GBP/USD pair has formed a near-term bottom around the 1.1400 mark and positioning for any further gains. In the absence of any major market-moving economic releases, speeches by Fed officials might influence the USD later during the early North American session and provide some impetus to the GBP/USD pair.

Technical levels to watch

The next key up barrier for USD/CNH remains at the 7.0000 level, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we held the view that USD ‘is likely to consolidate between 6.9450 and 6.9850’. Our view for consolidation was not wrong even though USD traded within a narrower range than expected (6.9510/6.9820) before closing largely unchanged at 6.9586 (+0.01%). Further consolidation appears likely, expected to be within a range of 6.9450/6.9750.”

Next 1-3 weeks: “Our view from two days ago (07 Sep, spot at 6.9770) still stands. As highlighted, after the recent strong surge in USD, all eyes are on 7.0000 now. That said, overbought shorter-term conditions could lead to a few days of consolidation first. As long as 6.9300 (no change in ‘strong support’ level from yesterday) is not breached, there is still chance for USD to break 7.0000. A break of this level would shift the focus to 7.0500.”

USD/TRY is near the peak formed last year at 18.36. A break above here would see the pair staging another leg higher, economists at Société Générale report. 

Support aligns at 17.80/60

“Once 18.36 is overcome, next leg of uptrend is expected to materialize towards projections of 19.30/19.70.”

“The 50-DMA at 17.80/17.60 is short-term support.”

USD/BRL recently took support at the previous bullish gap of 5.01 and has staged a steady bounce. First hurdle is located at last month's high of 5.32, a break above here would open up room for further gains, economists at Société Générale report.

Defending 5.01 crucial to avert a deeper pullback

“Daily MACD is attempting an entry within positive territory which would denote regain of upward momentum.”

“If USD/BRL reclaims 5.32, the bounce could extend towards 5.51 and perhaps even towards the multiyear descending trend line near 5.66/5.72.”

“Defending 5.01 would be crucial to avert a deeper pullback.”

The krona has been the worst performing G10 currency after the Japanese yen since the start of the year. Economists at ING expect the EUR/SEK pair to extend its grind higher as European growth worries mount.

The krona’s recovery is delayed again

“Given SEK’s high sensitivity to Europe’s growth outlook, we forecast EUR/SEK at 10.60 in 4Q22.”

“In the coming weeks, the balance of risks remains tilted to the upside, and a further deterioration in risk sentiment could prompt a re-test of July’s recent high (10.78) and potentially March’s highs (10.86).”

“In 2023, some improvement in the eurozone’s story and the end of global tightening cycles should help pro-cyclical currencies, including SEK, to re-appreciate. A calmer market environment may also revamp the search for carry and allow SEK to benefit from its relatively more attractive rate profile compared to EUR.”

“We expect a gradual return to 10.00 over the course of 2023, although geopolitical and energy-related developments do pose non-negligible risks to this profile.”

European Central Bank (ECB) policymaker Klaas Knot said on Friday that the ECB has sent a forceful signal with the 75 basis points rate hike, as reported by Reuters.

Knot further noted that the uncertainty surrounding the inflation outlook was too big and that it was making it difficult for them to give forward guidance. "Curbing the dynamic in inflation is the ECB's only concern," Knot added.

Market reaction

The shared currency continues to gather strength during the European trading hours on Friday. As of writing, the EUR/USD pair was trading at 1.0105, rising 1.1% on a daily basis. 

• AUD/USD witnessed an aggressive short-covering move on Friday and climbed to over a one-week high.
• The risk-on impulse drags the USD away from a two-decade high and benefits the risk-sensitive aussie.
• Aggressive Fed rate hike bets, recession fears could limit the USD losses and cap the upside for the pair.

The AUD/USD pair catches aggressive bids on the last day of the week and rallies to over a one-week high, beyond mid-0.6800s during the early European session.

Following the previous day's directionless price moves, the US dollar comes under renewed selling pressure and retreats further from a two-decade high touched on Wednesday. This turns out to be a key factor prompting some short-covering around the AUD/USD pair and behind the strong intraday positive move of over 100 pips.

A goodish recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - undermines the safe-haven buck. This largely offsets softer Chinese inflation figures and boosts demand for risk-sensitive aussie. The fundamental backdrop, however, warrants some caution for bullish traders.

Investors seem convinced that the Fed will continue to tighten its policy at a faster pace to tame inflation and have been pricing in a supersized 75 bps at the September FOMC meeting. The bets were reaffirmed by Fed Chair Jerome Powell on Thursday, reiterating the central bank's strong commitment to bringing inflation down.

The prospects for rapid interest rate hikes, along with economic headwinds stemming from COVID-19 curbs in China and the protracted war in Ukraine, have been fueling recession fears. This could keep a lid on any optimistic move in the markets and further contribute to capping the upside for the AUD/USD pair, at least for now.

Hence, the ongoing recovery move from sub-0.6700 levels, or the lowest level since July 14 touched earlier this week, runs the risk of fizzling out rather quickly. In the absence of any major market-moving macro data from the US, the AUD/USD pair remains at the mercy of the USD price dynamics and the broader market risk sentiment.

Technical levels to watch

European Central Bank (ECB) policymaker Peter Kazimir made some comments on Thursday’s 75 bps rate hike decision and inflation outlook on Friday.

Key quotes

• A combination of factors prompts aggressive long-unwinding trade around USD/JPY on Friday.
• Japanese intervention speculations boost the JPY and exert pressure amid a further USD slide.
• The Fed-BoJ policy divergence should act as a tailwind for the major and limit deeper losses.

The USD/JPY pair comes under heavy selling on the last day of the week and retreats further from its highest level since August 1998, around the 145.00 mark touched on Wednesday. The pair maintains its offered tone through the early European session and is currently placed near mid-142.00s or a three-day low.

Speculations that authorities may soon step in to arrest the freefall in the Japanese yen turn out to be a key factor that prompts aggressive long-unwinding trade around the USD/JPY pair. This, along with the ongoing US dollar profit-taking slide from a two-decade high, further contributes to the sharp intraday decline. The USD downfall, however, seems cushioned amid firming expectations that the Fed will continue to tighten its policy at a faster pace to tame inflation.

In fact, the implied odds for a 75 bps Fed rate hike move in September now stands at 85%. The bets were reaffirmed by the overnight hawkish remarks by Fed Chair Jerome Powell, reiterating the central bank's strong commitment to bringing inflation down. This remains supportive of elevated US Treasury bond yields. The resultant widening of the US-Japan rate differential, along with a positive risk tone, could undermine the safe-haven JPY and lend support to the USD/JPY pair.

Furthermore, the Bank of Japan has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing. This, in turn, suggests that the worst is still not over for the Japanese yen and the path of least resistance for the USD/JPY is to the upside. Hence, any subsequent corrective decline might still be seen as a buying opportunity and is more likely to remain limited, at least for the time being.

There isn't any major market-moving economic data due for release from the US, leaving the buck at the mercy of speeches by Fed officials. Apart from this, the US bond yields could influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader risk sentiment to grab short-term opportunities around the major.

Technical levels to watch

• The index loses further momentum and breaches 109.00.
• The risk complex regains poise and leaves behind recent weakness.
• Fedspeak, Wholesale Inventories next on tap in the docket.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, sheds further ground and drops to multi-session lows in the sub-109.00 area on Friday.

US Dollar Index offered on upbeat risk appetite

The index quickly sets aside Thursday’s inconclusive price action and breaks below the 109.00 support with certain conviction amidst the noticeable improvement in the risk-associated universe.

That said, the dollar continues to correct lower after hitting fresh 20-year peaks near 110.80 earlier in the week (September 7), as investors seem to have already digested another hawkish message from Chief Powell, this time from his participation at a virtual event on Thursday.

In the US calendar, July’s Wholesale Inventories will be the sole event. In addition, and before the Fed’s blackout period, Chicago Fed C.Evans (2023 voter, centrist), Kansas City Fed E.George (voter, hawk) and FOMC’s Governor C.Waller (permanent voter, hawk) are all due to speak.

What to look for around USD

The index has embarked on a corrective path that has already broken below the key support at 109.00 at the end of the week.

Bolstering the dollar’s strength appears the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market. This view was reinforced by Chair Powell’s speech at the Jackson Hole Symposium.

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

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

Key events in the US this week: Wholesale Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

US Dollar Index relevant levels

Now, the index is retreating 0.80% at 108.78 and faces the next support at 107.58 (weekly low August 26) seconded by 107.17 (55-day SMA) and then 104.63 (monthly low August 10). On the other hand, a break above 110.78 (2022 high September 7) would aim for 111.90 (weekly high September 6 2002) and then 113.35 (weekly high May 24 2002).

Economists at Wells Fargo expect the loonie to remain under pressure in the short-term. However, the Canadian dollar could enjoy a brighter outlook next year.

CAD unlikely to find support in the near-term

“Even with elevated Canadian interest rates, we do not expect much Canadian dollar support in the near-term while the Fed remains firmly in tightening mode.”

“We think the prospects for a Canadian dollar rebound will improve in 2023 as the US economy enters recession, and as the Fed begins easing monetary policy during the second half of next year.”

• NZD/USD grinds higher around intraday top, eyes the first weekly gains in four.
• Sustained break of two-week-old resistance line, 50-SMA joins firmer oscillators to favor buyers.
• Convergence of 100-SMA, monthly high restricts immediate upside.

NZD/USD remains on the front foot around 0.6105 as bulls cheer upside break of the previous key hurdles during Friday’s initial European session. With this, the Kiwi pair also braces for the first weekly gain after printing the red in the last three consecutive weeks.

The quote’s latest upside could be linked to the successful break of a descending trend line from August 26 and the 50-SMA, currently around 0.6085. Also keeping buyers hopeful are the bullish MACD signals and the firmer RSI, not overbought.

It should, however, be noted that the upside momentum remains elusive unless crossing the 0.6140 resistance confluence, including the 100-SMA and the monthly high marked the last Friday.

Following that, the run-up towards 0.6200 and then to the late August swing high near 0.6255 can’t be ruled out.

On the contrary, pullback moves can be ignored until the quote stays beyond 0.6085 resistance-turned-support.

In a case where NZD/USD prices drop below 0.6085, the 0.6030 level may test the bears before directing them to the yearly low marked on Wednesday around the 0.6000 psychological magnet.

NZD/USD: Four-hour chart

Trend: Limited upside expected

Here is what you need to know on Friday, September 9:

The dollar came under renewed selling pressure during the Asian trading hours on Friday and the US Dollar Index declined to its lowest level below 109.00. In the absence of high-tier macroeconomic data releases ahead of the weekend, comments from central bankers will be watched closely by market participants. European Central Bank (ECB) President Christine Lagarde will speak at 0930. Before the Fed goes into the blackout period, Chicago Fed President Charles Evans, Fed Governor Christopher Waller and Kansas City Fed President Esther George will be delivering speeches. 

The risk-positive market environment seems to be weighing on the greenback on the last trading day of the week. The Shanghai Composite Index is up nearly 1% toward the end of the week and US stock index futures are rising between 0.3% and 0.5%. Meanwhile, the 10-year US Treasury bond yield stays relatively quiet at around 3.3%. Earlier in the day, the data from China showed that the Consumer Price Index (CPI) arrived at -0.1% in August.

On Thursday, FOMC Chairman Jerome Powell reiterated their commitment to do what's necessary to battle inflation. "History cautions against prematurely loosening the policy," Powell noted and the probability of a 75 basis points rate hike in September, as shown by the CME Group FedWatch Tool, climbed above 80%. On a more neutral note, Chicago Fed President Evans said that he was open-minded on a 50 or 75 bps hike at the next policy meeting. 

Following the selloff witnessed during ECB President Lagarde's press conference, EUR/USD reversed its direction and climbed toward 1.0100. As expected, the ECB announced that it hiked its policy rate by 75 bps on Thursday. Commenting on the policy outlook, Lagarde said she didn't know what the terminal rate was and explained that they will take necessary tightening steps to get to the 2% medium-term inflation target. "We think that it will take several meetings to get there," Lagarde further elaborated. "Some people will ask how many is several? Well, it is probably more than two including this one but it is probably also going to be less than five."

GBP/USD ended Thursday's volatile session with small losses at 1.1500 before gathering bullish momentum early Friday. The pair was last seen rising more than 0.8% on the day at 1.1595. British Prime Minister Liz Truss announced on Thursday that the government will introduce a two-year "energy price guarantee" and explained that a typical household will pay no more than £2,500 a year on energy bills.

USD/CAD closed the second straight day in negative territory on Thursday and extended its slide toward 1.3000 early Friday. Statistics Canada will release the August jobs report later in the session. Investors expect the Unemployment Rate to edge higher to 5% from 4.9% and see the Net Change in Employment to arrive at +15,000.

After having registered impressive gains in the first half of the week, USD/JPY posted small losses on Thursday but turned south on Friday. Japanese Finance Minister Shunichi Suzuki repeated on Friday that they are closely watching the moves in foreign exchange markets and noted that they won't rule out any options. At the time of press, USD/JPY was down more than 100 pips on the day at 142.75.

Gold fluctuated wildly in both directions on Thursday but closed the day in the red. With US T-bond yields struggling to continue to stretch higher, XAU/USD gained traction and was last seen posting strong daily gains above $1,720.

Bitcoin reclaimed $20,000 during the Asian trading hours on Friday and extended its rally beyond $20,500 into the European session. Ethereum gathered bullish momentum early Friday and rose above $1,700 for the first time in two weeks.

EUR/USD is surging higher and reached a daily high of 1.0080. However, economists at Commerzbank believe that the upward movement is set to be short-lived.

EUR should continue to struggle, particularly against USD

“EUR should continue to struggle, particularly against USD. Especially if the energy crisis in the eurozone continues to intensify and signs of a recession increase, and at the same time the market still does not trust the ECB to successfully fight high inflation, the EUR could come under depreciation pressure.”

“The upward movement in EUR/USD could prove to be a brief interlude.”

GBP/USD has neared the 1.16 level. However, economists at ING believe that the pair is at risk of falling back to 1.1410.

Sterling remains fragile

“The UK Gilt market found little to sink its teeth into yesterday regarding the energy support package. Details were scarce in terms of the size of the package and how it is to be funded. At least some of that funding looks set to go through the Gilt market – meaning that the 10-year Gilt-Bund spread can widen out to the 200 bps area. That’s a sterling negative.”

“Cable risks sinking back to the 1.1410 low.”

“Given the challenges in continental Europe, EUR/GBP may trade close, but not break resistance at 0.8720.”

The zloty exchange rate came under noticeable pressure after the National Bank (NBP) hiked rates by only a minimal 25 bps earlier this week. Economists at Commerzbank expect the PLN to remain under pressure.

NBP governor Adam Glapinski said little of support for the zloty

“The ECB’s own updated projections, which do not foresee inflation moderating to within 2% target even by 2024, now make it harder for an individual CEE central bank to take such an opposite view about inflation.”

“At Thursday’s press conference, NBP governor Adam Glapinski said little of support for the zloty. Overall, the rhetoric did not sound hawkish or convincing, but probably in line with what the FX market already knew about Glapinski.” 

“We see the zloty weakening against the euro over the coming quarter.”

• Gold price picks up bids to reverse the previous day’s pullback from weekly high.
• 100-SMA, 61.8% Fibonacci retracement and one-week-old resistance line stand tall to test XAU/USD buyers.
• US-China news, hopes from global central bankers trigger corrective moves and sluggish yields.

Gold price (XAU/USD) remains on the front foot around $1,720 amid early Friday morning in Europe. In doing so, the yellow metal cheers broad US dollar weakness amid cautious optimism in the market. Also favoring the bullion buyers are the technical signals.

US Dollar Index (DXY) pares the biggest daily loss in a month around 108.90, staying around the one-week bottom by the press time. In doing so, the greenback gauge fails to justify the hawkish comments from Fed Chair Jerome Powell, published the previous day, while highlighting the market’s firmer sentiment.

Market sentiment takes clues from firmer comments made late Thursday by US Treasury Secretary Janet Yellen, signaling a likely positive change in the US-China trade ties. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. It should be noted that talks over likely hardships for China's technology company and downbeat China inflation numbers seemed to have probed the XAU/USD bulls of late.

While portraying the mood, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020. It should be noted that the stocks in the Asia-Pacific region also remain firmer as cautious optimism spreads amid a sluggish session.

Given the risk-on mood and downbeat US dollar, the XAU/USD prices are likely to end the week on a positive note. However, the last round of Fedspeak ahead of the blackout period, starting from this weekend, should be given attention for fresh impulse. Also important will be chatters surrounding the US inflation ahead of the next week’s US Consumer Price Index (CPI) data.

Technical analysis

Gold price justifies the bullish RSI divergence as the bulls approach a convergence of the 100-SMA, 61.8% Fibonacci retracement level of July-August upside and a one-week-old rising trend line.

Given the bullish MACD signals, as well as the firmer RSI backing the higher low on prices, the XAU/USD is likely to overcome the $1,730 hurdle, which in turn could propel the commodity towards the August 25 swing high near $1,765.

However, the 50% Fibonacci retracement level near $1,745 may offer an intermediate halt during the run-up.

Alternatively, pullback moves may re-test the 78.6% Fibonacci retracement support, around $1,707, before directing gold bears towards the $1,700 threshold.

Even so, the sellers remain cautious as an upward sloping trend line from late July and the yearly low, respectively near $1,690 and $1,680, could test the metal’s further downside.

Gold: Four-hour chart

Trend: Further upside expected

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, further upside in USD/JPY remains the most likely scenario for the time being, although a visit to 147.65 may have to wait for now.

Key Quotes

24-hour view: “Our expectations for USD to ‘breach 145.00’ yesterday did not materialize as it traded sideways between 143.30 and 144.55. The movement appears to be part of a consolidation and further sideway-trading would not be surprising. Expected range for today, 143.40/144.60.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (08 Sep, spot at 144.10). As highlighted, USD could continue to rally but deeply overbought conditions suggest a slower pace of advance and at this stage, the chance for USD to rise to the 1998 high near 147.65 is not high. On the downside, a breach of 142.50 (‘strong support’ level was at 142.20 yesterday) would indicate that the rally in USD is ready to take a pause.”

EUR/USD price action after a hawkish European Central Bank (ECB) session on Thursday proved very underwhelming. Economists at ING expect the EU energy ministers' meeting to add further downside pressure on the shared currency.

Hawkish ECB provides little support

“Short-dated yields moved in the euro’s favour, but to no avail for the currency. In addition, when asked about the weak euro, President Christine Lagarde had little to say beyond the ECB being attentive.” 

“It seems growth differentials and the international investment environment are dominating the FX environment right now – neither of which are supporting the euro.”

“The meeting of EU energy ministers may prove bearish for the euro for a number of reasons. For example, reaching an agreement on gas price caps, gas sharing and electricity levies look to be difficult and may be delayed. Mandatory electricity reduction could spark what the Belgium PM calls de-industrialisation and social unrest. There is also the risk that if Russian oil and gas caps are approved, Russia could immediately suspend the remaining oil and gas shipments coming into the EU.”

“With the Fed remaining hawkish, expect EUR/USD to stay offered in a broad 0.9900-1.0100 range.”

Open interest in natural gas futures markets shrank for the second session in a row on Thursday, this time by around 3.3K contracts according to preliminary results from CME Group. Volume, too, went down for the second straight day, now by around 16.5K contracts.

Natural Gas: Decent contention remains around $7.50

Prices of natural gas reversed part of the recent weakness on Thursday. The small advance, however, was accompanied by declining open interest and volume and is indicative that further gains look not favoured for the time being. On the downside, the commodity remains underpinned by the $7.50 mark per MMBtu.

There was hardly any positive news from the Hungarian CPI data on Thursday. Economists at Commerzbank expect the forint to remain under downside pressure.

Core inflation shoots up

“While headline inflation slightly undershot market expectation, tax-adjusted core inflation shot up sharply from 16.6% YoY to 18.9% YoY.”

“The August acceleration once again neutralised all the rate hiking which MNB has carried out so far and rendered the real interest rate at one of its deepest negative levels ever. This is why we would anticipate a weaker forint exchange rate over the coming quarter as the Fed and ECB continue to implement aggressive monetary tightening.”

The European Central Bank (ECB) decided to hike all policy rates by 75 bps. Given that the decision was largely as anticipated, there was little reaction in EUR/USD. Economists at Danske Bank expect the pair to continue moving downward.

75 bps, but 75 bps is not the new norm

“Lagarde made it clear that a 75 bps hike should not be assumed to be the new normal. We do not change our rate path call, which remains: 50 bps in October and 25 bps in December, but we remain open to further hikes in 2023 should the economy prove strong enough and inflation expectations remain too high.”

“Growth is heading lower, but the ECB is not yet forecasting a recession. Inflation risks remain on the upside and we remain sceptical that rate hikes will do much to solve the ECB’s inflation problem in the near term.”

“We continue to see further downside risk with a 12M target of 0.95, with medium-term valuation drivers more persistently weighing on the cross in the quarters ahead.”

“Until we see a broad rebound in global growth, a capex boom, a sharp drop in energy prices and/or the Fed cutting rates, we think EUR/USD has more downside in store and today's ECB decision does not change that.”

European Central Bank (ECB) policymaker Francois Villeroy de Galhau said on Friday that “inflation should be back to around 2% by 2024.”

“Inflation will stay high next year,” Villeroy added.

Further comments

Half of the current inflation is not linked to energy or agricultural prices.

Important that French banks keep sufficient capital in reserve.

French mortgage rates remain very favorable.

French wear rate will be increased at the end of September.

Market reaction

The shared currency shrugs off the above comments, as EUR/USD is seen keeping its range around 1.0070, up 0.75% on the day.

Following the rather hawkish European Central Bank (ECB) meeting, EUR/NOK breached the 10 mark. But as Norges Bank is sticking to its rate hike cycle, economists at Commerzbank expect the pair to drop back below 10.

Further rate hikes can continue in Norway

“Even though the ECB hiked its key rate by 75 bps, while also signalling further rate steps, Norges Bank has been maintaining its restrictive approach in a much more determined manner and for longer. Moreover, Norway is likely to be less affected by slowing growth caused by its tight connections with the eurozone thanks to its role as an important energy supplier for Europe, as a result, further rate hikes can continue.”

“With a view of the higher resilience of the Norwegian economy as regards energy shortages, which will allow Norges Bank to take a tougher approach over the coming quarters than the ECB, EUR/NOK should ease below the 10 mark again.”

The European Central Bank (ECB) hiked rates by 75 bps and signalled more to come. Economists at Nordea see higher rates, a flatter curve and a weaker EUR ahead.

More upside potential for EUR yields

“The ECB hiked by 75 bps and we expect another such step in October, followed by 50 bps in December and a further 25 bps early next year.”

“We see more upside potential for bond yields and expect the curve to flatten from current levels. The EUR failed to gain traction, and despite the hawkish ECB, we expect the currency to remain under pressure.”

USD/JPY prints the first daily loss in 11 days. The weakness of the Japanese yen does indeed have fundamental reasons, in the opinion of economists at Commerzbank.

Bank of Japan is sticking to its ultra-expansionary monetary policy

“While all other central banks are tightening their monetary policies, the BoJ is sticking to its ultra-expansionary monetary policy – despite the fact that inflation has risen recently even in Japan. Not to the same extent as in the US or the eurozone, but inflation in Japan has nonetheless risen above the inflation target (2%).”

“Short-term price pressure is not going to ease for now, the weak yen is contributing its share. Until the BoJ’s monetary policy and approach changes, a weak yen does indeed seem fundamentally justified.”

• USD/TRY ignores broad US dollar weakness amid sluggish session.
• CBRT versus Fed divergence widens after Fed’s Powell signaled more rate hikes, Turkish inflation stays near 24-year high.
• Risk appetite improves amid upbeat headlines surrounding China, hopes that central bankers will be able to tame pessimism.

USD/TRY fails to cheer the US dollar weakness as it picks up bids near 18.23 during early Friday morning in Europe. In doing so, the Turkish lira (TRY) pair highlights inflation fears at home and the hawkish Fedspeak while paying a little heed to the broad optimism.

The Turkish inflation woes escalate amid fears surrounding the nation’s grain imports as the West doubts the Ukrainian exports to the nation, which in turn suggests further upside pressure on the prices.

That said, the Turkish Consumer Price Index (CPI) rose to the highest level since September 1988 in August, to 80.21% versus 81.22% expected and 79.60 prior, during its monthly release on Monday.

The inflation data has been on an uptrend for a long but the Central Bank of the Republic of Türkiye (CBRT) refrains from rate hikes, like its Western counterparts. On the contrary, the CBRT surprised markets by announcing 100 basis points (bps) of a rate cut in late August.

On the other hand, Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell. On the same line was Chicago Fed Chairman Charles Evans who favored a 0.75% rate hike for September.

It should be noted, however, that hopes of easing in the US-China trade ties, due to the impending US waiver of Trump-era sanctions on Chinese goods, seem to have favored the market sentiment during early Friday. As a result, the US Dollar Index (DXY) prints the biggest daily loss in a month while refreshing the one-week bottom around 108.75, close to108.90 by the press time.

Moving on, the last lot of Fedspeak ahead of the blackout period, starting from this weekend, will be important to watch for clear directions.

Technical analysis

A two-week-old resistance line near 18.32 precedes December 2021 top surrounding 18.40 to restrict short-term USD/TRY upside. The pullback moves, however, need validation from June’s top near 17.80 to convince bears.

• The breakout of a VCP formation has strengthened the pound bulls.
• A bull cross, represented by 20-and 50-EMAs indicates more upside ahead.
• A shift in the bullish range by the RSI (14) has triggered an upside momentum.

The GBP/JPY pair has displayed a short-lived pullback after a sheer downside move to near 165.10 in the Asian session. On a broader note, the asset is oscillating in a narrow range of 164.89-166.31 for the past two trading sessions.

The asset is oscillating in a 25% range from the 52-week high, which fulfills the basic criterion of volatility contraction pattern (VCP) formation. A textbook traced breakout of a VCP after giving a close above 164.00 with an above-average tick size is hinting at a dream rally for the pound bulls. Now a test of the breakout zone near 164.00 will create a ‘test and run’ buying opportunity for the market participants.

A bull cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 163.00 has strengthened the pound bulls.

Also, the asset is auctioning above the 200-EMA at 160.00, which indicates that the long-term trend is favoring bulls.

Adding to that, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which dictated that upside momentum has been triggered.

A test of VCP at 164.00 will create an optimal buying opportunity, which will drive the asset towards June 21 high at 167.83, followed by the psychological resistance at 170.00.

On the flip side, the yen bulls will take the driving seat if the asset drops below the August 2 low at 159.45, which will drag the asset towards May 25 low at 155.60. A slippage below the latter will send the cross towards January 24 low at 152.91.

GBP/JPY daily chart

The European Central Bank (ECB) raised its key interest rates by 75 bps, leaving the Depo Rate at 0.75%. In the view of economists at TD Securities, the decision does not inspire much confidence in the euro.

The outlook for EUR/USD remains to the downside

“At a minimum, neither Lagarde's press conference or the 75 bps hike is enough to inspire much confidence in the euro.”

“The move to positive rates will certainly have some impact on diversification of portfolio flows into EU denominated assets, but it will need to be more than enough to offset worsening trade flows to be euro supportive. Economic and political stability will be necessary as well. Right now at this point in time, the EU has neither.” 

“EUR upside is a very difficult argument to make with the US in a far stronger position with greater energy security than the Europeans who hitched their wagon to Russia for its energy needs.”

“Near-term, we would look for some consolidation in EURUSD ahead of US CPI next week. But we see clear lines in the sand with 1.01 as a fade point if we get there. EUR/USD downside remains its most likely path forward.”

Gold price tests its luck once again. Will XAU/USD confirm a falling channel breakout? FXStreet’s Dhwani Mehta analyzes the pair’s technical picture.

Sellers will fight back control on failure at $1,712

“Gold price is breaking above the falling trendline resistance at $1,712, which if confirmed on a daily closing basis will validate a falling channel breakout. An upside break from the channel will offer additional legs to the ongoing recovery from six-week lows, with the bearish 21-Daily Moving Average (DMA) at $1,738 back on buyers’ radars. Ahead of that, the previous day’s high at $1,728 will challenge bearish commitments.

“Failure to find a strong foothold above the critical resistance at $1,712, sellers will fight back control in the near term. The $1,700 mark will be put to test once again. A sustained move below the latter will challenge the intermittent lows of around $1,690. Further down, sellers will look to take out the 2022 low of $1,681 once again.”

AUD/USD remains weak and could revisit the 0.6680 region in the near term, according to FX Strategist at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We indicated yesterday AUD ‘has likely moved into a consolidation phase’ and we expected AUD to ‘trade sideways within a range of 0.6715/0.6780’. Our view for sideway-trading was not wrong as AUD traded within a range of 0.6713/0.6775. The underlying tone has firmed somewhat and AUD could edge higher for today. That said, any advance is not expected to break the strong resistance at 0.6800 (there is another resistance at 0.6780). Support is at 0.6740 followed by 0.6720.’

Next 1-3 weeks: “Two days (07 Sep, spot at 0.6735), we highlighted that further AUD weakness is likely and the next support is at 0.6680. There is no change in our view for now even though AUD could consolidate for a couple of days first.  Overall, only a break of 0.6800 (no change is ‘strong resistance’ level from yesterday) would indicate that the weakness that started late week has run its course.”

Considering advanced prints from CME Group for crude oil futures markets, traders scaled back their open interest positions by around 6.1K contracts on Thursday. In the same line, volume reversed two consecutive daily builds and shrank markedly by around 108.6K contracts.

WTI could retest recent lows near $81.00

Thursday’s uptick in prices of crude oil was on the back of shrinking open interest and volume, leaving the prospects for the continuation of the rebound somewhat diminished. That said, the WTI could revisit once again recent 7-month lows near the $81.00 mark per barrel (September 8).

• USD/CHF prints three-day downtrend as bears approach the lowest levels in a fortnight.
• US dollar fails to justify hawkish Fedspeak amid sluggish session, light calendar.
• US-China headlines, hopes from central banks also favor the pair bears.
• Fedspeak can entertain traders ahead of next week’s US inflation data.

USD/CHF bears cheer broad US dollar weakness, as well as a technical correction, heading into Friday’s European session. In doing so, the Swiss currency (CHF) pair drops for the third consecutive day to the two-week low.

US Dollar Index (DXY) prints the biggest daily loss in a month while refreshing the one-week bottom around 108.75, close to108.90 by the press time. In doing so, the greenback gauge fails to Justify the hawkish comments from Fed Chair Jerome Powell, published the previous day, while highlighting the market’s firmer sentiment.

On a risk-positive side, comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

While portraying the mood, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020. It should be noted that the stocks in the Asia-Pacific region also remain firmer as cautious optimism spreads amid a sluggish session.

On Thursday, Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell. On the same line was Chicago Fed Chairman Charles Evans who favored a 0.75% rate hike for September. Also hawkish was the European Central Bank (ECB) which announced a 0.75% rate hike and President Christine Lagarde showed readiness for more such moves to tame inflation.

While the broad optimism ignores hawkish central bank bias, the USD/CHF sellers may witness gains during the rest of the day amid a light calendar. Even so, Even so, the last lot of Fedspeak ahead of the blackout period, starting from this weekend, will be important to watch for clear directions.

Technical analysis

A clear downside break of the one-month-old ascending trend line, around 0.9770 by the press time, keeps USD/CHF sellers hopeful. However, the 100-day EMA level near 0.9620 restricts the immediate downside.

FX Strategist at UOB Group Lee Sue Ann and Quek Ser Leang note GBP/USD is now seen navigating between 1.1420 and 1.1620 in the short-term horizon.

Key Quotes

24-hour view: “We highlighted yesterday that ‘while the strong bounce in GBP could extend, any advance is viewed as part of a higher trading range of 1.1460/1.1560’. Our view was not wrong as GBP traded close to our expected range (1.1464/1.1562). For today, we continue to expect GBP to range-trade, likely within a range of 1.1465/1.1565.”

Next 1-3 weeks: “Our update from yesterday (08 Sep, spot at 1.1525) still stands. As highlighted, the price actions over the past few days appears to be part of a consolidation and GBP is likely to trade within a range of 1.1420/1.1620 for now.”

• Steel prices are expected to display a firmer rebound in infrastructure spending boost.
• The headwinds of Covid-19, real estate slowdown, and monsoon season are fading away.
• A decline in China’s inflation rate will force the PBOC to scale up its dovish stance.

Steel prices remained in a negative trajectory for a tad longer period as Chinese steel mill owners halted the production process to scale down their expenses due to already unsold inventories. The metal prices are expected to display a stellar recovery as the Chinese administration is announcing stimulus packages to boost infrastructure spending.

Earlier, the headwinds of a resurgence in Covid-19, environmental issues due to steel production smelters, a slowdown in the real estate sector, and the arrival of monsoon season in various provinces of China and other parts of Asia had restricted the steel demand. As slowdown worries have reached the rooftop, the Chinese administration has announced significant stimulus packages to scale down the former.

In addition to the $44 billion stimulus announced at June end, the administration has publicized another $4 billion in quotas for infrastructure spending. As the projected infrastructure spending will kick-start, prices of steel will witness a decent buying interest.

Meanwhile, the Chinese economy has come out with a decline in inflation numbers. China’s Consumer Price Index (CPI) has landed at 2.5%, lower than the expectations and the prior release of 2.8% and 2.7% respectively on an annual basis. While the monthly figure is negative by 0.1% against 0.2% of expectations and 0.5% of former release.

A decline in China’s inflation will force the People’s Bank of China (PBOC) to sound dovish and trim the Prime Lending Rate (PLR) further. And, more liquidity flush into the economy will spurt the volumes in economic activities, which will eventually improve the steel demand vigorously.

CME Group’s flash data for gold futures markets noted open interest rose by 838 contracts on Thursday, partially reversing the previous day’s drop. Volume followed suit and went up by around 6.6K contracts.

Gold: Next on the downside emerges $1,680

Gold prices charted modest losses on Thursday amidst the broader multi-session consolidative phase. The daily downtick was on the back of increasing open interest and volume, which suggests that further decline is favoured with the immediate target at the 2022 low at $1,680 mark per ounce troy.

Further consolidation could see EUR/USD trade within the 0.9900-1.0090 range in the next weeks, suggest FX Strategist at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the rebound in EUR has room to extend to 1.0030’. We added, ‘the next resistance at 1.0090 is unlikely to come into view’. Our expectations did not quite materialize as EUR rose to 1.0029, dropped to 0.9929 before rebounding to end the day little changed at 0.9994 (-0.05%). The underlying tone still appears to be a tad firm and the bias for today is tilted to the upside. However, any advance is unlikely to break the major resistance at 1.0090 (there is another resistance at 1.0055). Support is at 1.0000 followed by 0.9975.”

Next 1-3 weeks: “There is no change in our view from yesterday (08 Sep, spot at 0.9990). As highlighted, the recent downside risk has dissipated. The current movement is likely part of a consolidation phase and EUR is likely to trade between 0.9900 and 1.0090 for now.”

• USD/CAD takes offers to renew one-week low during three-day downtrend.
• Clear confirmation of a bearish chart pattern, impending bears cross on MACD favor sellers.
• Confluence of 50-DMA, 38.2% Fibonacci retracement appears short-term key support.
• Buyers need to cross 1.3200 to retake control, 1.3075 appears immediate resistance.

USD/CAD remains on the back foot for the third consecutive day as sellers renew the eight-day low around 1.3030 heading into Friday’s European session. In doing so, the Loonie pair justifies the downside break of the bearish chart pattern called the rising wedge.

Not only the rising wedge confirmation but the impending bear cross on the MACD and failures to stay beyond 1.3130 horizontal hurdle, comprising multiple tops marked since mid-July, seem to have favored the USD/CAD bears.

That said, a convergence of the 50-DMA and a 38.2% Fibonacci retracement level of June-July upside, near 1.2955-50, will be strong support for the pair traders to watch during the quote’s further weakness.

Should the USD/CAD remains weak past 1.2950, the odds of witnessing a south-run towards the previous month’s low, near 1.2730, can’t be ruled out. During the fall, the 50% and 61.8% Fibonacci retracements, close to 1.2870 and 1.2890 in that order, could act as buffers.

Meanwhile, recovery moves may initially aim for the wedge’s support line, now resistance near 1.3060.

Following that, the 1.3100 threshold and a downward sloping resistance line from mid-July, around 1.3210, could test the pair buyers. Also acting as an upside hurdle is the yearly top, near 1.3225 by the press time.

USD/CAD: Daily chart

Trend: Further weakness expected

• Asian indices have witnessed a stellar upside amid a soaring market mood.
• A downward shift in China’s CPI data will force the PBOC to sound dovish.
• The DXY has slipped below 109.00 amid lower consensus for US inflation.

Indices in the Asian domain are witnessing significant bullish bets as the risk-off market tone has underpinned the risk-perceived assets. Asian equities are enjoying the ball as the US dollar index (DXY) has plunged on lower expectations for the US inflation rate, which will release next week.

At the press time, Japan’s Nikkei225 added 0.50%, China A50 jumped 1.56%, Hang Sang soared 2.56%, and Nifty50 gained 0.60%.

Chinese equities have been strengthened after releasing lower-than-expected inflation data. China’s Consumer Price Index (CPI) has landed at 2.5%, lower than the expectations and the prior release of 2.8% and 2.7% respectively on an annual basis. While the monthly figure is negative by 0.1% against 0.2% of expectations and 0.5% of former release.

A decline in China’s inflation will force the People’s Bank of China (PBOC) to sound dovish and trim the Prime Lending Rate (PLR) further. And, more liquidity flush into the economy will spurt the volumes in economic activities.

Meanwhile, the DXY has surrendered the crucial support of 109.00 as investors are expecting a decline in inflationary pressures. Falling gasoline prices in the US and higher interest rates by the Federal Reserve (Fed) have trimmed the consensus for the inflation data. However, the situation doesn’t trim the odds of a third consecutive 50 basis points (bps) interest rate hike by the Fed as the road to the desired rate of 2% is far from over.

On the oil front, oil prices have ignored a large build-up of oil inventories reported by the Energy Information Administration (EIA) last week. For the last week, oil stockpiles jumped by 8.844 million barrels against a decline of 3.326 million barrels.

• GBP/USD prints the biggest daily gains in a month amid broad US dollar weakness, optimism at home.
• Hopes from newly appointed UK PM Truss favor Cable, especially after the latest UK energy plan.
• US Dollar Index drops to one-week low even as Fed’s Powell, Evans favored more rate hikes.
• Last round of Fedspeak before blackout period will be crucial, UK Consumer Inflation Expectations are important too.

GBP/USD takes the bids to refresh intraday high near 1.1600 heading into Friday’s London open as the risk-on mood weighs on the US dollar. Also keeping the Cable pair buyers hopeful is the recent positive sentiment in the UK after newly appointed Prime Minister (PM) Liz Truss works on her promises made during the campaigns.

The recent comments of US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment while sluggish yields and the absence of major data helps consolidate the previous moves. Also, firmer data from major economies in recent days and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates seemed to have favored the market’s mood.

On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies. Furthermore, Fed Chairman Jerome Powell said on Thursday that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell. On the same line was Chicago Fed Chairman Charles Evans who favored a 0.75% rate hike for September. Also hawkish was the European Central Bank (ECB) which announced a 0.75% rate hike and President Christine Lagarde showed readiness for more such moves to tame inflation.

Elsewhere, British Prime Minister (PM) Truss announced on Thursday the government will introduce a two-year "energy price guarantee" and explained that a typical household will pay no more than £2,500 a year on energy bills. “Treasury announcing a joint scheme working with BOE to address extraordinary liquidity requirements faced by energy firms, worth £40 billion,” added UK PM Truss. On a Brexit page, UK PM truss also mentioned, per the UK Express, that she wants a “negotiated solution” to the row warning it must “deliver all the things” the UK has demanded before.

Against this backdrop, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,010.

Looking forward, the UK Consumer Inflation Expectations for August, prior 4.6%, will entertain traders amid a light calendar. Even so, the last lot of Fedspeak ahead of the blackout period, starting from this weekend, will be important to watch for the GBP/USD traders.

Technical analysis

A clear upside break of the monthly resistance line, now support near 1.1520, as well as the 10-DMA level near 1.1560, directs GBP/USD bulls towards the late August swing low near 1.1720.

• Gold price stages a comeback as the US dollar corrects amid a risk-on mood.
• Investors reposition after Powell’s speech, ahead of next week’s US inflation.
• XAU/USD looks to $1,725 and $1,734 so long as $1,710 support holds.   

Gold price is attempting a rebound from the $1,700 region once again, as the US dollar resumes its correction from two-decade highs amid the return of risk-on flows. The US Treasury yields take a breather but hold near multi-year high, as Fed Chair Jerome Powell cemented a 75 bps September Fed rate hike, with markets now pricing an 85% probability. Powell maintained that the Fed remains committed to bringing inflation down while warning against prematurely loosening policy during a Q&A presented by the Cato Institute on Thursday. The end-of-the-week flows and the market’s position readjustments ahead of next week’s US inflation data also offer a fresh boost to the yellow metal.

Also read: Gold Price Forecast: Will XAU/USD confirm a falling channel breakout?

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is looking to continue with its recovery mode, eyeing the powerful resistance at $1,725, which is the Fibonacci 61.8% one-week.

Bulls will then challenge the previous day’s high of $11,728, above which a fresh upswing toward the Fibonacci 23.6% one-month at $1,734 will be on the cards.

On the flip side, the Fibonacci 61.8% one-day at $1,719 offers immediate support, below which sellers will target strong support around the $1,715, which is the convergence of the Fibonacci 38.2% one-day and SMA10 four-hour.

The next critical support is seen at the confluence of the Fibonacci 38.2% one-week, SMA5 one-day and the previous month’s low at $1,710.

A sustained move below the latter will open a fresh downside towards the previous day’s low of $1,704.

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.

• USD/INR takes offers to renew one-week low, ignores the previous day’s corrective pullback.
• Firmer sentiment in Asia underpins bullish bias for Rupee, broad risk-on mood, sluggish yields weigh on USD.
• Recovery in oil prices, hawkish Fedspeak could restrict downside moves amid a light calendar.

USD/INR takes offers to refresh the weekly low around 79.57 during the initial hour of the Indian trading session on Friday. In doing so, the Indian rupee (INR) pair cheers the broad US dollar weakness, as well as upbeat sentiment in Asia.

That said, the US Dollar Index (DXY) prints the biggest daily loss in a month while refreshing the one-week bottom around 108.75 by the press time. In doing so, the greenback gauge fails to cheer hawkish comments from Fed Chair Jerome Powell, published the previous day, while justifying the market’s firmer sentiment.

Comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

Fed Chairman Jerome Powell said on Thursday that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell. On the same line was Chicago Fed Chairman Charles Evans who favored a 0.75% rate hike for September. Also hawkish was the European Central Bank (ECB) which announced a 0.75% rate hike and President Christine Lagarde showed readiness for more such moves to tame inflation.

In addition to the hawkish central bank plays, firmer oil prices also challenge the USD/INR bears due to India’s heavy reliance on oil imports. That said, WTI crude oil prices rise 1.25% to $83.35 during the two-day rebound from the eight-month low.

Amid these plays, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,010. It should be noted that India’s BSE Sensex also rises 0.50% to please bulls.

Moving on, the last lot of Fedspeak ahead of the blackout period, starting from this weekend, will be important to watch for USD/INR traders for clear directions.

Technical analysis

A clear downside break of the 50-DMA, around 79.65 by the press time, directs USD/INR bears towards the monthly low marked in the last week near 79.28.

• Aussie bulls have strengthened after an upside break of the 0.6713-0.6770 range.
• A step into the prior balance profile has bolstered the odds of a bullish reversal.
• The RSI (14) has shifted into the bullish range of 60.00-80.00.

The AUD/USD pair is advancing sharply higher after establishing above the critical resistance of 0.6770 in the Asian session. The asset has witnessed a bullish open test-rive session in which bulls remain in control right after defending the downside bias in from the first tick. Also, the major has given an upside break of the consolidation formed in a 0.6713-0.6770 range.

On an hourly scale, the aussie bulls have stepped into the prior balanced profile (placed in a 0.6770-0.6850 range), which resulted in a bearish imbalance. Investors should be aware of the fact that an entry into the prior balanced auction bolsters the odds of a bullish reversal.

The 20-and 50-period Exponential Moving Averages (EMAs) have delivered a bullish crossover at 0.6747, which indicates more upside ahead.

Also, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which dictated that upside momentum has been triggered.

A minor corrective move towards the round-level support at 0.6800 will trigger a bargain buy opportunity for investors, which will drive the asset towards August 29 low at 0.6841, followed by August 31 high at 0.6904.

Alternatively, the antipodean could lose momentum if the asset drops below Thursday’s low at 0.6713. An occurrence of the same will drag the asset towards 6 March 2020 high at 0.6657 and the 27 April 2020 high at 0.6570.

AUD/USD hourly chart

• EUR/USD is attempting to kiss the round-level resistance of 1.0100 as DXY has plunged.
• The DXY is declining on expectations of a consecutive drop in the US inflation rate.
• ECB’s 75 bps rate hike announcement has trimmed Fed-ECB policy divergence.

The EUR/USD pair has displayed a juggernaut rally in the Asian session after overstepping the 1.0000 parity with significant force. The asset has refreshed its intraday high at 1.0080 and more gains are expected ahead of the speech from European Central Bank (ECB) Christine Lagarde. The major is witnessing a bullish open-drive trading session in which every pullback is considered as a buying opportunity for the market participants.

EUR/USD is catching immense bids as the US dollar index (DXY) is falling like a house of cards. The DXY has surrendered the critical support of 109.00 and is declining further on expectations of shrinkage in the US inflation data, which will release on Tuesday.

The comments from US Treasury Secretary Janet Yellen on the inflation rate, citing that weaker gasoline prices may put further downward pressure on headline consumer price inflation for August, reported by Reuters, are discounted by the market participants. A consecutive decline in the headline Consumer Price Index (CPI) data will confirm that the inflationary pressures are responding inversely to the higher interest rates by the Federal Reserve (Fed).

However, a consecutive decline in the inflation rate is not sufficient to trim the odds for a 75 basis point (bps) interest rate hike as the current price rise index is still extremely deviated from the desired rate of 2%.

On the eurozone front, the interest rate hike of 75 bps by the ECB has trimmed the Fed-ECB policy divergence. The decision of bumper rate hike by the ECB is taken on cost of growth prospects as the trading bloc is expected to expand with an extremely lower growth rate.  

• USD/JPY holds lower ground near intraday bottom, defies bullish chart formation.
• Clear break of 50-HMA teases short-term sellers but 100-HMA, fortnight-old support line could test bears.
• Bulls can aim for fresh multi-year high on witnessing sustained trading beyond 144.15.

USD/JPY remains pressured around intraday low near 143.60 during Friday’s Asian session. In doing so, the yen pair prints the first daily loss in 11 days while extending the mid-week pullback from the 24-year high.

However, the sellers need validation from a sustained downside break of the support line of a four-day-old bullish pennant, around 143.50 by the press time, to retake control.

Given the quote’s sustained trading below 50-HMA and the recently downbeat RSI, not oversold, the pair is likely to witness short-term downside.

Even so, the 100-HMA and an upward sloping support line from August 26, respectively near 142.65 and 142.20, could challenge the USD/JPY bears before giving them the powers.

Alternatively, buyers may initially struggle to cross the 50-HMA resistance near 144.00 but major attention will be given to the confirmation of the bullish pennant, by crossing the 144.15 hurdle.

Following that, the recent multi-year high near 145.00 could act as an intermediate halt while approaching the tops marked during June and August of the year 1998, close to 146.80 and 147.70 in that order.

Overall, USD/JPY is likely to witness short-term pullback but the bullish trend remains intact.

USD/JPY: Hourly chart

Trend: Pullback expected

Bank of Japan (BOJ) Governor Haruhiko Kuroda said on Friday that he met Japan’s Prime Minister Fumio Kishida to explain domestic, overseas economic and market developments.

Additional comments

Market reaction

The yen picked up fresh bids on Kuroda’s comments, dragging USD/JPY to near 143.40, down 0.44% on the day.

Japanese Chief Cabinet Secretary Hirokazu Matsuno said that he wants to take appropriate decisions depending on the situation when asked about forex.

Adding quotes

Related reads

• Japan’s Suzuki: Won't rule out any options on FX
• EUR/JPY refreshes sever-year high above 144.40 amid Eurogroup meeting

• USD/CNH remains pressured around intraday low after breaking bullish chart formation.
• Bearish MACD signals favor sellers but 50-SMA tests downside towards 13-day-old support.
• Buyers need to cross 6.9630 to retake control, light calendar could limit the moves.

USD/CNH rejects the bullish channel while taking offers of around 6.9450 during Friday’s Asian session. In doing so, the USD/CNH cheers broad USD weakness while paying little heed to China's inflation data.

China’s Consumer Price Index (CPI) and Producer Price Index (PPI) both print unwelcome numbers for August. That said, the headline CPI eased to 2.5% YoY versus 2.8% market forecasts and 2.7% prior while the PPI dropped to 2.3% compared to 3.1% expected and 4.2% prior. On the other hand, the risk-on mood weighs on the US Dollar Index (DXY), down 0.55% intraday near 109.00 by the press time.

Comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

US Treasury Secretary Yellen raised hopes for softer inflation and US President Biden’s consideration to remove some tariffs on China. Talking about data, after recently firmer ISM PMIs and Goods Trade Balance, the US Weekly Initial Jobless Claims slumped to the lowest levels since May, with the latest figures beyond 222K.

On Thursday, the European Central Bank (ECB) matched the market’s expectations by announcing a 75 basis point (bps) increase in the key rates while Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters.

Amid these plays, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020. At home, firmer commodity prices favor the benchmark S&P/ASX200 index to print mild gains.

Also favoring USD/CNH bears is the headline from Bloomberg suggesting no rate cut from the People’s Bank of China (PBOC) during the next week. “China’s efforts to stem the yuan’s weakness are spurring bets that it may refrain from boosting liquidity in the banking system in the near term, even as Covid lockdowns and a property slowdown undermine its growth prospects,” said Bloomberg.

Moving on, a light calendar could restrict short-term USD/CNH moves ahead of the next week’s US Inflation data. However, the last round of the Fedspeak before the blackout period may entertain the pair traders.

Technical analysis

USD/CNH bears need to conquer the 50-SMA support near 6.9365 to justify the bearish break.

Given the MACD signals and a three-day-old resistance line, around 6.9630 by the press time, the quote is likely to break the immediate support, which in turn could direct the USD/CNH sellers towards a horizontal area including multiple levels marked since August 23 near 6.8850-80.

Alternatively, recovery moves need to cross the 6.963 hurdle to refresh two-year high marked earlier in the week near 6.9970. In doing so, the stated channel’s resistance line near 7.0120 will be in focus.

USD/CNH: Four-hour chart

Trend: Further weakness expected

Japanese Finance Minister Shunichi Suzuki is reiterating his stance on the recent fx market volatility and the exchange rate value.

Key quotes

Market reaction

USD/JPY was last seen trading at 143.66, down 0.33% on the day.

A US Treasury official said in a statement on Friday, “the oil price restriction should eliminate the risk premium put into the market by Russia's invasion of Ukraine.”

“The oil price cap should be set above the marginal production cost, taking into account past Russian oil prices,” the official added.

Related reads

• WTI consolidates weekly losses above $83.00 amid risk-on mood, softer US dollar
• US Treasury Secretary Yellen expects downward pressure on US inflation

• WTI picks up bids to extend the previous day’s rebound from eight-month low.
• US Treasury official provides hints of oil price cap, Kuwait cuts Ocober crude price for Asia.
• US-China headlines, recent data favor sentiment amid a likely dull day ahead.
• Fears of recession, central bank aggression could keep the black gold pressured despite the latest rebound.

WTI crude oil prices remain firmer for the second consecutive day while paring the weekly losses around the eight-month low during Friday’s Asian session. That said, the black gold renews its intraday high near $83.50 by the press time.

Headlines from the US Treasury Department, concerning the oil price cap, seem to have joined the firmer sentiment and the softer US dollar to propel the energy prices of late. “The oil price cap should be set above the marginal production cost, taking into account past Russian oil prices,” said the US Treasury official.

Elsewhere, the US Dollar Index (DXY) drops 0.55% intraday, to 109.05 at the latest, amid firmer sentiment and sluggish US Treasury yields. It’s worth noting that the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020.

Comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Additionally, Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

Elsewhere, Kuwait has cut the October official selling prices for its crude grades from the previous month, a price document reviewed by Reuters showed on Friday. Earlier in the day, US Energy Secretary Jennifer Granholm mentioned that US President Joe Biden's administration is weighing the need for further releases of crude oil from the nation's emergency stockpiles after the current program ends in October. Before that, a Department Of Energy official later said the White House was not considering new releases from the US Strategic Petroleum Reserve (SPR) at this time beyond the 180 million barrels that the president announced months ago, per Reuters.

It should be noted that the latest weakness in China’s inflation numbers challenges the oil buyers, together with the hawkish central bank actions. China’s Consumer Price Index (CPI) and Producer Price Index (PPI) both print unwelcome numbers for August. That said, the headline CPI eased to 2.5% YoY versus 2.8% market forecasts and 2.7% prior while the PPI dropped to 2.3% compared to 3.1% expected and 4.2% prior.

Moving on, the last round of Fedspeak before the blackout period could entertain market players but there appear fewer oil-specific catalysts to watch.

Technical analysis

WTI recovery remains elusive unless crossing a two-week-old descending resistance line, around $84.70 by the press time.

• NZD/USD is oscillating around 0.6090, upside remains favored on weaker DXY.
• China’s inflation has declined to 2.8% vs. 2.8% of expectations on an annual basis.
• The commentary from US Secretary Yellen has trimmed forecasts for US CPI data.

The NZD/USD pair has concluded the time-based correction after a stellar performance in the Asian session. The asset has witnessed a sheer upside and is oscillating around 0.6080. The major is gearing up for more upside which will be witnessed after overstepping the round-level resistance of 0.6100. The asset has not responded well to the higher-than-expected China’s Consumer Price Index (CPI) data.

China’s CPI has landed at 2.5%, lower than the expectations and the prior release of 2.8% and 2.7% respectively on an annual basis. While the monthly figure is negative by 0.1% against 0.2% of expectations and 0.5% of former release. A decline in China’s inflation will force the People’s Bank of China (PBOC) to sound dovish and trim the Prime Lending Rate (PLR) further. And, more liquidity flush into the economy will spurt the volumes in economic activities.

It is worth noting that New Zealand is a leading trading partner of China and higher economic activities in China will accelerate kiwi exports and will strengthen their Trade Balance further.

The Stats NZ reported bumper Electronic Card Retail Sales in the early Tokyo session. The economic data increased by 26.9% against a decline of 0.5% on an annual basis. Also, the monthly data improved by 0.9% against a shrink of 0.2% released for June.

Meanwhile, the US dollar index (DXY) is plunging ahead of the inflation data. The DXY has slipped to near 109.10 and is expected to display more weakness. The comments from US Treasury Secretary Janet Yellen on the inflation rate, citing that weaker gasoline prices may put further downward pressure on headline consumer price inflation for August, reported by Reuters. This has weakened the DXY on expectations of a decline in inflation ahead.

• AUD/JPY struggles to extend intraday gains after refreshing seven-year high.
• Overbought RSI, bearish candlestick formation joins downbeat China data to challenge upside momentum.
• Bears need a clear break of five-week-old support line to retake control.

AUD/JPY dribbles around the highest levels since 2015 during Friday’s Asian session, despite the overbought RSI conditions and Thursday’s Doji. That said, the cross-currency pair grinds higher around 97.50 by the press time.

In addition to the candlestick and RSI, the downbeat prints of inflation data Australia’s key customer China also weigh on the AUD/JPY prices.

China’s Consumer Price Index (CPI) and Producer Price Index (PPI) both print unwelcome numbers for August. That said, the headline CPI eased to 2.5% YoY versus 2.8% market forecasts and 2.7% prior while the PPI dropped to 2.3% compared to 3.1% expected and 4.2% prior.

That said, pullback moves may initially aim for the tops marked in June and April, respectively near 96.90 and 95.75. However, AUD/JPY bears remain unconvinced beyond the upward sloping support line from early August, at 95.73 by the press time.

Alternatively, the 98.00 round figure seems to lure the pair buyers before directing them towards an upward sloping resistance line from April, near 98.75 by the press time.

Following that, the 99.00 and the 100.00 thresholds will gain the AUD/JPY bull’s attention.

AUD/JPY: Daily chart

Trend: Limited upside expected

• AUD/USD eases from intraday high after softer China inflation data for August.
• China’s CPI drops to 2.5% YoY, PPI also declines to 2.3% yearly.
• US-China headlines, recent data from major economies and confidence in central bankers underpin market’s optimism.
• RBA vs. Fed sentiment appear a negative catalyst for the pair.

AUD/USD retreats from intraday high after witnessing softer inflation data from a major customer China during Friday’s Asian session. Even so, the risk-on mood keeps the pair buyers hopeful as the quote prints 0.53% intraday gains around 0.6780 by the press time.

China’s Consumer Price Index (CPI) and Producer Price Index (PPI) both print unwelcome numbers for August. That said, the headline CPI eased to 2.5% YoY versus 2.8% market forecasts and 2.7% prior while the PPI dropped to 2.3% compared to 3.1% expected and 4.2% prior.

It should be noted comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

US Treasury Secretary Yellen raised hopes for softer inflation and US President Biden’s consideration to remove some tariffs on China. Talking about data, after recently firmer ISM PMIs and Goods Trade Balance, the US Weekly Initial Jobless Claims slumped to the lowest levels since May, with the latest figures beyond 222K.

Previously, the European Central Bank (ECB) matched the market’s expectations by announcing a 75 basis point (bps) increase in the key rates while Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters.

While portraying the mood, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020. At home, firmer commodity prices favor the benchmark S&P/ASX200 index to print mild gains.

Having witnessed an initial reaction to inflation data from the key customer, AUD/USD traders should pay attention to the last lot of Fedspeak ahead of the blackout period starting from this weekend. It should be noted that the contradiction between the dovish comments from Reserve Bank of Australia (RBA) Governor Philip Lowe and the hawkish bias of Fed Chair Powell seems to keep the pair bears hopeful.

With this in mind, Australia and New Zealand Banking Group (ANZ) said, “ANZ economists have revised down the pace at which the RBA is expected to hike interest rates. A 50bp hike is still expected in October, but this is then expected to ease back to two 25bp hikes in November and December. However, the expected terminal rate is still expected to be 3.35%.”

Technical analysis

AUD/USD extends Wednesday’s bounce off the monthly bearish channel’s support line, around 0.6670 by the press time, to approach the 10-DMA hurdle surrounding 0.6800. However, a convergence of the 20-DMA and the stated channel’s resistance line, close to 0.6870-75, appears a tough nut to crack for the pair buyers afterward.

China released the August Consumer Price Index and Producer Price Index as follows:

• August PPI +2.3 pct from a year ago (Reuters poll +3.1 pct).
• August CPI +2.5 pct from a year ago (Reuters poll +2.8 pct).
• August PPI -1.2 pct from the previous month.

Producer inflation pressures are expected to continue decelerating in August and the data has weighed on the Aussie a touch as it struggles to maintain the bid vs. a softer US dollar in the Tokyo session.

H1 chart

The price has run into resistance and could be expected to correct before taking on the 0.68 figure for an extended bullish recovery. 

About of Chinese CPI

The Consumer Price Index is released by the National Bureau of Statistics of China. It is a measure of retail price variations within a representative basket of goods and services. The result is a comprehensive summary of the results extracted from the urban consumer price index and rural consumer price index.

The purchasing power of the CNY is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A substantial consumer price index increase would indicate that inflation has become a destabilizing factor in the economy, potentially prompting The People’s Bank of China to tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, while a low reading is seen as negative (or Bearish) for the CNY.

• EUR/GBP is aiming to recapture its 16-month high at 0.8721 as ECB announced a 75 bps rate hike.
• Truss announced a cap on energy bills to safeguard the interest of households.
• UK inflation will accelerate further amid soaring energy prices.

The EUR/GBP pair is aiming to carry forward its two-day winning streak if it manages to cross Thursday’s high at 0.8712. The asset is ultimately focusing to recapture a 16-month high at 0.8720 as a historic rate hike by the European Central Bank (ECB) has infused fresh blood into the shared currency bulls. On a broader note, the cross is continuously moving higher for the past two weeks after a weak hiatus around 0.8600.

ECB President Christine Lagarde preferred the agenda of cooling down the red-hot inflation over growth prospects by announcing a bumper rate hike of 75 basis points (bps). The interest rate has been pushed higher to 1.25% and more escalation is already warned. The central bank will remain more data-centric ahead and won’t continue the pace in hiking critical rates.

The central bank has also come out with inflation projections and is expected to average at 8.1% in 2022, 5.5% in 2023, and 2.3% in 2024. The ECB held soaring energy and food prices and supply chain bottlenecks responsible for accelerating price pressures.

On the UK front, the pound bulls are facing the dual threat of a double-digit inflation rate and bleak long-term growth. Liz Truss, the next UK Prime Minister is attempting to return consumer confidence and has announced a cap on energy bills to safeguard households against the upcoming winter season. The demand for energy accelerates in winter season due to an increase in the usage of electrical appliances and heaters.

The novel cabinet has fixed a cap on energy bills, according to which, a typical household will pay no more than £2,500 a year on energy bills.

Going forward, the UK inflation rate will remain in limelight. Earlier, the headline Consumer Price Index (CPI) landed at 10.1%. The economic data is expected to accelerate further as energy prices have remained upbeat in August.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.9098 vs. the last close of  6.9563.

About the fix

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

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

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

• GBP/USD bulls have moved in and are testing key resistance.
• The price is correcting into the 1.1530s and should they hold, the upside is compelling for the sessions ahead. 

As per the prior analysis, GBP/USD Price Analysis: Pound rests in middle of the week's range, bulls in play, the pound has moved higher from a key support ahead and is taking on the bears with higher levels eyed for the day ahead. 

GBP/USD prior analysis

It was explained that the focus was on the upside for a retest of the highs. ''The price has left a W-formation on the chart and a break of 1.1516, the prior candle high, could seal the deal for a grind higher towards 1.1550 and beyond the recent highs.''

GBP/USD update, live

The price has rallied into the 1.1550s, but a pullback could now be on the cards prior to the next retest of the resistance, as illustrated in the chart above. 

GBP/USD M15 chart

Meanwhile, should bulls commit above 1.1530, then there could be a sooner test of the highs as per the 15-min chart structure.

The daily char's resistance comes in at 1.1600:

• USD/CAD takes offers to renew weekly low, prints three-day downtrend.
• Market’s cautious optimism favors oil buyers, weighs on US Dollar Index.
• Canada’s August month employment data becomes important after BOC’s hawkish bias.
• Inflation data from China-US will be important for clear directions.

USD/CAD portrays a three-day downtrend as it renews the weekly low around 1.3050 during Friday’s Asian session. In doing so, the Loonie pair cheers firmer prices of Canada’s key export item WTI crude oil while also cheering the risk-on mood and broad US dollar pullback. However, the pair traders remain cautious ahead of the monthly jobs report from Ottawa.

WTI crude oil extends the previous day’s bounce off an eight-month low to $83.20 by the press time while the gains of S&P 500 Futures portray a risk-on mood amid a sluggish session.  

That said, comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

US Treasury Secretary Yellen raised hopes for softer inflation and US President Biden’s consideration to remove some tariffs on China. Talking about data, after recently firmer ISM PMIs and Goods Trade Balance, the US Weekly Initial Jobless Claims slumped to the lowest levels since May, with the latest figures beyond 222K.

Previously, the European Central Bank (ECB) matched the market’s expectations by announcing a 75 basis point (bps) increase in the key rates while Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters. Earlier in the week, the Bank of Canada (BOC) also announced a 0.75% rate increase and showed readiness to do more to fight inflation.

Looking forward, a likely positive Net Change in Employment, as well as no major negatives from Canadian Unemployment Rate, should help the USD/CAD bears amid the positive sentiment. However, next week’s US inflation data will be crucial for clear directions.

Technical analysis

USD/CAD bears attack a one-month-old ascending support line near 1.3060, after witnessing a daily closing below the 10-DMA, around 1.3110 by the press time. That said, impending bear cross on the MACD and RSI retreat to favor sellers targeting the 21-DMA level of 1.3020 and the 1.3000 threshold.

• EUR/JPY has printed a fresh seven-year high above 144.40 on optimism from the ongoing Eurogroup meeting.
• ECB hiked interest rates by 75 bps and held energy and food prices responsible for higher inflation.
• The yen bulls failed to capitalize on upbeat Japanese GDP data.

The EUR/JPY pair is on the verge of refreshing its seven-year high above 144.30 on expectations of constructive outcomes from the Eurogroup meeting to strengthen the shared currency bulls. The asset is auctioning near Thursday’s high at 144.29 and is aiming to cross the same as European Central Bank (ECB)-Bank of Japan (BOJ) policy divergence has widened further.

On Thursday, the historic move by the ECB to hike its interest rates by 75 basis points (bps) with shifting it to 1.25% strengthened the eurozone bulls against the Japanese yen. The trading bloc is fighting with the dual threats of soaring price pressures and bleak economic growth. It is widely known that higher interest rates trim growth prospects. Out of the chaos, ECB President Christine Lagarde preferred to ditch the growth prospects and stick to the agenda of bringing price stability.

While discussing the interest rate guidance, the ECB stated that more rate hikes won’t be such bumper and the central bank will remain data-dependent. The central bank has also come out with inflation projections and is expected to average at 8.1% in 2022, 5.5% in 2023, and 2.3% in 2024. The ECB held soaring energy and food prices and supply chain bottlenecks responsible for accelerating price pressures.

On the Tokyo front, the upbeat Gross Domestic Product (GDP) data failed to bring meaningful strength to the yen bulls. The Japanese GDP data landed at 0.9%, higher than the forecasts of 0.7% and the prior release of 0.5%. Also, the annual data improved meaningfully to 3.5% against the expectations and the prior print of 2.9% and 2.2% respectively.

• Gold price picks up bids to refresh intraday high, reverses the previous day’s losses.
• Fed’s Powell, ECB’s Lagarde both advocate for higher rates amid a fight against inflation.
• Firmer US data, Sino-American headlines seem to impress XAU/USD buyers of late.
• Inflation from China, US will be important as Fed policymakers approach blackout.

Gold price (XAU/USD) renews intraday high near $1,715 as it consolidates the previous day’s losses amid cautious optimism during Friday’s Asian session. The metal’s recent upside could also be linked to the lack of major data.

That said, comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. However, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood.

US Treasury Secretary Yellen raised hopes for softer inflation and US President Biden’s consideration to remove some tariffs on China. Talking about data, after recently firmer ISM PMIs and Goods Trade Balance, the US Weekly Initial Jobless Claims slumped to the lowest levels since May, with the latest figures beyond 222K.

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

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

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

Against this backdrop, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020.

Looking forward, China’s Consumer Price Index (CPI) and Producer Price Index (PPI) for August will be important amid talks over the recession. However, major attention will be given to the next week’s US CPI as Fedspeak reaches the blackout period.

Technical analysis

Gold price cheers a sustained bounce off a seven-week-old ascending support line, at $1,688 by the press time, while again heading towards the 21-day EMA hurdle surrounding $1,730.

The recovery moves also take clues from the impending bull cross of the MACD and the recent rebound in the RSI (14).

In a case where the XAU/USD remains firmer past $1,730, the upper line of the four-month-long bearish channel, around $1,770 at the latest, will be crucial to watch.

Alternatively, pullback moves remain elusive until the quote remains above the $1,688 support line. Also acting as the downside filter is the yearly low surrounding $1,680.

If at all, the gold bears keep reins past $1,680, the odds of witnessing a gradual south-run towards the $1,600 threshold, comprising the aforementioned channel’s support line, will be in focus.

Gold: Daily chart

Trend: Limited recovery expected

• USD/JPY has established a balanced profile below 144.00 as the US Inflation is expected to shift lower.
• Higher interest rates and falling gasoline prices are responsible for a decline in consensus for headline CPI.
• Japan’s officials stated that the recent fall in yen cannot be justified based on fundamentals.

The USD/JPY pair is auctioning below the critical cushion of 144.00 in the Asian session. Broadly, the asset is displaying topsy-turvy moves in a tad wider range of 143.31-145.00 from Wednesday. The pair is witnessing a volatility contraction phase after refreshing a 24-year high. More consolidation is expected from the counter as investors are awaiting the US Consumer Price Index (CPI) data, which will release on Tuesday.

As interest rates are consecutively escalating by the Federal Reserve (Fed) and gasoline prices have trimmed significantly, the headline CPI figure is expected to remain lower. For July, the annual inflation landed at 8.5%. Well, price pressures have already displayed exhaustion signals but for a decline in the pace of hiking interest rates, the inflation rate needs to slow down for months to build confidence in the sub-conscious mind of Fed policymakers.

Meanwhile, the US dollar index (DXY) has given a downside break of the consolidation formed in a narrow range of 109.60-109.71 in the late New York session. The DXY is declining as the market participants already discounted the hawkish speech from Fed chair Jerome Powell.

On the Tokyo front, investors are awaiting more build-up on news of Japan’s intervening in the Fx market to support yen. Japan's top currency diplomat Kanda said on Thursday that recent yen falls cannot be justified based on fundamentals, as reported by Reuters.

He further added that the Bank of Japan (BOJ) is expected to take necessary action to support the yen bulls. Also, Tokyo is communicating with other countries on recent Fx moves. The meeting was attended by officials from Japan’s Ministry of Finance, the Financial Institutions Agency, and the Bank of Japan (BOJ).

• EUR/USD picks up bids to refresh intraday high, crosses 20-DMA.
• Recently firmer MACD, RSI joins sustained bounce off two-month-old support line to favor bulls.
• Clear break of channel’s upper line needs to confirm further upside, bears have multiple supports to watch during the pullback.

EUR/USD extends the early-week rebound from a two-month-old support line as it marches to 1.0020 during Friday’s Asian session. In doing so, the major currency crosses the 20-DMA while staying inside a downward-sloping trend channel established since early May.

Given the quote’s upside break of the short-term key moving average, as well as firmer RSI and MACD signals, the EUR/USD prices are likely to remain firmer.

However, the late July low near 1.01000 and the stated channel’s upper line, around 1.0170, could challenge the pair’s further advances.

In a case where EUR/USD remains firmer past 1.0170, the odds of witnessing the pair’s run-up towards the previous monthly high near 1.0370 can’t be ruled out.

Alternatively, pullback moves remain elusive beyond the aforementioned two-month-old support line, around 0.9890 by the press time.

Following that, the 61.8% and 78.6% Fibonacci Expansion (FE) levels of the pair’s May-August moves, respectively near 0.9845 and 0.9700, will be in the focus of the EUR/USD sellers ahead of the bearish channel’s lower line, close to 0.9600 at the latest.

EUR/USD: Daily chart

Trend: Limited upside expected

• AUD/USD bulls are moving in for a test of key resistance. 
• The weekly M-formation is a reversion pattern that is holding up the downside. 

As per the prior analysis, AUD/USD Price Analysis: Bears move in from critical resistance, the price moved lower and on the daily outlook, the price could be coiling for a bearish extension for the days ahead. 

AUD/USD daily chart

Should the daily chart's resistance hold, then the bears could be encouraged to move in, leaving a bearish bias on the charts for the days ahead. However, the bulls are taking charge in the meantime and a break of the said resistance, illustrated in a lower time frame, below, will be critical for the immediate future. 

AUD/USD H4 chart

The W-formation's support is sturdy and a break of the trendline will open the risk of a firmer rally and throw the daily chart's downside thesis into the wind. 

AUD/USD weekly chart

The M-formation is a charming pattern that could see a reversal extend into the resistance marked around 0.6850. 

• US Dollar Index prints mild losses after a volatile day.
• Yields regain upside momentum after Fed’s Powell, ECB advocated for higher rates.
• Recent improvement in US data, Sino-American headlines seem to favor mood.
• Light calendar can test momentum traders ahead of next week’s US CPI.

US Dollar Index (DXY) remains on the back foot around 109.50, after a volatile day, as cautious optimism in the market joins a light calendar during Friday’s Asian session. The greenback gauge marked mild gains the previous day as the European Central Bank’s (ECB) monetary policy announcements and Fed Chair Jerome Powell’s speech offered volatility.

It should be noted that comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment and Antipodeans of late. However, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit.

“US Treasury Secretary Yellen sees lower gas prices putting downward pressure on US inflation,” said Reuters. The news also mentioned that “Asked whether the Biden administration was still considering removing some tariffs on Chinese imports as a way to lower costs, Yellen said that President Joe Biden was still considering the issue.”

Also keeping the traders positive are recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates.

That said, the US Weekly Initial Jobless Claims slumped to the lowest levels since May, with the latest figures beyond 222K.

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

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

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

Amid these plays, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains.

Moving on, China’s Consumer Price Index (CPI) and Producer Price Index (PPI) for August will be important amid talks over the recession. However, major attention will be given to the next week’s US CPI as Fedspeak reaches the blackout period.

Technical analysis

A daily closing below the monthly support line, now resistance around 110.20, keeps DXY bears hopeful of revisiting a two-month-old horizontal support near 109.30.

• Silver price portrays a three-day uptrend inside a bullish chart formation.
• Sustained trading beyond 200-HMA, firmer oscillators keep buyers hopeful.
• Sellers need a clear downside break of $18.00 to retake control.

Silver price (XAG/USD) remains firmer around an eight-day top, recently picking up bids to $18.60 during Friday’s Asian session. In doing so, the bright metal extends the run-up beyond the 200-HMA while staying inside an upward-sloping trend channel established since August 31.

The metal’s sustained trading beyond the key HMA, as well as trading inside the bullish channel, also justifies the firmer RSI (14), not overbought, to favor the buyers. Also suggesting the quote’s further upside is the impending bull cross on the MACD.

That said, the stated channel’s upper line near $18.70 appears to challenge the intraday buyers of the XAG/USD.

Following that, the 61.8% Fibonacci retracement level of August 26 to September 01 moves, near $18.75, will precede the $19.00 threshold to limit the metal’s upside moves before directing it to the August 26 swing high near $19.45.

Alternatively, a downside break of the 200-HMA, near $18.20 by the press time, could quickly drag the quote towards the aforementioned channel’s support line, at the $18.00 round figure. Also increasing the strength of the $18.00 support is the 23.6% Fibonacci retracement level.

Should the quote drops below $18.00, the yearly low of $17.56, marked earlier in the month, will be crucial to watch.

Silver: Hourly chart

Trend: Further upside expected

• GBP/JPY is gradually advancing towards 166.00 as the focus shifts to UK employment numbers.
• UK households have sensed a sigh of relief after a cap on energy bills.
• Japan is communicating with other countries to discuss biased one-sided moves in yen.

The GBP/JPY pair is gradually moving higher after sensing support from the critical figure of 165.00. The asset is aiming to recapture the critical hurdle of 166.00 as the impact of an upbeat Japan’s Gross Domestic Product (GDP) data has started fading away. Apart from that, investors will focus on the UK employment data, which is due next week.

On Thursday, Japan’s GDP data improved meaningfully to 3.5% against the expectations and the prior print of 2.9% and 2.2% respectively on an annual basis. Also, the quarterly data was recorded higher at 0.9% against the forecasts of 0.7% and the prior release of 0.5%. Apart from that, Japan’s officials are worried over one-sided downside moves in the Japanese yen.

Japan's top currency diplomat Kanda said on Thursday that recent yen falls cannot be justified based on fundamentals, as reported by Reuters. He further added that the Bank of Japan (BOJ) is expected to take necessary action to support the yen bulls. Also, Tokyo is communicating with other countries on recent Fx moves.

On the UK front, the appointment of a new UK Prime Minister has strengthened the pound bulls. Liz Truss’s attempts of cornering the accelerating energy prices and improving the employment generation process are returning consumer confidence. The novel cabinet has fixed a cap on energy bills, according to which, a typical household will pay no more than £2,500 a year on energy bills. This will definitely scale down the headwinds for households. Also, it will safeguard them against bumper demand for energy in the upcoming winter season.

Going forward, investors will focus on the UK employment data, which will release next week. The major focus will be on the labor cost index as the pound zone has remained unable in hiking paychecks for the households.

• NZD/USD picks up bids to reverse the previous day’s losses.
• Fed’s Powell backed strong fight against inflation, New Zealand data came in firmer.
• US-China headlines entertain traders ahead of China CPI/PPI.

NZD/USD pares the previous day’s losses as it picks up bids to 0.6065 during Friday’s Asian session. In doing so, the Kiwi pair cheers recently flashed New Zealand (NZ) data, as well as the cautious optimism in the market ahead of China inflation data.

NZ Electronic Card Retail Sales for August grew 0.9% MoM and 26.9% YoY while comparing to -0.2% and -0.5% previous readings.

On a different page, market sentiment improves on headlines from the US, as well as hopes that global policymakers will be able to overcome inflation-heat with a holistic battle.

That said, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains.

It should be noted that comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment and Antipodeans of late. However, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit.

“US Treasury Secretary Yellen sees lower gas prices putting downward pressure on US inflation,” said Reuters. The news also mentioned that “Asked whether the Biden administration was still considering removing some tariffs on Chinese imports as a way to lower costs, Yellen said that President Joe Biden was still considering the issue.”

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

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

That said, the market’s cautious optimism is likely to underpin NZD/USD recovery but China’s Consumer Price Index (CPI) and Producer Price Index (PPI) for August will be important amid talks over the recession. Following that, the next week’s US inflation data and New Zealand Gross Domestic Product (GDP) will be crucial for clear directions.

Technical analysis

A two-week-old bearish channel, currently between 1.6080 and 0.5970, could challenge the NZD/USD pair’s recent rebound.

• USD/CHF has slipped below the round-level support of 0.9700 amid a decline in the Swiss jobless rate.
• The Fed is set to hike interest rates further at the cost of growth prospects.
• Next week, investors’ entire focus will remain on the US inflation data.

The USD/CHF pair has displayed a perpendicular fall after surrendering the critical support of 0.9760 on Thursday. The asset has slipped below the round-level support of 0.9700 and is not displaying any sign of bullish reversal yet, therefore more weakness is on cards. The major turned bearish this week after multiple attempts of overstepping the crucial resistance of 0.9860. The downside move is expected to escalate further to near 0.9600.

It is worth noting that the decline in the USD/CHF pair is significantly higher than the decline in the mighty US dollar index (DXY). This indicates that the Swiss franc bulls have strengthened extremely amid a decline in Swiss Unemployment Rate data. On Thursday, the Swiss jobless rate landed at 2.1%, lower than expectations and the prior release of 2.2% on a monthly basis.

Meanwhile, the DXY is expected to deliver a surprise movement after a hawkish speech from Federal Reserve (Fed) chair Jerome Powell. Fed Powell’s O&A at the Cato Institute focused more on bringing price stability to the US economy. The inflation rate of 8.5% is huge and is firmly impacting households. Also, the Fed is prepared for softening demand as higher interest rates will squeeze out liquidity from the economy drastically.

Next week, the major trigger will be the release of the US Consumer Price Index (CPI) data. A decline is expected in the inflationary pressures led by soaring interest rates and declining gasoline prices. For July, the headline CPI landed at 8.5%.

• AUD/JPY prepares to finish the week with gains close to 1.90%.
• Negative divergence in the daily chart opened the door for an AUD/JPY fall towards 96.20.

The AUD/JPY finishes the day, forming a doji after dovish remarks by the RBA Governor Philip Lowe weighed on the Australian dollar, which weakened against most G8 currencies. At the time of writing, the AUD/JPY is trading at 97.27, slightly below its opening price, as the Asian Pacific session begins.

AUD/JPY Price Analysis: Technical outlook

On Thursday, the AUD/JPY reached a fresh YTD high at 97.49 before tumbling towards the daily low at 96.63. However, late in the North American session, AUD/JPY buyers pushed the pair above the 97.00 thresholds, finishing Thursday’s session at 97.27.

AUD/JPY traders should be aware that the Relative Strength Index (RSI) turned flat, at 68.88, before entering overbought conditions, flashing signs of negative divergence between RSI and AUD/JPY price action.

Therefore, the AUD/JPY might be headed to the downside. The AUD/JPY first support would be the September 8 low at 96.62. Once broken, the next demand zone would be the September 7 daily low at 95.99, followed by the September 6 low at 95.48, before reaching the weekly low at 94.98.

AUD/JPY Key Technical Levels