• Gold price remains pressured around one-week low after declining the most in two months.
• US inflation data renewed recession fears, propelled odds of Fed’s aggression.
• Geopolitical fears emanating from China, Russia also weigh on XAU/USD price.
• US PPI eyed for intraday moves, other consumer-centric data may entertain ahead of Fed.

Gold price (XAU/USD) remains pressured at around $1,700 as bears take a breather after the biggest daily slump in two weeks, thanks to US inflation. It should, however, be noted that a lack of major data/events seemed to restrict the immediate bullion moves during Wednesday’s Asian session.

US inflation data renewed fears of the Federal Reserve’s aggressive rate hike, as well as propelled the recession woes, on Tuesday. Also acting as the downside catalysts for the XAU/USD are the geopolitical concerns surrounding China and Russia.

US Consumer Price Index (CPI) for August rose past 8.1% market forecasts to 8.3% YoY, versus 8.8% prior regains. The monthly figures, however, increased to 0.1%, more than -0.1% expected and 0.0% previous readings. The core CPI, means CPI ex Food & Energy, also crossed 6.1% consensus and 5.9% prior to print 6.3% for the said month.

Following the US inflation data release, the bets on the Fed’s next move turned increasingly hawkish, with the 75 basis points (bps) of a hike appearing almost certainly next week. It’s worth noting that there is around 25% chance that the US Federal Reserve (Fed) will announce a full 1.0% increase in the benchmark Fed rate on September 21 meeting.

It should be noted that the yield inversion also widened after US inflation data and propelled the recession woes, which in turn drowned the XAU/USD prices due to the pair’s risk-barometer status. That said, the US 10-year Treasury yields rallied to 3.412% and those for 2-year bonds increased to 3.76% following the data, around 3.41% and 3.745% respectively at the latest. Furthermore, the US stocks had their biggest daily slump in almost two years after the US CPI release and that also pleased the metal bears.

Elsewhere, US President Joe Biden’s chip plans to increase hardships for China join the rush toward stronger ties with China to fuel the Sino-American woes. Further, expectations that Russia will hit hard after retreating from some parts of Ukraine also weighed on the market sentiment and the gold price.

Looking forward, a light calendar ahead of the US Producer Price Index (PPI) may keep XAU/USD on the dicey floor but the bears are likely to keep control before Thursday’s August month US Retail Sales and Friday’s preliminary reading of the Michigan Consumer Sentiment Index for September.

Technical analysis

A clear U-turn from the 21-DMA and a one-month-old descending resistance line, around $1,727-28 by the press time, joins downbeat MACD to direct gold bears towards an upward sloping support line from July 21, around $1,690.

Should the quote manage to break the stated support line, the odds of which are brighter, it can quickly refresh the yearly low under the current $1,680 level. In doing so, the 61.8% Fibonacci Expansion (FE) of the metal’s late April to early August moves, near $1,657, will be in focus.

Alternatively, an upside break of the $1,727-28 resistance confluence needs validation from the late August swing high around $1,765 to convince XAU/USD bulls.

Following that, a run-up towards the $1,800 threshold and the previous monthly peak near $1,807 can’t be ruled out.

Gold: Daily chart

Trend: Further weakness eyed

• A Tweezer Tops formation has created an intermittent hurdle for the asset.
• Declining 20-and 50-EMAs add to the downside filters.
• The Eurozone bulls weakened after surrendering the 1.0000 parity.

The EUR/USD pair is attempting a rebound after hitting a low of 0.9855 on Tuesday. It seems that a less-confident buying interest is a dead-cat bounce after a bloodbath in the risk-perceived currency. The asset witnessed a vertical downside momentum after failing to recapture the critical hurdle of 1.0200. The major extended its losses after surrendering the magical figure of 1.0000.

A formation of the Tweezer Tops candlestick pattern in which selling wicks are formed at similar levels indicates a continuation of the downside move. After concluding the inventory distribution at similar levels, a mark-down phase triggers an intense sell-off by the market participants.

The 50-period Exponential Moving Average (EMA) at 1.0132 has acted as a major hurdle for the shared currency bulls. Also, the 20-EMA at 1.0027 is declining, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) is still holding above 40.00. However, a downside break will accelerate the downside momentum.

A break below Wednesday’s low at 0.9955 will drag the asset towards the round-level support of 0.9900, followed by a 19-year low at 0.9864.

On the contrary, the eurozone bulls could defy the downside momentum and make a comeback on overstepping the magical figure of 1.0000. An occurrence of the same will send the major towards 31 August high at 1.0080, followed by Monday’s high around 1.0200.

EUR/USD daily chart

• AUD/USD holds lower ground at weekly bottom after falling the most since March 2020.
• Strong US inflation data renewed fears of Fed’s aggression, yields revived recession woes.
• China’s return, readiness for more stimulus failed to infuse any optimism.
• Second-tier data may entertain traders but bears are likely to keep reins.

AUD/USD bears are in full steam as the US inflation release renewed fears of the Fed’s aggression. Also acting as the risk-negative catalyst, as well as weighing on the Aussie pair prices, are the tensions surrounding the US-China ties. With this, the quote holds lower ground near 0.6730 after declining the most in 2.5 years the previous day.

US Consumer Price Index (CPI) for August rose past 8.1% market forecasts to 8.3% YoY, versus 8.8% prior regains. The monthly figures, however, increased to 0.1%, more than -0.1% expected and 0.0% previous readings. The core CPI, means CPI ex Food & Energy, also crossed 6.1% consensus and 5.9% prior to print 6.3% for the said month.

Following the US inflation data release, the bets on the Fed’s next move turned increasingly hawkish, with the 75 basis points (bps) of a hike appearing almost certain next week. It’s worth noting that there is around 25% chance that the US Federal Reserve (Fed) will announce a full 1.0% increase in the benchmark Fed rate on September 21 meeting.

It should be noted that the yield inversion also widened after US inflation data and propelled the recession woes, which in turn drowned the AUD/USD prices due to the pair’s risk-barometer status. That said, the US 10-year Treasury yields rallied to 3.412% and those for 2-year bonds increased to 3.76% following the data, around 3.41% and 3.745% respectively at the latest.

Other than the inflation and recession woes, the geopolitical fears emanating from China and Russia also weighed on the AUD/USD prices. Headlines from the Financial Times (FT) suggest mixed views over US President Joe Biden’s chip plan that challenges China to seem to weigh on the AUD/USD buyers. On the same line, Chinese President Xi Jinping’s aim to reassert Beijing’s influence during the first foreign trip after covid-led lockdowns underpins the cautious mood as it could escalate the US-China tension.

Alternatively, Bloomberg reported that China’s Premier Li Keqiang vowed more policy support to drive up consumption in the economy. The news also signaled that China will adhere to multiple measures to stabilize growth, employment and prices. However, the same failed to impress AUD/USD prices.

Amid the risk-off mood, Wall Street benchmarks and the prices of gold slumped, which in turn exerted additional downside pressure on the gold.

Moving on, a light calendar ahead of the US Producer Price Index (PPI) may keep AUD/USD on the dicey floor but the bears are likely to keep control before Thursday’s Australia jobs report and Friday’s speech from the Reserve Bank of Australia (RBA) Governor Philip Lowe.

Technical analysis

A clear reversal from the 50-DMA, around 0.6890 by the press time, directs AUD/USD bears towards the yearly low of 0.6680.

• The Canadian dollar is under heavy pressure following Tuesday’s loss of 1.36%.
• The US August inflation report augmented demand for safe-haven assets and underpinned the US dollar.
• USD/CAD Price Analysis: To re-test the YTD high in the short-term; otherwise, a fall toward 1.3000 is on the cards.

On Tuesday, the USD/CAD edges higher following the release of US inflation figures, which exceeded estimations, further cementing the Federal Reserve’s case for a 75 bps rate hike. At the time of writing, the USD/CAD is trading at 1.3167, above its opening price, after hitting a weekly during Tuesday’s session at 1.3175.

USD/CAD Price Analysis: Technical outlook

During the Tuesday session, the USD/CAD bounced off the 50-day EMA at 1.2958, where it hit Tuesday’s daily low, and never looked back, reclaiming on its way north, the 20-day EMA at 1.3059, and the 1.3100 figure. Therefore, the USD/CAD resumed its upward trend, further confirmed by the Relative Strength Index (RSI) crossing above its 7-day SMA, signaling buyers are in charge.

Short term, on the four-hour scale, the USD/CAD could challenge the YTD high at 1.3208. Once it’s cleared, the next supply zone would be the R1 daily pivot at 1..3242, followed by the psychological 1.3300 mark., and then the R2 pivot point at 1.3321.

On the other hand, if the USD/CAD tumbles below the daily pivot at 1.3100, that could pave the way for further losses. The USD/CAD first support would be the S1 pivot at 1.3020, followed by the 1.3000 figure, and then the 200-EMA at 1.2962.

USD/CAD Key Technical Levels

• GBP/USD is auctioning below 1.1500 on higher-than-expected US inflation data.
• A release of headline US CPI at 8.3% has escalated the expectations of a Fed’s bumper rate hike.
• Higher UK CPI will accelerate troubles for the BOE policymakers.

The GBP/USD pair is displaying back-and-forth moves below the psychological support of 1.1500 from the late New York session. The pair witnessed an intense sell-off after the release of the US Consumer Price Index (CPI) data. Risk-perceived currencies nosedived after higher-than-expected US inflation data. The headline CPI landed at 8.3%, higher than the expectations of 8.1% but remained lower than the prior release of 8.5%.

On an increment in US inflation data, investors infused an adrenaline rush into the US dollar index (DXY). The mighty DXY rallied vigorously towards the psychological resistance of 110.00 from a low of 107.69. The market participants channelized liquidity into the DXY as the market mood soured on soaring odds for a bumper rate hike by the Federal Reserve (Fed) in its September monetary policy meeting.

Investors were expecting that the Fed will trim the pace of hiking interest rates but now higher-than-expected inflation data is hinting at a third consecutive 75 basis points (bps) rate hike announcement. Also, the core CPI that excludes oil and food prices increased significantly to 6.3% against the expectations of 6.1% and the prior release of 5.9%, which is mainly responsible for DXY’s juggernaut rally.

On the UK front, investors are awaiting the release of the UK inflation data. The economic data is seen higher at 10.2% vs. 10.1% reported earlier on an annual basis. Also, the core CPI is seen higher at 6.3% vs. 6.2% for June. A higher-than-expected release of the inflation rate will accelerate troubles for the Bank of England (BOE) as inflationary pressures along with soaring jobless claims will restrict the BOE to announce interest rate hikes unhesitatingly. The economy reported an increase in the number of jobless benefits by 6.3k.  

Here is what you need to know for the day ahead, Wednesday, September 14:

The US dollar soared on Tuesday on the back of data released by the Labor Department that reported on US Consumer Prices that unexpectedly rose in August. The dollar index DXY, which measures the greenback against a basket of currencies was up 1.5% at 109.85 in its biggest one-day percentage gain since March 2020. However, the US dollar remains below last week's two-decade peak of 110.79.

The yield on the US 10-year Treasury note rallied to 3.412%, while the yield on the 2-year note is now at 3.76% after stronger-than-expected US inflation data boosted investor bets that the Federal Reserve will need to stay aggressive in raising interest rates. The market is pricing in a third straight 75 basis points hike that would lift the Fed's current 2.25% to 2.5% policy rate range to 3% to 3.25%. However, rate contracts now also reflect about one-in-four odds of a surprise full-percentage-point increase at the Sept. 20-21 meeting. 

The single currency fell to a low of 0.9966 after hitting a nearly one-month high of 1.0198 in the previous session to the greenback on the back of hawkish talk from the European Central Bank.

GBP/USD rose to a two-week high after the British jobless rate dropped to its lowest level since 1974, while wages excluding bonuses rose by 5.2%, the highest rate since the three months to August 2021, but the US data whipsawed the price to a low of 1.1490 from 1.1715 the high.

The AUD/USD dropped more than 2%. USD/JPY rallied to a high of 144.68 putting it back on track for a fresh bull cycle high if the bulls stay the course for the day ahead. 

In cryptocurrencies, bitcoin, BTCUSD, was losing a whopping 12% $20,058.00 in an exaggerated reaction to the bearish price action in the general markets, which saw the S&P 500 dive about 4%.

• NZD/USD bears take the bird down into a hard landing on the 0.60 level. 
• The bird is testing below the level with a low of 0.5986 so far, the lowest since 2020. 

NZD/USD has been sold off heavily on Tuesday to the lowest levels since 2020, down some 2.4% at the time of writing and falling from a high of 0.6161 to a low of 0.5986 as we head towards the early Asian open on Wednesday. The data from the US has been the culprit, sending the US dollar surging higher along with US yields.  The Federal Reserve will release its policy decision at the close of its two-day meeting next week, on Sept. 20-21.

''The shock rebound in US Consumer Price Index (which the consensus assumed had peaked) reverberated violently through financial markets overnight, and has put NZD/USD back below the key 0.60 level this morning,'' analysts at ANZ Bank said. 

The data sent both the US dollar and bond yields sharply higher as the expectations for an oversized rate hike from the Federal Reserve. Inflation in the United States ran at an 8.3% annualized pace in August, ahead of expectations for an 8.0% rise. The markets generally expect 75 basis points when its policy committee meets next week and lower market hopes for a smaller increase.

However, there is a one-in-five chance that the Fed will raise rates by a full percentage point, up from zero a day before the CPI report according to FEDWATCH. Nomura analysts said on Tuesday that the Fed is likely to raise its short-term interest rate target by a full percentage point at its policy meeting next week, because of the emergence of upside inflation risks.

''The data make next week’s Fed decision more uncertain (it was looking much more assured yesterday,'' the analysts at ANZ bank said. They look to today's key event in the New Zealand current account data. ''We expect a deficit of 7.5% of Gross Domestic Product, and that’s big!''

• Gold is pressured as the US dollar continues to make highs.
• The US CPI leaves the door open for aggressive tightening by the Fed.

The price of gold was pressured on Tuesday and has fallen by over 1.3% on the day. At the time of writing, the yellow metal is testing the $1,700 level and has reached a low of $1,697.11 so far on the day. Consumer prices handily beat expectations according to the Labor Department report, underlying inflation picked up amid rising costs for rents and healthcare. 

This sent both the US dollar and bond yields sharply higher as the expectations for an oversized rate hike from the Federal Reserve. Inflation in the United States ran at an 8.3% annualized pace in August, ahead of expectations for an 8.0% rise. Traders expect 75 basis points when its policy committee meets next week and lower market hopes for a smaller increase. However, there is a one-in-five chance that the Fed will raise rates by a full percentage point, up from zero a day before the CPI report according to FEDWATCH.

The dollar and bond yields both rose following the release of the data, on expectations higher interest rates are on the way, bearish for gold since it offers no yield. The DXY index, a measure of the US dollar vs. a basket of currencies rallied to a high of 109.853 while the yield on the US 10-year note rose to 3.460%, over 1.8% higher on the day. 

''While prices are weak, precious metals' price action is still not consistent with their historical performance when hiking cycles enter into a restrictive rates regime,'' analysts at TD Securities explained. ''We expect continued outflows from money managers and ETF holdings to weigh on prices, which will ultimately raise the pressure on a small number of family offices and proprietary trading shops to capitulate on their complacent length in gold.''

Gold technical analysis

The bulls have been stripped of their moment and the focus is back on the downside while below the neckline of the daily M-formation, as follows:

Zooming out, we can see that the downside target has been a key level for a considerable amount of time:

• Traders were caught off guard by higher-than-foreseen August US inflation.
• A risk-off impulse weighed on US equities, alongside high-beta currencies, like the Australian dollar.
• AUD/USD Price Analysis: Traders are eyeing a re-test of September’s low at 0.6698.

The AUD/USD tanks more than 2% courtesy of renewed fears about inflation in the US, exceeding estimates, although decelerating compared with the previous month’s reading. Nevertheless, a risk-off impulse sent US equities tumbling between 3.52% and 5.00%, meaning that market players were expecting a lower reading.

As the New York session is about to end, the AUD/USD is trading at 0.6736, well below its opening price, after hitting a daily high at 0.6916.

The US Department of Labour reported that August inflation in the US came at 0.1% MoM, above -0.1% contraction foreseen by analysts, while annually based, ticked higher to 8.3%, against a consensus of  8.1%. Excluding volatile items like food and energy, the so-called Core Consumer Price Index (CPI) for the same period rose by 0.6% MoM, above 0.3% estimates, while the year-over-year reading increased by 6.3%, topping 5.9% forecasts.

Aside from this, the US Dollar Index, a gauge of the buck’s value against a basket of peers, rallied on expectations of a 100 bps rate hike in September, up 1.39%, at 109.816, underpinned by higher US Treasury yields, led by the benchmark note rate at 3.422%, rising six bps.

On the Australian dollar side, the Aussie economic docket featured the Business Consumer Confidence, data increasing 1 point to +20 in August, according to the National Australia Bank (NAB). The survey showed that prices eased in August to 4.4% from a record high of 5.3% in July, though it would likely not deter the Reserve Bank of Australia from hiking, even at a slower pace.

AUD/USD Price Analysis: Technical outlook

From a daily chart perspective, the AUD/USD is downward biased after failing to reclaim the 20 and 50-day EMAs at 0.6849 and 0.6891, respectively. AUD/USD traders should be aware that the Relative Strength Index (RSI), crossed below its 7-day SMA, flashing that sellers are gathering momentum. Therefore, in the near term, could be expected a re-test of the month’s low at 0.6698.

• EUR/USD bears keep hold of the baton and eye the 0.9950s.
• The US dollar is firmer on the hawkish sentiment surrounding the Fed. 

EUR/USD printed a fresh low in midday New York near 0.9973 and fell from a high of 1.0187 on the day following the US inflation data. At the time of writing, the price is trading near 1.4% down on the day with eyes on the 0.9950s. 

Consumer prices handily beat expectations according to the Labor Department report, underlying inflation picked up amid rising costs for rents and healthcare. ''The core index significantly exceeded expectations as well, on the back of unrelenting shelter price inflation, rising at a robust 0.6% MoM. The YoY change in headline CPI fell to a four-month low of 8.3%, but prices in the core index accelerated to a five-month high of 6.3% YoY,'' analysts at TD Securities explained.

''In our view, the August CPI report supports a continued aggressive effort by the Fed to restrict its inflation-adjusted policy stance.''

''We now expect the FOMC to raise the target rate by 75bp at its meeting next week, deliver another 75bp hike in November, and hike a further 50bp in December. We also now expect a higher terminal rate range of 4.25-4.50% by year-end.''

Meanwhile, however, Nomura analysts said on Tuesday that the Fed is likely to raise its short-term interest rate target by a full percentage point at its policy meeting next week, because of the emergence of upside inflation risks. The Federal Reserve will release its policy decision at the close of its two-day meeting next week, on Sept. 20-21.

Nomura predicted that the US central bank would raise its fed funds target rate by 50 basis points at both the November and December meetings. The fed funds target is currently 2.25%-2.50%, following the Fed's 75-basis-point hike in July.

EUR/USD technical analysis

As per the prior analysis, EUR/USD Price Analysis: Bears eye a run to 0.9950 on a break of trendline support, it stated that the weekly chart showed that the price was correcting into the neckline of the M-formation with scope for a deeper correction towards a 61.8% ratio:

Update:

The price has been rejected at the 61.8% ratio and there are now eyes on a move lower towards the 0.9950s as per the hourly chart:

• USD/JPY is in overbought conditions, but the BoJ’s dovish stance would keep the yen weak.
• A clear break of 145.00 would send the major rallying toward August 1998 at 147.67.

The USD/JPY rallied after the US Department of Labor reported that inflation was decelerating but exceeding estimations, catching off USD/JPY traders expecting a lower reading. At the time of writing, the USD/JPY is trading at 144.43, up by 1.09%.

USD/JPY Price Analysis: Technical outlook

After the US inflation report struck newswires, the USD/JPY rallied towards the daily highs at 144.68. Worth noting that, albeit being upward biased, the Relative Strength Index (RSI), alongside price action, shows signs that the USD/JPY is overbought. Nevertheless, the Bank of Japan’s dovish stance would likely pressure the Japanese yen, opening the door for the August 1998 test at 147.67.

Short term, the USD/JPY one-hour scale depicts the major testing of September’s 8 daily high at 144.44. A clear break would expose September 7 daily high at 144.56, followed by the YTD high at 144.99. On the other hand, the USD/JPY first support would be the 144.00 figure. Once cleared, the next support would be the R1 daily pivot at 143.50, followed by the 100 and 20-EMAs at around 143,18 – 143.05 area, respectively. A breach of the latter would expose the Daily pivot at 142.81.

USD/JPY Key Technical Levels

• NZD/USD collapsed after US CPI rose higher than estimated, further cementing a large Fed interest rate increase.
• August inflation in the US flashed signs of being stickier than expected.
• Traders await NZ Current Account alongside US PPI on Wednesday.

The NZD/USD sinks more than 100 pips or 2% during Tuesday’s North American session, spurred by a hot US inflation reading, which favors the US Federal Reserve’s case of a 75 bps rate hike in the September 20-21 meeting. That, alongside higher US Treasury bond yields and a stronger greenback, triggered a risk-off impulse.

The kiwi began trading around 0.6140 and edged toward the daily high at 0.6161. However, as US economic data was released, the NZD/USD slumped to the daily low at 0.6009 before trimming some of its late losses. At the time of writing, the NZD/USD is trading at 0.6007, down 2.12%.

NZD/USD dropped after elevated US CPI

The US Bureau of Labor (BLS) reported that August inflation rose by 0.1% MoM, highest than estimates of a contraction of 0.1% by market participants, while annually based, it hit the 8.3% threshold, also exceeding expectations. The so-called core Consumer Price Index (CPI), which excludes food and energy, ticked up 0.6% MoM,  above July’s 0.3%, due to higher rent and medical indexed, as reported by the BLS. The year-over-year core CPI rose by 6.3%, more than 5.9% in July.

Elsewhere, market participants have fully priced in a 75 bps rate hike next Wednesday at FOMC’s meeting, while odds of a 100 bps increased to 20% via the CME FedWatch Tool.

Source: CME FedWatch Tool

In the meantime, the US Dollar Index, a measure of the buck’s performance against a basket of peers, is rallying more than 1%, up at 109.606, underpinned by higher US Treasury yields, like the 10-year benchmark note rate at 3.447%, gaining close to 9 bps.

On the New Zealand side, the ANZ House Price Index fell 1.3% MoM in August, while adjusted sales printed a solid 4.9%. Later in the day, the New Zealand economic docket will reveal the Current Account data for the second quarter.

The US economic docket will feature the Producer Price Index (PPI) for August on Wednesday, with the headline foreseen at -0.1% MoM, while the core PPI is expected at 0.3%.

NZD/USD Key Technical Levels

Data released on Tuesday showed inflation in the US rose above expectations in August, boosting the US dollar across the board. According to analysts at Wells Fargo, a 50 basius points rate hike at next week's FOMC meeting now seems like a distant pipe dream, with a 75 bps rate hike now all but assured.

Key Quotes: 

“The Consumer Price Index increased 0.1% in August, but the modest gain for the headline index masked what was a disappointing report. Gasoline prices fell 10.6% in the month, helping to keep overall inflation in check, but beyond energy goods there were not many encouraging takeaways. Excluding food and energy prices, core inflation increased 0.6%, well above the Bloomberg consensus of 0.3%. Core goods inflation remained strong and broad-based despite indications that supply chains are functioning more smoothly and inventory stockpiles are building. Core services inflation also remained hot, increasing 0.6% in August.”

“There remains considerable ground to cover before getting inflation back to a pace that resembles the Fed's target. Over the past three months, the core CPI has advanced at a 6.5% annualized pace, more than triple the 2% target. Moreover, a sustained return to 2% inflation remains even more distant at present. The tight labor market has kept compensation, the largest cost for most businesses, advancing well above 2% (even after accounting for productivity growth), while consumer and business inflation expectations remain high relative to the range of recent decades.”

“We think the road to returning inflation to target is still a long one, and we continue to look for the FOMC to press ahead with another 75 bps point hike at its meeting next week.”

• US dollar jumps across the board after August US CPI numbers.
• Swiss franc prints fresh highs versus the euro and pound.
• USD/CHF rebounds at the 200-day SMA, having best day in weeks.

The USD/CHF rose sharply from the lowest level in four weeks to the highest since Friday following the release of US inflation data. The pair climbed from 0.9477 to 0.9632. It is hovering around 0.9600/10, having the best day in weeks.

US inflation explains it all

The US dollar dropped during the previous days amid expectations of a decline in the August CPI, but the numbers showed a different story. The CPI rose 0.1% in August and reinforced expectations of an aggressive Federal Reserve boosting the dollar and triggering a Treasury sell-off.

The US 10-year yield jumped to 3.47%, reaching the highest level since June and the 2-year yield rose to 3.74%, a fresh cycle high. The DXY rebounded from weekly lows under 108.00 to 109.55; it is up by more than 1%.

Despite the sharp slide versus the dollar, the Swiss franc rose against the euro and the pound amid risk aversion. The EUR/CHF trades at 0.9610, the lowest since late August, while GBP/CHF is at historic lows at 1.1070.

More US inflation numbers are due on Wednesday. Next week is the FOMC meeting. A 75 basis points rate hike is already priced in. “In our view, the August CPI report supports a continued aggressive effort by the Fed to restrict its inflation-adjusted policy stance”, explained analysts at TD Securities. They forecast a 75 bps rate hike next week and also in November.

Technical levels

• Silver prices tumbled on higher-than-estimated August inflation figures, cementing the case for a third-straight Fed 75 bps rate hike.
• US CPI headline unexpectedly rose by 8.3 YoY, higher than 8.1% estimates.
• The CME FedWatch Tool has fully priced in a 75 bps rate hike.

Silver price drops from weekly highs near the $20.00 figure due to high US inflation data reported by the Department of Labor, exceeding analysts’ estimates, with most expecting a dip that could deter the US Fed from hiking interest rates.

XAG/USD opened around the $19.70s area and climbed towards its daily high at $19,94, ahead of the release of US inflation. However, once the headline crossed newswires, the pair tumbled toward the daily low at $19,34 before settling around the current spot price. XAG/USD is trading at $19.52, below its opening price.

XAG/USD tumbled on an unexpected rise in US inflation

Before Wall Street opened, the US Labor Department released that August inflation in the US i, hit the 8.3% YoY mark, lower than the 8.5% in the previous month. Even though it’s a positive number, economists were expecting a lower reading, spurred by lower energy prices, with WTI oil prices peaking at around $129.43 around March of 2022.

Inflation, excluding volatile items like food and energy, continued its uptrend, from 5.9% YoY in July to 6.3%, mainly caused by higher rent costs, further cementing the case for a large rate hike by the US Federal Reserve.

Elsewhere, the US Dollar Index, a gauge of the greenback’s value vs. six peers,  is recovering a lot of ground, after tumbling towards a daily low at 107.660, edges up almost 1% at 109.375, a headwind for the precious metals complex.

The US 10-year T-bond yield edged up seven bps, at 3.431%, while US 10-year Treasury Inflation-Protected Securities yield cleared the 1% threshold for the first time since January 2019.

The US Federal Reserve entered its blackout period until the September 21 monetary policy decision. Market participants have fully priced in a 75 bps rate hike, according to the CME FedWatch Tools, which would see the Federal Funds Rate (FFR) reach the 3.25% threshold.

What to watch

The US economic docket will feature prices paid by producers on Wednesday, followed by the New York Fed PMI, the Philadelphia Fed PMI, Initial Jobless Claims, and Retail Sales on Thursday. On Friday, the University of Michigan (UoM) will release the US Consumer Confidence ahead of next’s weeks FOMC monetary policy decision.

Silver Key Technical Levels

GBP/USD fell to the key low of 2020 and long-term trend support stretching back to 1985 at 1.1500/1409. Economists at Credit Suisse look for eventual downside below 1.1350.

Break under 1.1350 to signal a substantial breakdown

“GBP remains weak on a Trade Weighted basis and we thus continue to look for a break below 1.1409 and then a move to potential trend support at 1.1350, below which would signal a substantial breakdown and open the door to 1.1285 next, ahead of 1.1020/00, which is now our core objective. However, we would not rule out a move all the way to the 1985 lows at 1.0520 if 1.1409/1.1350 breaks.”

“First resistance is seen at 1.1745/63, then at the 55-day moving average and the recent high at 1.1900/1.1923, which ideally caps to prevent a lengthier consolidation.”

USD/JPY continues to advance higher. Economists at Credit Suisse expect the pair to reach their r long-held target at 147.62/153.01.

Any abrupt setback is ideally held at 139.43/39

“We stay with our long-held bullish view and look for further upside to our long-term core objective at 147.62/153.01 – the 38.2% retracement of the entire fall from 1982 and price high of 1998. Our bias remains to see a move towards the upper end of this zone, where we would then stay alert to a potentially important top.”

“Any abrupt setback is ideally held at 139.43/39 to keep the risk directly higher.”

USD/CNY’s surge has paused. But the core uptrend remains in place, economists at Credit Suisse report.

Near-term support remains at 6.8870/8717

“The market looks to be having a temporary pause, in line with the current correction in USD. Nonetheless, medium-term momentum remains strong and with the broader USD strength expected to resume, our bias is to eventually challenge 6.9957/7.0000, a sustained break above which would open the door to reach 7.1844 in the medium-term.”

“Near-term support remains at the recent ‘continuation gap’ at 6.8870/8717, which ideally holds any additional near-term weakness.”

Gold is breaking lower following the higher-than-expected US inflation data. A dip under $1,691/76 would turn the risks lower over at least the next 1-3 months, strategists at Credit Suisse report.

A major top continues to threaten

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

“Only a convincing break above the 55-day average at $1,746 would confirm further ranging in the 2-year range, with next resistance then seen at the even more important 200-day average, currently at $1,833.”

See – Gold Price Forecast: XAU/USD bears are not ready to hibernate yet – SocGen

Economists at ABN Amro have revised their European Central Bank (ECB) policy rate forecasts. The central bank is now expected to raise its deposit rate to 2% most likely by the end of 2022.

Upgrading the view of the ECB rate peak

“We now expect the ECB to raise its deposit rate to 2% most likely by the end of this year. In our revised base case, we see another 75 bps hike in October, followed by a 50 bps step in December. The policy rate then settles at 2% through 2023.” 

“The most likely alternative to this base, is three steps of 50 bps, which would mean the terminal rate is reached in February of next year. We had previously signalled a peak rate of 1.5%.”

• USD/CAD gathered bullish momentum and rose toward 1.3100 on Tuesday.
• Dollar outperforms its rivals after the US CPI data.
• Crude oil prices trade little changed on the day.

USD/CAD dropped to its lowest level in over two weeks near 1.2950 on Tuesday but reversed its direction in the early American session. Fueled by the renewed dollar strength, USD/CAD rose sharply toward 1.3100 before starting to consolidate its daily gains. As of writing, the pair was up 0.6% on the day at 1.3070.

The data published by the US Bureau of Labor Statistics revealed on Tuesday that annual inflation in the US, as measured by the Consumer Price Index (CPI), edged lower to 8.3% in August from 8.5% in July. More importantly, the Core CPI, which excludes volatile food and energy prices, jumped to 6.3% from 5.9%, surpassing the market expectation of 6.1%. Following this report, the US Dollar Index erased its weekly losses in a matter of minutes and climbed above 109.00.

Meanwhile, crude oil prices stay relatively calm and allow the dollar's valuation to drive the pair's action. The barrel of West Texas Intermediate (WTI) was last seen trading virtually unchanged on the day at $88.15.

Following the hot US inflation report, Wall Street's three main indexes are down between 1.7% and 3%, allowing the dollar to preserve its strength in the second half of the day.

There won't be any high-impact data releases in the remainder of the day and the risk perception could drive the pair's action.

Technical levels to watch for

• AUD/USD witnessed a dramatic turnaround from a two-week high touched earlier this Tuesday.
• The post-US CPI USD rally turns out to be a key factor exerting downward pressure on the pair.
• The risk-off impulse further contributes to driving flows away from the perceived riskier aussie.

The AUD/USD pair retreats over 135 pips from a two-week high touched earlier this Tuesday and dives to 0.6780-0.6775 area amid a strong pickup in the US dollar demand during the early North American session. Spot prices, however, manage to recover a few pips and move back above the 0.6800 mark.

The USD witnessed a dramatic intraday turnaround from the monthly low and strengthened across the board in reaction to stronger US consumer inflation figures. In fact, the headline CPI unexpectedly rose by 0.1% in August and the yearly rate eased to 8.3%, beating estimates for a decline to 8.1%.

Adding to this, the Core CPI, which excludes volatile food and energy prices, rose by 0.6% in August (0.3% anticipated) and climbed to 6.3% on yearly basis from 5.9% in July. The data revives bets for a more aggressive policy tightening by the Fed and provides a strong boost to the greenback.

The markets have now started pricing in the possibility of a jumbo 100 bps rate hike at the September FOMC meeting and another supersized 75 bps hike in November. This is reinforced by a sharp spike in the US Treasury bond yields, which, in turn, is seen as another factor underpinning the buck.

The prospects for faster rate hikes by the US central bank, along with recession fears, trigger a fresh wave of the risk-aversion trade. This is evident from a steep decline in the equity markets, which further contributes to driving flows away from the perceived riskier Australian dollar.

With the latest leg down, the AUD/USD pair reverses a major part of its gains recorded over the past two trading sessions. Furthermore, acceptance below the 0.6800 mark will set the stage for further depreciating move towards the 0.6740-0.6730 intermediate support en route to the 0.6700 round figure.

Technical levels to watch

• DXY abruptly changes direction and advances past 109.00.
• The next up barrier emerges at the YTD high near 110.80.

DXY now challenges 3-day highs in the mid-109.00s following an unexpected change of heart among investors in the wake of higher-than-expected US CPI.

The short-term bullish view in the dollar remains in place as long as it trades above the 7-month support line near 106.30. That said, and in light of the current price action, another move to the 20-year highs around 110.80 (September 6) should not be ruled out in the near term.

Looking at the long-term scenario, the constructive view in DXY remains unchanged while above the 200-day SMA at 101.46.

DXY daily chart

• EUR/USD reverses gear and plummets to the parity region.
• The loss of that level could expose the YTD low at 0.9863.

EUR/USD sharply reverses the recent advance and rapidly drops to revisit the vicinity of the psychological parity level on Tuesday.

The continuation of the retracement threatens to breach that important area of contention and pave the way for a potential challenge of the 2022 low at 0.9863 (September 6).

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0748.

EUR/USD daily chart

• GBP/USD lost nearly 200 pips after the US inflation data.
• Core CPI in the US rose at a stronger pace than expected in August.
• US Dollar Index jumped above 109.00, reflecting broad dollar strength.

GBP/USD came under heavy bearish pressure and erased nearly 200 pips in less than 30 minutes after the US inflation data. The pair was last seen losing 1.05% on a daily basis at 1.1557.

The US Bureau of Labor Statistics reported that the Core Consumer Price Index climbed to 6.3% in August from 5.9% in July. This print surpassed the market expectation of 6.1%. Although the headline CPI edged lower to 8.3% from 8.5% in the same period, it still arrived above analysts' forecast of 8.1%.

The benchmark 10-year US Treasury bond yield is up nearly 3% on the day and the US Dollar Index is rising 1% at 109.35. According to the CME Group's FedWatch Tool markets are currently fully pricing in a 75 basis points rate hike in September. 

The hot inflation report also weighed on risk mood. Nasdaq Futures, which was up 1% earlier in the day, is now losing more than 3%.

Earlier in the day, mixed labour market data from the UK helped the British pound find demand but the reaction to the US data clearly shows that the dollar's market valuation is the primary driver of the pair's action.

Technical levels to watch for

• USD/JPY rallies over 200 pips from the daily low and moves back closer to the 24-year peak.
• The stronger US CPI report lifts bets for more aggressive Fed rate hikes and boosts the USD.
• The risk-on impulse fails to benefit the safe-haven JPY or stall the strong intraday move up.

The USD/JPY pair witnessed a dramatic intraday turnaround and rallied over 200 pips during the early North American session following the release of US consumer inflation figures. The pair is currently placed near the daily high, just above mid-144.00s, and has now moved well within the striking distance of a 24-year high touched last week.

The US dollar stages a solid rebound from the fresh monthly low touched earlier this Tuesday after the stronger-than-expected US CPI report lifted bets for a more aggressive policy tightening by the Fed. This, in turn, is seen as a key factor that assisted the USD/JPY pair to attract fresh buying near the 142.60-142.55 area on Tuesday.

The markets have now started pricing in the possibility of a jumbo 100 bps rate hike at the upcoming FOMC meeting on September 20-21 and another supersized 75 bps hike in November. This is reinforced by a sharp spike in the US Treasury bond yields. In fact, the yield on rate-sensitive two-year US government bonds surges to the highest level since 2007.

Moreover, the benchmark 10-year US Treasury note jumps back closer to the YTD peak touched in June, widening the US-Japan rate differential. This, along with a big divergence in the Fed-Bank of Japan policy divergences, offsets the risk-on impulse and fails to lend any support to the Japanese yen or stall the USD/JPY pair's strong intraday rally.

It will now be interesting to see if bulls can maintain their dominant position amid speculations that authorities may soon step in to arrest a freefall in the JPY. This makes it prudent to wait for a sustained strength beyond the 145.00 psychological mark before traders start positioning for the resumption of the recent well-established upward trajectory.

Technical levels to watch

• Gold meets with aggressive supply following the release of a stronger US CPI report.
• Bets for more aggressive Fed rate hikes boost the USD and weigh on the commodity.
• A sharp fall in the equity markets could offer support to the safe-haven XAU/USD.

Gold came under intense selling pressure during the early North American session and dives to a fresh daily low, around the $1,708 area in the last hour.

The US dollar catches aggressive bids in reaction to stronger US consumer inflation figures and stages a solid recovery from the monthly low touched earlier this Tuesday. This, in turn, is seen as a key factor weighing heavily on the dollar-denominated commodity.

The US Bureau of Labor Statistics reported that the headline CPI decelerated to 8.3% YoY in August from 8.5% in the previous month. This, however, was slightly above consensus estimates for a fall to 8.1%. Adding to this, the gauge unexpectedly rose by 0.1% in August.

Additional details of the report revealed that the Core CPI, which excludes volatile food and energy prices, rose by 0.6% in August (0.3% anticipated) and climbed to 6.3% on yearly basis from 5.9% in July. The data lifted bets for a more aggressive policy tightening by the Fed.

In fact, the markets have now started pricing in the possibility of a jumbo 100 bps at the upcoming FOMC meeting on September 20-21. This is evident from a sharp spike in the US Treasury bond yields, which further contributes to driving flows away from the non-yielding gold.

That said, a dramatic turnaround in the global risk sentiment, as depicted by a steep decline in the equity markets, could offer some support to the safe-haven precious metal. Nevertheless, the fundamental backdrop suggests that the path of least resistance for gold is to the downside.

Technical levels to watch

The US Bureau of Labor Statistics reported this Tuesday that inflation, as measured by the Consumer Price Index (CPI), decelerated to 8.3% on a yearly basis in August from 8.5% in the previous month. The reading was slightly above consensus estimates pointing to a decline to 8.1%. 

The Core CPI, which excludes volatile food and energy prices, rose by 0.6% in August (0.3% anticipated) and climbed to 6.3% on yearly basis, up from 5.9% in July and 6.1% expected.

Follow our live coverage of the market reaction to US inflation data.

Market reaction

The US dollar catches aggressive bids in reaction to the stronger-than-expected CPI report and for now, seems to have stalled its recent sharp pullback from a two-decade high touched last week.

The pullback in the broad-based value of the USD in recent sessions has offered a reprieve to various stressed currency pairs, among them USD/JPY. Nonetheless, economists at Rabobank still believe that the pair could reach the 150 level.

Scope for USD/JPY to head higher in the coming months

“The dip back towards 142.00 this week will be welcomed by Japanese officials. That said, it is our view that USD strength will sustain for some months yet. It is also possible that the BoJ will maintain loose policy settings into next year. This suggests scope for USD/JPY to head higher in the coming months.”

“A move to 150 can not be ruled out.”

Economists at UBS favor the energy sector. They still expect a rebound after the recent fall in prices, which has taken Brent from $105 a barrel in late August to $94 at present.

Oil prices to remain supported even if rebound is slower

“We have reduced our December Brent oil forecast by $15 to $110 per barrel due to prospects of slower recovery in Chinese oil demand. The revised forecast is still higher than the current Brent spot price of $94 per barrel.” 

“We maintain our projection for Brent to climb to $125 per barrel by March 2023 and to remain elevated around there till September 2023.”

A reduction in political uncertainty with the appointment of a new UK prime minister, Liz Truss, did not immediately help the pound last week. Cable fell to its weakest intraday level against the US dollar since 1985, taking its decline close to 15% year-to-date. But UK equities have held up well, up 0.5% so far in 2022 versus -17.5% for global stocks, and economists at UBS expect this outperformance to continue.

Earnings growth should be boosted by the weaker pound

“We don’t expect the new government’s policies to do much to support the pound over the coming months. In fact, a widening budget deficit could prove an additional headwind for sterling since the new prime minister is proposing tax cuts and higher spending, starting with a package to curb rising energy bills.”

“FTSE 100 companies generate around 75% of their revenues outside the UK, which means the market is less sensitive to domestic growth concerns. It also means that earnings growth should be boosted by the weaker pound.”

“From a valuation perspective, the FTSE 100 trades on a 12-month forward P/E of 9.4x, an attractive 35% discount to the MSCI All Country World index.”

Gold price began the week by further recovering from its latest dip below the $1,700 mark. However, strategists at Commerzbank see limited recovery potential for the yellow metal.

Risk of more pronounced rate hikes will not disappear 

“Besides the weaker US dollar, it is likely being helped by the general expectation that US inflation has cooled for the second month running, suggesting that the peak of inflation is finally behind us. This could dissuade the US Fed from implementing any more aggressive rate hikes – this at least is presumably what the market is hoping for.”

“That said, the potential for the gold price to recover is probably limited given that inflation will remain high, meaning that the risk of a de-anchoring of inflation expectations persists which in turn could cause high inflation to solidify. This also means that the risk of more pronounced rate hikes will not disappear for the foreseeable future.”

See – Gold Price Forecast: XAU/USD bears are not ready to hibernate yet – SocGen

EUR/USD has rejected trend resistance at 1.02 thus far. Economists at TD Securities expect bulls to be disappointed if the pair continues to trade below the 1.02 mark after US Core Price Index (CPI) report. 

EUR/USD remains strongly correlated to global growth dynamics

“We expect 1.02 to be formidable resistance around US CPI, but a failure to breach and/or hold gains above that level post-data could be a disappointment for EUR bull chasers.”

“The next topside level comes in around 1.0350, but this may require a wholesale adjustment to expectations about the EU and global growth. Asset prices remain linked to the latter, which has only worsened and should spark concern about a premature rally in EUR/USD.”

See – US CPI Preview: Forecasts from 12 major banks, inflation begins to ease

German Economy Minister Robert Habeck said on Tuesday that their goal is to introduce a new energy market design and price reduction measures for 2022 retroactively, as reported by Reuters.

"We face a threat of recession next year," Habeck added.

Market reaction

These comments don't seem to be having a significant impact on risk mood. As of writing, Germany's DAX 30 Index was up 0.75% on the day at 13,502. Meanwhile, EUR/USD preserves its bullish momentum and continues to push higher toward 1.0200. 

• EUR/JPY gives away part of Monday’s advance to new cycle tops.
• Overbought conditions could trigger a corrective move.

EUR/JPY trades in an unconclusive fashion around the mid-144.00s on Tuesday.

Extra gains in the cross appear well favoured for the time being. The next target, however, is not expected to emerge until the 2014 high at 149.78 (December 8). Of note, however, is that the cross remains within the overbought territory and suggests the likelihood of a technical correction in the short-term horizon.

In the meantime, the constructive outlook in the cross remains unchanged while above the 200-day SMA, today at 135.01.

EUR/JPY daily chart

US CPI Overview

Tuesday's US economic docket highlights the release of the critical US consumer inflation figures for August, scheduled later during the early North American session at 12:30 GMT. On a monthly basis, the headline CPI is anticipated to decline by 0.2% during the reported month. The yearly rate is also expected to decelerate to 8.1% in August from the 8.5% previous. Meanwhile, core inflation, which excludes food and energy prices, is projected to remain steady at 0.3% in August and tick higher to 6.1% on yearly basis, up from 5.9% in July.

Analysts at Deutsche Bank offered a brief preview of the report and explained: “We expect a slight decline in the headline CPI number (-0.09% MoM) but an acceleration of +0.30% in core, which would continue the pattern from July's reading (unchanged and +0.3%, respectively) which came in lower than expected. We believe the YoY headline CPI should fall five-tenths to 8.0%, while core should tick up a tenth to 6.0%.”

How Could it Affect EUR/USD?

A survey released by the Federal Reserve Bank of New York on Monday showed that consumer expectations for US inflation over the coming years declined sharply to the lowest level since October last year. This, in turn, keeps the US dollar depressed near the monthly low. A weaker US CPI print will point to a sustained decline in US inflation and fuel speculations for less aggressive policy tightening by the Fed. This could drag the US Treasury bond yields and the USD lower. This, in turn, should allow the EUR/USD pair to extend its recent recovery move from a two-decade low and build on the momentum further beyond the 1.0200 round-figure mark.

Conversely, stronger inflation figures will revive bets for faster interest rate hikes by the US central bank. This will be enough to provide a fresh lift to the greenback and attract aggressive selling around the EUR/USD pair. The immediate market reaction to the report, however, is more likely to be limited as investors now start repositioning for the FOMC monetary policy meeting on September 20-21. Nevertheless, a big divergence from the expected readings should infuse some volatility in the FX markets and allow traders to grab meaningful opportunities around the pair.

Eren Sengezer offers a brief technical outlook for the pair and outlines important technical levels: “EUR/USD is trading within a touching distance of 1.0160 (Fibonacci 61.8% retracement of the latest downtrend). In case the pair clears that hurdle and flips into support, it could test 1.0200 (psychological level, Monday high) and target 1.0245 (static level) afterwards.”

“On the downside, 1.0100 (200-period SMA, Fibonacci 50% retracement) aligns as key support. A daily close below that level could be seen as a significant bearish development and bring in additional sellers, dragging the pair back toward 1.0050 (Fibonacci 38.2% retracement) and 1.0000 (psychological level, 50-period SMA, 100-period SMA),” Eren adds further.

Key Notes

  •   US CPI Preview: Dollar set to climb on low core expectations, three scenarios

  •   US CPI Preview: Forecasts from 12 major banks, inflation begins to ease

  •   EUR/USD Forecast: Euro bulls ignore dismal sentiment data

About the US CPI

The Consumer Price Index released by the US Bureau of Labor Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of the USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish).

• Silver attracts some dip-buying on Tuesday and inches back closer to a multi-week high.
• The set-up favours bullish traders and supports prospects for additional near-term gains.
• Only a sustained break below the $18.45-40 area will negate the near-term positive bias.

Silver reverses its early lost ground and moves back to the $19.80 area during the first half of the European session on Tuesday. The white metal is currently placed just below a nearly four-week high touched the previous day and seems poised to prolong its recent recovery from the $17.55 area, or over a two-year low.

The positive outlook is reinforced by the fact that technical indicators on the daily chart have just started moving in the bullish territory and are still far from being in the overbought zone. That said, the overnight rejection by a descending trend line extending from the April swing high warrants some caution for aggressive bullish traders.

Hence, it will be prudent to wait for a convincing daily close above the trend line, currently at around the $19.75 mark before positioning for any further appreciating move. The XAG/USD might then climb to test the 100-day SMA, near the $20.45 region, before accelerating the move towards reclaiming the $21.00 round-figure mark.

Some follow-through buying has the potential to lift the XAG/USD towards the next relevant hurdle, around the $21.50 area. The upward trajectory could further get extended towards the $22.00 mark. This is closely followed by the very important 200-day SMA, around the $22.15 region, which should act as a strong barrier for the commodity.

On the flip side, any further slide below the daily low, around the $19.55-$19.50 area, now seem to find decent support near the $19.25 region, or the 50-day SMA. Any subsequent slide could be seen as a buying opportunity and remain limited near the $18.45-$18.40 support zone. A convincing break below the latter is needed to negate the positive bias.

Silver daily chart

Key levels to watch

• USD/CAD turns lower for the fourth straight day and is pressured by a combination of factors.
• Bullish oil prices underpin the loonie and act as a headwind amid sustained USD selling bias.
• The market focus remains glued to the release of the crucial US consumer inflation figures.

The USD/CAD pair struggles to capitalize on its modest uptick on Tuesday and attracts fresh selling in the vicinity of the 1.3000 psychological mark. The pair turns lower for the fourth successive day and drops the 1.2970-1.2965 area during the first half of the European session, back closer to over a two-week low touched the previous day.

Crude oil prices reverse the early lost ground and hold steady near a one-week high amid concerns about tight global supply, fueled by Russia's threat to cut oil flows to any country that backs a price cap. This continues to underpin the commodity-linked loonie and acts as a headwind for the USD/CAD pair. The US dollar, on the other hand, remains depressed near the monthly low and turns out to be another factor exerting downward pressure on the major.

Given that the markets already seem to have priced in a 75 bps Fed rate hike at the September meeting, the prevalent risk-on mood is seen weighing on the safe-haven buck. Furthermore, signs of a sustained decline in the US inflation lead to a modest downtick in the US Treasury bond yields and contributes to the offered tone surrounding the greenback. That said, traders might refrain from placing aggressive bets ahead of the US consumer inflation figures.

The crucial US CPI report, due later during the early North American session, will play a key role in influencing the Fed's policy outlook and dictate the near-term trajectory for the USD. Traders will further take cues from OPEC’s monthly outlook report, which will impact oil price dynamics and produce short-term opportunities around the USD/CAD pair.

Technical levels to watch

Further tightening could well see the BoE raising the policy rate by 50 bps at its meeting later in the week, suggests Economist at UOB Group Lee Sue Ann.

Key Quotes

“With the worsening in the cost-of-living crisis, we see room for only a further 50bps increase in the Bank Rate to 2.25%, before a pause thereafter.”

“That said, we bear in mind that the BoE has warned that ‘policy is not on a pre-set path’, as it projects a UK recession will begin in the fourth quarter and last all the way through next year”.

“It also boosted its forecast for the peak of inflation to 13.3% in Oct amid a surge in gas prices, and warned that price gains will remain elevated.”

• Gold price is replicating Monday’s price action, resuming recovery towards $1,735.
• The US dollar keeps falling with the Treasury yields amid a global risk rally.
• XAU/USD’s fate hinges on critical US inflation as Fed is set to hike rates by 75 bps next week.   

Gold price is building on the previous recovery momentum, reversing the dip seen earlier in the Asian session. Markets are duplicating Monday’s moves, as the US dollar correction kicks in again amid a renewed weakness in the Treasury yields, allowing bulls to regain the upside traction. The extended risk rally globally is on the heels of expectations of more Chinese stimulus, inflation peaking in the US and some optimism surrounding Ukraine’s progress against Russia. All eyes now remain on the US inflation data for August, which will provide a fresh cue on the Fed’s rate hike path, with the world’s most powerful central bank seen hiking rates by 75 bps next week. An upside surprise in the core CPI could be on the cards, given the lower consensus.

Also read: Gold Price Forecast: XAU/USD could attack $1,700 on a US core CPI upside surprise

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is looking to break above the convergence of the previous week’s high and Fibonacci 23.6% one-day at $1,729.

Next on tap for bulls is a dense cluster of healthy resistance levels stacked up around $1,735, where the Fibonacci 23.6% one-month, pivot point one-week R1 and the previous day’s high meet.

Buying pressure will accelerate above the latter, initiating a fresh upswing towards the SMA 50 one-day at $1,742.

On the flip side, the immediate support is seen at around $1,721, the confluence of the Fibonacci 23.6% one-week, Fibonacci 61.8% one-day and the previous low four-hour.

The Fibonacci 38.2% one-week at $1,716 will come to the rescue of bulls if the downside extends. The last line of defense for XAU buyers is envisioned at $1,712. At that level, the previous day’s low, SMA10 one-day and pivot point one-day S1 merge.

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.

Citing a leaked document, the Guardian is reporting this Tuesday that the European Union (EU) is unlikely to impose a price cap on Russian gas while levying windfall taxes on energy company “surplus” profits.

This comes ahead of the European Commission president, Ursula von der Leyen, plan on dealing with surging electricity prices when she makes her annual state of the union speech on Wednesday.

Market reaction

EUR/USD was last seen trading at 1.0155, up 0.38% on the day.

• AUD/USD reverses modest intraday downtick and hits a nearly two-week high on Tuesday.
• The prevalent selling bias surrounding the USD remains supportive of the intraday uptick.
• A breakout through the 0.6865-0.6860 confluence supports prospects for additional gains.

The AUD/USD pair attracts some dip-buying near the 0.6860 area on Tuesday and turns positive for the third straight day. The pair is currently placed near a two-week high, with bulls awaiting a sustained move beyond the 0.6900 round-figure mark.

The US dollar selling remains unabated through the first half of the European session and turns out to be a key factor acting as a tailwind for the AUD/USD pair. The uptick, however, lacks follow-through buying as investors keenly await the crucial US consumer inflation figures, due later today.

From a technical perspective, the emergence of fresh buying near the 0.6865-0.6860 confluence hurdle breakpoint supports prospects for further gains. The said area comprises the top end of a one-month-old descending channel and the 38.2% Fibonacci retracement level of the August-September decline.

This should now act as a pivotal point for intraday traders. Any subsequent pullback could be seen as a buying opportunity near the overnight swing low, around the 0.6825 area. This, in turn, should limit any further losses for the AUD/USD pair near the 0.6800 round figure, or the 23.6% Fibo. level.

A convincing break below the latter will suggest that the corrective bounce has run out of steam and shift the bias back in favour of bearish traders. The AUD/USD pair could then drop to the 0.6730 intermediate support en route to the 0.6700 mark and the YTD low, around the 0.6680 region.

On the flip side, sustained strength beyond the 0.6900 mark is likely to confront stiff resistance near the 100-day SMA, currently around the 0.6960 area. Some follow-through buying should pave the way for a further appreciating move and allow the AUD/USD pair to reclaim the 0.7000 psychological mark.

AUD/USD 4-hour chart

Key levels to watch

Economist at UOB Group Lee Sue Ann reviews the latest ECB interest rate decision.

Key Takeaways

“The European Central Bank (ECB) decided to raise its three key interest rates by 75bps, and ECB President Christine Lagarde hinted it could do the same again as part of ‘several’ future moves to fight against rampant inflation. The ECB significantly revised higher their inflation projections, now expecting inflation to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024. It also revised down markedly GDP growth to 3.1% in 2022, 0.9% in 2023 and 1.9% in 2024, thus avoiding an economic recession.”

“The Eurozone economy is, however, expected to stagnate later in the year and in the first quarter of 2023. Russia’s war on Ukraine, an uneven recovery from the COVID-19 pandemic and a drought across much of the continent have combined to create a significant amount of uncertainty and downside risks. We are in the midst of revising our growth and inflation forecasts for the region and will be publishing them at the upcoming 4Q22 Quarterly Outlook.”

“Meanwhile, the implied hawkish tone by the ECB, despite the absence of a formal forward guidance, has led us to pencil in further rate hikes ahead. There are two more meetings left for the year. For now, we see the ECB hiking by another cumulative 50bps for this year to bring the refinancing rate to 1.75% and the deposit rate to 1.25% by year-end. Although we believe the ECB wants to play catch up, it needs to exercise a lot more caution as we see the Eurozone economy inevitably falling into a recession during winter, even without additional rate hikes. For this reason, we acknowledge the high uncertainty surrounding our ECB call, and the “terminal rate” of this current hiking cycle.”

• German ZEW Economic Sentiment arrived at -61.9 in September vs. -60.0 expected.
• The ZEW Current Situation for Germany came in at -60.5 in September vs. -52.2 expected.
• EUR/USD hovers above 1.0150 despite downbeat German and Eurozone data.

The German ZEW headline numbers for September showed that the Economic Sentiment Index worsened to -61.9 while missing estimates of -60.0 vs. -55.3 previous.

The headline ZEW was last weaker than -60.0 at the height global financial crisis (GFC).

Meanwhile, the Current Situation sub-index arrived at -60.5 in September vs. -52.2 expectations and August’s -47.6.

The Eurozone ZEW Economic Sentiment Index stood at -60.7 in the current month as compared to the -54.9 previous reading and -52.0 expected.  

Key takeaways

FX market reaction

The euro ignores discouraging ZEW Surveys from Germany and Eurozone. EUR/USD was last seen trading at 1.0156, up 0.36% on the day.

Germany’s Chancellor Olaf Scholz said on Tuesday that, “we are also looking at introducing a cap on gas prices” after the power-price cap.

Additional quotes

Related reads

• EUR/USD looks firm around 1.0150 ahead of EMU data, US CPI
• German Economy Ministry: Economic outlook for H2 dramatically worsened

The latest report published by the German Economy Ministry on Tuesday underscored concerns over the country’s economic outlook in the second half of this year.

Key takeaways  

Market reaction

The shared currency is undeterred by Germany’s dire economic outlook, as EUR/USD flirts with highs near 1.0150, up 0.31% on the day.

The Office for National Statistics (ONS) released the figures for the UK labour market. The report is set to continue placing downward pressure on the British pound, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

Bank of England remains in a bad place

“Very low unemployment, higher wage growth, still low labour force participation and a sharp drop-off in vacancies make for inflation persistence, but slower growth ahead. That in turn, makes sure the BoE’s MPC remains in a bad place and sterling remains on the back foot.”

“We expect more EUR/GBP upside.”

• GBP/USD gains traction for the third straight day and climbs to a nearly two-week high.
• The prevalent USD selling bias and the upbeat UK employment data remain supportive.
• The uptick lacks bullish conviction as traders now await the release of the US CPI report.

The GBP/USD pair builds on its recent recovery move from the lowest level since 1985 and gains traction for the third successive day on Tuesday. The momentum lifts the pair to a nearly two-week high, around the 1.1730-1.1735 region during the first half of the European session and is sponsored by sustained selling around the US dollar.

The US dollar remains depressed near the monthly low touched the previous day amid signs of a sustained decline in US inflation. In fact, a survey released by the Federal Reserve Bank of New York on Monday showed that consumer expectations for US inflation over the coming years declined sharply to the lowest level since October 2021. This, along with a modest downtick in the US Treasury bond yields and a generally positive risk tone, weighs on the greenback and acts as a tailwind for the GBP/USD pair.

The British pound is further underpinned by mostly upbeat UK employment figures, showing that the jobless rate fell to the lowest level since 1975 and came in at 3.6% during the three months to July. Adding to this,  average weekly earnings surpassed expectations and raised the risk of wage inflation. This might force the Bank of England to tighten its monetary policy at a faster pace, which is seen as another factor that impressed bullish traders and provided an additional lift to the GBP/USD pair.

The intraday positive move, however, lacks strong follow-through buying amid some nervousness ahead of the US consumer inflation figures, due for release later during the early North American session. The crucial US CPI report will play a key role in influencing the Fed's policy outlook and dictate the near-term trajectory for the greenback. This, in turn, should allow traders to grab short-term opportunities around the GBP/USD pair ahead of the UK consumer inflation figures on Wednesday.

Technical levels to watch

Here is what you need to know on Tuesday, September 13:

The greenback is having a difficult time staging a rebound on Tuesday with the US Dollar Index trading in negative territory near 108.00 in the early European session. The US Bureau of Labor Statistics will release the August Consumer Price Index (CPI) data later in the session as markets nearly fully price in another 75 basis points (bps) Fed rate hike in September. The European economic docket will feature the ZEW sentiment survey for the euro area and Germany. 

US CPI Preview: Dollar set to climb on low core expectations, three scenarios.

The positive shift witnessed in risk sentiment didn't allow the dollar to stay resilient against its rivals. Markets are turning optimistic that inflation in the US may have peaked and the latest headlines surrounding the Russia-Ukraine war point to Ukraine finding success in its counter-offensive. US Secretary of State Antony Blinken said late Monday that Ukrainian forces have made "significant progress" and argued that Russia could and should stop the war given the price they are paying. US stock index futures are up between 0.4% and 0.5%, suggesting Wall Street's main indexes could continue to push higher after having gained more than 1% on Monday.

EUR/USD registered its highest daily close in three weeks above 1.0100 on Monday and continued to edge higher early Tuesday. The pair was last seen trading in positive territory near 1.0150. Hawkish comments from European Central Bank officials help the shared currency hold its ground. 

GBP/USD closed the second straight trading day in positive territory and advanced beyond 1.1700 on Tuesday. The British pound benefits from risk flows and the UK's FTSE 100 Index is up modestly after the opening bell.

Despite the broad-based dollar weakness, USD/JPY struggled to find direction as the JPY failed to attract investors in the risk-positive market environment. The pair stays on the backfoot early Tuesday and was last seen losing 0.3% on the day at 142.25.

Gold reached a fresh September high at $1,735 on Monday but struggled to gather further bullish momentum with the benchmark 10-year US Treasury bond yield staying relatively steady at around 3.3%. XAU/USD trades flat above $1,720 so far on Tuesday.

Bitcoin reclaimed $22,000 on Monday before going into a consolidation phase on Tuesday. Ethereum lost nearly 3% on Monday and trades relatively quiet near $1,700. 

Ethereum holders watchout for proof-of-work fork post Merge.

• EUR/USD adds to the weekly uptick around the 1.0150 region.
• The greenback remains offered amidst persistent risk on trade.
• EMU, Germany ZEW Economic Sentiment, US CPI all due later.

The optimism around the European currency remains unchanged and lifts EUR/USD back to the 1.0150 zone on turnaround Tuesday.

EUR/USD remains bid ahead of EMU, US results

EUR/USD advances for the third session in a row and extends the auspicious start of the week well north of the parity level, always against the backdrop of the resolute selling pressure around the dollar.

As investors practically digested the latest ECB gathering and with a ¾ point interest rate hike by the Fed practically priced in, market participants now look to the upcoming key data releases to determine the pair’s price direction in the next sessions.

On that, the Economic Sentiment gauged by the ZEW institute is due later in Germany and the broader Euroland for the current month, while US inflation figures tracked the CPI will gather all the attention later in the NA session. Earlier on Tuesday, Germany’s final CPI rose 0.3% MoM and 7.9% in the year to August.

What to look for around EUR

EUR/USD keeps the bid bias unchanged so far this week and aims at revisiting Monday’s peaks in the 1.0200 zone sooner rather than later.

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: Germany Final Inflation Rate, Germany/EMU ZEW Economic Sentiment (Tuesday) – EMU Industrial Production (Wednesday) – France Final Inflation Rate, EMU Balance of Trade (Thursday) – Italy, EMU Final Inflation rate (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 0.24% at 1.0144 and now faces the initial barrier at 1.0197 (monthly high September 12) followed by 1.0202 (August 17 high) and then 1.0333 (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).

• USD/JPY meets with a fresh supply amid sustained USD selling and retreating US bond yields.
• The risk-on impulse, Fed-BoJ policy divergence undermines the JPY and extends some support.
• Investors now await the crucial US CPI report before positioning for a firm near-term direction.

The USD/JPY pair comes under renewed selling pressure on Tuesday and drops to a fresh daily low during the early European session. Spot prices, however, manage to find some support near the 142.00 mark and quickly bounce back to the 142.25-142.30 region in the last hour.

The US dollar remains depressed near the monthly low touched on Monday and turns out to be a key factor exerting some downward pressure on the USD/JPY pair. A survey released by the Federal Reserve Bank of New York that consumer expectations for US inflation over the coming years declined sharply to the lowest level since October 2021. Apart from this, a modest downtick in the US Treasury bond yields weighs on the greenback.

Furthermore, speculations that authorities may soon step in to arrest a freefall in the Japanese yen also contribute to offered tone surrounding the USD/JPY pair. That said, a generally positive tone around the equity markets undermines the safe-haven JPY. This, along with a big divergence in the monetary policy stance adopted by the Bank of Japan and the Federal Reserve helps limit the downside for the major, at least for now.

It is worth mentioning that the BoJ has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing. In contrast, the Fed is expected to tighten its policy at a faster pace to tame inflation. Hence, the focus will remain glued to the US consumer inflation figures for August, due for release later during the early North American session this Tuesday.

The crucial US CPI report will play a key role in influencing the Fed's policy outlook and dictate the near-term USD trajectory. This, in turn, will help determine the next leg of a directional move for the USD/JPY pair. In the meantime, traders might refrain from placing aggressive bets, warranting some caution before positioning for any further intraday depreciating move heading into the key data risk.

Technical levels to watch

The US Dollar Index up move petered out after achieving upside projections near 111 which is also the low of September 2001. Economists at Société Générale expect DXY to sustain further losses on a dip under 106.

Initial resistance aligns at 109.30

“Lower limit of the ascending channel since February at 106 is near-term support. Daily RSI is also approaching the lower band of its bullish territory which denotes 106 could be an important level. Only if the index fails to defend this support, there could be a risk of a deeper pullback towards August low of 104.60/103.80.” 

“First hurdle is at 109.30.”

Economists at Scotiabank are making some further changes to their CAD forecast. The USD/CAD pair is now expected to trade at 1.30 by the end of the year before moving back down to 1.25 by end-2023.

USD bull cycle is now looking very mature 

“We are now forecasting a year-end USD/CAD rate of 1.30 (versus 1.27 in our last forecast) and 1.25 for the end of next year (from 1.23).”

“We expect that higher interest rates mean that equity market volatility will persist for a little longer, despite the recent rebound, underpinning demand for the USD for a little longer. We are resisting loading a lot more USD strength into the FX outlook generally because we do feel that the USD bull cycle is now looking very mature.”

“While the CAD has failed to live up to our expectations this year, we are reluctant to endorse the idea of a significantly weaker CAD in the near to medium term and expect modest USD towards recent range highs (around 1.32) will continue to attract USD selling interest.”

USD/CNH is expected to remain side-lined within the 6.9000-6.9700 range for the time being, comment FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected USD to ‘trade between 6.9150 and 6.9450’ yesterday. USD subsequently rose to 6.9480, dropped to 6.9109 before rebounding to close at 6.9197 (-0.26%). The underlying tone has weakened and USD is likely to edge lower for today. That said, any weakness is unlikely to break the major support at 6.9000. Resistance is at 6.9260 followed by 6.9360.”

Next 1-3 weeks: “Yesterday (12 Sep, spot at 6.9180), we indicated that the recent month-long rally in has ended and we expect USD to consolidate and trade between 6.9000 and 6.9700. There is no change in our view for now. Looking ahead, if USD breaks clearly below 6.9000, it could trigger a pullback to 6.8700.”

• The index trades slightly on the defensive near the 108.00 zone.
• US yields keep the trade in the upper end of the recent range.
• All the attention will be on the release of US inflation figures.

The greenback, when tracked by the US Dollar Index (DXY), extends the leg lower and puts the 108.00 yardstick once again to the test on turnaround Tuesday.

US Dollar Index focuses on US CPI

The index loses ground for the third session in a row on Tuesday amidst the continuation of the improved sentiment surrounding the risk-associated assets.

In fact, price action in the dollar remains subdued and comes amidst the generalized downtick in US yields across the curve. Furthermore, investors continue to lean towards a 75 bps rate raise at the Fed’s September 21 meeting, with CME Group’s FedWatch Tool signalling a probability of nearly 90% of that scenario.

In the US data space, the publication of inflation figures tracked by the CPI for the month of August will be the salient event later in the NA session. Markets’ consensus expects headline consumer prices to have eased to 8.1% over the last twelve months (from 8.5%).

Other than the CPI results, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index are also due later.

What to look for around USD

The index has embarked on a corrective path from last week’s cycle highs and keeps hovering around the 108.00 neighbourhood ahead of the CPI release on Tuesday.

Bolstering the dollar’s underlying positive stance 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.

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: Inflation Rate (Tuesday) – MBA Mortgage Applications, Producer Prices (Wednesday) – Retail Sales, Initial Claims, Philly Fed Manufacturing Index, Industrial Production, Business Inventories (Thursday) – Flash Michigan Consumer Sentiment, TIC Flows (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 0.12% at 108.17 and faces the next support at 107.81 (monthly low September 12) followed by 107.58 (weekly low August 26) and finally 107.32 (55-day SMA). 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).

• Gold struggles to gain any meaningful traction and remains confined in a range on Tuesday.
• The risk-on impulse, elevated US bond yields seem to act as a headwind for the commodity.
• The prevalent USD selling bias continues to offer support ahead of the crucial US CPI report.

Gold lacks any firm direction on Tuesday and seesaws between tepid gains/minor losses, above the $1,720 level through the early European session. The XAU/USD remains below a nearly two-week high touched the previous day as investors now await the latest US consumer inflation figures for a fresh impetus.

A survey released by the Federal Reserve Bank of New York on Monday showed that consumer expectations for US inflation over the coming years declined sharply to the lowest level since October last year. Hence, the US CPI report will be looked upon for signs of a sustained decline in US inflation. This could raise expectations for less aggressive policy tightening by the Fed, which, in turn, could help gold to gain some meaningful traction.

In the meantime, the risk-on mood - as depicted by a positive tone around the equity markets - is seen acting as a headwind for the safe-haven precious metal. This, along with elevated US Treasury bond yields, contributes to capping the upside for gold. The US dollar, meanwhile, languishes near the monthly low touched the previous day and might continue to lend some support to the dollar-denominated commodity, at least for the time being.

Heading into the key data risk, investors also seem reluctant to place aggressive bets around gold and prefer to move to the sidelines. This is seen as another factor leading to subdued/range-bound price action and warrants caution before positioning for an extension of the recent recovery from the sub-$1,700 round-figure mark.

Technical levels to watch

An extension of support to risk assets kept the dollar under pressure at the start of this week. The dollar correction may extend a little further today as slowing US CPI could help risk sentiment further. However, in the opinion of economists at ING, it is too early to jump on the bearish dollar ship.

Another leg lower with US CPI slowing?

“Today’s US CPI figures for August are a risk event for the dollar. All in all, and given the recent hawkish messages by Fed Chair Jerome Powell, it appears unlikely that – barring significantly below-consensus reads – expectations around Fed tightening will be heavily affected by today’s CPI report. That said, there is surely a possibility that a risk-on environment may be bolstered further by evidence of US inflation having peaked, and another leg lower in the dollar may be triggered by another good session for global equities.”

“The narratives behind the recent FX moves are not solid enough for the strong bearish call on the dollar just yet. Optimism about the Ukraine conflict and lower gas prices may be misplaced or too premature, so the dollar may stabilise or recover later in the week.”

See – US CPI Preview: Forecasts from 12 major banks, inflation begins to ease

GBP/USD is trading slightly higher. Economists at ING expect the pair to remain supported on Tuesday.

Jobs market remains tight

“Jobs data were largely in line with consensus expectations and confirmed the UK jobs market has remained quite tight. Most crucially for the Bank of England, evidence that wage growth has continued to accelerate may suggest more aggressive tightening.”

“Today, Cable should still be moved by external drivers and may remain supported, while EUR/GBP may stay in the upper half of the 0.86-0.87 range.”

• USD/CHF holds lower ground at the lowest levels since August 18.
• Downbeat Swiss data fails to impress buyers amid broad DXY weakness.
• Pullback in yields, cautious optimism adds strength to the bearish bias ahead of the key US CPI for August.

USD/CHF stays defensive at the three-week low, down for the fifth consecutive day, as the pair traders await the key US inflation data during early Tuesday in Europe. The Swiss currency (CHF) pair’s latest weakness could also be linked to the market’s cautious optimism, as well as mixed data from Switzerland.

Swiss Producer and Import Prices reprinted -0.1% MoM figures for August versus 0.6% market expectations. The yearly numbers, however, dropped to 5.5% YoY compared to the 5.7% forecasts and 6.3% previous readouts.

Elsewhere, the US Dollar Index (DXY) remains pressured around a 12-day low, down 0.20% intraday near 108.10 at the latest, as firmer sentiment and hopes of a softer US Consumer Price Index (CPI) favor the greenback sellers. In doing so, the greenback bears ignore the latest hawkish rhetoric from the Fed policymakers and the geopolitical/trade fears concerning China and Russia.

The reason could be linked to a pullback in the US Treasury yields from the multi-day high, as well as hopes of more stimulus and an absence of the Fed policymakers’ speeches due to the fortnight-long blackout ahead of next week’s monetary policy meeting.

That said, the US 10-year Treasury yields retreat from a three-month high, down three basis points (bps) to 3.33%. Even so, S&P 500 Futures and the stocks in the Asia-Pacific zone print mixed performance, despite posting mild gains by the press time. It should be noted that the US two-year Treasury yields snap a three-day uptrend as they ease from the highest levels since late 2007, down 0.87% percent to near 3.543% at the latest.

It should be observed that the return of China from the long weekend and the European policymakers’ hopes of overcoming the recession woes are likely additional negatives for the USD/CHF pair.

Moving on, the US Consumer Price Index (CPI) data for August, expected to ease to -0.1% MoM versus 0.0% prior, will be important for the pair traders. Should the inflation numbers print softer data, the USD/CHF pair may witness further downside.

Technical analysis

Unless crossing the weekly resistance line, near 0.9580 at the latest, the USD/CHF pair stays on the way to mark another attempt in conquering the 200-DMA support, around 0.9475 by the press time.

EUR/USD marches towards 1.0200. A break above this level is on the cards, economists at ING report.

Equity differential on the driver's seat

“The market’s growing optimism on Europe is fuelling a rebound in European equities, and the euro’s parallel recovery is keeping that FX-stocks correlation very well alive.”

“The current swap rate differential does surely point at a stronger EUR/USD, but in order for the pair to reconnect with that differential under current market conditions, we’ll likely need a period of stabilisation in European sentiment, something we are seeing now but may prove hardly sustainable in the coming weeks.”

“Another potential good day for risk assets if US CPI moves lower may keep EUR/USD bid for now: a break above 1.0200 is possible at this stage, but a return to the 1.0000 level parity remains our base-case scenario into year-end for EUR/USD.”

Money managers double down on bearish positions for gold. Economists at Société Générale expect the yellow metal to remain under downward pressure.

Money managers turned net short this week

“This week, ending 6 September, bearish flows, at $3.8bn, were even larger than the previous weekly flow, with gold accounting for $3.2bn. This flow came as money managers, awaiting a key US Fed interest rate policy setting meeting on 20-21 September, expect a third-in-a-row 75 basis point interest rate increase.” 

“The Fed’s work of taming inflation through interest rates hikes is expected to erode the appeal of the precious metal compared to fixed income-generating products. Furthermore, higher interest rates in the US are likely to increase demand for the US dollar, which in turn would make gold more expensive to foreign investors and decrease demand for the bullion.” 

“China and India are two important markets for the end use of gold: together they account for about half of the demand for the metal. In this respect, the US dollar gained 0.5% against the Indian rupee and 0.6% against the Chinese renminbi in the week ended 6 September, adding downwards demand pressure on gold.”

Markets have put downside pressure on the USD ahead of the US Core Price Index (CPI) release. Economists at MUFG Bank expect a weaker-than-expected report to trigger a deeper correction lower for the greenback.

Hawkish repricing of ECB rate hike expectations narrows policy divergence with the Fed

“The hawkish repricing of European Central Bank rate hike expectations is helping to narrow policy divergence with the Fed and offering more support for regional currencies against the US dollar, although we are not connived that it will prove sufficient on its own to trigger a more sustained reversal lower for the US dollar.”

“The US rate market is still confident that the Fed will continue to front-load policy tightening through the remainder of this year by delivering a third consecutive 75 bps hike on 21st September. The US CPI report for August will pose the main challenge to that view. A second consecutive weaker-than-expected US CPI report could trigger a deeper correction lower for the US dollar in the week ahead.”

See – US CPI Preview: Forecasts from 12 major banks, inflation begins to ease

The market environment has been rather unfavourable for USD recently. Does today’s consumer price data have the potential to stop the downside move in USD? In the view of economists at Commerzbank, it seems increasingly difficult for USD to appreciate further.

It is likely to be too early to write off USD

“It is expected that the next Fed meeting will provide another 75bp hike so it should be difficult for expectations to rise further than that. For that to happen inflation would have to be terrifyingly high, which seems unlikely though.”

“The Fed is likely to stick to its course despite a lower overall inflation rate and should continue its determined fight against inflation. The fall in the headline rate might nonetheless fuel speculation on the markets that the end of the rate hike cycle in the US might have been reached soon, which could principally put pressure on USD. As a result, we see the downside risk in USD dominating today.”

“However, market sentiment is also likely to play an important role. If this were to change USD is likely to be in higher demand. It is therefore likely to be too early to write off USD.”

See – US CPI Preview: Forecasts from 12 major banks, inflation begins to ease

Due to the national period of mourning the Bank of England (BoE) meeting has been postponed by a week. So more time for the FX market to digest the data publications. Economists at Commerzbank expect sterling to remain under pressure as inflation figures are set to illustrate that the BoE is not doing enough to fight inflation.

A week rich in data

“Monthly GDP was published yesterday. It was rather poor but does not provide any reason for the BoE not to tighten its monetary policy reins any further. On the contrary, the labour market data today as well as consumer price inflation tomorrow are likely to highlight the necessity of further rate hikes.”

“Prices are likely to have risen by another 10% again in August. Whether the key rate is going to be hiked to 2.25% or 2.50% real interest rates are likely to remain negative for some time yet. Against this background, investors are likely to see sterling sceptically for some time yet. We, therefore, continue to see downside risks in sterling.”

• EUR/USD picks up bids to refresh intraday high during three-day uptrend.
• Successful break of 50-SMA, bullish MACD signals keep buyers hopeful.
• Upside clearance of 1.0200 becomes necessary to confirm the bullish chart pattern.
• 50-DMA, weekly support line restricts immediate downside moves.

EUR/USD refreshes intraday high around 1.0150 as bulls portray the three-day uptrend amid the initial European session on Tuesday.

The major currency pair rose to the highest levels in a month the previous day before reversing from the resistance line of a nearly two-month-long falling wedge bullish chart pattern. The pullback moves, however, remained above the 50-DMA and kept the buyers hopeful.

Also favoring the upside momentum are the bullish MACD signals and the firmer RSI (14), not overbought.

It should, however, be noted that the clear upside break of the 1.0200 threshold becomes important for the EUR/USD bulls as it will confirm the theoretical transition towards the 1.0950 hurdle.

During the run-up, the tops marked during August and June, respectively near 1.0370 and 1.0615, could test the upside momentum, in addition to the 100-DMA hurdle surrounding 1.0335.

Meanwhile, pullback moves may initially aim for the 50-DMA support near 1.0115, a break of which could direct EUR/USD bears towards a one-week-old support line, close to 1.0085 by the press time.

Following that, the yearly low near 0.9865 and the lower line of the stated wedge, close to 0.9860, should gain the market’s attention.

EUR/USD: Daily chart

Trend: Further upside expected

It would seem that the market considered last week’s European Central Bank (ECB) meeting to have been positive for the euro. Does this constitute the start of a more pronounced EUR recovery rally? Economists at Commerzbank expect the shared currency to remain under pressure. 

Turning point for EUR?

“The dim outlook for the economy might cause the ECB to act more cautiously over the coming months despite high inflation levels though. Against this background, the FX market is likely to remain sceptical about EUR so it is likely to be too early for a recovery rally.” 

“We see the risk that the situation in connection with energy prices and supply will deteriorate further which might put depreciation pressure on EUR again.”

“The generally positive market sentiment seen over the past days is likely to have provided additional support for EUR. Here too there is a risk that sentiment might change again, as the energy and economic risks are likely to concern the financial markets for some time yet.”

FX option expiries for Sept 13 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9850 431m
• 0.9900 323m
• 0.9915 242m
• 1.0050 1.4b
• 1.0100 727m
• 1.0125-35 656m
• 1.0170-80 1.21b
• 1.0200 373m

- GBP/USD: GBP amounts        

• 1.1500 647m
• 1.2000 335m

- USD/JPY: USD amounts                     

• 141.85 210m
• 142.00 670m
• 142.50 250m

- AUD/USD: AUD amounts  

• 0.6855 228m
• 0.6900 228m

- USD/CAD: USD amounts       

• 1.3110 207m

• GBP/JPY has overstepped the critical hurdle of 166.70 on lower-than-expected UK jobless data.
• The Claimant Count change has surprisingly increased by 6.3k vs. a decline of 9.2k expected.
• UK households are delighted as Average Hourly Earnings have significantly improved to 5.2%.

The GBP/JPY pair has witnessed a firmer rebound after the release of the UK employment data. The jobless rate has declined firmly to 3.6% against the expectations and the prior release of 3.8%. While the Average Hourly Earnings data has improved significantly to 5.2% vs. the expectations of 5.0% and the former figure of 4.7%.

The Claimant Count change has surprisingly increased by 6.3k, while the market participants were expecting a decline of 9.2k.

After in-depth scrutiny of the employment data by the market participants, pound bulls will start dancing to the tunes of the UK Consumer Price Index (CPI), which will release on Wednesday. The double-digit inflation rate is already torturing the households due to higher payouts and even a mild advancement in the price pressure will add fuel to the fire.

Investors should be aware of the fact that the inflation rate is seen at 10.2% while the core CPI data is expected to land at 6.3%, higher than the prior release of 6.2%.

On the Tokyo front, a shift in the stance of the Bank of Japan (BOJ) is highly required to corner the depreciating yen. The Japanese yen is falling like a house of cards and is hurting the importers in the economy. Costly imports are resulting in higher input costs for the corporate. As the overall demand in the economy is extremely weak, the firms are unable to pass on the impact. This may result in a meaningful decline in operating margins.

Going forward, Japan’s Industrial Production data will be of utmost importance. The economic data is seen as stable at -1.8%.

NZD/USD is holding up in the mid-0.61s. US CPI data today will be crucial as will NZ data tomorrow/Thursday, economists at ANZ Bank report. 

Fed Funds rate to peak at 4%

“US Dollar Index has fallen for 3 days in a row and is now about 2.2% off 20-year highs seen last week. This correction has coincided with the rebound in bond yields ahead of US CPI and a lift in market expectations for the Fed Funds rate to peak at 4%, which is a high for the cycle. From that (USD-centric) perspective, the move looks a bit odd, but it’s the rebound of the EUR on news that Ukraine had taken back territory and ECB hawkishness that’s driving FX markets right now. So it’s complicated and arguably a bit fickle, and we’re wary of volatility.”

“NZ C/A and GDP data this week ought to shift the NZD focus back toward domestic factors.” 

“Technical bounce off 0.60 also looks more secure now.”

See – NZ GDP Preview: Forecasts from four major banks, weaker but not a game changer for the OCR

Gold price is posting small losses this Tuesday. XAU/USD could attack $1,700 on a US core CPI upside surprise, FXStreet’s Dhwani Mehta reports.

Upside surprise to the monthly US core CPI cannot be ruled out

“The monthly core CPI is likely to hog the limelight and risks an upside surprise, which could trigger a sharp US dollar rally, implying an extension of the latest leg down in the bullion.” 

“Gold bulls could regain the upside traction on an unexpected easing in the core CPI MoM reading, as it could hint at a probable slow down in the Fed’s tightening path from November.” 

“The metal appears vulnerable to further downside risks, as the previous day’s low of $1,712 remains in sight. Further down, the channel resistance-turned-support at $1,702 could challenge the bullish commitments.”

“Gold bulls need to recapture the 21-Daily Moving Average (DMA) at $1,735 on a daily closing basis to unleash the additional recovery. The downward-sloping 50 DMA at $1,741 will be the next stop for buyers on a sustained upside. The last line of defense for XAU sellers is at the $1,750 psychological level.”

See – US CPI Preview: Forecasts from 12 major banks, inflation begins to ease

• EUR/GBP has picked offers as numbers of jobless benefits have increased by 6.3k.
• The UK jobless rate has declined to 3.6% vs. the forecast of 3.8%.
• A decent improvement in labor cost index data will delight UK households.

The EUR/GBP pair has slipped below 0.8660 after the release of the addition in UK Claimant Count change data. The UK economy has reported an increase in jobless benefits numbers by 6.3k against the forecast of a decline of 9.2k and the prior decline of 14.5k. UK Office for National Statistics has reported a decline in the Unemployment Rate to 3.6% against the estimates and the prior release of 3.8%.

The Average Hourly Earnings data has improved significantly to 5.2% vs. the expectations of 5.0% and the former figure of 4.7%. This is going to delight the households as it will support them to offset the higher payouts led by ramping up inflation.

Going forward, investors’ entire focus will shift toward the UK inflation data, which will release on Wednesday. As per the estimates, the headline US Consumer Price Index (CPI) figure will shift minutely higher to 10.2%, 10 basis points (bps) higher from the July print. Also, the core PI that excludes fossil fuels and food prices will increase to 6.3%, similarly by 10 bps. This may create more consequences for the households.

Also, it will force the Bank of England (BOE) to come forward with higher interest rates in its September monetary policy meeting. 

On the Eurozone front, the energy crisis has deepened significantly after Russia cut-off energy supply from Nord Stream 1 pipeline. This is going to force the firms to shut down their plants, which have a higher dependency on energy for their production activities. While large-scale firms will display heavy losses in the upcoming result season amid their inability to pass on the impact of higher production costs.

• GBP/USD defends two-day upside momentum at a fortnight top.
• UK Claimant Count Change increased in August but ILO Unemployment Rate dropped for three months to July.
• EU’s Sefcovic steps forward to ease Brexit woes surrounding NI border.
• US CPI will be a crucial catalyst ahead of UK inflation.

GBP/USD picks up bids to 1.1700 as the Cable pair buyers cheer upbeat UK jobs report during early Tuesday. Even so, cautious sentiment ahead of the US inflation data seems to restrict immediate upside moves.

The UK’s headline Claimant Count Change rose to 6.3K in August compared to the market consensus of -9.2K and -10.5K prior. Further details suggest that the ILO Unemployment Rate for three months to July dropped to 3.6% versus 3.8% market forecasts.

Also read: UK ILO Unemployment Rate unexpectedly drops to 3.6% in July

In addition to the mostly positive UK job data, the price positive headlines surrounding Brexit also should have favored the GBP/USD prices. That said, the European Union’s (EU) Brexit Chief Maros Sefcovic has said, per the Independent, that he wants to reduce physical customs checks across the Irish Sea to just a few lorries a day in a bid to break the impasse over the Northern Ireland Protocol (NIP).

Also positive could be the likely aggression of the Bank of England (BOE) due to Liz Truss’ elections as the UK Prime Minister (PM), as well as hopes of more stimulus from the British government to defend the economy from the recession woes.

On the other hand, cautious optimism surrounding the US inflation release and expectations of more monetary/fiscal support from China seem to have favored the market’s sentiment and the GBP/USD prices. On the same line could be the updates that Ukraine is gaining success in pushing back the Russian military from some of its areas that seem to have underpinned the market’s cautious optimism, even as the same raised the fears of Russia’s harsh retaliation.

However, the geopolitical tension concerning China and Russia, as well as the likely tough road for UK PM Truss challenges the GBP/USD bulls.

Having witnessed an initial reaction to the UK jobs report, GBP/USD traders may witness the lackluster trading hours ahead of the US Consumer Price Index (CPI) data for August. Market forecasts suggest that the CPI is expected to ease to -0.1% MoM versus 0.0% prior, which in turn could help the Cable pair buyers to keep reins.

Technical analysis

Successful trading beyond the 1.1650-55 support, including the 100-SMA and a one-week-old ascending trend line, joins the bullish MACD signals to favor the bullish bias surrounding the GBP/USD. With this, the Cable pair remains on the way to a horizontal area comprising multiple levels marked since August 22, between 1.1745 and 1.1755.

Stats NZ is set to release Gross Domestic Product (GDP) figures for the second quarter on Wednesday, September 14 at 22:45 GMT and as we get closer to the release time, here are forecasts from economists and researchers of four major banks regarding the upcoming growth data. 

New Zealand’s economy is seen expanding by 0.8% in the three months to June, on a quarterly basis. Meanwhile, the country’s GDP rate is at -0.2% YoY.

ANZ

“We’ve pencilled in a 0.4% QoQ expansion – a downgrade from our previous pick of 1.0%, and well below the RBNZ’s August MPS forecast of 1.8%. Importantly, just like the unexpected contraction in Q1, weaker-than-expected growth in Q2 doesn’t mean a lot for the OCR if supply-side hurdles like labour shortages are a big part of the problem (supply-side constraints are inflationary and constrain activity). In that context, while some indicators suggest the economy was in technical recession over the first half of 2022, given lingering wage and CPI inflation pressures, the RBNZ will need to keep on hiking even if this turns out to be the case. They need to drive demand below the level of potential supply and keep it there for a time. We’re nowhere near that point yet.”

Westpac

“We expect a 1.6% rise in GDP for the June quarter. This follows a 0.2% drop in the March quarter as Omicron swept through the country. The reopening of the border, and the resumption of overseas tourism, is expected to provide a significant boost to areas such as travel services, accommodation, and arts and recreation. A result in line with our view would emphasise that the New Zealand economy remains far from recession. Indeed, the challenge is one of an economy that is running too hot.” 

TDS

“Construction and wholesale trade likely boosted growth over the quarter while manufacturing and retail sales remain a drag on growth. As our forecast (1.6%) is closer to the RBNZ (1.8% QoQ), we think a more positive GDP outturn should lock in another 50 bps hike in October as the Bank should be comfortable with tightening monetary conditions ‘at pace’.”

Citibank

“Our GDP growth forecast of 1.0% is below the RBNZ’s stronger forecast of 1.6%. But there are enough abnormal influences in the Q2 GDP data and lingering concerns about inflation and wages growth for the RBNZ to maintain its current hawkish policy stance for one final +50 bps move at the October 5 policy review meeting before the RBNZ moves to a +25 bps move at the November 25 meeting for an OCR peak of 3.75%.”

• The Unemployment Rate in the UK arrived at 3.6% in July.
• UK Claimant Count Change arrived at 6.3K in August.
• The UK wages excluding bonuses rose by 5.2% YoY in July vs. 5.0% expected.

The Office for National Statistics (ONS) showed on Tuesday, the UK’s official jobless rate dropped to 3.6% in July vs. 3.8% expected while the claimant count change showed an unexpected increase in August.

The number of people claiming jobless benefits rose by 6.3K in August when compared to -10.5K booked previously and -9.2K expectations.

The UK’s average weekly earnings, excluding bonuses, arrived at +5.2% 3Mo/YoY in July versus +4.7% last and +5.0% expected while the gauge including bonuses came in at +5.5% 3Mo/YoY in July versus +5.1% previous and +5.2% expected.

Key points (via ONS)

 GBP/USD reaction

GBP/USD finds a fresh boost on the mixed UK employment data, as it adds 0.20% to test 1.1700, as of writing.

About UK jobs

The UK Average Earnings released by the Office for National Statistics (ONS) is a key short-term indicator of how levels of pay are changing within the UK economy. Generally speaking, the positive earnings growth anticipates positive (or bullish) for the GBP, whereas a low reading is seen as negative (or bearish).

• AUD/NZD is inclining higher towards 1.1250 on expectations of upbeat Australian payroll data.
• Higher consensus for Aussie Consumer Inflation Expectations may result in a fifth consecutive RBA rate hike.
• The NZ GDP is expected to display a mixed performance.

The AUD/NZD pair is displaying a perpendicular upside momentum after picking bids below 1.1200 in the Tokyo session. The asset is marching towards the critical hurdle of 1.1250 as investors have started discounting the higher consensus for Australian labor market data. Broadly, the cross is aiming higher after forming a bottom around 1.1120 last week.

The Australian economy is going through the headwinds of higher inflation and a meaningful decline in export numbers. Now, the entire focus is on employment data, which will release on Thursday. The jobless rate is expected to remain steady at 3.4%. While the Employment Change is expected to display an addition in employment generation by 35k. A release of upbeat Australian employment data will strengthen the aussie dollar further.

In addition to the employment data, the release of the Consumer Inflation Expectations will be of utmost importance. The inflation indicator is expected to land at 6.7%, significantly higher than the former print of 5.9%. An occurrence of the same will force the Reserve Bank of Australia (RBA) to step up its Official Cash Rate (OCR) by 50 basis points (bps) consecutively for the fifth time.

On the NZ front, the release of the Gross Domestic Product (GDP) numbers will hog the limelight. The annual data is showing a contraction in the kiwi economy by 0.2% against an expansion of 1.2%. While the quarterly data will result in an expansion of 0.8% vs. a contraction of 0.2%.

USD/TRY licks its wounds around 18.22 during the early Tuesday morning in Europe, after falling the most in a month the previous day. In doing so, the Turkish lira (TRY) pair takes clues from the hawkish signals of the options market.

That said, one-month risk reversal (RR) on USD/TRY, a measure of the spread between call and put prices, rose the most since July 11 on Monday, after witnessing three consecutive weekly downsides. It should be noted that the daily and weekly RR are at 1.855 at the latest, per the Reuters options data.

A call option gives the holder the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. A put option represents a right to sell. 

It’s worth noting that the inflation woes in Turkiye appear to be the major bullish catalyst for the USD/TRY pair. However, the cautious mood ahead of today’s US Consumer Price Index (CPI) seems to test the pair bulls of late.

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang suggest USD/JPY could now move within the 140.80/144.60 range in the short-term horizon.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the strong rebound amidst oversold conditions suggests USD is unlikely to weaken further’ and we expected USD to ‘consolidate and trade between 141.80 and 143.80’. Our view for consolidation was not wrong even though USD traded within a narrower range than expected (142.14/143.49). Further consolidation appears likely, expected to be between 141.90 and 143.50.”

Next 1-3 weeks: “We continue to hold the same view as yesterday (12 Sep, spot at 142.80). As highlighted, the recent 2-week USD strength has ended. The current price actions are likely the early stages of a consolidation phase. After the recent outsized rally, USD is likely to consolidate within a broad range of 140.80/144.60.”

• Silver price consolidates the biggest daily gains since February 2021 around one-month high.
• Firmer RSI, sustained trading beyond 200-SMA keeps buyers hopeful.
• Sellers have multiple levels to break before retaking control.

Silver price (XAG/USD) remains mildly offered near $19.65 heading into Tuesday‘s European session. In doing to the bright metal pare the heaviest run-up in nearly 19 months, marked the previous day, by retreating from the monthly peak.

Even so, the metal buyers remain hopeful as it keeps the previous day’s upside break of the 200-SMA amid firmer RSI (14).

Even if the metal drops below the stated key SMA support near $19.40, a one-week-old ascending support line, close to $19.15, will precede the $19.00 threshold to test the XAG/USD bears.

It’s worth noting that a fortnight-old horizontal area surrounding $18.60-50 appears a tough nut to crack for the metal sellers, a break which could make the prices vulnerable to revisiting the yearly low marked in August at around $17.55.

Alternatively, recovery moves may initially aim for the latest peak near the $20.00 psychological magnet.

Following that, the 78.6% Fibonacci retracement level of the XAU/USD downside from August 14 to September 01, around $20.10, will act as an additional upside filter before directing the bulls towards the previous monthly high of $20.87.

Overall, silver remains on the bull’s radar despite the latest pullback.

Silver: Four-hour chart

Trend: Further upside expected

Open interest in natural gas futures markets went up for the second straight session on Monday, now by 963 contracts, according to preliminary readings from CME Group. Volume followed suit and rose by around 37.3K contracts following three consecutive daily pullbacks.

Natural Gas: Next key up barrier comes at $10.00

Prices of natural gas started the week on a positive foot and moved further north of the $8.00 mark on Monday. The daily uptick was on the back of increasing open interest and volume, which is indicative that further gains look favoured in the very near term.

Moody’s Investors Service, in its latest report, warns against growing risks for Emerging Asia.

Key takeaways

Related reads

• S&P 500 Futures stay mildly bid even as yields retreat from multi-day top, US inflation eyed
• China’s Premier Li vows more policy support to shore up consumption

• An establishment in the balanced profile of $85.77-90.14 has bolstered the case of a bullish reversal.
• Sustainability above 200-EMA and advancing 50-EMA add to the upside filters.
• The RSI (14) needs to recapture the 60.00-80.00 range to trigger the upside momentum.

West Texas Intermediate (WTI), futures on NYMEX, have turned sideways after a firmer rebound to near $86.30 in the Asian session. The black gold has picked bids after concluding the corrective move from Monday’s high at $88.67. On a broader note, the oil prices have witnessed a juggernaut rally after a reversal move from the prior week’s low of around $81.00.

The oil prices have established themselves into the prior balanced area where auctions happened for a tad longer period. The balanced profile is plotted in the $85.77-90.14 range on an hourly scale and will serve as a major hurdle for the bulls.

The asset has managed to sustain above the 200-period Exponential Moving Average (EMA) at $86.78, which indicates that bullish bias has escalated further. Also, the 50-EMA at $86.31 is advancing, which adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped into the 40.00-60.00 range. A break into the bullish range of 60.00-80.00 will trigger an upside momentum.

A decisive break above Friday’s high at $86.78 will send the major towards the round-level resistance at $90.00, followed by August 11 high at $94.32.

Alternatively, bears could demolish the upside bias if it drops below Thursday’s low at $82.14 will rag the asset towards the round-level support at $80.00. A breach of the latter will unleash bears for more downside towards July 6 high at $76.40.

WTI hourly chart

Extra recovery could now see NZD/USD revisit the tough barrier at 0.6190 in the next few weeks, according to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected NZD to ‘trade between 0.6080 and 0.6150’ yesterday. NZD subsequently traded between 0.6086 and 0.6157. Upward momentum is beginning to build and NZD is likely to edge higher to 0.6170. The major resistance at 0.6195 is unlikely to come under threat. Support is at 0.6130 followed by 0.6110.”

Next 1-3 weeks: “Our update from yesterday (12 Sep, spot at 0.6110) still stands. As highlighted, the recent NZD weakness has come to an end. Upward momentum is improving and NZD could edge higher but any advance is expected to face solid resistance at 0.6190. Support wise, a break of 0.6090 (‘strong support’ was at 0.6050 yesterday) would indicate that the current upward pressure has eased.”

Considering advanced prints from CME Group for crude oil futures markets, open interest rose by around 2.8K contracts after two consecutive daily pullbacks on Monday. On the other hand, volume dropped for the third session in a row, this time by more than 53K contracts.

WTI: Initial target comes at $90.37

Prices of the barrel of WTI clinched the third consecutive daily advance on Monday. The move was on the back of rising open interest, which is supportive of further gains in the short-term horizon. Against that, the next hurdle of note emerges at the weekly top at $90.37 (September 5).

• EUR/JPY consolidates the biggest daily gains in a week around the highest levels since late 2014.
• US 10-year, two-year Treasury bond yields retreat from multi-day peak as markets turn cautious ahead of US CPI.
• Economic fears in the bloc jostles with hawkish ECBspeak to test recent moves.
• Final readings of Germany’s inflation, ZEW data will be important for immediate direction.

EUR/JPY prints mild losses around 144.40 heading into Tuesday’s European session. In doing so, the cross-currency pair retreats from the highest levels since December 2014, marked the previous day, while paring the biggest daily gains in a week.

Although the cautious sentiment ahead of the all-important US Consumer Price Index (CPI) could be considered the key catalyst for the pair’s latest consolidation, softer yields are also a reason to lure the countertrend traders.

That said, the US 10-year Treasury yields retreat from a three-month high, down two basis points (bps) to 3.34%. It should be noted that the US two-year Treasury yields snap a three-day uptrend as they ease from the highest levels since late 2007, down half a percent near 3.547% at the latest.

On the other hand, fears of Germany’s economic slowdown join chatters over the Bank of Japan’s (BOJ) market intervention to weigh on the pair prices. On Monday, Germany's Ifo Institute announced that it revised its 2023 growth forecast to -0.3% from 3.5% in June. The institute further noted that the annual inflation expectation for 2023 got revised higher to 9.3% from June's forecast of 6%. For 2022, Ifo now sees the economy growing by 1.6%, down from 2.5% in June, and forecasts 8.1% inflation (6.8% in June), as reported by Reuters.

Elsewhere, a mixed print of Japan’s Producer Price Index (PPI) for August, softer on MoM and firmer on YoY, seemed to have weighed on the EUR/JPY prices amid a sluggish session. Also acting as the bearish catalysts are the fears surrounding the Sino-American tussles and the Russia-Ukraine war, not to forget hawkish central bankers amid recession fears.

With this in mind, EUR/JPY traders may pay attention to the final readings of Germany’s August month Harmonized Index of Consumer Prices (HICP), expected to confirm 0.4% MoM initial estimations, which will precede the ZEW sentiment data for September for the bloc and for Germany to determine immediate EUR/JPY moves.

Technical analysis

Unless providing a daily closing below June’s top surrounding 144.25, EUR/JPY remains on the way to an upward sloping resistance line from mid-2021, close to 146.90-95 by the press time.

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, GBP/USD could extend the rebound to the 1.1760 region in the near term.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the advance in GBP could extend to 1.1665’. We added, ‘the next resistance at 1.1700 is not expected to come into view’.  The anticipated advance exceeded our expectations as GBP surged to a high of 1.1710. While the rapid rise appears to be running ahead of itself, there is room for GBP to advance further to 1.1725 before easing. Support is at 1.1655 followed by 1.1630.”

Next 1-3 weeks: “Yesterday (12 Sep, spot at 1.1610), we noted that upward momentum has improved slightly. We held the view that GBP is likely to edge higher but the chance for a break of the major resistance at 1.1700 is not high. We did not expect the subsequent strong surge that led to a break of 1.1700 (high has been 1.1710). The rapid improvement in momentum is likely to lead to further GBP strength. The next resistance is at 1.1760. On the downside, the ‘strong support’ at 1.1580 (level was at 1.1520 yesterday) is likely to hold, at least for these couple of days.”

CME Group’s flash data for gold futures markets noted traders added just 781 contracts to their open interest positions on Monday, reversing the previous marginal drop. Volume, instead, shrank for the second session in a row, this time by nearly 4K contracts.

Gold: Next on the upside comes $1,765

Gold prices extended the recovery at the beginning of the week, briefly testing the $1,735 level just to ease part of that advance later in the session. The daily uptick was amidst a small increase in open interest, which could allow for the continuation of the bounce in the very near term. The decline in volume could, however, slow the pace of the recovery. The yellow metal should face the next hurdle at the weekly high at $1,765 per ounce troy (August 25).

• USD/CAD bears take a breather at two-week low, after four-day downtrend.
• Oil prices remain sluggish amid mixed concerns over the demand-supply matrix.
• Softer inflation expectations, retreating yields and a light calendar ahead of US CPI test moves.

USD/CAD portrays inaction amid the market’s anxiety ahead of the US inflation data during early Tuesday morning in Europe. In doing so, the Loonie pair traces the sluggish oil prices, Canada’s main export, as well as mixed risk catalysts, while taking rounds to 1.2985 at the latest. It’s worth noting that the Loonie pair dropped during the last four days before recently trading sideways near the lowest levels in 12 days.

WTI crude oil remains sidelined at around $87.30, after refreshing the weekly high, amid mixed concerns over the supply and demand of the black gold, mainly backed by the news from the US Energy Information Administration (EIA) and the Department of Energy (DOE). In doing so, the quote snaps a three-day uptrend.

Also read:

Market sentiment remains sluggish as hopes of softer inflation data from the US jostles with the hawkish Fedspeak and a light calendar, not to forget the recession woes. Also challenging the momentum traders is the blackout for the Fed policymakers ahead of the next week’s Federal Open Market Committee (FOMC).

That said, US Consumers saw inflation at 5.75% over the next 12 months in August, down from July’s 6.2%, as well as the lowest since October 2021, as per the New York Fed's monthly consumer expectations survey details released on Monday.  Further data shared by Reuters suggest that the three-year inflation expectations marked the slowest pace since late 2020 while averaging 2.8% versus 3.2% reported in July.

On Monday, updates that Ukraine is gaining success in pushing back the Russian military from some of its areas seem to have underpinned the market’s cautious optimism, even as the same raised the fears of Russia’s harsh retaliation, which in turn favored USD/CAD bears. On the same line could be the hopes of more stimulus from major economies like China, the US, the UK and Europe. Furthermore, the latest news from the Wall Street Journal (WSJ) suggesting that the US gas prices are down for the 13^th consecutive week also eased the market’s pressure and favored the risk-on mood, as well as the pair bears.

Elsewhere, Bloomberg’s news that China’s Premier Li Keqiang vowed more policy support to drive up consumption in the economy seemed to have underpinned sentiment of late. The news also signaled that China will adhere to multiple measures to stabilize growth, employment and prices.

Moving on, the US Consumer Price Index (CPI) data for August, expected to ease to -0.1% MoM versus 0.0% prior, will be important for the pair traders. Should the inflation numbers print softer data, the USD/CAD pair may witness further downside.

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios

Technical analysis

Although 50-day EMA restricts the immediate downside of the USD/CAD pair to around 1.2965, buyers will remain away unless witnessing a clear upside break of the previous support line from August 11, at 1.3095 by the press time.

• Gold prices have faced a sell-off amid lower consensus for US Inflation.
• A back-to-back decline in the inflation rate will bolster the case of exhaustion in the price pressures.
• The precious metal is oscillating in a volatility contraction pattern ahead of US CPI.

Gold price (XAU/USD) has delivered a downside break of the consolidation formed in a narrow range of $1,720.89-1,723.08 in the Asian session. The precious metal is declining after printing a fresh two-week high around $1,735.00 on Monday. The gold prices are witnessing the heat amid lower consensus for US inflation.

Investors should be aware of the fact that the precious metal is considered an inflation-hedged tool and a decline in the US inflation forecast has forced the market participants to trim their longs from the gold counter. The estimates for the headline US Consumer Price Index (CPI) that inculcates oil and food prices are at 8.1% significantly lower than the former figure of 8.5%.

A back-to-back decline in the inflation rate is sufficient to bolster the case of exhaustion in the price pressures. While, the core US CPI is seen higher at 6%, 10 basis points (bps) above from the prior release.

Meanwhile, the US dollar index (DXY) is displaying a lackluster performance. The asset is oscillating in a narrow range of 108.14-108.27 range as investors are awaiting the release of the US inflation for an informed decision.

Gold technical analysis

On an hourly scale, the gold prices are auctioning in a Symmetrical Triangle chart pattern, which advocates a volatility contraction ahead. However, a break of the same on either side results in wider ticks and heavy volume.

The 50-period Exponential Moving Average (EMA) at $1,722.00 is overlapping with the gold prices, which indicates an ongoing consolidation in the counter.

While, the Relative Strength Index (RSI) (14) has slipped into the 40.00-60.00 range, which signals that the bullish bias has been trimmed for now.

Gold hourly chart

Further upside could lift EUR/USD to the 1.0230 region, according to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we expected EUR to ‘retest the 1.0115 level’ and we were of the view that ‘a sustained rise above this level is unlikely’. We did not expect the strong and rapid surge to 1.0197 and the subsequent pullback from the high. While upward momentum has slowed, there is room for EUR to retest the 1.0200 level. For today, a clear break of this level is unlikely. The next resistance is at 1.0230. On the downside, a breach of 1.0070 (minor support is at 1.0100) would indicate the current upward pressure has eased.”

Next 1-3 weeks: “We highlighted yesterday (12 Sep, spot at 1.0060) that EUR is likely to ‘trade with an upward bias’ but ‘any advance is expected to face solid resistance at 1.0180’. The subsequent strong surge that sent EUR to a high of 1.0197 came as a surprise. The breach of the major resistance at 1.0180 suggests EUR is likely to advance further. The next level to watch is at 1.0230. The upside risk is intact as long as EUR does not move below 1.0030 (‘strong support; level was at 0.9960 yesterday).”

• USD/JPY holds lower ground near the short-term key support line.
• Bearish MACD signals, sustained trading below 21-SMA add strength to the downside bias.
• Bulls need validation from 143.10 to retake control.

USD/JPY reverses the week-start gains as it pokes the 12-day-old support line near 142.50 during the early Tuesday morning in Europe.

In doing so, the yen pair justifies Friday’s downside break of the 21-SMA, as well as the previous day’s U-turn from the stated SMA, while also tracing the bearish MACD signals. With this, the quote is likely to break the immediate 142.50 support.

However, an upward sloping trend line from August 11, close to 140.80, holds the key to the USD/JPY bear’s entry.

In a case where the risk barometer pair breaks the 140.80 support, the tops marked during late August around 139.00 and 137.80-75 will gain the market’s attention.

On the contrary, a convergence of the 21-SMA and the downward sloping trend line from the last Wednesday, close to 143.10, appear a tough nut to crack for the USD/JPY buyers.

Should the quote rises past 143.10, the odds of witnessing another run-up towards refreshing the 24-year high, currently around 145.00, can’t be ruled out.

To sum up, USD/JPY is expected to witness a limited downside move.

USD/JPY: Four-hour chart

Trend: Limited downside expected

• More upside will be displayed by the EUR/USD pair after overstepping the critical hurdle of 1.0150.
• The DXY is expected to witness more offers amid lower estimates for US inflation.
• Eurozone corporate margins are hitting hard led by soaring energy prices.

The EUR/USD pair is displaying back-and-forth moves after failing to cross the immediate hurdle of 1.0140 from the early Tokyo session. An upside in the asset remains favored amid lower consensus for the US Consumer Price Index (CPI) data. On a broader note, the major has displayed a mild correction after printing a fresh three-week high of 1.0200 on Monday.

The asset has shifted into a bullish trajectory amid a weaker US dollar index (DXY). The DXY is oscillating around 108.20 and is expected to display to deliver a downside move. The lower consensus for the US inflation has forced the market participants to dump the DXY at least for a while. As per the preliminary estimates, the plain-vanilla inflation rate will drop to 8.1% against the prior release of 8.5%. Thanks to the declining gasoline prices and higher interest rates, which have resulted in lower forecasts for the price rise index.

It would be worth watching the reaction of Federal Reserve (Fed) policymakers to declining inflation. No doubt, the ‘hawkish’ stance will continue to remain as usual but the tone will trim for sure as a back-to-back decline in price pressures will bolster the odds of exhaustion.

On the Eurozone front, the economy is worried over sky-rocketing energy prices. The consequences of higher energy bills have extended to the corporate category from households. Firms are facing higher production costs and are unable to pass on the impact to the end consumers. The impact will be visible in the third-quarter earnings season as operating margins will be badly hit due to high production costs.

• Market sentiment remains sluggish ahead of the key US CPI for August.
• S&P 500 Futures seesaw around two-week top, US 10-year Treasury yields ease from three-month high.
• Absence of Fedspeak, mixed headlines from China and a light calendar also restrict market moves.

Global markets portray the typical pre-data anxiety during early Tuesday in Europe. In addition to the cautious mood ahead of the all-important US Consumer Price Index (CPI), mixed headlines from China and a light calendar elsewhere also offer a sluggish start to the key day.

While portraying the mood, the US 10-year Treasury yields retreat from a three-month high, down two basis points (bps) to 3.34%. Even so, S&P 500 Futures and the stocks in the Asia-Pacific zone print mixed performance, despite posting mild gains by the press time. It should be noted that the US two-year Treasury yields snap a three-day uptrend as they ease from the highest levels since late 2007, down half a percent near 3.547% at the latest.

With the last comments from the Fed policymakers ahead of the pre-Fed meeting blackout keeping its hawkish bias, despite the recently easing inflation fears, today’s US CPI data for August will be crucial for near-term directions and hence escalate the anxiety ahead of release. The forecasts suggest the headline number ease to -0.1% MoM versus 0.0% prior while the CPI ex Food & Energy is likely to remain unchanged at 0.3% MoM.

Also read:

Elsewhere, the market’s latest chatters surrounding China President Xi Jinping’s aim to reassert Beijing’s influence during the first foreign trip after covid-led lockdowns underpins the cautious mood. On the same line could be the Financial Times (FT) news suggesting mixed views over US President Joe Biden’s chip plan that challenges China. Additionally, expectations that the People’s Bank of China (PBOC) will refrain from any monetary policy change during Thursday’s meeting also challenge the optimists.

It should be noted that hawkish comments from the European Central Bank (ECB) policymakers and updates that Ukraine is gaining success in pushing back the Russian military from some of its areas seem to have underpinned the market’s cautious optimism. Furthermore, hopes for more stimulus from China, the UK, the US and Europe also keep market players hopeful. Recently, Bloomberg reported that China’s Premier Li Keqiang vowed more policy support to drive up consumption in the economy. The news also signaled that China will adhere to multiple measures to stabilize growth, employment and prices.

To sum up, trading sentiment remains sluggish but the rush towards bonds, in search of risk-safety weighs on the yields ahead of the US inflation data.

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios

• AUD/USD reverses from a fortnight top, snaps two-day uptrend amid mixed clues.
• China’s return failed to impress Aussie bulls even as Premier Li hints at more stimulus.
• Treasury Yields ease from multi-day top, stock futures print mild gains but cautious mood before US CPI test buyers.
• Mixed prints of Australia’s NAB sentiment data also probe AUD/USD bulls amid bearish bets on RBA.

AUD/USD bounces off intraday low as it pares the first daily loss in three around 0.6875 during early Tuesday morning in Europe. In doing so, the Aussie pair struggles to cheer mildly positive headlines from China amid pre-US inflation anxiety and mixed geopolitical concerns.

Bloomberg recently reported that China’s Premier Li Keqiang vowed more policy support to drive up consumption in the economy. The news also signaled that China will adhere to multiple measures to stabilize growth, employment and prices.

Elsewhere, the National Australia Bank’s (NAB) sentiment figures for August printed mixed numbers and failed to impress Aussie bulls. That said, the NAB’s Business Conditions gauge reprinted the 20.0 figure versus 27.0 expectations while the Business Confidence rose to 10, past 6 market forecasts and 7 prior.

It should be noted that the market’s latest chatters surrounding China President Xi Jinping’s aim to reassert Beijing’s influence during the first foreign trip after covid-led lockdowns underpins the cautious mood and weigh on the AUD/USD prices. On the same line could be the Financial Times (FT) news suggesting mixed views over US President Joe Biden’s chip plan that challenges China. Additionally, expectations that the People’s Bank of China (PBOC) will refrain from any monetary policy change during Thursday’s meeting also tested the pair buyers.

Previously, the broad US dollar weakness, amid pre-inflation consolidation and an absence of the Fed speakers, seemed to have underpinned the AUD/USD pair’s bullish bias. Also likely to have favored the AUD/USD price is the Monday Holiday in China.

Amid these plays, the US 10-year Treasury yields retreat from a three-month high, down two basis points (bps) to 3.34%. Even so, S&P 500 Futures and the stocks in the Asia-Pacific zone print mixed performance by the press time.

To sum up, AUD/USD prints the typical pre-data anxiety and hence the pair’s further moves hinge on the US Consumer Price Index (CPI) data for August, expected to ease to -0.1% MoM versus 0.0% prior. The results will be more important considering the latest divergence between the hawkish Fedspeak and cautious comments from the Reserve Bank of Australia (RBA).

Technical analysis

A one-month-old previous resistance line, around 0.6865 by the press time, holds the key to the AUD/USD bear’s return, until then, buyers can keep their eyes on the 200-SMA hurdle surrounding 0.6920.

• GBP/USD is expected to display more upside if it oversteps the immediate hurdle of 1.1700.
• UK’s jobless rate is seen unchanged while the earnings data will escalate to 5%.
• Lower consensus for US inflation has weakened the mighty DXY.

The GBP/USD pair is hovering around the immediate hurdle of 1.1700 in the Tokyo session. The asset is trying harder to overstep 1.1700 from Monday. It seems that the inventory accumulation process will conclude sooner and the cable will display a sheer upside ahead. It would be worthy to dictate that investors are awaiting the release of the UK employment and US inflation data to execute informed decisions.

Taking into account the market estimates, the UK Office for National Statistics will report the jobless rate at 3.8%, similar to its previous close. The Claimant Count Change that indicates the number of individuals applying for jobless benefits will reduce by 9.2k. Lower-than-expected jobless claims and jobless rate data will strengthen the pound bulls.

The catalyst which is critical for the pound bulls is the Average Hourly Earnings data. The labor cost index has remained vulnerable in the previous months and households have been a major victim of subdued earnings. Higher forced payouts for households due to a double-digit inflation rate need inflation-adjusted earnings to offset the former. Therefore, the catalyst will be keenly watched. As per the consensus, the economic data is seen significantly higher at 5% vs. 4.7% in the prior release

Meanwhile, the US dollar index (DXY) has displayed a less-confident pullback after printing a low of 107.83 on Monday. The DXY is expected to display more weakness if it surrenders the critical support of 108.00. The mighty DXY is sensing offers amid lower consensus for the US Consumer Price Index (CPI) data. Falling gasoline prices and soaring interest rates have trimmed the estimates for the headline CPI to 8.1%. A decline in inflation data will compel the Federal Reserve (Fed) to trim the pace of hiking interest rates.

China’s Premier Li Keqiang vowed more policy support to drive up consumption in the economy, Bloomberg reported on Tuesday.

Key quotes

China “will adopt multiple measures to stabilize growth, employment and prices.”

“The economy is facing slight fluctuation as it recovers, and the current stage is a critical one that requires greater urgency, like when one climbs up a hill facing headwinds.”

His comments come after tourism revenue declined 22.8% to 28.7 billion yuan ($4.1 billion) over the Mid-Autumn Festival from a year ago.

Market reaction

At the time of writing, USD/CNY is trading at 6.9227, down 0.04% on the day.

• USD/CNH Price Analysis: Struggles around 6.9200 as bears keep reins

• Steel supply worries are extending to Eurozone amid soaring energy prices.
• An escalation in supply worries has trimmed the impact of subdued steel demand.
• Lower inflation and the announcement of stimulus packages in China will strengthen the steel demand ahead.

Steel prices are displaying exhaustion signals after remaining in the grip of bears for a prolonged period. The asset is expected to display a rebound as supply worries are bound to surpass the subdued demand impact. The ineffective demand-supply mechanism has been a major concern for steel prices. Now, escalating supply worries beyond China will boost the steel prices ahead.

It is worth noting that more than half of global steel demand comes from China due to heavy expenditure on infrastructure, construction, and real estate. A tad longer period of slowdown in China had dumped the demand for steel. No doubt, the steel supply was also impacted dramatically led by severe environmental regulations, and poor demand forced steel mill owners to shut down production processes.

Currently, ramping up energy prices in the eurozone have forced a halt in production as the rising production cost is demolishing profit margins. The steel mill owners are shutting down their smelters due to their inability to pass on higher cost impact. An inability to offset higher production costs led by soaring energy prices and accelerating interest rates is widening the deviation in the demand-supply mechanism. This is expected to bring a short-term rebound in the steel prices ahead.

Meanwhile, the largest steel-consuming economy, China has announced stimulus packages to scale up infrastructure spending in is major provinces, which will push the steel demand higher. Also, the declining price rise index in China will force the People’s Bank of China (PBOC) to deploy more liquidity into the economy.

Bank of Korea (BOK), South Korea's central bank, Senior Deputy Governor Lee Seung-heon said on Tuesday that they are closely monitoring FX markets.

Lee added that volatility is likely to increase while expressing his concerns over the recent depreciation of the won.

Market reaction

At the time of writing, USD/KRW is recovering ground to trade modestly flat at 1,376.22, having hit fresh five-day lows at 1,372.08 on the BOK commentary.

The People's Bank of China (PBOC) is expected to maintain the rate on the medium-term lending facility (MLF) on Thursday as liquidity in the inter-bank market is viewed as reasonably ample, the Securities Daily reported, citing analysts.

Additional quotes

“Analysts are divided on how much of a maturing CNY600 billion MLF will be rolled over.”

“Some believe the PBOC will roll over a lower amount given sufficient money supply and liquidity, while others believe a renewed amount of CNY600 billion will help stabilize growth.“

“The one-year MLF rate sits at 2.75% after two 10 bp cuts in August and January.”

• USD/CNH Price Analysis: Struggles around 6.9200 as bears keep reins

• USD/CNH bears take a breather at one-week low, pauses two-day downtrend.
• Downside break of monthly bullish channel, 10-DMA joins bearish MACD signals to favor sellers.
• Four-month-old horizontal support area appears a tough nut to crack for bears.

USD/CNH seesaws around the weekly bottom as bears await the key US inflation data during Tuesday’s Asian session, especially after China’s return from a long weekend. With this, the offshore Chinese yuan (CNH) pair snaps a two-day downtrend while defending the 6.9200 level of late.

Even so, the pair sellers keep control as Friday’s rejection of a one-month-old bullish channel and the previous day’s downside break of the 10-DMA, the first in a month, keep sellers hopeful. Also favoring the downside bias is the impending bear cross of the MACD.

With this, the USD/CNH is likely to remain directed towards the 21-DMA support level, around 6.8930 by the press time.

Following that, a broad support area comprising May’s top and the levels marked during late August, around 6.8380-8480, will be crucial to watch for the USD/CNH bears.

In a case where the pair successfully breaks the 6.8380 support, the previous monthly low of around 6.7165 will be in focus.

Alternatively, recovery moves need validation from the 10-DMA level, at 6.9355 by the press time.

Even so, the aforementioned channel’s lower line, near 6.9680 at the latest, could act as the last defense for the USD/CNH bears before challenging the two-year high marked the last week.

USD/CNH: Daily chart

Trend: Further weakness expected

• USD/JPY bears are in control in the Asian session and eye a downside extension. 
• The bulls need to commit at this juncture at key support. 

USD/JPY is lower on the day as the US dollar comes under pressure ahead of the US inflation data that will be released later today in the New York session. At the time of writing, the pair is losing around 0.13% and has dropped from a high of 142.84 and has reached a low of 142.41 so far. 

US bond yields were losing ground on Monday, taking a lead from Europe, but finished the session higher as markets look to today's Consumer Price Index print. The 2-year government bond yields climbed from 3.51% to 3.56%, and the 10-year government bond yields moved from 3.33% to 3.36%. In Tokyo, they are sliding which has given the yen a boost.

For today's data, analysts at Westpac argued that it ''will highlight the downward pressure on headline inflation being driven by declining oil prices (market f/c: -0.1%mth, 8.1% year, down from 8.5% year in July). Focus will therefore be centred on the core measure to better gauge the current pace of inflation and the likely response from the Federal Open Market Committee (market f/c: +0.3%mth, 6.1% year vs 5.9% year in July).'' 

Meanwhile, JPY net short positions rose back to their July levels reflecting the continued dovish policy position of the Bank of Japan, analysts at Rabobank said. ''This has triggered some verbal intervention from Japanese government officials in recent days, though actual intervention would be politically awkward both in terms of G7 disapproval and given that it would be leaning against the BoJ’s policy position.''

USD/JPY technical analysis

As per the prior analysis, USD/JPY Price Analysis: Bears in control ahead of Tokyo, eye 142.50 then 141.50, the hourly chart showed that the price was correcting from the prior bullish rally and was filling the wick left behind by the prior bearish hourly bar.

A continuation lower in the Tokyo session was forecasted to complete a move to the neckline of the W-formation:

 This is the first defence on the way into the daily 38.2% Fibonacci targets near 141.50:

Economists at Societe Generale expect the headline US Consumer Price Index (CPI) to soften while core CPI to tick slightly higher in August.

Key quotes

“Headline CPI to fall 0.1% m/m due to a plunge in gasoline prices.”

“Early September gasoline prices are still falling, implying a weak headline figure for September too.”

“Headline inflation rates peaked at 9.1% in June, fell to 8.5% in July and should register 8.1% in August. We expect the headline CPI to fall below 7% by year-end, but uncertainty over energy prices clouds that projection.”

“Core-CPI forecast is 0.4% m/m. That projection is based on a 0.6% shelter cost increase that is offset by weak pricing for apparel, motor vehicles and public transportation. These latter categories have been volatile.”

“We expect weak auto pricing in the quarters ahead, but the still tight inventory readings, which have been limited by semiconductors, mean that the monthly forecasts are more uncertain.”

• Gold price retreats from a fortnight top, snaps two-day uptrend.
• China’s return, cautious mood ahead of US CPI favor XAU/USD pullback.
• US inflation expectations, cautious optimism surrounding broad economic transition underpin bullish bias.
• Yields ease from multi-day high, equities/stock futures remain mildly bid.

Gold price (XAU/USD) takes offers to refresh intraday low around $1,721, snapping a two-day uptrend after refreshing a fortnight high. It’s worth noting that the yellow metal’s weakness during Tuesday’s Asian session takes clues from the market’s cautious mood ahead of the key US inflation data, as well as mixed concerns surrounding China.

Headlines from the Financial Times (FT) suggest mixed views over US President Joe Biden’s chip plan that challenges China to seem to weigh on the NZD/USD buyers. On the same line, Chinese President Xi Jinping’s aim to reassert Beijing’s influence during the first foreign trip after covid-led lockdowns underpins the cautious mood as it could escalate the US-China tension.

It’s worth noting that China’s return from the long weekend and its status as among the world’s biggest gold consumers highlight a cautious mood, as well as profit-booking, during the Asian session.

Alternatively, hopes of softer inflation appear to defend the XAU/USD bulls. That said, US Consumers saw inflation at 5.75% over the next 12 months in August, down from July’s 6.2%, as well as the lowest since October 2021, as per the New York Fed's monthly consumer expectations survey details released on Monday.  Further data shared by Reuters suggest that the three-year inflation expectations marked the slowest pace since late 2020 while averaging 2.8% versus 3.2% reported in July.

Against this backdrop, the US 10-year Treasury yields retreat from a three-month high, down two basis points (bps) to 3.34%. Even so, S&P 500 Futures and the stocks in the Asia-Pacific zone print mixed performance by the press time.

Looking forward, US Consumer Price Index (CPI) data for August, expected to ease to -0.1% MoM versus 0.0% prior, will be important for fresh clues. Should the data renew reflation woes, the further downside of the XAU/USD can’t be ruled out.

Technical analysis

Gold price drops back below the 100-SMA while reversing from a one-week-old ascending trend channel’s resistance line. The pullback moves join the impending bear cross of the MACD and RSI retreat to keep sellers hopeful.

However, a one-week-old support line, near $1,717, restricts the immediate downside of the XAU/USD, a break of which could direct bears towards the stated channel’s support line, close to $1,697 at the latest.

It’s worth noting that the gold price weakness past $1,697 won’t hesitate to challenge the yearly low surrounding $1,680.

Meanwhile, recovery moves will initially jostle with the 100-SMA level of $1,725 before challenging the aforementioned channel’s top, around $1,733 by the press time. Following that, a run-up towards the 200-SMA level surrounding $1,750 can’t be ruled out.

Overall, the gold price may witness further downside but the room towards the south is limited.

Gold: Four-hour chart

Trend: Limited downside expected

• EUR/USD prints three-day uptrend near monthly high, sidelined of late.
• Buyers seem running out of steam but sustained trading beyond 200-SMA, weekly support line push back bearish hopes.
• Previous monthly high could lure further upside, bears have a bumpy road to return.

EUR/USD bulls take a breather around a one-month high, retreating to 1.0135 during a three-day uptrend to Tuesday’s Asian session. In doing so, the major currency pair prints the cautious mood of traders ahead of the key US inflation data.

The quote rose to the highest levels in one month before retreating from a downward sloping resistance line stretched from June 27. Even so, the weekly support line triggered the EUR/USD pair’s rebound.

That said, the quote’s sustained trading above the 200-SMA and bullish MACD signals also keep the pair buyers hopeful.

However, a clear upside break of the aforementioned resistance line, around 1.0190, becomes necessary for the EUR/USD bulls to keep reins. Following that, a run-up towards the August month high near 1.0365-70 can’t be ruled out.

Alternatively, a downside break of the weekly support line, close to 1.0120 by the press time, needs validation from the 200-SMA level near 1.0095 to recall the EUR/USD bears.

Even so, the parity level, the 0.9950 and the 0.9900 threshold could challenge the quote’s further weakness before directing the sellers towards the yearly low near 0.9860.

EUR/USD: Four-hour chart

Trend: Limited upside expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.8928 vs. the estimate at 6.9080. This was stronger than expected for 14th day.

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.

• EUR/GBP is expected to resume its downside journey after surrendering the 0.8650 support.
• An upbeat UK employment data will strengthen the pound bulls further.
• Soaring energy bills are impacting Eurozone corporate margins.

The EUR/GBP pair has displayed a short-lived pullback move after hitting a four-day low around 0.8650 on Monday. The cross is expected to resume its downside journey after concluding the pullback move and will accelerate the downside momentum after surrendering the crucial support of 0.8650. The asset is likely to dance to the tunes of UK employment data ahead.

As per the estimates, the UK Unemployment Rate will remain unchanged at 3.8%. While the number of individuals claiming jobless benefits will decline by 9.2k. The catalyst which is worth considering by the households due to higher payouts in an inflationary environment is the Average Earnings data. The labor cost index will improve significantly to 5% vs. 4.7%, which will support the households to offset the higher payouts led by soaring inflation.

Apart from that, Wednesday’s UK inflation data also holds significant importance. The UK Consumer Price Index (CPI) is expected to remain above the double-digit figure at 10.2%. This will force the Bank of England (BOE) to scale up interest rates further. This may escalate the BOE-European Central Bank (ECB) policy divergence further.

Meanwhile, the shared currency bulls are facing the heat of soaring energy bills. The upcoming winter season in Europe demands more amount of energy to operate heaters and other heat-producing appliances. Therefore, the demand for energy will accelerate further. After an unexpected 75 basis points (bps) interest rate hike by the ECB last week, the central bank will announce more rate hikes as price pressures are still beyond the desired rate.

The corporate sector in the eurozone is going through a phase of declining margins led by higher energy prices. Input costs for major companies have sky-rocketed amid higher energy bills, which are hitting their operating margins and henceforth leading a few firms to bankruptcy. A load of higher interest rates and soaring energy bills are impacting their earnings performance.

• NZD/USD grinds higher around a two-week top, recently sidelined.
• New Zealand’s REINZ House Price Index, Food Price Index flashed upbeat data for August.
• Risk-on mood fades amid pre-data anxiety, mixed concerns over China.
• US CPI will be crucial amid hawkish Fedspeak, downbeat inflation expectations.

NZD/USD bulls keep reins near the mid-0.6100s, despite the latest sideways grind, as traders await the key US inflation data on Tuesday. It’s worth noting that the recently firmer sentiment and upbeat data from New Zealand join softer US inflation expectations to weigh on the NZD/USD prices.

New Zealand’s REINZ House Price Index improved to -1.3% MoM in August versus -1.4% prior whereas the Food Price Index rose past 0.6% market forecasts to 1.1% during the stated month, compared to 2.1% previous readings.

Elsewhere, US Consumers saw inflation at 5.75% over the next 12 months in August, down from July’s 6.2%, as well as the lowest since October 2021, as per the New York Fed's monthly consumer expectations survey details released on Monday.  Further data shared by Reuters suggest that the three-year inflation expectations marked the slowest pace since late 2020 while averaging 2.8% versus 3.2% reported in July.

On Monday, updates that Ukraine is gaining success in pushing back the Russian military from some of its areas seem to have underpinned the market’s cautious optimism, even as the same raised the fears of Russia’s harsh retaliation, which in turn favored NZD/USD bulls. On the same line could be the hopes of more stimulus from major economies like China, the US, the UK and Europe. Furthermore, the latest news from the Wall Street Journal (WSJ) suggesting that the US gas prices are down for the 13^th consecutive week also eased the market’s pressure and favored the risk-on mood, as well as the gold price.

Alternatively, the latest headlines from the Financial Times (FT) suggesting mixed views over US President Joe Biden’s chip plan that challenges China to seem to test the NZD/USD buyers. Also, Chinese President Xi Jinping’s aim to reassert Beijing’s influence during the first foreign trip after covid-led lockdowns seems to underpin the cautious mood as the same could give rise to the US-China tension.

Against this backdrop, the risk-on mood weighed on the US Dollar Index, as portrayed by the firmer Wall Street close, which in turn ignored the upbeat US Treasury yields. It should be noted that the US Treasury yields pare recent gains and the S&P 500 Futures print mild gains by the press time.

Moving on, China’s return after the extended weekend will be interesting to watch for the NZD/USD traders. However, major attention will be given to the US CPI for August. The forecasts suggest the headline number ease to -0.1% MoM versus 0.0% prior while the CPI ex Food & Energy is likely to remain unchanged at 0.3% MoM. If the inflation numbers arrive softer, the NZD/USD pair may have a further upside to track.

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios

Technical analysis

The 21-DMA joins the August 22 swing low to highlight the 0.6155-60 as an immediate key hurdle for the NZD/USD bulls to tackle to keep reins. Meanwhile, the previous resistance line from August 18, close to 0.6080, restricts the short-term downside of the Kiwi pair.

• AUD/USD bulls are moving back in, but remain in the bear's lair. 
• AUD/USD bears need to get below 0.6875 should 0.6890 hold as resistance. 

From a 1-hour basis, a peak formation was being formed at the start of the week and this was threatening to send the price into the 0.6850s for the day ahead on a break of 0.6880 structure.

AUD/USD prior analysis

The doji followed by the bearish engulfing was a compelling formation that exposed the 61.8% Fibo of the prior bullish impulse that meets the prior resistance structure. 

AUD/USD live market

The price has since corrected to test the prior highs again but has failed to do so with conviction considering the tepid pace followed by a shape move to the downside. 

AUD/USD M15 chart

From a 15-minute perspective, the bears need to get below 0.6875 should 0.6890 hold as resistance. 

• GBP/USD bulls take a breather around two-week high, retreats of late.
• Sustained trading beyond 1.1650-55 support confluence, bullish MACD signals favor buyers.
• Three-week-old horizontal area, 200-SMA challenge the upside moves, bears need validation from previous resistance line.

GBP/USD retreats to 1.1685 during Tuesday’s Asian session as traders await the key UK employment data, as well as the US Consumer Price Index (CPI). In doing so, the Cable pair struggles to extend the two-day uptrend near the fortnight high.

Even so, successful trading beyond the 1.1650-55 support, including the 100-SMA and a one-week-old ascending trend line, joins the bullish MACD signals to underpin the hopes of witnessing the pair’s further upside.

However, a horizontal area comprising multiple levels marked since August 22, between 1.1745 and 1.1755, appears a tough nut to crack for the GBP/USD buyers.

If at all the quote rises past 1.1755, the 200-SMA level surrounding 1.1880 could test the pair’s run-up before giving control to the bulls.

Alternatively, pullback moves remain elusive until staying beyond 1.1650-55 support confluence.

Following that, the previous resistance line from August 10, close to 1.1530 by the press time, will be important to watch as a downside break of the same could direct GBP/USD bears towards the yearly low marked in the last week around 1.1405.

GBP/USD: Four-hour chart

Trend: Further upside expected

The Federal Reserve will deliver another 75-basis-point (bp) interest rate hike next week and likely hold its policy rate steady for an extended period once it eventually peaks, according to the latest Reuters poll of economists released on Tuesday.

Key findings

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios

• GBP/JPY is eyeing a cross above 167.00 on expectations of upbeat UK payroll data.
• The UK headline CPI is expected to remain above 10% consecutively.
• Japan’s Industrial Production is seen steady at -1.8%.

The GBP/JPY pair has moved higher after displaying topsy-turvy moves in a 166.50-166.90 range as the market participants have shifted to the sidelines ahead of the UK employment data. The asset turned sideways followed by a vertical upside move from Friday’s low around 164.30. A sideways move after an upside rally is generally followed by a resumption in the upside journey as those investors who prefer to enter in an established trend will add up significantly.

The crucial trigger which will bring demolish the consolidation will be the UK employment data. The Unemployment Rate is expected to remain unchanged at 3.8%. While the number of individuals claiming jobless benefits will decline by 9.2k. The Average Earnings data will improve significantly by 5% vs. 4.7%, which will support the households to offset the higher payouts led by soaring inflation.

It is worth noting that price pressures in the UK economy are operating above the double-digit figure, which is acting as headwinds for the households. Higher price pressures forced households to scale down their consumption. Also, lower labor cost data was unable to offset the higher payouts. Now, an improvement in Average Hourly Earnings will support them to keep up their consumption pattern.

This week, investors will also focus on the UK Consumer Price Index (CPI) data, which will release on Wednesday. The headline inflation figure is expected to improve to 10.2%, 10 basis points (bps) higher than the prior release. Also, the core CPI is seen higher at 6.3% against the prior release of 6.2%. This will keep the hawkish stance of the Bank of England (BOE) intact.

Meanwhile, the yen bulls are awaiting development on Japan’s intervention in the Fx market to support the yen bulls. The Bank of Japan (BOJ) is highly needed to shift its stance to neutral to fix the depreciating yen. On the data front, the economy will release the Industrial Production data, which is seen as stable at -1.8%.

• US Dollar Index fades bounce off fortnight low, down for the third consecutive day.
• Downbeat US inflation expectations, market’s risk-on mood weigh on the greenback.
• Absence of Fedspeak, light calendar adds strength to the DXY’s downside.
• US CPI is likely to ease in August but the size is a concern.

US Dollar Index (DXY) prints a three-day downtrend as it retreats towards 108.00 during Tuesday’s Asian session, fading the bounce off the two-week low marked the previous day. In doing so, the greenback’s gauge versus the six major currencies seems to prepare for the all-important US Consumer Price Index (CPI) data for August.

Ahead of the data, a fall in the US consumer inflation expectations and risk-positive news from Ukraine, as well as a light calendar, seem to favor the DXY bears. On the same line could be the absence of China and the 15-day Fed blackout ahead of the September Federal Open Market Committee (FOMC) meeting.

The US Consumers saw inflation at 5.75% over the next 12 months in August, down from July’s 6.2%, as well as the lowest since October 2021, as per the New York Fed's monthly consumer expectations survey details released on Monday.  Further data shared by Reuters suggest that the three-year inflation expectations marked the slowest pace since late 2020 while averaging 2.8% versus 3.2% reported in July.

Furthermore, updates that Ukraine is gaining success in pushing back the Russian military from some of its areas seem to have underpinned the market’s cautious optimism, even as the same raised the fears of Russia’s harsh retaliation. On the same line could be the hopes of more stimulus from major economies like China, the US, the UK and Europe. Furthermore, the latest news from the Wall Street Journal (WSJ) suggesting that the US gas prices are down for the 13^th consecutive week also eased the market’s pressure and favored the risk-on mood, as well as the gold price.

It should be noted that the hawkish tone of the European Central Bank (ECB) policymakers could also be considered negative for the DXY, especially amid an absence of Fedspeak. While a slew of ECB policymakers has favored higher rates during the weekend, Vice President Luis de Guindos was the latest to convey his optimism while saying, “Any GDP contraction will be less than in the euro crisis.” The policymaker also mentioned, “I don't know how much rates will climb.”

Amid these plays, the risk-on mood weighed on the US Dollar Index, as portrayed by the firmer Wall Street close, which in turn ignored the upbeat US Treasury yields. It should be noted that the US Treasury yields pare recent gains and the S&P 500 Futures print mild gains by the press time.

Looking forward, US CPI for August becomes crucial after the latest softness in the price pressure. The forecasts suggest the headline number ease to -0.1% MoM versus 0.0% prior while the CPI ex Food & Energy is likely to remain unchanged at 0.3% MoM. If the inflation numbers arrive softer, the US dollar may have a further downside to track.

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios

Technical analysis

The first daily closing below the 21-DMA, around 108.90 at the latest, in a month directs US Dollar Index bears towards the late July swing high near 107.40.

US Secretary of State Blinken says Iran's response to the EU proposal on the nuclear deal makes the prospects for an agreement in the near term unlikely. 

Meanwhile, oil prices were higher due to a weaker US dollar that offset ongoing concerns of weaker demand as risk sentiment picked up across the board on a number of counts. there was news that Ukrainian forces have made significant progress in pushing back Russian troops and that too has supported a better tone across European markets. Additionally, there was New York Federal Reserve report that buoyed optimism that suggested inflation may be receding. 

WTI is flat on the day so far, trading at the round $88.00bbls.

• AUD/JPY is aiming to strike the psychological resistance of 100.00 on wider RBA-BOJ policy divergence.
• Australian employment data is expected to display a decent performance ahead.
• Japan’s officials are worried about the depreciating yen and are expected to intervene in Fx moves.

The AUD/JPY pair printed a fresh seven-year high around 98.40 on Monday and is expected to accelerate its gains towards the psychological resistance of 100.00 sooner. The risk barometer has remained in the grip of bulls and will continue its upside momentum on wider Reserve Bank of Australia (RBA)-Bank of Japan (BOJ) policy divergence.

A spree of rate hikes by RBA Governor Philip Lowe to scale down the price pressures kept the aussie bulls in a bullish trajectory. The RBA has already raised its Official Cash Rate (OCR) to 2.35% and will scale up the interest rates to 3.85%, as discussed while delivering guidance. Also, the inflation rate is expected to top around 7%.

This week, the Australian economy will report the employment data, which will be of utmost importance. The Unemployment Rate is expected to remain steady at 3.4%. While the Employment Change is expected to display an addition in total payrolls by 35k. A release of upbeat Australian employment data will strengthen the aussie dollar further.

Apart from that, the Australian Consumer Inflation Expectations data will be keenly watched. The inflation indicator is expected to escalate dramatically to 6.7% vs. the 5.9% figure recorded earlier. This may force the RBA to keep up the rate hike spree.

On the Tokyo front, investors are awaiting the release of the Industrial Production data. The economic data is seen as stable at -1.8%. This may weaken the yen bulls further. The market participants are looking for more build-up on intervention in Fx moves by Japan. Earlier, Japanese officials cited that fundamentals are not so worse in relation to the extent of depreciation in yen. The economy is communicating with other nations to discuss the same subject.

• USD/JPY bears eye a move to the 141.50s for the day ahead. 
• The price is carving out a bearish structure on the hourly time frame but 142.50 will be key. 

USD/JPY is being pressured ahead of the Tokyo open as it moves below the upper quarter level of the 142 area. The bears are engaging and have their sights on a correction towards the hourly W-formation support and then a key trendline support thereafter. The following illustrates the bearish thesis across both the daily and hourly time frames. 

USD/JPY daily chart

The daily harmonic pattern is bearish and the price is starting to chip away at the trendline support following a deceleration of the bullish impulse. The 38.2% Fibonacci should be an important level of support for the sessions ahead should bears maintain control below 142.75. 

USD/JPY H1 chart

The hourly charts show that the price is correcting from the prior bullish rally and is filling the wick left behind by the prior bearish hourly bar. A continuation lower in the Tokyo session will complete a move to the neckline of the W-formation. This is the first defence on the way into the daily 38.2% Fibonacci targets near 141.50. 

US consumer inflation expectations marked a negative start to the week as global markets await the all-important Consumer Price Index (CPI) data for August.

That said, consumers in August saw inflation at 5.75% over the next 12 months, down from 6.2% in July and the lowest rate since October 2021, the New York Fed's monthly consumer expectations survey showed on Monday, reported Reuters.  Further, the three-year inflation expectations marked the slowest pace since late 2020 while averaging 2.8% versus 3.2% reported in July, per the news.

Additionally, the five-year inflation expectations printed a 2.0% level while matching the Fed’s target, down from 2.35% in July and 3% marked during January.

Elsewhere, US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, remained sluggish around a two-week low of 2.41%, close to 2.42% by the end of Tuesday’s North American trading session.

Given the recent weakness in the US inflation expectations, hopes of softer US CPI may keep the market sentiment firmer, which in turn could weigh on the US dollar.

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios

• WTI takes a breather after three-day uptrend, seesaws around one-week top.
• EIA expects a record increase in oil output in Permian, DOE conveys the lowest US emergency oil stock since 1984.
• Chatters surrounding Russia-Ukraine tussle, China’s recovery and hawkish central banks also entertain traders.
• US inflation, API Weekly Crude Oil Stock will be important for fresh impulse.

WTI crude oil remains sidelined at around $87.80, after refreshing the weekly high, amid mixed concerns over the supply and demand of the black gold. Also challenging the commodity prices could be the market’s cautious mood ahead of the key US inflation data, as well as the weekly industry report of the oil inventories.

“Oil output in the Permian Basin in Texas and New Mexico, the biggest U.S. shale oil basin, is due to rise 66,000 barrels per day (bpd) to a record 5.413 million bpd in October, the U.S. Energy Information Administration (EIA) said in its productivity report on Monday,” mentioned Reuters. It should be noted that the US halted further increase in the Strategic Petroleum Reserve (SPR) release during the last week, which in turn signaled a notable improvement in the supply situation. Even so, Reuters quotes Energy Secretary Jennifer Granholm as saying, “The Biden administration is weighing the need for further SPR releases after the current program ends in October.”

On the other hand, Reuters quotes the US Department of Energy (DOE) data to mention that the US emergency oil stocks fell to the lowest level since October 1984, declining 8.4 million barrels to 434.1 million barrels in the week ended September 9.  On the same line could the chatters surrounding the European Union’s embargo on Russian oil, as well as the Western leaders’ oil price cap on Moscow’s energy exports.

Elsewhere, uncertainty surrounding the US-Iran oil deal and the likely retaliation of Russia, after retreating from some parts of Ukraine, join the likely increase in China’s stimulus to also underpin the oil’s upside move.

It should be noted that the risk-on mood and the US dollar weakness are on the same line that favors the oil buyers. That said, the US Dollar Index (DXY) printed a four-day downtrend to fall to the lowest levels in a fortnight, around 108.30 at the latest.

Moving on, US CPI for August becomes crucial after the latest softness in the price pressure. The forecasts suggest the headline number ease to -0.1% MoM versus 0.0% prior while the CPI ex Food & Energy is likely to remain unchanged at 0.3% MoM. Also important will be the American Petroleum Institute’s (API) Weekly Crude Oil Stock data, prior 3.645M.

Technical analysis

WTI crude oil prices dribble between the 10-DMA and the 21-DMA, respectively around $86.20 and $89.00. However, the impending bull cross on the MACD and steady RSI (14) keeps buyers hopeful.

• USD/CAD is oscillating below 1.3000 as investors await US Inflation data.
• The US inflation rate is responding inversely to the spree of Fed rate hikes.
• Oil prices have rebounded firmly as the European economy will consume more oil to cater winter demand.

The USD/CAD pair is witnessing topsy-turvy moves as investors are awaiting the release of the US inflation data. The pair has turned sideways around 1.2958 after a rebound from 1.2964 on Monday. The asset displayed a rebound move after a downside momentum loss and is expected to recapture the psychological hurdle of 1.3000.

After a decline in gasoline prices in the US and a spree of rate hikes by the Federal Reserve (Fed), the consensus for the price rise index has dropped sharply. Investors are expecting the headline Consumer Price Index (CPI) to release at 8.1% vs. 8.5% reported for July. There is no denying the fact that the inflation rate is negatively responding to higher interest rates and headwinds for the households are scaling down.

No wonder, a decline in inflationary pressures will compel the Fed to scale down the pace of hiking interest rates and shift to normalcy to keep up the growth prospects in the economy.

On the loonie front, the Canadian dollar has weakened broadly after the release of downbeat employment data. The jobless rate increased firmly to 5.4% against the expectation of 5%. Also, the Canadian administration reported an increase in lay-off numbers by 39.7k. The vulnerable Canadian employment data has put a serious in loonie for a prolonged period.

Meanwhile, oil prices are advancing sharply from the past three trading sessions after dropping to near $81.00. The black gold has gained firmly as a production cut announcement by the OPEC cartel will kick-start sooner. Apart from that, the European economy will be forced to shift to oil to cater to the heated demand for the winter season as energy prices have reached to the rooftop.

• EUR/USD bulls struggle after refreshing one-month high, pokes short-term support of late.
• Pre-data anxiety, cautious mood ahead of China’s return seem to challenge immediate upside.
• Cautious optimism surrounding Ukraine-Russia tussle, ECB moves underpin bullish bias.
• Germany’s final revision of inflation, ZEW sentiment data and US CPI for August will be crucial for immediate direction.

EUR/USD portrays the typical pre-data consolidation as the major currency pair retreats from the monthly peak to 1.0120 during Tuesday’s Asian session. In doing so, the pair traders keep their eyes on the all-important US Consumer Price Index (CPI) data amid hopes of witnessing easy price pressure. Also important are the second-tier German data.

Hawkish comments from the European Central Bank (ECB) policymakers joined positive updates from the Ukraine-Russia battlegrounds to underpin the EUR/USD run-up on Monday. The quote also cheered an absence of China and firmer equities, not to forget the light calendar.

While a slew of ECB policymakers has favored higher rates during the weekend, Vice President Luis de Guindos was the latest to convey his optimism while saying, “Any GDP contraction will be less than in the euro crisis.” The policymaker also mentioned, “I don't know how much rates will climb.”

Elsewhere, updates that Ukraine is gaining success in pushing back the Russian military from some of its areas seem to have underpinned the market’s cautious optimism, even as the same raised the fears of Russia’s harsh retaliation. On the same line could be the hopes of more stimulus from major economies like China, the US, the UK and Europe. Furthermore, the latest news from the Wall Street Journal (WSJ) suggesting that the US gas prices are down for the 13^th consecutive week also eased the market’s pressure and favored the risk-on mood, as well as the gold price.

Alternatively, fears of Germany’s economic slowdown join hawkish Fedspeak to weigh on the EUR/USD prices. On Monday, Germany's Ifo Institute announced that it revised its 2023 growth forecast to -0.3% from 3.5% in June. The institute further noted that the annual inflation expectation for 2023 got revised higher to 9.3% from June's forecast of 6%. For 2022, Ifo now sees the economy growing by 1.6%, down from 2.5% in June, and forecasts 8.1% inflation (6.8% in June), as reported by Reuters.

Amid these plays, Wall Street closed higher and the US Treasury yields also refreshed the multi-day tops while the US Dollar Index (DXY) printed a four-day downtrend to fall to the lowest levels in a fortnight, around 108.30 at the latest.

Moving on, the final readings of Germany’s August month Harmonized Index of Consumer Prices (HICP), expected to confirm 0.4% MoM initial estimations, will precede the ZEW sentiment data for September for the bloc and for Germany to direct immediate EUR/USD moves. Following that, US CPI for August becomes crucial after the latest softness in the price pressure. The forecasts suggest the headline number ease to -0.1% MoM versus 0.0% prior while the CPI ex Food & Energy is likely to stay unchanged at 0.3% MoM. If the inflation numbers arrive softer the US dollar may have a further downside to track, which in turn can help the EUR/USD to remain firmer.

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios

Technical analysis

A one-week-old ascending trend line joins 200-SMA around 1.0100 to restrict short-term EUR/USD downside. The recovery moves, however, needs validation from a downward sloping resistance line from June 27, close to 1.0190 by the press time.