• NZD/USD is confidently auctioning above 0.6000 on higher-than-expected NZ GDP data.
• The kiwi economy has grown by 0.4% and 1.7% on an annual and quarterly basis.
• Odd of a full percent rate hike by the Fed has strengthened dramatically.

The NZD/USD pair has established above the psychological resistance of 0.6000 as Statistics New Zealand has reported higher-than-expected Gross Domestic Product (GDP). The economic data has landed higher at 1.7% against the expectations of 1% and the prior contraction of 0.2% on a quarterly basis. Also, the annual reading at 0.4% is higher than the forecasts of 0.2% but remained lower than the former figure of 1.2%.

The kiwi GDP data will have a significant impact on the strategy building of the Reserve Bank of New Zealand (RBNZ) policymakers against the ramping up inflationary pressures. There is no denying the fact that the RBNZ is prepared to sacrifice the growth prospects over containing the red-hot inflation. And, the inflation rate recorded at 7.3% in the second quarter is sufficient to cripple an economy. Well,  

This week, investors will also focus on the Business NZ PMI, which indicates the business conditions in the economy. As per the preliminary estimates, the economic data will decline marginally to 52.5 against the prior release of 52.7.

Meanwhile, the US dollar index (DXY) has turned sideways amid the unavailability of any potential trigger, which could provide a decisive move in the counter. After a higher-than-expected reading of the US Consumer Price Index (CPI) data, the commentary from Federal Reserve (Fed) policymakers will be keenly watched by the market participants.

No doubt, the commentary will dictate the continuation of the restrictive stance on monetary policy but unexpectedly increasing core CPI has strengthened the odds of a full 1% rate hike in the September monetary policy meeting.  

• AUD/JPY edged lower by 0.66% on Wednesday, courtesy of Forex intervention rumors.
• From a daily chart perspective, the pair remains upward biased, but to re-test the YTD high, AUD/JPY buyers need to conquer 97.00.
• Short term, the AUD/JPY is headed south and can fall as low as 95.00, just above the 200-EMA.

The AUD/JPY dropped on Wednesday after the Japanese authorities threatened to intervene in the Forex Markets. So traders, aware of the verbal intervention, bought the yen to the detriment of most G8 currencies. As the Asian Pacific session begins, the AUD/JPY is trading at 96.58, slightly down by 0.02%.

AUD/JPY Price Analysis: Technical outlook

From a daily chart perspective, the AUD/JPY remains upward biased, with the pair bouncing off the daily low at 95.98, just above the 20-day EMA. The good news for AUD/JPY is that the cross-currency stay above the 96.00 figure, keeping risks skewed to the upside, further confirmed by the RSI’s reading at 56.88 in positive territory. If the AUD/JPY tumbles below the 20-day EMA, the pair will slide below the 95.00 figure. Nevertheless, the path of least resistance is to the upside, meaning that a re-test of the YTD high at 98.59 is on the cards.

However, the AUD/JPY bias is neutral-to-downwards in the short term, with immediate resistance at the daily pivot point at 96.74. Break above will expose the 50-day EMA at 96.90, ahead of testing the psychological 97.00 figure, which is also the open of the week. Once it’s cleared, the next supply zone would be the confluence of the 20-EMA and the R1 daily pivot at 97.48.

On the other hand, the AUD/JPY first support would be the 96.00 psychological figure. A breach of the latter will expose the S1 daily pivot at 95.85, followed by the S2 pivot point at 95.12, ahead of the 200-EMA at 94.82.

AUD/JPY Key Technical Levels

New Zealand’s (NZ) second quarter (Q2) Gross Domestic Product (GDP) grew 1.7% QoQ compared to 1.0% market expectations and a prior contraction of 0.2%, per the latest report from the Statistics New Zealand. The YoY figures came in as 0.4% versus 0.2% expected and 1.2% previous readouts.

Market reaction

Following the data release, the NZD/USD pair extended the previous day’s rebound towards 0.6050.

Also read: NZD/USD remains depressed below 0.6000 mark, lowest since May 2020

About New Zealand GDP

The Gross Domestic Product (GDP), released by Statistics New Zealand, highlights the overall economic performance on a quarterly basis. The gauge has a significant influence on the Reserve Bank of New Zealand’s (RBNZ) monetary policy decision, in turn affecting the New Zealand dollar. A rise in the GDP rate signifies improvement in the economic conditions, which calls for tighter monetary policy, while a drop suggests deterioration in the activity. An above-forecast GDP reading is seen as NZD bullish.

• EUR/USD fails to cheer recently hawkish comments from the ECB policymakers, stays sidelined at weekly low.
• EU announced energy plan but failed to impress Euro buyers.
• Softer US data, mixed concerns surrounding Fed appear to test the traders.
• Risk catalysts, US Retail Sales for August will be important for fresh impulse ahead of next week’s FOMC.

EUR/USD struggles to restore the trader’s confidence while taking rounds to 0.9980-85 during the initial Asian session on Thursday. In doing so, the major currency pair fails to cheer hawkish comments from the European Central Bank (ECB) policymakers, as well as the European Commission’s (EC) release of an energy plan. The reason could be linked to the expectations of more geopolitical tension with Russia and the hawkish Fed hopes.

Recently, ECB policymaker Robert Holzmann has stated that the central bank's rates will be higher in a year but hikes will be data-dependent. Before that, ECB’s Constantinos Herodotou said, “ECB’s latest decision to hike the key rates does not mean there has been a forgone conclusion on the final level of interest rate.” Above all, ECB Chief Economist Philip Lane said on Wednesday that the current transition will require the ECB to continue to raise interest rates over the next several meetings, as reported by Reuters.

Further, the European Commission announced on Wednesday that it proposed a voluntary target for European Union countries to cut overall monthly electricity use by 10% compared to the same period in recent years, as reported by Reuters. “EU proposes windfall levy to claw back surplus profits from fossil fuel companies,” the news also mentioned.

Talking about the data, Eurozone’s Industrial Production fell 2.3% MoM in July versus the 1.0% expected contraction.

On the other hand, US Producer Price Index (PPI) declined to 8.7% YoY in August from 9.8% in July, versus 8.8% market forecasts. Details suggest that the PPI ex Food & Energy, better known as Core PPI, also eased to 7.3% YoY from 7.6% but surpassed the market expectation of 7.1%.

It should be noted that US President Joe Biden’s rejection of US fears and China’s stimulus are some of the key developments that should have favored the risk appetite and the EUR/USD prices. However, the Sino-American tussles and the energy crisis in Europe seemed to have challenged the optimism.

Against this backdrop, the Wall Street benchmarks printed mild gains while the Treasury yields retreated from the multi-day high, posting mild losses at the end.

Looking forward, the US Retail Sales for August, expected to remain unchanged at 0.0%, will be important to watch for clear intraday directions. Also important will be the market bets on the Fed’s next moves.

Also read: Australian Employment Preview: Will labor market upturn save the aussie?

Technical analysis

EUR/USD recovery remains elusive unless crossing the 50-DMA hurdle surrounding 1.0100. However, multiple supports around 0.9950, 0.9900 and the latest multi-year low near 0.9860 could challenge the bears.

NZ Q2 GDP Overview

Thursday's economic docket highlights the release of the second-quarter NZ Gross Domestic Product (GDP) report, scheduled at 10:45 GMT. Having witnessed a 1.2% YoY jump in economic activities during the previous quarter, market players might not get delighted with the estimation of the Q1 GDP figures, an expected 0.2% YoY, as it is insufficient to back the Reserve Bank of New Zealand (RBNZ) for more rate hikes. More interestingly, the QoQ figures are expected to display a significant growth of 1.0% against a contraction of 0.2%.

It is highly observed that RBNZ Governor Adrian Orr is more worried over soaring price pressures rather than saving the economy from a stagnant phase, a meaningful expansion in GDP numbers will trim trouble for the central bank. The RBNZ is consecutively squeezing liquidity from the economy by hiking its Official Cash Rate (OCR), which has reached 3%.

How could it Affect NZD/USD?

The recent carnage in commodity-linked currencies after the release of the US Consumer Price Index (CPI) data is not providing much room for a quick recovery. A release of higher-than-expected headline inflation and core CPI reading has strengthened the odds of a bumper rate hike by the Federal Reserve (Fed) in September. Investors should brace for at least a 75 basis point (bps) rate hike to combat the inflation monster.

Ross J Burland, Editor FXStreet, outlined important technical levels to trade the NZD/USD pair: “the W-formation's support is key. If the bulls commit, then the price will be destined for structure and resistance near the 38.2% Fibonacci level ahead of a 50% retracement thereafter. This is a level that meets the bounce halfway through the sell-off (the green candle) where the 78.6% Fibonacci meets where prices were agreed, so this would be expected to act as the firmest of the resistances.”

Key Notes

NZD/USD remains depressed below 0.6000 mark, lowest since May 2020

 NZD/USD Price Analysis: Bulls eye a move to the 38.2% Fibo and beyond

About NZ GDP

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

• AUD/USD struggles to extend the previous day’s corrective pullback from weekly low.
• Softer US PPI, mixed concerns surrounding China and Fed test traders.
• Australia’s Consumer Inflation Expectations, employment data for August will be crucial for immediate directions.
• US Retail Sales will be the key ahead of next week’s Fed decision.

AUD/USD treads water around 0.6750 as traders await Australia’s monthly employment numbers during early Thursday in the Asia-Pacific region. The Aussie pair marked a corrective pullback from the weekly low, after witnessing the heaviest daily slump in two years the previous day, but the recovery failed to gain any major fundamental support to prevail ahead of the key data.

On Wednesday, global markets remained sluggish after witnessing heavy volatility, due to the US Consumer Price Index (CPI), the previous day. Even so, the risk appetite improved a bit, or say consolidated, due to the traders’ search for fresh implications.

US Producer Price Index (PPI) declined to 8.7% YoY in August from 9.8% in July, versus 8.8% market forecasts. Details suggest that the PPI ex Food & Energy, better known as Core PPI, also eased to 7.3% YoY from 7.6% but surpassed the market expectation of 7.1%.

With the mixed data for inflation, market players struggled to carry the previous day’s hawkish bias for the Fed, despite expecting either a 0.75% or a full 1.0% rate hike by the US central bank in the next week’s Federal Open Market Committee (FOMC).

Elsewhere, US President Joe Biden’s rejection of US fears and China’s stimulus are some of the key developments that should have favored the risk appetite. However, the Sino-American tussles and the energy crisis in Europe seemed to have challenged the optimism.

Amid these plays, the Wall Street benchmarks printed mild gains while the Treasury yields retreated from the multi-day high, posting mild losses at the end.

Moving on, Australia’s Consumer Inflation Expectations for September, expected 6.7% versus 5.9% prior, will offer immediate directions ahead of the key Aussie jobs report. Forecasts suggest the Aussie Employment Change to increase from -40.9K to 35K while the Unemployment Rate to rise to 66.6% versus 66.4% prior. Even so, the Reserve Bank of Australia’s (RBA) cautious mood might challenge the AUD/USD bulls.

Also read: Australian Employment Preview: Will labor market upturn save the aussie?

Following that, the US Retail Sales for August, expected to remain unchanged at 0.0%, will be important to watch for clear intraday directions.

Also read: US Retail Sales Preview: Can consumers keep up with inflation? A breather could weigh on the dollar

Technical analysis

A two-month-old ascending support line, at 0.6700 by the press time, precedes the yearly low of 0.6680 to restrict short-term downside of the AUD/USD pair. The recovery moves, however, needs validation from the monthly resistance line and the 50-DMA, respectively near 0.6850 and 0.6890 in that order. Overall, AUD/USD is likely to hold lower grounds but could remain range bound.

• XAG/USD climbed on a risk-on impulse and lowered US T-bond yields.
• US PPI for August tempered inflationary pressures on the producer side.
• XAG/USD Price Analysis: Break above $20.00 to send silver towards $21.00 mark.

Silver price rebounds at around the 50-day EMA and climbs towards a daily high near $19.69 on Wednesday after the US Labor Department revealed that August PPI was aligned with expectations easing inflationary pressures on the producer side, contrarily to Tuesday’s CPI.

Therefore, the XAG/USD is trading at $19.61, above its opening price by 1.86%.

Before Wall Street opened, US data revealed by the Bureau of Labour Statistics (BLS) showed that the PPI  for August shrank by 0.1%, aligned with the consensus, while the year-over-year figure was down at 8.7%, less than July’s 9.8% report. Meanwhile, the so-called core PPI, which excludes volatile items, edged higher, 0.4% MoM, but on an annual reading, edged up by 7.3%.

In the meantime, the US Dollar Index, a measure of the buck’s value against a basket of six currencies, finished Wednesday’s session down by 0.15%, at 109.648, undermined by US Treasury yields, mainly the 10-year benchmark note rate, unmoved during the day at around 3.404%.

The reflection of the abovementioned is the US Dollar Index, losing some traction, down by 0.09%, below the 110.000 mark. At the same time, the US 10-year benchmark note rate shows signs of exhaustion, flat at around 3.414%.

Another tailwind for the white metal prices was that the US 10-year TIPS, a proxy for real yields, gained only one bps, sitting at 0.939%.

On Thursday, the US economic docket will feature unemployment claims, retail sales, and the New York and Philadelphia Fed Manufacturing Indices, a prelude for October’s ISM report.

Silver Price Analysis (XAG/USD): Technical outlook

The XAG/USD daily chart illustrates the white metal as neutral-to-downward biased. However, if silver buyers reclaim the $20.00 mark, that could pave the way for a test of a four-month-old downslope trendline around $20.20 before reaching the 100-day EMA at $20.39. A breach of the latter will expose the August 15 cycle high at $20.87, ahead of the $21.00 psychological level.

• Gold price is attempting a bullish reversal after refreshing its weekly low at $1,693.67.
• The structure of slowing down the pace of hiking interest rates by the Fed is far from over.
• Going forward, the US Retail Sales data will be of utmost importance.

Gold price (XAU/USD) has sensed a buying interest after printing a fresh weekly low of $1,693.67 in the late New York session. The precious metal is required to initially recapture the psychological resistance of $1,700.00 to establish a rebound base and a follow-up recovery extension will be set on autopilot mode. The yellow metal has attempted a recovery as the US dollar index (DXY) is displaying exhaustion signals after a juggernaut rally.

Earlier, gold prices witnessed a bloodbath after a surprise rebound in the US inflation rate. As consensus for the inflation rate was meaningfully lower led by a fall in gasoline prices, investors had started betting that the pace of hiking interest rates by the Federal Reserve (Fed) would slow down now.

The already troublesome job of Fed policymakers is going to be more laborious now as core CPI that excludes food and oil prices has stepped up to 6.3% vs. the expectations of 6.1% and 40 basis points (bps) higher than the prior release.

In today’s session, the US Retail Sales data will be a key trigger. The economic data is not showing any sign of improvement in the overall demand.

Gold technical analysis

The gold prices are attempting to reclaim the prior consolidation area formed in a narrow range of $1,697.12-1,709.62 on an hourly scale. An occurrence of the same will result in a fakeout and the odds of a bullish reversal will get bolstered. However, this is not enough to claim it a bullish reversal as it will require more filters.

The yellow metal is auctioning below the 20-period (High-Low) Exponential Moving Average (EMA) band. The Relative Strength Index (RSI) is oscillating in the 20.00-40.00 range but the downside momentum seems to fade away.

Gold hourly chart

Here is what you need to know for Thursday, September 15:

The US dollar that fell to a low of 109.257 did not stay down there for long on Wednesday and the index rallied back to test the 109.70s in New York. Technically, the index is on course for the 109.90s again ahead of what is expected to be a hawkish Federal Reserve outcome next week. 

Meanwhile, Wednesday's inflation data was more benign, showing producer prices (PPI) declined for a second straight month in August as gasoline prices fell further, but this was not enough for markets to price put the Fed's aggressive stance.

The US Department of Labor reported that August’s Producer Price Index (PPI) moderated, dropping 0.1% MoM, aligned with forecasts, while the annual reading edged lower by a full percentage point to 8.7% vs. 9.8% in the previous month. Core PPI, every month rose by 0.4% but annually exceeded estimations, topping at around 7.3%.

There have been no Federal Reserve speakers this week as the media blackout went into effect at midnight Friday ahead of Chair Jerome Powell’s post-decision press conference on September 21.

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 inflation report according to FEDWATCH.  The two-year US Treasury yield, a bellwether for interest rate expectations, rose 3.834% Wednesday.

As for other central banks, the yen rose 1% against the dollar on Wednesday after the Bank of Japan conducted a rate check-in in possible preparation for currency intervention. According to Reuters, central bank officials called up dealers and asked for the price of buying or selling yen. ''However, actually intervening to support the currency would be a larger step.''  

At the same time, Japanese Finance Minister Shunichi Suzuki told reporters on Wednesday that recent yen moves have been "rapid and one-sided", adding that yen-buying currency intervention was among the government's options should such moves continue. USD/JPY dropped from a high of 144.96 to a low of 142.55.

The euro was nearly flat against the dollar around 0.9980 but travelled between a high of 1.00236 and 0.99767 on the day. 

GBPUSD ranged between 1.1480 and 1.1590 and ended the day higher despite a recovery in the greenback and data that showed that inflation ticked lower in August after breaking the 10% threshold, which was last seen in 40 years. 

Ahead of today's labour market data, AUD/USD formed a double bottom near 0.6700 and climbed towards its daily high at 0.6760. It will be a busy day for the antipodeans with New Zealand growth data to start ahead of the Unemployment number later in the session. 

New Zealand’s second quarter Gross Domestic Product data are out today. ''We’ve pencilled in a 0.4% quarter-on-quarter expansion, but given data volatility and mixed signals going in, a read plus or minus 1 percentage point of our pick would not surprise,'' analysts at ANZ Bank said.

''And while the RBNZ have growth of 1.8% QoQ pencilled in, we think a disappointment today is unlikely to carry much weight in terms of monetary policy settings. CPI and wage inflation pressures are still way too high, which combined with ongoing fiscal stimulus this fiscal year (the year to 30 June 2023), suggests the RBNZ has little choice but to carry on with OCR hikes to at least 4%. Indeed, in a world of biting capacity limits, weaker than expected activity doesn’t necessarily mean inflation is poised to slow.''

As for the Aussie jobs numbers, ''after the huge disappointment last month, August jobs report may show some modest improvement as indicators of labour demand (e.g., job ads) remain strong,'' analysts at TD Securities argued. ''However, we see downside risk if COVID-related disruptions on the labour market persist. A poor jobs report likely seals the outcome for a 25bps hike (TD: 25bps) in October after the Governor struck a dovish tone last week.''

In crypto, volatility struck as traders positioned in preparation for Ethereum's transition to Proof-of-Stake. Bitcoin and Ethereum have retraced more than 7% over the past 24 hours. 

In commodities, gold fell to a low of $1,693.78 from a high of $1,707.07 while WTI came up for air, printing a high of $90.17.

• WTI is up on the day and testing a key technical level on the 4-hour charts. 
• Bulls need a break of the 4-hour resistance or face imminent doom below the weekly countertrend. 

WTI oil came up for air on Wednesday and moved in a key area of 4-hour support as the following charts will illustrate. At the time of writing, the black gold is trading 1.5% higher after rallying from a low of $86.20bbls to a high of $90.17bbls on the day so far. 

WTI weekly charts

The price recently broke below the weekly trendline support that is in the process of being retested as the above analysis illustrates. 

Zooming in, this is made clearer with the price testing the key 89.80s in trade this week. 

WTI H4 chart

From a 4-hour perspective, however, the price has formed a W-formation and should the support area hold, there could be a move to test above the resistance which could lead to a break back into the bullish weekly trend.

European Central Bank member Robert Holzmann has stated that the central bank's rates will be higher in a year but hikes will be data-dependent. he adds that they underestimated the pace of inflation gains and that the ECB could have begun hiking sooner.

Key notes

• The Bank has shown its prepared to go beyond expectations.
• There is a possibility of stagflation in the eurozone.

Meanwhile, markets appeared to be returning to normal on Wednesday following the prior day's volatility that came on the back of the US inflation data. The euro regained some composure and is up 0.11% at 0.9977 after recovering from 0.9955 earlier in the day. 

• Money market futures have fully priced in a 75 bps, though 1 in 4 expect a 100 bps lift.
• The AUD/USD gained some traction bolstered by US dollar weakness.
• AUD/USD Price Analysis: Positive divergence in the daily chart suggests sellers’ exhaustion.

The AUD/USD stopped the bleeding and jumped off weekly lows at around the 0.6700 figure after the US Producer Price Index report for August alleviated some of Tuesday’s CPI worries, which sent most risk assets tumbling, while the greenback rose above the 110.00 thresholds, on renewed inflation fears. Nevertheless, as of writing, sentiment is mixed, though it appears that traders are in wait-and-see mode.

On Wednesday, the major began trading at around 0.6720s and edged toward its weekly lows nearby the 0.6700 figure, forming a double bottom as shown by the AUD/USD hourly chart, and climbed towards its daily high at 0.6760. At the time of writing, the AUD/USD is trading at 0.6737, above its opening price by 0.17%.

US inflation data has been grabbing all the headlines in the last couple of days. On Tuesday, August, core CPI edged above the 7% YoY threshold above estimations, fueling speculations that the Fed might lift rates 100 bps in the September meeting. Nevertheless, August’s Producer Price Index (PPI) has tempered concerns, with figures coming aligned with estimations and flashing positive news regarding supply chain disruptions.

The reflection of the abovementioned is the US Dollar Index, losing some traction, down by 0.09%, below the 110.000 mark. At the same time, the US 10-year benchmark note rate shows signs of exhaustion, flat at around 3.414%.

An absent economic docket left the Aussie adrift to US dollar dynamics. Australian data revealed during the week showed that business confidence improved. Later, Australian employment data would be disclosed. August’s Employment Change is estimated at 35K, while the Unemployment Rate is expected to remain at 3.4%.

On the US front, the US economic calendar will feature Fed’s Regional Manufacturing Indices, alongside unemployment claims and retail sales data for August-

AUD/USD Price Analysis: Technical outlook

The AUD/USD is downward biased, but a doji in the daily chart suggests that selling pressure is evaporating. US dollar positioning is overextended, and with the Relative Strength Index (RSI) printing higher lows, contrarily to price action reaching lower lows, a positive divergence is surging. That said, the major might edge higher ahead of next week’s US FOMC monetary policy decision.

On the upside, resistance lies at 0.6800, which, once cleared, exposes the 20-day EMA at 0.6839, ahead of the 50-day EMA at 0.6890. On the flip side, the AUD/USD first support would be 0.6700, followed by the YTD low at 0.6681 and the 0.6600 figure.

• DXY bulls are moving back in and 109.72 guards a break to the 109.90s.
• A break of the 109.40s and 109.10s below there opens the risk of a significant downside extension. 

The US dollar rallied on Tuesday against the yen, euro and other currencies following stronger-than-expected US inflation data that rocked US stocks, bolstered US yields and sent the greenback towards last week's two-decade peak of 110.79. The price made a high of 110.01 before bears cleaned up across the counterparts for low-hanging fruit in the corrections. 

However, while the DXY fell to a low of 109.257, it did not stay down there for long. The index has since rallied back to test the 109.70s which is encouraging for the bulls. Technically, the bulls will want to see 109.90 cleared before the week is out ahead of what is expected to be a hawkish Federal Reserve outcome next week. 

There are no Federal Reserve speakers this week as the media blackout went into effect at midnight Friday ahead of Chair Jerome Powell’s post-decision press conference on September 21. 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 inflation report according to FEDWATCH. 

Yesterday, Consumer Price Index gave the greenback a boost as the headline came at 8.3% YoY vs. 8.1% expected and 8.5% in July, while core came in at 6.3% YoY vs. 6.1% expected and 5.9% in July.  ''While this was still the second straight month of deceleration for headline from the 9.1% peak in June to the lowest since April, it’s a huge reminder that the Fed’s fight against inflation is nowhere close to being over,'' analysts at Brown Brothers Harriman explained. 

''We think it would be very tempting for the Fed to hike 100 bp in order to underscore its inflation-fighting credentials and surprise the markets,'' the analysts said. ''Equities would tank but that's what the Fed wants. More importantly, the swaps market is now pricing in a terminal rate between 4.25-4.50%.''

Positioning data shows the market is long dollars but not remarkably so by historical standards. Speculators’ net long USD index positions edged slightly higher but remain within the recent range, a little below the levels reached in the run-up to the Fed’s Jackson Hole event. Interest rates have been a major driver of the greenback, as higher rates give dollar bonds and deposits attractive yields. Outside the United States, especially in Asia, major economies' rates trajectories stand in stark contrast which is expected to continue supporting the greenback which is up nearly 15% against a basket of currencies in a rally that has the dollar on course for its best year since 1984.

DXY technical analysis

The four-hour chart above illustrates the market structure and the bulls that are attempting to show who is boss by taking on the M-formation's neckline. 109.72 guards a break to the 109.90s and prospects of a bullish continuation for the days and weeks ahead. A break of the 109.40s and 109.10s below there opens the risk of a significant downside extension. 

• EUR/USD reached a weekly low at 0.9955, just below the 20-day EMA.
• US economic data fueled expectations of a 100 bps rate hike, with odds lying at 26%.
• Money market futures estimate an ECB 75 bps rate hike in October.

The EUR/USD slightly recovers from yesterday’s losses, advancing almost 0.31%, due to a soft US dollar after August’s US Producer Price Index (PPI) dropped 0.1%, in line with the consensus, though easing fears of inflation becoming entrenched.

On Wednesday, the EUR/USD began trading near the day’s lows at 0.9955 but climbed toward the daily high above 1.0020 before losing the parity again. At the time of writing, the EUR/USD is trading at 0.9985, above its opening price by 0.19%.

Before Wall Street opened, the US Labor Department reported that prices paid by the producer in August contracted as estimated by 0.1%, flashing signs that the supply chain headwinds are easing. In the meantime, the core reading edged up by 0.4%. In the meantime, annual-based numbers in the Producer Price Index (PPI) decelerated from 9.8% in the previous reading to 8.7%, while the core PPI exceeded estimations of 7%, peaking at around 7.3%.

US economic data released during September further cemented the Fed’s case for a 75 bps rate hike. However, the possibility of a 100 bps increase surfaced after Tuesday’s CPI reported that core inflation was stickier than estimated. According to the CME FedWatch Tool, the odds of a 100 bps rate hike lie at 26%.

In the Euro area side, July’s Industrial Production fell 2.3% MoM, vs. a contraction of 1.1% estimated, showing the deterioration in the bloc’s economy. As a result, the annually-based reading fell 2.4%, against expectations of 0%. Weakness in Germany spread toward other larger economies in the Eurozone. Meanwhile, Short Term Interest Rates (STIRs) have priced in an 80% chance of an ECB 75 bps rate hike in October, amidst a 250 bps tightening over the next 12 months.

What to watch

The US economic calendar will feature unemployment claims, the NY and Philly Fed Business Indices, alongside important Retail Sales figures.

EUR/USD Key Technical Levels

• Gold is bleeding as the US dollar resurges from the lows of the day. 
• Bears need to get below the daily support or face demand into key resistance in the day ahead. 

Gold is back under pressure, losing some 0.32% after falling from a high of $1,707.15 to a low of $1,696.51 so far. The US dollar is attempting a comeback and is moving up from the lows of the day down at 109.275 to 109.618 so far, as per DXY. 

The DXY is an index that measures the greenback vs a basket of currencies and it has been whipsawed over the US inflation data that was released yesterday which sent markets into a state of higher volatility. Gold has responded with two-way price action and continues to be driven on the back of the market's pricing of the Federal Reserve that meets next week to decide upon its next interest rate hike. 

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 inflation report according to FEDWATCH. Inflation in the United States ran at an 8.3% annualized pace in August, ahead of expectations for an 8.0% rise

''Given the persistence of inflation continues to support an aggressive effort by the Fed, 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,'' analysts at TD Securities said.

''We also now expect a higher terminal rate range of 4.25-4.50% by year-end. In this context, while prices are certainly weak, precious metals' price action is still not consistent with their historical performance when hiking cycles enter into a restrictive rates regime. Indeed, gold and silver prices have tended to display a systematic underperformance when markets expect the real level of the Fed funds rate to rise above the neutral rate, as estimated by Laubach-Williams.''

''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

In the prior analysis, it was shown that the bulls had been stripped of their moment and the focus was back on the downside while below the neckline of the daily M-formation, as follows:

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

Gold live update

The daily chart shows that the price is extending the downside with the neckline still vulnerable for a restest, however. 

Gold H1 chart

From a much lower time frame basis, hourly and 15 minutes, the price action meeting prior lows and a support structure that needs to be taken into account. 

Gold M15 chart

Taking into account that the Bank of England’s tightening is set to lag the Federal Reserve and fall short of market expectations, analysts at Wells Fargo expect renewed downside in the pound. They see the GBP/USD pair falling to 1.1200 or below by late 2022/early 2023. 

Key Quotes: 

“Our outlook for Bank of England rate hikes contrasts with the more aggressive path of tightening expected by the Federal Reserve. It also falls well short of rate hikes currently priced into markets, which anticipate a peak in the Bank of England's policy rate near 4.50% around the middle of 2023. As the Bank of England lags the Fed and falls short of market expectations, we expect the GBP/USD exchange rate to come under renewed pressure, falling to $1.1200 or below by late 2022/early 2023.”

“As the U.S. economy also falls into recession and the Fed reaches the end of its tightening cycle we expect some rebound in the pound, though with the U.K. facing its own economic challenges that rebound should be modest, We forecast a GBP/USD exchange rate of $1.1500 by the end of 2023.”

• US prices paid by producers show signs of easing, except for the core PPI.
• Core inflation in the US is showing signs of being stickier than estimated.
• USD/CHF Price Analysis: Break above 0.9630 puts the 0.9700 figure in play; otherwise, a fall toward 0.9420 is on the cards.

The USD/CHF is trading sideways after rising 0.82% on Tuesday as a reaction to US inflation data showing signs that it’s easing in plain vanilla CPI. Still, core inflation is edging higher on the consumer and producer side, as the US Department of Labor reported. Therefore, the USD/CHF remained almost unchanged but slightly down 0.01%, trading at 0.9613.

USD/CHF Price Analysis: Technical outlook

On Wednesday, the USD/CHF daily chart depicts the pair as neutral-to-downward biased, and it’s worth noting that earlier, the major tested the weekly high at around 0.9633, but broad US dollar weakness put a lid on higher USD/CHF prices.

Meanwhile, the USD/CHF four-hour scale illustrates the pair consolidating above the 20-EMA and the daily pivot point, each at 0.9576 and 0.9574, respectively. Additionally, the 200-EMA at 0.9612 is acting as resistance, keeping the USD/CHF prices subdued and unable to break the daily high at 0.9630.

A clear break above the 200-EMA would open the door for a test of Wednesday’s high at 0.9630, which, once cleared, the major could rally to the R1 pivot point at 0.9668. The break above would expose the confluence of the 50 and 100-EMAs at 0.9700.

On the flip side, the USD/CHF first support would be the confluence of the 20-EMA and the central pivot at 0.9574-76. A breach of the latter will expose the S1 pivot at 0.9515, followed by the September 13 low at 0.9479, followed by the S2 pivot point at 0.9421.

USD/CHF Key Technical Levels

Next week, the Bank of England will have its monetary policy decision. Consensus points to a 50 bps rate hike but a 75 bps is not ruled out. Analysts at Danske Bank expect fewer hikes than priced in markets as they emphasise the rising recession risk in the UK. 

Key Quotes: 

“We expect the Bank of England (BoE) to hike the Bank Rate by another 50bp at its next meeting bringing it to 2.25%. Markets are currently pricing around 65-70bp. We expect 50bp as opposed to 75bp, as we are more negative on the growth outlook. Also BoE has had a tendency to surprise to the dovish side at recent meetings.”

“BoE was the first G10 central bank to forecast a recession by Q4 2022 at its last meeting, while using a far more dovish market pricing as policy input than what is currently priced. We see this as a contributing factor to our base case as the growth outlook looks considerably worse now than back then given current market pricing.”
 

• UK inflation underpinned the Sterling, appreciating and recovering some ground vs. the buck.
• US prices paid by producers dropped, flashing signs of easing.
• GBP/USD Price Analysis: Break above 1.1600, to open the door for higher prices; otherwise, it might re-test the YTD lows.

The GBP/USD is trimming some of Tuesday’s losses after UK’s CPI showed signs of decelerating, while the US prices paid by producers for August ticked up, particularly in core PPI, in line with Tuesday’s CPI reading.

During the day, the GBP/USD hit a daily low of 1.1479. but edged higher, following the UK’s report, sending the GBP/USD above the 1.1500 figure towards its daily high at around current exchange rates. At the time of writing, the GBP/USD is trading at 1.1565, above its opening price by 0.65%.

The US Department of Labor reported on Wednesday that August’s Producer Price Index (PPI) moderated, dropping 0.1% MoM, aligned with forecasts, while the annual reading edged lower by a full percentage point to 8.7% vs. 9.8% in the previous month. Regarding core PPI, every month rose by 0.4% but annually exceeded estimations, topping at around 7.3%.

On the UK front, the Office for National Statistics (ONS) revealed that inflation ticked lower in August after breaking the 10% threshold, which was last seen in 40 years. Even though it’s good news for the Bank of England (BoE), it would not deter the central bank from increasing rates. Also, the appointment of a new Prime Minister in the figure of Liz Truss keeps market players at bay, waiting for its energy bill plan to kick in.

Analysts at ING wrote in a note that they expect the Bank of England (BoE) to raise rates by 50 bps next week, despite the environment not favoring the British pound. They added, “Slow growth and weaker equity markets should leave sterling as an underperformer.”

What to watch

An absent UK economic docket would keep traders leaning on US dollar dynamics. The US economic calendar will feature unemployment claims, the NY and Philly Fed Business Indices, alongside important Retail Sales figures.

GBP/USD Price Analysis: Technical outlook

The GBP/USD daily chart depicts the pair recovering from weekly lows under the 1.1500 psychological level. A daily close above the September 12 low at 1.1600 would pave the way towards the 1.1700 figure, but a tranche of US economic data, ahead of the FOMC’s meeting, might refrain traders from opening fresh bets vs. the greenback. On the downside, a break below 1.1500 will re-expose the YTD low at 1.1404.

Next week, the Federal Reserve will have its monetary policy meeting. Market participants see a 75 basis points rate hike. Analysts at Wells Fargo, point out the September's increase in rates, will be complemented by the reduction in the Fed's balance sheet hitting its full stride.

Key Quotes: 

“Another super-sized 75 bps rate hike at next week's FOMC meetings seems all but assured. Employment growth has been robust over the past two months, averaging 421K new jobs in July and August. Headline inflation has been relatively tame over the same period, but falling gasoline prices have accounted for the bulk of the weakness. Excluding food and energy, core inflation has remained far too high for the Fed's liking. Over the past three months, core inflation has risen at a 6.5% annualized rate, more than triple the central bank's 2% target.”

“Next week's meeting will also include an update to the FOMC's Summary of Economic Projections (SEP). We expect the 2022 median projection for the federal funds rate to be 3.875%, up from 3.375% in the June SEP. We think the 2023 median dot probably will be above the 2022 dot, but only modestly so.”

“Despite the hawkish rhetoric, few Fed officials have publicly advocated for a peak federal funds rate that is well above 4%. Our expectation is that the median projection for the 2023 fed funds rate will be 4.175%. For 2024 and 2025, we think the dots will show a steady easing of policy as inflation moves back to 2%. We expect the changes to the SEP inflation projections will be relatively modest, but weaker GDP growth and higher unemployment projections for 2023 seem likely in our view.”
 

• EUR/GBP breaks key short-term support.
• Pound recovers ground from multi-month lows.
• UK August CPI annual rate drops below 10% in August.

The EUR/GBP is falling on Wednesday, extending the correction from the highest level in more than a year it reached on Monday at 0.8721. The cross recently bottomed at 0.8624.

The pound gained momentum after breaking the 0.8650 support area. The very short-term outlook points to the downside, while under 0.8650. Below the daily low, the next support stands at 0.8605.

Inflation eases in the UK, IP declines in EZ

Data released in the UK on Wednesday showed inflation eased in August with the annual CPI rate falling from 10.1% to 9.9%, against expectations of a 10.2% reading. It still remains near 40-year highs. Despite the figures, the Bank of England is still expected to raise key interest rates by 50 basis points next week.

On the economic front, Industrial Production showed a decline of 2.3% in the Eurozone against expectations of a more modest decline. The European Central Bank is seen hiking rates again by 75 basis points.

Regarding the energy crisis, the European Union said today it expects to raise €140 billion from windfall taxes on energy companies. The European Commission wants a target to cut electric use by 10%.

Technical levels

European Central Bank (ECB) policymaker Francois Villeroy de Galhau said Wednesday that he estimates the euro area neutral rate at below or close to 2% and added that they could reach it by the end of the year, per Reuters.

Additional takeaways

"Monetary normalisation is fully warranted in the euro area, too early to say what the final interest rates will be."

"Until we reach neutral rate, we definitely have to act, in a determined but orderly way."

"Only beyond the neutral rate would tightening begin if needed."

"Not having a forward guidance does not mean, cannot mean, not having a narrative and a monetary strategy."

Market reaction

The EUR/USD pair showed no immediate reaction to these comments and was last seen trading at 1.0002, where it was up 0.32% on a daily basis.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said on Wednesday that central bankers must be stubborn in fighting broad-based inflation, as reported by Reuters.

"If fiscal policy is not targeted sufficiently, it may become the enemy of the monetary policy, fueling inflation," Georgieva further added.

Market reaction

These comments don't seem to be having a significant impact on risk mood. As of writing, the S&P 500 Index was up 0.3% and the Nasdaq Composite Index was rising 0.5% on a daily basis.

• USD/TRY surpasses 18.26 and clinches new record high.
• The lira drops to a new all-time low vs. the US dollar near 18.30.
• Next event of note in the calendar will be the End Year CPI Forecast.

The Turkish lira depreciates to fresh record lows vs. the greenback and lifts USD/TRY to new all-time highs past 18.26 on Wednesday.

USD/TRY now looks to… 20?

USD/TRY gives away part of the initial advance amidst some renewed dollar weakness and the most likely presence of FX intervention by Ankara.

The pair, in the meantime, keeps well and sound the multi-week side-lined mood above the 18.00 region and against the backdrop of the utter absence of genuine buyers of the Turkish currency.

TRY, in the meantime, is expected to remain under scrutiny ahead of the release of the End Year CPI Forecast later in the week ahead of the key interest rate decision by the Turkish central bank (CBRT) on September 22.

In the domestic docket so far this week, the Unemployment Rate eased to 10.1% in July, while Industrial Production expanded 2.4% YoY in the same month and Retail Sales contracted 0.3% vs. the previous month.

What to look for around TRY

Finally, USD/TRY made up its mind and advanced to new all-time highs past the 18.26 level on Wednesday.

So far, price action around the Turkish lira is expected to keep gyrating around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine - the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in July and August), real interest rates remain entrenched well in negative territory and the political pressure to keep the CBRT biased towards low interest rates remains omnipresent.

In addition, there seems to be no other immediate option to attract foreign currency other than via tourism revenue, in a context where official figures for the country’s FX reserves remain surrounded by increasing skepticism.

Key events in Türkiye this week: Budget Balance (Thursday) – End Year CPI Forecast (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress of the government’s scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is losing 0.02% at 18.2409 and a breach of 17.8590 (weekly low August 17) would target 17.7919 (55-day SMA) and finally 17.7586 (monthly low August 9). On the upside, the next hurdle appears at 18.2623 (all-time high September 14) seconded by 19.00 (round level).

• Gold reverses an intraday dip to sub-$1,700 levels, though struggles to gain any meaningful traction.
• A modest USD weakness offers some support; bets for more aggressive Fed rate hikes continue to cap.
• Signs of stability in the equity markets also suggest that the path of least resistance is to the downside.

Gold shows resilience below the $1,700 mark for the second successive day and attracts some dip-buying on Wednesday. The XAU/USD sticks to a mild positive bias through the early North American session, though seems to struggle to capitalize on the move and remains below the $1,710 level.

Following the previous day's stronger US CPI-inspired rally, the US dollar edges lower and turns out to be a key factor offering some support to the dollar-denominated commodity. The modest USD downtick lacks any obvious fundamental catalyst and is more likely to remain limited amid expectations that the Fed will keep raising interest rates at a faster pace to tame inflation.

The implied odds for a full 1% rate hike at the September FOMC meeting stands at 34%. Moreover, the markets have also been pricing in another 75 bps rate hike move in November. This, in turn, lifts the yield on the rate-sensitive two-year US government bond to levels last seen in November 2007 and the benchmark 10-year Treasury note holds steady near the YTD peak touched in June.

The prospects for a more aggressive policy tightening by the Fed, along with elevated US Treasury bond yields, favours the USD bulls and caps the non-yielding gold. Apart from this, a modest recovery in the risk sentiment - as depicted by signs of stability in the equity markets - further contributes to keeping a lid on any meaningful upside for the safe-haven precious metal.

Looking at the broader picture, gold has been oscillating in a familiar band over the past two weeks or so. Given that the XAU/USD, so far, has been struggling to gain any meaningful traction, the range-bound price action might still be categorized as a bearish consolidation phase. This, in turn, suggests that the path of least resistance for the commodity is to the downside.

Technical levels to watch

The US Census Bureau will release the August Retail Sales report on Thursday, September 15 at 12:30 GMT and as we get closer to the release time, here are the forecasts of economists and researchers of six major banks regarding the upcoming data. 

US Retail Sales data are set to show no improvement in the overall demand. But the Control Group is what matters, and here, expectations are high. A 0.5% increase is expected.

Commerzbank

“The drop in gasoline prices is lifting consumer sentiment, which is why the usual sentiment indicators recovered noticeably in August. We expect retail sales to rise by 0.4% this month (consensus +0.3%).”

TDS

“We look for retail sales to lose speed in August (-0.5%), following a flat MoM print in July. Spending was likely dented by a sharp drop in gasoline station sales and another retreat in auto sales. We also look for slowing in control group sales to 0.2% following a string of firm MoM increases. Sales in the eating/drinking segment likely fell for the first time in several months.”

NBF

“Car dealers likely contributed negatively to the headline number, as auto sales cooled during the month. Gasoline station receipts, meanwhile, could have declined steeply judging from a drop in pump prices. All told, headline sales could have edged down 0.1% in the month. Spending on items other than vehicles may have been weaker, retreating 0.3%.”

Deutsche Bank

“We expect a +0.6% MoM reading, up from last month's flat print. As gasoline prices continue their downward trend, whether this assuages the inflationary pressures on consumer spending will be important.”

CIBC

“Lower gasoline prices and unit auto sales will weigh on total retail sales in the US in August, but higher volumes at restaurants could have provided a partial offset, leaving total sales down by 0.2% on the month. While the drop in gas prices will have left money on the table for spending elsewhere, it’s likely that that was directed towards services, rather than other goods, where excesses in spending remain. Moreover, the surge in online sales seen in July is unlikely to have been repeated in August, suggesting that the control group of sales (ex. gasoline, autos, building materials, restaurants) likely posted a lacklustre 0.2% advance, a likely contraction in volume terms.”

Wells Fargo

“Retail sales were flat in July, but after accounting for price changes, we estimate real sales rose 0.6%– the first volume gain in three months. Nominal sales likely dipped 0.2% in August, held down by a double-digit decline in gasoline prices last month and a slight decline in vehicle units sold. Savings at the pump, however, are likely to have supported sales in other categories as back-to-school shopping went into full swing. We look for sales ex-autos and gas to post another decent gain for August. Consumer spending has shown resilience this summer. However, with gas prices falling more slowly, borrowing rates rising and the jobs market cooling, we expect the staying power of the consumer to fade over the remainder of the year. Retail spending is likely to feel the pullback to a disproportionate extent after many goods purchases were pulled forward during the pandemic and spending on experiences was put on hold.”

The European Commission announced on Thursday that it proposed a voluntary target for European Union countries to cut overall monthly electricity use by 10% compared to the same period in recent years, as reported by Reuters.

Additional takeaways

"EU Commission proposes 180 euros per megawatt hour revenue cap for non-gas fuelled power generators."

"EU revenue cap would apply to wind, solar, biomass, lignite, nuclear and some hydropower generators."

"EU proposes windfall profit levy to claw back surplus profits from fossil fuel companies."

"EU levy would recoup 33% of oil, gas, coal, refining companies' surplus taxable profits in the fiscal year 2022."

"EU levy would apply to fossil fuels companies that have tax obligations in EU countries."

"EU proposes mandatory target for EU countries to cut electricity use 5% during peak price periods."

Market reaction

The shared currency holds its ground following this development and the EUR/USD pair was last seen rising 0.32% on the day at 1.0002.

• Annual PPI in US fell at a stronger pace than expected in August.
• US Dollar Index trades modestly lower on the day at around 109.50.

The Producer Price Index (PPI) for final demand in the US declined to 8.7% on a yearly basis in August from 9.8% in July, the data published by the US Bureau of Labor Statistics revealed on Wednesday. This print came in lower than the market expectation of 8.8%.

The annual Core PPI edged lower to 7.3% from 7.6% but surpassed the market expectation of 7.1%. On a monthly basis, the Core PPI was up 0.4% following July's increase of 0.3%.

Market reaction

These figures don't seem to be having an immediate impact on the dollar's performance against its rivals. As of writing, the US Dollar Index was down 0.15% on the day at 109.60.

In the view of economists at Rabobank, the US dollar is set to remain well supported for several months with the hawkish position of the Fed underpinning the attraction of the greenback as a safe haven.

Scope for further dips in EUR/USD below parity

“As the Fed still has a lot of work to do in taming price pressures and ensuring that inflation expectations are well anchored into the medium-term, it can be assumed that the FOMC will not be ready to relinquish its hawkish position just yet. Since this will impact risky assets, we see risk that USD strength persists into early next year.”

“We expect the USD to remain the favoured safe haven relative to either the JPY or the CHF in view of higher US short-term interest rates.”

“Given also that the eurozone is facing a difficult winter which includes the possibility of energy rationing for some businesses, we see scope for further dips in EUR/USD below parity.”

Almost every measure of US inflation, other than headline CPI, is rising again. Where do we go now? Kit Juckes, Chief Global FX Strategist at Société Générale, believes that investors should get ready for choppy, more than trending, FX markets.

CPI shock, a Fed peak reprice, but not necessarily a huge dollar rally

“The dollar got a lift, but I don’t think this latest surge can take us very far. The market has pushed up pricing of terminal Fed Funds by almost 50 bps in a week, to above 4%, but the US Dollar Index is pretty much here it was a week ago.”

“It still seems more likely that EUR/USD, GBP/USD and most of the major crosses settle for a period of choppy range-trading, with volatility staying elevated, rather than we see the start of a new dollar uptrend.” 

“The yen, however, is likely to remain very difficult to trade. A verbal intervention campaign seems to have begun but a change in monetary policy doesn’t seem imminent.”

European Central Bank (ECB) Chief Economist Philip Lane said on Wednesday that the current transition will require the ECB to continue to raise interest rates over the next several meetings, as reported by Reuters.

Additional takeaways

"Encouraging market intermediation of government deposits remains desirable in the long term."

"Most measures of longer-term inflation expectations currently stand at around 2%."

"If energy costs were to decline or demand were to weaken over the medium term, it would lower pressures on prices."

"Rate hike has been well transmitted to money market rates."

"Eurozone inflation drivers are of a different nature compared to demand-driven overheating dynamics."

"The appropriate monetary policy for the euro area should continue to take into account that the energy shock remains a dominant driving force."

"Inflation dynamics associated with the energy shock component, to which the euro area is particularly exposed, are of a different nature compared to demand-driven overheating dynamics."

Market reaction

EUR/USD is struggling to preserve its recovery momentum after this report and was last seen gaining 0.25% on the day at 0.9995.

• EUR/USD reclaims part of the ground lost on Tuesday’s sell-off.
• Further rebound should target the multi-month line near 1.180.

EUR/USD regains some poise and manages to trim part of the weekly pullback following Tuesday’s slump in the wake of the release of US inflation figures.

If the recovery picks up extra pace, then the interim hurdle comes at the 55-day SMA at 1.0125 prior to the key 7-month resistance line, today near 1.0180. A move beyond the latter is needed to mitigate the downside pressure and allow at the same time a visit to the interim 100-day SMA at 1.0325 prior to the more relevant August high at 1.0368 (August 10).

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0741.

EUR/USD daily chart

• DXY trims part of Tuesday’s intense advance above 110.00.
• Further bouts of strength could see the dollar retest yearly highs.

DXY gives away some gains following the post-CPI sharp upside to the 110.00 region on Wednesday.

Despite the ongoing knee-jerk in the dollar, its short-term bullish view remains unchanged while above the 7-month support line around 106.30.

If sellers push harder, then a potential visit to the weekly low at 107.58 (August 26) could start emerging on the horizon just ahead of the interim 55-day SMA at 107.43.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 101.53.

DXY daily chart

• Silver regains positive traction on Wednesday and recovers a part of the overnight decline.
• The emergence of dip-buying favours bullish traders and supports prospects for further gains.
• A convincing break through a multi-month descending trend-line will reaffirm the positive bias.

Silver attracts some buying near the $19.25 region, or the 50-day SMA support on Wednesday and reverses a part of the overnight retracement slide from a nearly four-week high. The white metal maintains its bid tone through the first half of the European session and is currently placed just above the mid-$19.00s.

From a technical perspective, the recent recovery from the $17.55 area, or over a two-year low, stalled on Tuesday near a descending trend-line resistance. The said barrier, currently pegged near the $20.00 psychological mark, extends from May monthly swing high and should act as a pivotal point. A convincing breakthrough will be seen as a fresh trigger for bulls and set the stage for additional gains.

Given that technical indicators on the daily chart have just started moving in the bullish territory, the XAG/USD might then climb to test the 100-day SMA, near the $20.45 region. Some follow-through buying should allow spot prices to aim back to reclaiming the $21.00 round-figure mark. The momentum could get further get extended towards the next relevant hurdle, around the $21.50 area.

On the flip side, the 19.25 region (50 DMA) seems to have emerged as an immediate strong support. This is closely followed by the $19.00 mark, which if broken might trigger some technical selling around the XAG/USD. The subsequent downfall, however, could still be seen as a buying opportunity and remain limited near the $18.45-$18.40 support zone, which should act as a strong base for the metal.

Silver daily chart

Key levels to watch

• EUR/JPY adds to Tuesday’s pullback below the 143.00 yardstick.
• The 138.80 region should offer decent support near term.

EUR/JPY extends the corrective downside for the second session in a row and breaches the 143.00 mark on Wednesday.

The ongoing knee-jerk is not surprising considering the bearish divergence in the daily RSI. That said, the continuation of the decline could extend to the 138.80 zone, where the 55- and 100-day SMAs coincide.

In the meantime, while above the 200-day SMA at 135.08, the prospects for the pair should remain constructive.

EUR/JPY daily chart

• USD/JPY meets with a fresh supply and retreats sharply from the 145.00 neighbourhood.
• Jawboning by Japanese authorities points to an imminent intervention and boosts the JPY.
• The emergence of some selling around the USD also contributes to the intraday downfall.

The USD/JPY pair faces rejection near the 145.00 psychological mark and retreats from the vicinity of a 24-year high retested earlier this Wednesday. The downward trajectory extends through the first half of the European session, though the pair manages to rebound a few pips from the daily low and is currently placed just above the 143.00 mark.

A combination of factors fails to assist the USD/JPY pair to capitalize on the previous day's post-US CPI strong rally of over 300 pips. The Japanese yen strengthens across the board amid jawboning by Japanese officials and chances that the Bank of Japan (BoJ) may step in to arrest a freefall in the domestic currency. This, along with the emergence of some US dollar selling, exerts downward pressure on the major.

That said, a recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - could cap gains for the safe-haven JPY. Apart from this, a big divergence in the monetary policy stance adopted by the Japanese central bank and the Federal Reserve supports prospects for the emergence of some dip-buying around the USD/JPY pair. The BoJ remains committed to continuing with its monetary easing.

In contrast, the US central bank is expected to keep raising interest rates at a faster pace to tame inflation. The bets were reaffirmed by the stronger US CPI report on Tuesday. The markets quickly started pricing in the possibility of a full 1% rate hike at the next FOMC meeting on September 20-21. This is evident from a fresh leg up in the US Treasury bond yields, which favours the USD bulls and should lend support to the USD/JPY pair.

Nevertheless, the fundamental backdrop remains tilted firmly in favour of bullish traders. Hence, any subsequent decline could still be seen as a buying opportunity and remain limited. Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. Apart from this, the US bond yields and the broader risk sentiment should provide some impetus to the USD/JPY pair.

Technical levels to watch

The European Central Bank's (ECB) latest decision to hike the key rates does not mean there has been a forgone conclusion on the final level of interest rate, ECB policymaker Constantinos Herodotou said on Wednesday, as reported by Reuters.

Market reaction

EUR/USD preserves its recovery momentum following these comments. As of writing, the pair was trading at 1.0015, where it was up 0.5% on a daily basis. Meanwhile, the Euro Stoxx 600 Index is down 0.4% on the day, pointing to a cautious market mood.

• USD/CAD surrenders modest intraday gains to the 1.3200 neighbourhood, or a one-week high.
• A positive risk tone weighs on the safe-haven greenback and exerts some downward pressure.
• Aggressive Fed rate hike bets and recession fears warrant caution for aggressive bearish traders.

The USD/CAD pair struggles to capitalize on its intraday positive move to a one-week high set earlier this Wednesday and retreats to the 1.3160-1.3165 area during the first half of the European session. The pullback is sponsored by a modest US dollar weakness, though the fundamental backdrop supports prospects for the emergence of some dip-buying.

A recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - seems to weigh on the safe-haven greenback. Apart from this, an intraday bounce in crude oil prices underpins the commodity-linked loonie and exerts some downward pressure on the USD/CAD pair. That said, growing acceptance that the Fed will stick to its aggressive policy tightening path to tame inflation should continue to act as a tailwind for the buck.

Investors started pricing in the possibility of a full 1% rate hike at the next FOMC policy meeting on September 20-21 following the release of stronger US consumer inflation data on Tuesday. This is reinforced by a fresh leg up in the US Treasury bond yields. In fact, the yield on rate-sensitive two-year US government bonds climbs to an almost 15-year high and the benchmark 10-year US Treasury note holds steady just below the YTD peak touched in June.

The prospects for faster rate hikes by the US central bank, along with economic headwinds stemming from fresh COVID-19 curbs in China, have raised concerns about a global recession. Concerns that a deeper economic downturn will dent fuel demand should keep a lid on oil prices, which, in turn, should weigh on the Canadian dollar and offer support to the USD/CAD pair.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the previous day's solid recovery of over 200 pips from the vicinity of mid-1.2900s has run out of steam. Market participants now look forward to the US Producer Price Index (PPI), which, along with the US bond yields and the broader risk sentiment, will influence the USD.

Apart from this, traders will also take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair. Nevertheless, the bias still seems tilted firmly in favour of bullish traders and any intraday downfall is more likely to remain limited. Bulls, however, might wait for sustained strength beyond the 1.3200 mark before positioning for further gains.

Technical levels to watch

• Gold price is licking its wounds near $1,700 after Tuesday’s sharp sell off.
• The US dollar retreats amid a USD/JPY slide and a pause in the yields rally.
• XAU/USD looks south amid a wall of powerful resistance levels.

Gold price is consolidating the previous sell off, as bears are taking a breather before resuming the next leg lower. A pause in the US Treasury yields rally combined with a broad US dollar retreat is offering a temporary reprieve to gold buyers. The bright metal remains vulnerable amid the revival of hopes for aggressive Fed tightening in the coming months. The US inflation data outpaced estimates and squashed the ‘peak inflation’ narrative, suggesting that the Fed will continue with bigger and more rapid rate hikes to control inflation. According to the CME FedWatch Tool, markets are now pricing a 36% chance of a full percentage point Fed rate hike next week. Attention now turns towards the US key events in the second half of the week for fresh trading opportunities in the bullion.

Also read: Gold Price Forecast: XAU/USD eyes 2022 low at $1,681 amid aggressive Fed rate hike bets

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is eyeing a firm break below the SMA5 four-hour at $1,702 to resume the bearish momentum towards the previous day’s low of $1,697.

Bears will then gear up for a test of the previous week’s low of $1,691, below which the convergence of the pivot point one-day S1 and Bollinger Band one-day Lower at $1,688 will be put at risk.

On the flip side, strong resistance is seen around $1,707, the confluence of the Fibonacci 61.8% one-week and the Fibonacci 23.6% one-day. Acceptance above the latter is needed to offer a fresh boost to XAU bulls.

The next relevant upside target is aligned at $1,710, the meeting point of the Fibonacci 38.2% one-day and SMA10 one-day. Further up, the intersection of the SMA5 one-day and the Fibonacci 38.2% one-week at $1,715 will be the level to beat for bulls.

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.

Japanese Finance Minister Shunich Suzuki is on the wires now, via Reuters, making some bold statements on a potential forex market intervention.

Key quotes

Market reaction

USD/JPY showed limited reaction to the above comments, as it kept it range around 143.50, losing 0.72% on the day.

Eurozone’s Industrial Production fell more than expected in July, the official data published by Eurostat showed on Wednesday, suggesting that the bloc’s manufacturing sector activity is in the doldrums.

The industrial output in the old continent decreased by 2.3% MoM vs. a 1.0% drop expected and 0.7% last.

On an annualized basis, the industrial output declined by 2.4% in July versus a 0.4% rise expected and June’s 2.4%.

FX implications          

The shared currency meets fresh supply following the disappointing Eurozone industrial figures. At the time of writing, EUR/USD is trading at 0.9986, back under parity while still adding 0.18% on the day.

About Eurozone Industrial Production

Industrial Production is released by Eurostat. It shows the volume of production of Industries such as factories and manufacturing. Uptrend is regarded as inflationary which may anticipate interest rates to rise. Usually, if high industrial production growth comes out, this may generate a positive sentiment (or bullish) for the EUR, while low industrial production is seen as a negative sentiment (or bearish).

UOB Group’s Economist Lee Sue Ann suggests the PBoC might reduce its policy rate at its gathering later in the month.

Key Quotes

“With the less optimistic outlook for the Chinese economy and measured pace of monetary policy easing so far, the 1Y LPR could continue to move lower to 3.55% by end-4Q22, instead of our earlier expectation that the monetary easing would cease by end-3Q22.”

“After 35bps cut YTD, the 5Y rate is still poised to fall further as PBoC extends support to the property market.”

• GBP/USD catches fresh bids on Wednesday amid the emergence of some USD selling.
• Retreating US bond yields, a mildly positive risk tone seems to weigh on the greenback.
• Aggressive Fed rate hike bets should limit the USD losses and cap the upside for the pair.
• Softer UK CPI eases pressure on the BoE to act and might also contribute to keeping a lid.

The GBP/USD pair attracts some dip-buying near the 1.1480 region and hits a fresh daily high during the early part of the European session. The intraday positive move lifts spot prices to the mid-1.1500s and is sponsored by the emergence of some US dollar selling.

A modest downtick in the US Treasury bond yields fails to assist the buck to capitalize on the previous day's post-US CPI rally. Apart from this, signs of stability in the financial markets further undermine the safe-haven greenback. This helps offset softer UK consumer inflation figures and turns out to be a key factor pushing the GBP/USD pair higher. That said, any meaningful upside still seems elusive, suggesting the intraday ascent runs the risk of fizzling out rather quickly.

The UK Office for National Statistics reported that the headline CPI decelerated to 9.9% in August from a 40-year high level of 10.1% in the previous month. This might offer some respite to households and eases the pressure on the Bank of England to act more aggressively. In contrast, the stronger US CPI report released on Tuesday all but reaffirmed market expectations that the Fed will keep raising interest rates at a faster pace to combat stubbornly high inflation.

In fact, investors have started pricing in the possibility of a full 1% rate hike at the upcoming FOMC meeting on September 20-21 and another supersized 75 bps increase in November. This should act as a tailwind for the US bond yields and the greenback. Furthermore, the worsening outlook for the UK economy could hold back traders from placing aggressive bullish bets around the British pound. The combination of factors should continue to cap gains for the GBP/USD pair.

Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. This, along with the US bond yields and the broader risk sentiment, might influence the USD and provide some impetus to the GBP/USD pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance is to the downside.

Technical levels to watch

In its latest oil market report, the International Energy Agency (IEA) sounded downbeat on the oil demand growth prospects amid an economic slowdown globally.

Additional takeaways

Market reaction

WTI is keeping the red around the $87 mark amid IEA’s dire oil demand outlook. The US oil is down 0.25% on the day to trade at $87.09, as of writing. The black gold hit a daily low of $86.75 on the release of the above report.

• EUR/USD reclaims some ground lost following Tuesday’s pullback.
• The appetite for the risk complex puts the dollar under pressure.
• EMU Industrial Production, US Producer Prices will be next of note.

The European currency regains some balance and motivates EUR/USD to flirt once again with the psychological parity zone on Wednesday.

EUR/USD looks to data, dollar

EUR/USD manages to ignite some buying interest and regains the parity zone after the acute post-US CPI collapse sent the pair from the vicinity of 1.0200 to the 0.9970/65 band on Tuesday.

In fact, the better tone in the single currency comes in tandem with the improved appetite in the risk complex despite the firm conviction among investors that the Fed will continue its aggressive policy normalization and that even a full point rate raise is now on the table for the September gathering.

Data wise in the Euroland, Industrial Production in the whole bloc will be the salient event later in the European morning.

Across the ocean, usual weekly Mortgage Applications are due in the first turn seconded by the more relevant Producer Prices.

What to look for around EUR

EUR/USD appears to have met some decent contention around the 0.9970 area following Tuesday’s intense retracement.

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: 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 0.37% at 1.0003 and now faces the initial barrier at 1.0197 (monthly high September 12) followed by 1.0202 (August 17 high) and then 1.0325 (100-day SMA). On the flip side, the breakdown of 0.9955 (weekly low September 14) would target 0.9863 (2022 low September 6) en route to 0.9859 (December 2002 low).

EUR/USD has gone into a consolidation phase following Tuesday's slump. The pair could stage a correction if it manages to rise above parity and hold there, FXStreet’s Eren Sengezer reports.

Euro needs to stabilize above parity for a chance of recovery

Above 1.0000 (psychological level, 100-period SMA, 50-period SMA), the pair could target 1.0050 (Fibonacci 38.2% retracement of the latest downtrend), 1.0080 (20-period SMA) and 1.0100 (200-period SMA).”

“On the downside, additional losses toward 0.9950 (static level), 0.9900 (psychological level) and 0.9865 (September 6 low) could be witnessed in case buyers fail to reclaim parity.”

“The European Union (EU) proposes to raise more than €140 billion for member states to tackle the energy crisis,” European Commission President Ursula von der Leyen said in a  State Of European Union address to the European parliament.

Additional quotes

Market reaction

EUR/USD regains parity, as the recovery post-US CPI-led sell off extends into the European session. The spot is currently trading at 1.0001, up 0.32% on the day.

Economists at Westpac have lowered their profile for the Australian dollar against the USD this year. But the AUD/USD pair is still expected to stage a strong rally to 0.75 in 2023

Sgnificant volatility over the remainder of 2022

“We now cannot see that lift to 0.73 over the course of the remainder of 2022. Our end-year target has been lowered to 0.69.” 

“Markets will remain risk averse until they can see the prospect of a clear downward trend in inflation and the peak in interest rates for central banks. That is unlikely to emerge over the course of the remainder of 2022.”

“We continue to expect the AUD to be strongly supported against the USD in 2023 with a 0.75 target.”

• AUD/USD reverses an early European session dip to a one-week low amid a softer USD.
• A modest downtick in the US bond yields, a positive risk tone weigh on the greenback.
• Bets for more aggressive Fed rate hikes favour the USD bulls and should cap the pair.

The AUD/USD pair finds some support near the 0.6700 mark on Wednesday and attracts some buying in the vicinity of the monthly low. Spot prices trade with a mild positive bias around the 0.6735-0.6740 region through the early European session, though the near-term bias remains tilted firmly in favour of bearish traders.

The USD struggles to capitalize on the previous day's massive rally amid a modest downtick in the US Treasury bond yields. Apart from this, signs of stability in the financial markets further seem to exert downward pressure on the safe-haven greenback and offer some support to the risk-sensitive aussie. That said, a combination of factors should continue to act as a tailwind for the buck and cap any meaningful gains for the AUD/USD pair.

The stronger US consumer inflation data all but reaffirmed expectations that the Federal Reserve will keep raising interest rates at a faster pace. In fact, the markets have started pricing in the possibility of a full 1% rate hike at the next FOMC meeting on September 20-21 and another supersized 75 bps increase in November. This, in turn, should act as a tailwind for the US bond yields and the USD, warranting caution for the AUD/USD bulls.

The prospects for a more aggressive policy tightening by the Fed, fresh COVID-19 curbs in China and the protracted Russia-Ukraine war have been fueling recession fears. This should keep a lid on any optimism in the markets and contribute to limiting the downside for the buck, suggesting that the path of least resistance for the AUD/USD pair is to the downside.

Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will take cues from the broader risk sentiment to grab short-term opportunities around the major.

Technical levels to watch

Extra gains in USD/CNH need to break above the 7.0000 mark in the next weeks to extend the upside, note FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We did not expect the surge in USD to a high of 6.9840 during NY session. In view of the solid momentum, USD is likely to advance further even though it is left to be seen if it can break the major resistance at 7.0000. On the downside, a break of 6.9550 (minor support at 6.9750) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “On Monday (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. Yesterday, USD jumped above 6.9700 and surged to 6.9840. Upward momentum is building again but USD has to close above 7.0000 before sustained advance is likely. Looking ahead, the next resistance is at 7.0300. Support is at 6.9550 but only a breach of 6.9400 would indicate that USD is not ready to move above 7.0000.”

The Bank of Canada (BoC) raised its policy rate by 75 bps to 3.25%, slightly above the estimated neutral rate range. Nevertheless, economists at HSBC do not expect the loonie to benefit from rate hikes.

Bearish bias, despite rate hikes

“The BoC met consensus expectations in lifting its policy rate by 75 bps to 3.25% on 7 September, slightly above the top end of the 2-3% range for the estimated neutral rate. However, the BoC’s statement indicates that the Governing Council does not see its job as done and that further interest rate hikes are on the way.”

“We expect the BoC to raise its policy rate by 50 bps to 3.75% at its next policy meeting on 26 October, and by 25 bps to 4.0% in January 2023. Despite the rate hikes, we may not see the CAD strengthening, as the currency has been more responsive to risk sentiment, and to some extent, oil prices.”

• The index comes under selling pressure post-CPI tops.
• A full point interest rate hike by the Fed remains well on the cards.
• Markets’ attention will be on the release of Producer Prices.

The greenback, in terms of the US Dollar Index (DXY), comes under some tepid downside pressure after hitting weekly highs around 110.00 in the previous session.

US Dollar Index now looks to the docket

After climbing to 2-day highs just beyond 110.00 the figure on Tuesday, the index now surrenders a small part of those gains and returns to the 109.50 region, where decent contention appears to have emerged.

The corrective downside in the dollar comes despite the continuation of the march north in US yields across the curve, where the short end navigates levels last seen in November 2007 around 3.80%.

This bounce in yields appear underpinned by rising speculation of a probable 100 bps rate hike by the Federal Reserve at the September 21 meeting. According to CME Group’s FedWatch Tool, the probability of such a raise is close to 35%.

In the US data space, Producer Prices for the month of August will take centre stage seconded by the usual MBA Mortgage Applications.

What to look for around USD

The index rebounded sharply following higher-than-expected US inflation figures during August, hitting once again the 110.00 neighbourhood.

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: 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 0.14% at 109.66 and faces the next support at 107.68 (monthly low September 13) followed by 107.58 (weekly low August 26) and finally 107.43 (55-day SMA). On the other hand, a break above 110.01 (weekly high September 13) would expose 110.78 (2022 high September 7) and then 111.90 (weekly high September 6 2002).

On 6 September, the Reserve Bank of Australia (RBA) issued a 50 bps rate hike. However, economists at HSBC expect the AUD to weaken against the “safe-haven” USD in the current risk-off environment.

Aussie faces weakening pressure

“It is far too early for the RBA to judge the full economic impact of the rate hikes (225 bps in just 126 days), although the cooling housing market and rising interest burden are expected to start to weigh on consumer spending in the coming months.”

“As the cash rate is now near the RBA's estimated neutral rate and given this outlook, we expect the RBA to slow the pace of its hiking soon.”

“The AUD has not been very responsive to rate announcements by the RBA over the past year instead it has been more sensitive to the change in market-wide risk appetite. With that in mind, we expect the AUD/USD pair to face downward pressures in the near term, on the back of receding risk-on momentum.”

Economists at Westpac have flattened out their profile for the US dollar into year-end. The US Dollar Index is forecast at 107.30 by end-2022.

DXY to fall 10% cumulative to December 2023 and a further 2% in the first half of 2024

“DXY is now only expected to fall around 2.5% to 107.3 by end-2022. Admittedly though, this revised forecast is 4% lower than the most recent peak for DXY of 110.8 seen a week ago.” 

“US economic weakness on an absolute and relative basis is expected to weigh heavily on the US dollar through 2023 and to mid-2024, DXY falling 10% cumulative to December 2023 and a further 2% in the first half of 2024. A period of stability is seen thereafter with the US likely to be running a consistently large negative output gap in the order of 3-3.5ppts from end-2024, with growth near trend, and the fed funds rate back towards a neutral level. Note, 95 is not an outright weak level for the US dollar, being in line with the average of the past 5 years.”

EUR/USD has dived below parity again. Economists at Westpac forecast the pair at 1.02 by year-end before staging a substantial rise to 1.12 by the end of 2023.

Real-term interest rate differential could provide significant support to euro

“EUR/USD is forecast to rise only slightly to 1.02 by end-2022, but then more sharply to 1.12 at end-2023 and 1.15 by mid-2024.” 

“While we expect the overnight interest rate differential between Europe and the US to remain significant over the forecast horizon, term interest rate differentials should narrow on both a nominal and real basis as inflation rates normalise and risks recede.” 

“With the help now being offered to households in Europe, and rapid moves to diversify away from Russian gas, the real-term interest rate differential could provide significant support to euro through the first half of 2023, as long as we do not see a further material escalation by Russia. A rebound in activity growth from mid-2023 will add support to this trend.”

Japanese yen has depreciated sharply against the US dollar. Economists at Westpac expect the JPY to regain some ground and forecast the USD/JPY pair at 132 by the end of next year.

USD/JPY is likely to hold above its pre-pandemic levels

“As risk appetite returns and investors look for growth opportunities across the world, it seems inevitable that we will see a material retracement of recent yen weakness. However, even as major central banks cut policy rates from end-2023, USD/JPY is likely to hold above its pre-pandemic levels with a wide interest rate and inflation differential to persist.” 

“We look for USD/JPY to fall to 132 end-2023 and 128 mid-2024.”

• USD/CHF holds steady above the 0.96000 mark and looks to build on the overnight strong move up.
• Bets for more aggressive rate hikes by the Fed favour the USD bulls and reaffirms the positive bias.
• Signs of stability in the equity markets undermine the safe-haven CHF and offers additional support.

The USD/CHF pair consolidates the overnight strong rally of over 150 pips from a nearly one-month low and oscillates in a range, above the 0.9600 mark through the early European session on Wednesday.

The US dollar edges lower and erodes a part of Tuesday's stronger US consumer inflation data-inspired rally amid a modest downtick in the US Treasury bond yields. This, in turn, is seen as a key factor acting as a headwind for the USD/CHF pair. That said, firming expectations that the Federal Reserve will keep raising interest rates at a faster pace to tame inflation should help limit any meaningful downfall for the US bond yields and the greenback.

In fact, the markets have started pricing in the possibility of a full 1% rate hike in the September FOMC meeting and another supersized 75 bps increase in November. The bets were reaffirmed by the US CPI report and lifted the yield on rate-sensitive two-year US government bonds to an almost 15-year high. Apart from this, signs of stability in the financial markets could undermine the safe-haven Swiss franc and offer some support to the USD/CHF pair.

The fundamental backdrop seems tilted in favour of bullish traders and suggests that the recent sharp pullback from the 0.9870 area or a nearly two-month high has run its course. Hence, any meaningful dip could now be seen as a buying opportunity and remain limited. The USD/CHF pair seems poised to climb further towards reclaiming the 0.9700 round-figure mark. Traders now look forward to the US Producer Price Index (PPI) for a fresh impetus.

Technical levels to watch

EUR/USD lost more than 150 pips on Tuesday before going into a consolidation phase below parity early Wednesday. Economists at ING expect the pair to remain in a 0.9950-1.0050 range.

ECB story struggles to lift the euro

“The ECB will struggle to out-hawk the Fed. That is not a surprise given the US economy went into this inflation crisis with an economy operating above capacity - unlike the negative output gap in the eurozone.”

“The highlight of today's session will be European Commission President, Ursula von der Leyen, unveiling what measures Europe stands to take to address the energy crisis. We doubt these support measures can make a meaningful difference for EUR/USD pricing, leaving it to trade offered in a 0.9950-1.0050 range.”

EUR/GBP has approached 0.87. In the coming months, economists at Danske Bank expect the British pound to appreciate against the euro, thus, the pair is forecast at 0.84 in 12 months.

EUR/GBP a range play for the coming months

“We still widely consider EUR/GBP a range play for the coming months, with GBP currently trading in the weaker part of the range at just below 0.87. Further out, we expect GBP to appreciate vs EUR in a USD-positive environment, which is why we expect the cross to move back towards 0.84 in 12M.”

“We will look for GBP buying opportunities over the coming months as we do not yet like the timing.”

GBP/USD is having a difficult time staging a rebound. Economists at ING expect the pair to retest the 1.1406 lows.

EUR/GBP seen back to the top of an 0.8650-0.8720 range

“The overall environment remains sterling negative. Running a large current account deficit and having a large financial sector representation in the UK economy, slowing growth and weaker equity markets should leave sterling as an underperformer.”

“Sterling is at the mercy of the strong dollar, where we expect a retest of the 1.1406 lows. And further equity weakness would send EUR/GBP back to the top of an 0.8650-0.8720 range.”

• Silver price struggles to extend the previous day’s pullback from a monthly top.
• Bullish MACD signals, 50-DMA challenge the XAG/USD bears.
• 100-DMA restricts short-term upside, two-month-old horizontal area acts as an extra filter to the south.

Silver price (XAG/USD) remains sidelined at around $19.30 as the 50-DMA restricts the immediate downside of the metal on Wednesday morning in Europe. In doing so, the bright metal fades the previous day’s pullback from the monthly high of around $20.00.

That said, the bullish MACD signals and the failure to break the 50-DMA support near $19.25 challenge XAG/USD sellers.

Also acting as a downside filter is the horizontal area comprising multiple levels marked since mid-July, close to $18.40.

If at all, the silver price remains bearish past $18.40, the odds of witnessing a run-down towards the yearly low of $17.55 can’t be ruled. In a case where XAG/USD stays weak past $17.55, a downward sloping support line from May, near $16.00, will be in focus.

Meanwhile, the quote’s recovery moves could target the fresh monthly high, currently around $20.00, before challenging the 100-DMA hurdle surrounding $20.40.

During the XAG/USD advances beyond $20.40, the previous monthly top around $20.90 and June’s high of $22.51 should lure the commodity buyers.

Overall, the silver price remains sluggish but the bulls have higher odds of taking control.

Silver: Daily chart

Trend: Recovery expected

Here is what you need to know on Wednesday, September 14:

Following Tuesday's impressive rally fueled by hot August inflation data from the US, the US Dollar Index consolidates its gains below 110.00 early Wednesday. The European economic docket will feature July Industrial Production data and the US Bureau of Labor Statistics will release the Producer Price Index (PPI) figures later in the day. During the Asian trading hours, the second-quarter Gross Domestic Product (GDP) reading from New Zealand and the August jobs report from Australia will be watched closely by market participants.

After the data from the US showed that the Core Consumer Price Index (CPI) climbed to 6.3% on a yearly basis in August from 5.9% in July, the dollar gathered strength amid renewed hawkish Fed bets. In turn, Wall Street's main indexes suffered heavy losses with the Nasdaq Composite erasing more than 5% on a daily basis. In the European morning, US stock index futures are up around 0.2%, pointing to a modest improvement in risk mood. Meanwhile, the CME Group FedWatch Tool shows that markets are pricing in a 34% probability of a 100 basis points Fed rate hike at its next policy meeting. 

US Inflation Analysis: Soaring Core CPI smashes Fed pivot narrative, King Dollar back on the throne.

EUR/USD lost more than 150 pips on Tuesday before going into a consolidation phase below parity early Wednesday.

GBP/USD is having a difficult time staging a rebound and trading in negative territory below 1.1500. The UK's Office for National Statistics reported on Wednesday that the annual CPI inflation in the UK declined to 9.9% in August from 10.% in July but the Core CPI edged higher to 9.3% from 9.2%.

USD/JPY came under strong bearish pressure and dropped below 144.00 during the Asian trading hours on Wednesday. Nikkei reported earlier in the day that the Bank of Japan conducted a foreign exchange "check" to see what market participants view the JPY's valuation. According to the news outlet, this is a sign that the BoJ could be making preparations for an intervention in the market. 

With the benchmark 10-year US Treasury bond yield gaining more than 2% and rising above 3.4% on Tuesday, gold suffered large losses and declined toward $1,700. XAU/USD was last seen moving sideways near that level amid a lack of action in US yields.

The intense flight to safety caused BTC/USD to lose nearly 10% on Tuesday but Bitcoin seems to have steadied slightly above $20,000 for the time being. Ethereum is already down nearly 12% this week following Tuesday's sharp decline. Nevertheless, ETH/USD seems to have found support near $1,500 and the pair was last seen gaining 2% on the day at $1,600.

Ethereum Price Prediction: Knife Catching 103 - Dalton's Third Rule.

FX option expiries for Sept 14 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9920 1b
• 0.9950 670m
• 1.0000 1.9b

- GBP/USD: GBP amounts        

• 1.1500 317m
• 1.1515 504m
• 1.1700 407m

- USD/JPY: USD amounts                     

• 144.70 310m

- AUD/USD: AUD amounts  

• 0.6800 425m
• 0.6900 728m

- USD/CAD: USD amounts       

• 1.2700 400m
• 1.2900 504m
• 1.2935 383m
• 1.3075 334m
• 1.3130 340m

EUR/USD fell from a high of 1.0187 on the day following the US inflation data. Economists at TD Securities believe that the pair should remain under parity for the time being.

EUR/USD remains strongly correlated to relative equity prices this year

“We look to parity to offer support, but the euro is at such a fundamental disadvantage with an imploding balance of payments and decelerating global growth cycle, that we think sub-parity remains the path forward (we have penciled in 0.96 year-end).”

“Note that EUR/USD remains strongly correlated to relative equity prices this year, and we would expect this weaker US CPI print will only intensify that relationship. Indeed, the latter is strongly linked to the global growth cycle. One way to proxy this is through global PMI momentum which has decelerated in recent months while the global stock/bond ratio has been more resilient. This will need to change.”

• NZD/USD struggles to gain traction and languishes near its lowest level since May 2020.
• Signs of stability in equity markets undermine the USD and seem to offer some support.
• Bets for aggressive Fed rate hikes support prospects for a further downfall for the major.

The NZD/USD pair struggles to capitalize on its modest intraday uptick and languishes near the lowest level since May 2020 touched the previous day. Spot prices remain on the defensive below the 0.6000 psychological mark through the early European session and seem vulnerable to sliding further.

Signs of stability in the financial markets seem to undermine the safe-haven US dollar and offer some support to the risk-sensitive. That said, firming expectations that the Federal Reserve will keep raising interest rates at a faster pace to tame inflation acts as a tailwind for the greenback and continues to cap the NZD/USD pair.

The markets were quick to react and started pricing in the possibility of a full 1% rate hike at the September FOMC meeting following the release of stronger US consumer inflation data on Tuesday. This, in turn, pushed the yield on rate-sensitive two-year US government bonds to an almost 15-year high and should offer support to the buck.

The prospects for a more aggressive policy tightening by the Fed, along with COVID-19 curbs in China and the protracted Russia-Ukraine war, have been fueling recession fears. This might keep a lid on any optimistic move in the markets, which further favours the USD bulls and supports prospects for additional near-term losses for the NZD/USD pair.

Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment will influence the USD price dynamics. This, in turn, should allow traders to grab short-term opportunities around the NZD/USD pair.

Technical levels to watch

Gold price remains exposed to downside risks. As FXStreet’s Dwahine Mehta notes, XAU/USD eyes 2022 low at $1,681 amid aggressive Fed rate hike bets.

Aggressive Fed tightening bets

“Hotter-than-expected US inflation jacked up bets for a 75 bps Fed rate hike to 94% while bringing talks of a 100 bps lift-off back on the table. Further, the data squashed speculation surrounding the Fed lowering rates next year.”

“The next downside target is seen around the $1,690 support area, below which the 2022 lows of $1,681 will be tested once again.”

“On the flip side, gold buyers need acceptance above Monday’s low of $1,712 to sustain the recovery momentum. The $1,720 round number and the 21-DMA, now at $1,727, could offer strong resistance to the optimists.”

See – Gold Price Forecast: XAU/USD could sink as low as $1,451/40 on a close below $1,691/76 – Credit Suisse

USD/CAD has neared the 1.32 level. In the view of economists at TD Securities, the loonie is starting to look more vulnerable as time passes.

CAD increasingly looking vulnerable

“We think the CAD is starting to look more vulnerable as time passes. This is because the BoC will not be able to run alongside the Fed on the policy front. At some point, the music will eventually stop and poor debt ratios will catch-up with the consumer.”

“1.30 looks satisfactory in forming a new higher base and we think dip buying towards this level will be justified. 1.32+ is the next topside level we are watching.”

French Finance Minister Bruno Le Maire made some comments on the economic and inflation outlook in an interview with CNews television on Wednesday.

Key quotes

Market reaction

EUR/USD was last seen trading at 0.9983, up 0.15% on the day, consolidating the post-US CPI rebound.

USD/JPY slumps under 144 amid threats to take action against the yen's depreciation trend if it continues. However, in the view of economists at Commerzbank, Japanese policymakers are only interested in avoiding a too rapid JPY depreciation.

Intervention threat against the JPY

“USD/JPY is already on the retreat again. However, I assume that this is actually more due to a slight correction of the dollar, after its rally yesterday. Because so far, the market seemed little impressed by the threat of intervention against the weakening yen.”

“The threat seems to carry little credibility above all because the Bank of Japan could support its currency in a much more obvious way, namely by raising interest rates. The fact that it has not done so so far casts doubt on whether it is really interested in a sustainably stronger yen. And indeed, the monetary guardians are likely to want to prevent too rapid a depreciation above all, but not a depreciation per se.”

As early as today, EU Commission President Ursula von der Leyen could publish the first details on the EU's plans to curb high energy costs. In the view of economists at Commerzbank, the euro could benefit if the measures are convincing.

Some support for the euro from the EU commission?

“Numerous ECB council members recently signaled that they would accept a recession in order to bring inflation back on target. But whether the central bankers will actually stand firm when a shrinking economy makes itself felt remains highly questionable.”

“If the Commission were to present convincing measures that could ease the burden on the economy, the euro could benefit. After all, this would increase the likelihood that the ECB can actually devote its full attention to fighting inflation.”

Economists at Barclays Research expect the USD/JPY pair to continue its race higher. Next target aligns at 145 ahead of 150.

Continuing to resist the notion of joint intervention

“Although actual intervention could bring a substantial correction in light of recently mounting volatility and liquidity conditions, we believe it would be unlikely to spur a major directional change with the US continuing to resist the notion of joint intervention and US-Japan monetary policy divergence, the driver of the USD/JPY’s rise, remaining intact.” 

“The market will be watching 144.99 (last week’s high) and 145 (psychological threshold), but we do not see any clear technical levels beyond that until resistance sets in at 147.70 (1998 high) and 150 (psychological threshold).”

August US Core Price Index (CPI) report easily beat expectations, reinforcing the case for the same USD-positive near-term forecasts as economists at Credit Suisse had last week.

No reason in the short-term to change key calls end-Q3

“Looking at the immediate future, the balance of risk has tilted from concerns about a possible weak US CPI number to instead thinking about whether a 100 bps Fed rate hike is on the slate for the 21 Sep FOMC. In this circumstance, the near-term path of least resistance for USD is to keep rising, at least until a 100 bps Fed rate hike is at least 50% priced in.” 

“We see no reason in the short term to change our key calls end-Q3 calls such as EUR/USD 0.9700, USD/JPY 145 (with a risk to 150), AUD/USD 0.6550, USD/CNH 7.05 and GBP/USD 1.1250.”

“The fact that equity markets are under pressure due to higher US rates, and the VIX is back close to 30 also tends to help the greenback, as a rule.”

• GBP/JPY remains under heavy selling pressure for the second successive day on Wednesday.
• Jawboning by Japanese authorities points to an imminent intervention and boosts the JPY.
• Softer UK consumer inflation data fails to impress the GBP bulls or lend support to the cross.

The GBP/JPY cross extends the overnight retracement slide from a nearly three-month high and continues losing ground for the second successive day on Wednesday. The selling bias remains unabated following the release of softer UK consumer inflation data and drags spot prices to the 165.15 area, back closer to the weekly low during the early European session.

The UK Office for National Statistics reported that the headline CPI rose 0.5% in August against 0.6% anticipated and the yearly rate unexpectedly decelerated to 9.9% from 10.1% in July. Additional details revealed that the core inflation gauge (excluding volatile food and energy items) edged higher to a 6.3% YoY rate versus 6.2% in July, matching estimates. The data did little to provide any meaningful impetus to the British pound or lend any support to the GBP/JPY cross. The intraday slide remains exclusively driven by a strong pickup in demand for the Japanese yen.

The spillover effect of the overnight slump in the US equity markets continues to offer some support to the safe-haven JPY, which gets an additional boost from jawboning by Japanese authorities. This comes amid speculations that the Bank of Japan may soon step in to arrest a freefall in the JPY and continues to exert downward pressure on the GBP/JPY cross. That said, a big divergence in the monetary policy stance adopted by the BoJ and other major central banks should cap gains for the JPY, which, in turn, should lend some support to the cross, at least for now.

Technical levels to watch

• EUR/GBP picks up bids to refresh intraday top after the UK’s inflation data for August.
• UK CPI dropped to 9.9% YoY versus 10.2% expected, 10.1% prior.
• EU’s von der Leyen will announce energy price cap details, USTR Tai braces for trade meet with EC VP Dombrovskis.
• Increasing hawkish bets on BOE, Brexit optimism battles ECB hopes to trouble traders.

EUR/GBP extends the previous day’s run-up to 0.8683 after the UK reported surprisingly softer inflation numbers during early Wednesday. Also fueling the cross-currency pair are the risk-positive catalysts surrounding Europe.

UK Consumer Price Index (CPI) declined to 9.9% YoY versus 10.2% market forecasts and 10.1% previous readings. Further, the Retail Price Index also eased, reprinting 12.3% YoY figures versus 12.4% expected.

Also read: Breaking: UK annualized inflation unexpectedly eases to 9.9% in August vs. 10.2% expected

It’s worth noting that the hawkish hopes from the European Central Bank (ECB) and expectations that the bloc will soon overcome the energy crisis also seem to underpin the EUR/GBP rebound during the sluggish session.

Alternatively, expectations of 50 basis points (bps) of rate hike from the Bank of England (BOE) challenge EUR/GBP buyers. News from the UK’s Daily Mail, quoting the Irish PM Micheál Martin, appears on the same line. The Irish PM Martin said, per the news, that Queen's death is a chance to 'reset' relations between Britain and Ireland and 'enhance' links following Brexit rows.

On Tuesday, Eurozone ZEW Economic Sentiment dropped to -60.7 for September, versus -52 expected and -54.9 prior. For Germany, the sentiment gauge slid to -61.9 compared to -60.0 market forecasts and -55.3 previous readings. “We face a threat of recession next year,” German Economy Minister Robert Habeck said following the data on Tuesday. On the same line, the Economy Ministry update stated that the German economic outlook for H2 dramatically worsened, output in H2 could stagnate or contract.

At home, the 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.

Moving on, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping and US Trade Representative Katherine Tai’s EU visit to meet European Commission Vice President Valdis Dombrovskis will be important to watch for nearby EUR/GBP moves. Also important will be the political chatters in the EU and the UK surrounding China and Russia.

Technical analysis

A three-week-old ascending support line, around 0.8665, restricts the short-term EUR/GBP downside. That said, the pair’s latest bounce off the same trend line directs the quote towards the yearly high around 0.8725, marked on Monday.

In contrast to the US dollar, the pound was unable to gain yesterday. The GBP even depreciated slightly against the euro. Economists at Commerzbank expect the pound to remain under downward pressure.

Doubting the BoE

“The Bank of England is still perceived as a less credible inflation fighter. To change this, the central bankers will probably not only have to raise their key interest rate significantly next week but also, like the Fed and the ECB recently, repeat prayerfully that interest rates will continue to rise despite economic headwinds.”

“I am not convinced that the BoE will be able to turn around the market view with just one meeting next week. And for that reason, the appreciation potential of the pound is likely to remain limited for the time being.”

• GBP/USD has sensed buying interest as the UK inflation rate has declined by 30 bps to 9.9% vs. expectations.
• The deadly duo of a double-digit inflation rate and a vulnerable labor market will haunt the BOE.
• The higher US inflation rate has refreshed the odds of a bumper rate hike by the Fed.

The GBP/USD pair is picking bids around 1.1500 after the release of UK inflation data. The headline inflation rate has been trimmed to 9.9% vs. the forecasts of 10.2% and the prior release of 10.1%. While the core Consumer Price Index (CPI) has remained in line with the estimates at 6.3%.

The price rise index has slipped lower but is still beyond the desired rate of UK central bank. The deadly duo of the higher inflation rate and Tuesday’s weaker Claimant Count Change data will continue to trigger more troubles for the Bank of England (BOE). The UK Office for National Statistics reported an increment in the number of jobless benefits claims by 6.3k against the expectations of a decline by 9.2k. While the Unemployment Rate scaled down to 3.6% in relation to the forecasts and the prior release of 3.8%.

One good news, which delighted the UK households was the upbeat Average Hourly Earnings data. The earnings data improved dramatically to 5.2% vs. the estimates of 5.0% and the prior release of 4.7%. Forced higher payouts to the households due to soaring price pressures were unable to get offset by lower-valued paychecks. Now an increment in households’ earnings will support them to cater to soaring energy bills and food prices.

On Tuesday, the cable nosedived after the release of the elevated US inflation rate. The headline US CPI which inculcates oil and food prices while the calculation landed at 8.3%, higher than the expectations of 8.1%. While the core CPI surges to 6.3% vs. the forecast of 6.1%. Federal Reserve (Fed) policymakers are continuously making efforts to cool down the red-hot inflation. All efforts went in vain as price pressures have become more vulnerable now.

This has strengthened the odds of a third consecutive 75 basis points (bps) rate hike by the Fed in its September monetary policy meeting. A rate hike of 75 bps will scale up the borrowing rates to 3.00-3.25% and will dent the growth prospects. Going forward, the US Retail Sales data will be a key trigger. The economic data is not showing any sign of improvement in the overall demand.

Further gains in USD/JPY should leave behind the 145.00 region in the next weeks, suggest FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we expected USD to ‘consolidate and trade between 141.90 and 143.50’. USD subsequently dipped below 141.90 (low of 141.83) before staging a sharp rally to 144.68 during NY session. Further USD strength appears likely even though overbought conditions suggest a sustained rise above 145.00 is unlikely. The next resistance at 145.50 is unlikely to come into view. Support is at 144.00 followed by 143.70.”

Next 1-3 weeks: “Two days ago (12 Sep, spot at 142.80), we highlighted that the recent 2-week USD strength has ended and we expected USD to consolidate and trade within a range of 140.80/144.60. Yesterday, USD surged to a high of 144.68 before closing at 144.55. Upward momentum has improved but USD to close above the major resistance at 145.00 below further advance is likely. If USD closes above 145.00, it could trigger an advance to 145.50, 146.00. On the downside, a break of 143.30 would indicate that USD is not ready to move above 145.00 in a sustained manner.”

• UK CPI eases to 9.9% YoY in August vs. 10.2% expected.
• Monthly UK CPI arrives at 0.5% in August vs. 0.6% expected.
• GBP/USD falls towards 1.1500 on disappointing UK CPIs.

The UK Consumer Prices Index (CPI) 12-month rate came in at 9.9% in August when compared to 10.1% seen in July while missing estimates of a 10.2% print, the UK Office for National Statistics (ONS) reported on Wednesday. The index retreated from the highest level since 1982.

Meanwhile, the core inflation gauge (excluding volatile food and energy items) rose to 6.3% YoY last month versus 6.2% booked in July, meeting the market consensus of 6.3%.

The monthly figures showed that the UK consumer prices climbed by 0.5% in August vs. 0.6% expectations and 0.6% previous.

The UK Retail Price Index for August arrived at 0.6% MoM and 12.3% YoY, below estimates across the time horizon.

FX implications

In an initial reaction to the UK CPI numbers, the GBP/USD pair slipped 20 pips to surrender 1.1500 once again.

The pair was last seen trading at 1.1491, almost unchanged on the day. The US dollar regians upside traction in the early European morning.

Why UK inflation matters to traders?

The Bank of England (BOE) is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

• EUR/USD struggles to extend the corrective bounce off the weekly low.
• 100-SMA, 50-SMA challenge buyers amid bearish MACD signals.
• Three-week-old horizontal area appears tough nut to crack for bears.

EUR/USD retreats to 0.9985 heading into Wednesday’s European session, after falling the most in two years the previous day. In doing so, the major currency pair portrays a pullback from the key moving averages amid bearish MACD signals.

That said, the latest swing low of around 0.9950 may entertain the EUR/USD sellers before directing them to the broad support area between 0.9915 and the 0.9900 threshold.

Following that, the yearly low near 0.9860 is less likely to challenge the pair bears on their way to the October 2002 low near 0.9700.

Alternatively, recovery moves will first struggle to cross the resistance area comprising the 100-SMA and the 50-SMA, around 1.000-0.9990.

Even if the quote regains the parity, the 50% Fibonacci retracement level of August-September downside, near 1.0120 and the latest swing high near 1.0200 could probe the EUR/USD bulls before giving them control.

To sum up, EUR/USD fades bounce off the latest bottom, which in turn keeps bears hopeful. However, the downside room appears limited and hence can restrict short-term moves of the pair.

EUR/USD: Four-hour chart

Trend: Further weakness expected

“A flurry of Chinese cities are rolling out measures to boost housing demand, signaling the government’s intention to arrest a property crisis,” reported Bloomberg during early Wednesday morning in Europe.

Key quotes

Market reaction

AUD/USD benefits from the positive news as it picks up bids to 0.6740 by the press time. The reason could also be linked to the US dollar’s consolidation of the inflation-led gains amid a sluggish session.

Also read: AUD/USD rebounds to 0.6750 on US dollar pullback ahead of second-tier data, Fed

Considering advanced prints from CME Group for natural gas futures markets, open interest shrank by just 860 contracts on Tuesday after two daily builds in a row. Volume retreated by around 21.4K contracts and reversed the previous daily build.

Natural Gas faces initial resistance near $8.50

Prices of natural gas extended the bounce off last week’s lows amidst shrinking open interest and volume on Tuesday, which seems to undermine the ongoing recovery. That said, the commodity should meet the initial hurdle around the $8.50 mark per MMBtu, while the immediate contention is still seen around the $7.50 region.

• Investors should brace for more downside on Bearish Marubozu formation.
• The 50-EMA has acted as a major hurdle for the asset near 0.6900.
• The RSI (14) is on the verge of dropping into the bearish range of 20.00-40.00.

The AUD/USD pair is attempting to recover after a bloodbath. The asset slipped vertically to near 0.6725 after the release of an elevated US inflation rate. An attempt of a rebound could be a dead cat bounce as strength is not visible. In the late Tokyo session, the major is juggling in a narrow range of 0.6723-0.6747.

The formation of a Bearish Marubozu candlestick pattern has concluded the short-term pullback move. The occurrence of the above-mentioned candlestick pattern shows the strength of the greenback bulls and advocates more weakness ahead.

The asset has sensed resistance from the 50-period Exponential Moving Average (EMA) at around 0.6900. This will continue to remain a hurdle for the aussie bulls.

Meanwhile, the Relative Strength Index (RSI) (14) is on the verge of dropping into the bearish range of 20.00-40.00. This will trigger a downside momentum and will bring more weakness to the counter.

A break below Wednesday’s low at 0.6723 will drag the asset towards the lower portion of the demand zone placed in a range of 0.6670-0.6700 on a daily scale. A breach of the demand zone will unleash the greenback bulls and the asset will decline towards the round-level support of 0.6600.

On the flip side, a break above September 5 high at 0.6804 will drive the asset towards August 29 low at 0.6841, followed by August 31 high at 0.6904.

AUD/USD daily chart

• USD/CAD struggles for clear directions after rising the most in 13 months.
• Double tops around 1.3200 challenge buyers, 50-DMA restricts downside.
• Sluggish MACD signals further grinding, rising trend line from early June favors bulls.

USD/CAD treads water around 1.3160, after rising the most since August 2021 the previous day, as traders seek fresh clues during early European morning on Wednesday.

In doing so, the Loonie pair fades bounce off the 50-DMA, marked the previous day, amid sluggish MACD signals. Also challenging the USD/CAD bulls is the double top around 1.3200.

That said, the quote’s pullback hinges on a clear downside break of the 23.6% Fibonacci retracement level of June-July advances, around 1.3055.

Following that, a convergence of the 50-DMA and the 38.2% Fibonacci retracement level can challenge the USD/CAD bears near 1.2960-55.

It’s worth noting, however, that the pair’s downside past 1.2955 could direct bears towards the 50% Fibonacci retracement level and the 3.5-month-old upward sloping support line, close to 1.2870 and 1.2830 in that order.

On the flip side, a daily closing beyond the 1.3200 level becomes necessary for the USD/CAD bulls to challenge the yearly high marked in July at around 1.3225.

In a case where the USD/CAD pair remains firmer past 1.3225, the odds of witnessing a run-up towards the October 2020 high near 1.3390 can’t be ruled out.

USD/CAD: Daily chart

Trend: Further upside expected

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, further selling pressure in AUD/USD should meet support around 0.6680.

Key Quotes

24-hour view: “We highlighted yesterday that ‘there is chance for AUD to break 0.6920 but a sustained rise above this level is unlikely’. AUD subsequently rose to 0.6916 before nose-diving to a low of 0.6726 during NY session. Further weakness appears likely even though Jul’s low near 0.6680 is unlikely to come under threat for today (there is another support at 0.6700). Resistance is at 0.6765 followed by 0.6795.”

Next 1-3 weeks: “The AUD strength that started two days ago ended abruptly as AUD plunged below our ‘strong support’ level at 0.6805 (low has been 0.6726). The decline has shifted the risk for AUD to the downside but any weakness is expected to encounter solid support at 0.6680. Overall, only a break of 0.6820 (‘strong resistance’ level) would indicate that the downside risk has dissipated.”

• USD/JPY renews intraday low, snaps two-day uptrend around 24-year high.
• Technical issues at BOJ join talks of market intervention to favor yen bears.
• Japan’s 10-year Treasury bond yields poke the upper band BOJ target range.
• US inflation-led run-up fades amid sluggish session.

USD/JPY returns to bear’s radar, after a two-day uptrend, as fears of Bank of Japan (BOJ) intervention joins strong yields during early Wednesday morning in Asia. Also exerting downside pressure on the yen pair are the mixed concerns surrounding China and the global economic slowdown.

Japan’s Nikkei news recently mentioned that BOJ reportedly conducted a rate check in apparent preparation for currency intervention. Following the news, the Japanese central bank conveyed likely delays in some settlements as some issues were identified on the BOJ network system.

Earlier in the day, Japan’s Finance Minister Shunichi Suzuki and top currency diplomat Masato Kanda raised concerns over the yen’s latest weakness while indirectly signaling brighter chances of the BOJ intervention. Also favoring the Japanese central bank’s move are the 10-year Treasury yields of the Japanese Government Bonds (JGB) as they reach the upper limit of the BOJ’s target band.

On the other hand, US Consumer Price Index (CPI) for August renewed the market’s hawkish expectations from the US Federal Reserve (Fed) and renewed the recession fears, via the inverted curve of the US Treasury bond yields, which in turn fuelled USD/JPY earlier. That said, the US CPI rose past 8.1% market forecasts to 8.3% YoY, versus 8.8% prior regains.

The US 10-year Treasury yields rallied to 3.412% and those for 2-year bonds increased to 3.76% following the data, around 3.424% and 3.771% respectively at the latest. Furthermore, the US stocks had their biggest daily slump in almost two years after the US CPI release.

On the same line could be the headlines suggesting Taiwan’s hosting of multiple foreign lawmakers in Washington to Push China sanctions and US lawmakers voting on financing arms for Taipei.

Alternatively, hopes of more stimulus from China and expectations of a solution to the European energy crisis seem to defend the steel buyers. In that regard, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping and US Trade Representative Katherine Tai’s EU visit to meet European Commission Vice President Valdis Dombrovskis also favor cautious optimism.

Looking forward, USD/JPY may witness inaction ahead of the US Producer Price Index (PPI) and Thursday’s August month US Retail Sales. Above all, next week’s Federal Open Market Committee (FOMC) will be a crucial event for the pair traders to watch for clear directions.

Technical analysis

Despite the latest pullback, USD/JPY remains well above the 10-DMA and monthly support line, respectively around 142.50 and 141.30, which in turn keeps buyers hopeful of overcoming the 145.00 hurdle.

CME Group’s flash data for crude oil futures markets noted traders added nearly 20K contracts to their open interest positions on Tuesday, reaching the second daily advance in a row. In the same line, volume increased by almost 216K contracts after three consecutive daily drops.

WTI: Next on the downside comes the $81.00 region

Prices of the barrel of the WTI halted a 3-session recovery on Tuesday amidst increasing open interest and volume. That said, bets for further downside remain on the rise in the very near term and with the next target at the multi-month low near $81.00 (September 8).

The UK CPIs Overview

The cost of living in the UK, as represented by the Consumer Price Index (CPI) for August, is due early on Wednesday at 06:00 GMT.

Given the recently released unimpressive jobless benefits claims in addition to soaring energy, and the announcement of Liz Truss for UK Prime Minister, today’s data will be watched closely by the GBP/USD traders.

The headline CPI inflation is expected to refresh a 30-year high with a 10.2% YoY figure versus 10.1% prior while the Core CPI, which excludes volatile food and energy items, is likely to rise to 6.3% YoY during the stated month, from 6.2% previous readouts. Regarding the monthly figures, the CPI is expected to remain steady at 0.6%.

It’s worth noting that the recent pressure on wage prices and a downbeat jobs report also highlight the Producer Price Index (PPI) as an important catalyst for the immediate GBP/USD direction.

That being said, the PPI Core Output YoY may decline to 13.9% from 14.6% on a non-seasonally adjusted basis whereas the monthly prints could shift higher to 1.5% versus 1.0% prior. Furthermore, the Retail Price Index (RPI) is also on the table for release, which is expected to rise to 12.4% YoY from 12.3% prior while the MoM prints could ease to 0.7% from 0.9% in previous readings.

Deviation impact on GBP/USD

Readers can find FXStreet's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined around 20-pips in deviations up to + or -2, although in some cases, if notable enough, a deviation can fuel movements over 30-40 pips.

How could it affect GBP/USD?

Investors are criticizing the UK administration for revealing a jump in jobless benefits claims data revealed on Tuesday. The Claimant Count Change data accelerated by 6.3k vs. an expectation of a decline of 9.2k. The Unemployment Rate scaled down sharply to 3.6% in relation to the forecasts and the prior release of 3.8%.

The catalyst which delighted the households and the Bank of England (BOE) policymakers is upbeat Average Hourly Earnings data. The earnings data improved dramatically to 5.2% vs. the estimates of 5.0% and the prior release of 4.7%. Forced higher payouts to the households due to soaring price pressures were unable to get offset by lower-valued paychecks. Now an increment in households’ earnings will support them to cater to soaring energy bills and food prices.

No doubt, higher earnings data is music to the ears but efforts could go all in vain if inflationary pressures rise further vigorously. The BOE will go back to the square and will face significant hurdles in hiking interest rates further as the next interest rate decision is scheduled for September 22.

On the political front, Liz Truss has already announced stimulus packages to contain soaring energy prices by placing a cap on energy bills. The next UK PM has announced cuts in tax rate to offer more funds to the households while offsetting the inflation-adjusted payouts.

Technically, the cable has delivered an upside break of the consolidation formed in a narrow range of 1.1500-1.1512 in the Tokyo session. A firmer recovery attempt after picking bids below the psychological support of 1.1500 is expected to keep pound bulls in the positive trajectory for a while. Medium-to-long term Moving Averages (MAs) are still trading higher as Tuesday’s bloodbath will take time to heal.

Keynotes

GBP/USD Forecast: Additional gains likely above 1.1730

GBP/USD oscillates below 1.1500 ahead of UK Inflation

About the UK CPIs

The Consumer Price Index released by the Office for National 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 GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang talked down the possibility of a break below 1.1400 in GBP/USD in the near term.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘there is room for the rapid rise in GBP to extend to 1.1725 before easing’. While GBP subsequently rose to a high of 1.1738, it nose-dived and sliced through several strong support levels. The sharp sell-off appears to be overdone but GBP could drop to 1.1465 first before stabilizing. The major support at 1.1400 is not expected to come into the picture. Resistance is at 1.1545 followed by 1.1590.”

Next 1-3 weeks: “The advance in GBP that started two days ago came to an abrupt end as GBP plunged below our ‘strong support’ level at 1.1580. While the rapid drop suggests GBP is likely to stay under pressure, the chance for a break of the round number support at 1.1400 is not high. On the upside, a breach of 1.1630 (‘strong resistance’ level) would indicate that the current weakness in GBP has stabilized.”

• Steel price snaps two-day uptrend at two-week high, holds lower ground of late.
• Strong US inflation propelled hawkish Fed bets, concerns over economic slowdown.
• Doubts over PBOC fix, China’s growth expectations join Taiwan-linked chatters to weigh on prices.
• Risk catalysts are important ahead of Friday’s China inflation data.

Steel remains on the back foot during the first negative day of the week, also reverses from the monthly, as the market’s previous optimism fades after the US inflation data. Also exerting downside pressure on the metal prices could be the skepticism surrounding the world’s biggest commodity user China.

That said, steel rebar on the Shanghai Futures Exchange (SFE) dropped around 1.0% while the most active contract on the London Metal Exchange (LME) declined around 1.30% at the latest.

US Consumer Price Index (CPI) for August renewed the market’s hawkish expectations from the US Federal Reserve (Fed) and renewed the recession fears, via the inverted curve of the US Treasury bond yields. That said, the US CPI rose past 8.1% market forecasts to 8.3% YoY, versus 8.8% prior regains.

The US 10-year Treasury yields rallied to 3.412% and those for 2-year bonds increased to 3.76% following the data, around 3.424% and 3.771% respectively at the latest. Furthermore, the US stocks had their biggest daily slump in almost two years after the US CPI release.

Elsewhere, doubts over the People’s Bank of China’s (PBOC) latest policy moves and the daily price fix also seem to challenge the steel buyers. “Consensus among market watchers is that the People's Bank of China has been manipulating the yuan's daily benchmark,” said Reuters.

On the same line could be the headlines suggesting Taiwan’s hosting of multiple foreign lawmakers in Washington to Push China sanctions and US lawmakers voting on financing arms for Taipei.

Alternatively, hopes of more stimulus from China and expectations of a solution to the European energy crisis seem to defend the steel buyers. In that regard, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping and US Trade Representative Katherine Tai’s EU visit to meet European Commission Vice President Valdis Dombrovskis also favor cautious optimism.

Moving on, Friday’s China CPI and Producer Price Index (PPI) for August will be crucial for steel traders to watch for fresh impulse.

Open interest in gold futures markets rose for the second session in a row on Tuesday, now by around 2.4K contracts according to preliminary readings from CME Group. Volume followed suit and reversed two consecutive daily pullbacks and went up by around 90.2K contracts.

Gold: Focus on the 2022 low at $1,680

Tuesday’s abrupt drop in gold prices came on the back of rising open interest and volume, which is indicative that further weakness lies ahead for the precious metal. Against that, the YTD low at $1,680 is still expected to hold the downside for the time being.

Despite the recent price action, a sustained drop below 0.9900 in EUR/USD appears unlikely for the time being, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We did not anticipate the sharp sell-off in EUR during NY session. The outsized decline in EUR has scope to dip below 0.9930 before stabilization is likely. The next support at 0.9900 unlikely to come under threat. On the upside, a breach of 1.0050 (minor resistance is at 1.0010) would indicate that the current weakness has stabilized.”

Next 1-3 weeks: “EUR tanked yesterday and the break of our ‘strong support’ level at 1.0030 has invalidated our view for further EUR strength (see annotations in the chart below). The outsized drop appears to be overdone but there is room for EUR to weaken to 0.9900. At this stage, a sustained decline below this level appears unlikely. All in, as long as the ‘strong resistance’ level at 1.0070 is not breached, EUR is likely to stay under pressure.”

• USD/CNH consolidates the biggest daily gains in a month at one-week high.
• Bearish MACD signals keep sellers hopeful but 200/100 HMAs challenge further downside.
• Bulls need validation from the monthly high, the 7.0000 threshold.

USD/CNH retreats to 6.9700 during Wednesday’s Asian session, after rising the most in a month to refresh the weekly the previous day.

In doing so, the offshore Chinese yuan (CNH) pair justifies the bearish MACD signals, as well as the RSI (14) pullback from the overbought territory.

However, a convergence of the 100-HMA and the 200-HMA around 6.9450 appears a tough nut to crack for the USD/CNH bears.

Should the quote drops below 6.9450, the 78.6% Fibonacci retracement level of the pair’s September 01-07 upside, near 6.9100 can’t be ruled out. However, the monthly low near 6.8870 could challenge the pair sellers afterward.

Alternatively, recovery moves need to cross the latest swing high surrounding 6.9850 to convince intraday buyers.

Following that, the monthly high near 6.9970 and the 7.0000 psychological magnet will be crucial to challenge the USD/CNH bulls.

In a case where the pair remains firmer past 7.0000, the late July 2020 high near 7.0300 will be in focus.

To sum up, USD/CNH is likely to witness further downside but the overall trend remains bullish.

USD/CNH: Hourly chart

Trend: Limited downside expected

• Asian stocks have fallen like a house of cards amid soaring US inflation rate.
• Considering the higher core CPI, the Fed will continue the pace of hiking interest rates.
•  The depreciating yen is creating troubles for import-oriented firms.

Markets in the Asian domain have witnessed an intense sell-off at open as the US dollar index (DXY) has reclaimed the auction area around the psychological resistance of 110.00. Asian equities are going through a bloodbath as a higher US Consumer Price Index (CPI) print has led to a resurgence in expectations of a bumper rate hike by the Federal Reserve (Fed).

At the press time, Japan’s Nikkei225 nosedived 2.50%, China A50 tumbled almost 1% and Hang Seng plummets 2.64%.

The headline US CPI landed higher at 8.3% than the expectations of 8.3% but remained lower from the prior release of 8.5%. Thanks to the falling gasoline prices that the inflation rate is on a downward spree but the decline doesn’t justify a ‘relaxation’ mode for the Federal Reserve (Fed) policymakers. The troublesome job of Fed policymakers is going to be more laborious now as core CPI that excludes food and oil prices has stepped up to 6.3% vs. the expectations of 6.1% and 40 basis points (bps) higher than the prior release.

In Tokyo, the continuously depreciating yen is creating troubles for the Japanese administration. Companies that are highly import-dependent to cater to their input requirements are forced to pay higher. Adding to that, import-dependent firms are failing to pass on the impact of costly input prices, which are impacting their operating margins.

On the oil front, oil prices have rebounded after dropping to near the critical support of $85.00. The black gold is expected to remain in the grip of bulls as European nations are looking to consume oil in place of energy to cater to the demand. Energy prices are not taking a sigh of relief and are aiming higher ahead of the winter season.

• Gold price remains sidelined after falling the most in two months.
• Mixed sentiment allows XAU/USD bears to take a breather after US CPI-led slump.
• Megaphone formation signals further widening of bearish trend amid hawkish Fed bets, recession woes.

Gold price (XAU/USD) seesaws around $1,700 as bears take a breather after a volatile day, thanks to the US inflation data. Mixed concerns over inflation and China join a light calendar to portray the metal’s inaction during early Wednesday morning in Europe.

Having witnessed the biggest daily fall in gold, as well as the heaviest stock rout in two-year, mainly due to the US Consumer Price Index (CPI) data, US President Joe Biden mentioned, “I'm not concerned about the inflation report released today.” The US leader also added that the stock market does not always accurately represent the state of the economy.

Also challenging the XAU/USD bears are hopes of more stimulus from China and expectations of a solution to the European energy crisis. In that regard, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping and US Trade Representative Katherine Tai’s EU visit to meet European Commission Vice President Valdis Dombrovskis also favor cautious optimism.

Alternatively, hawkish hopes of the Fed and headlines surrounding Taiwan exert downside pressure on the metal prices. Reuters mentioned that Taiwan hosts multiple foreign lawmakers in Washington to push China sanctions while the Financial Times (FT) said that the US lawmakers are bracing for a vote on financing arms for Taipei.

Amid these plays, the US Treasury yields dribble around the multi-day top marked the previous day while S&P 500 Futures print mild gains at the latest.

Moving on, the gold price may witness inaction ahead of the US Producer Price Index (PPI) and Thursday’s August month US Retail Sales. Above all, next week’s Federal Open Market Committee (FOMC) will be a crucial event for the pair traders to watch for clear directions.

Technical analysis

Gold price holds lower ground inside a two-week-old trend widening formation called megaphone.

That said, the bearish MACD signals suggest the quote’s further weakness but the lower line of the stated megaphone and an upward sloping support line from July 21, close to $1,695 and $1,690 in that order, could restrict the short-term downside of the metal.

Alternatively, recovery moves may initially aim for the immediate support-turned-resistance line, around $1,725, ahead of challenging the technical formation’s upper line near $1,738. Also acting as an upside filter is the 200-SMA surrounding $1,750.

Overall, XAU/USD is likely to remain on the bear’s radar even if the downside room appears limited.

Gold: Four-hour chart

Trend: Limited downside expected

• EUR/USD has displayed a short-lived pullback around 0.9960, more weakness is imminent.
• Soaring core CPI indicates a sheer rise in durable goods prices.
• Eurozone bulls have weakened amid rising pessimism in the trading bloc.

The EUR/USD pair has picked bids around 0.9960 in the Asian session after nosediving from a high of around 1.0180. The asset witnessed an intense sell-off after surrendering the critical support of 1.0100 after the release of surprisingly higher-than-expected US inflation data. In the Asian session, the shared currency bulls have attempted a rebound but seem short-lived and sooner will resume a downside journey towards a 19-year low at 0.9864.

A rebound in the US Consumer Price Index (CPI) has refreshed the odds of a third consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed). It seems that prolonged efforts of Fed policymakers to cool down the red-hot inflation went in vain. The decline in the headline CPI from the prior release is a result of falling gasoline prices.

While price rise index for durable goods has escalated as core CPI that doesn’t inculcate food and oil prices has stepped up to 6.3% vs. the forecasts of 6.1% and the prior release of 5.9%. This is going to trouble the households as their labor cost index data has remained subpar.

Meanwhile, eurozone bulls have weakened on a decline in ZEW Survey- Economic Sentiment. The economic data declined sharply to -60.7 against the expectations of -52 and the prior release of -54.9. A decline in the confidence of institutional investors in an economy suggests that the retail demand and investments from corporate and foreign investors are expected to drop significantly.

• USD/JPY has witnessed selling interest at a 24-year high of around 145.00.
• Significant jump in US core CPI strengthened the odds of a third consecutive 75 bps rate hike by the Fed.
• The depreciating yen is attracting tourism and accelerating export numbers.

The USD/JPY pair has sensed selling pressure while attempting to surpass a 24-year high at 144.99 in the Tokyo session. After a juggernaut rally, the asset is displaying exhaustion signals and is expected to remain subdued ahead. On Tuesday, the major surged sharply from a low near 142.00 after the release of the US Consumer Price Index (CPI) data.

The US Bureau of Labor Statistics reported the headline inflation rate at 8.3%, higher than the estimated figure of 8.1%. As gasoline prices are falling and interest rates are soaring in the US economy, a meaningful decline was expected in the inflation rate. The headline CPI has slipped from the prior release of 8.5% but is not sufficient to trim the odds of a third consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed).

The catalyst which is responsible for a bumper rally in the US dollar index (DXY) is the increment in core CPI that excludes oil and food prices. The economic data landed at 6.3% higher than the forecasts of 6.1% and the prior release of 5.9%.

One could gauge the fact that headline CPI is light led by falling gasoline prices whereas price pressures in durable goods have increased significantly. This also indicates that signs of exhaustion in the inflation rate have faded away and the inflation saga is back to square.

This week, the major trigger will be US Retail Sales data, which is showing no improvement in the overall demand.

On the Tokyo front, the depreciating yen is creating prolonged hurdles for the Japanese economy. There is no denying the fact that a weaker yen is accelerating tourism and soaring exports but at the same time is demolishing the operating margins of those companies whose inputs are highly import-oriented. The impact of higher input costs on firms’ financial statements will be seen in the upcoming earnings season.

• GBP/USD pares the biggest daily slump in four months amid sluggish session.
• US dollar consolidates inflation-led rally amid mixed concerns, stimulus hopes.
• UK’s Prince Charles question DUP stance on Brexit, shows readiness to help overcome inflation, energy crisis.
• UK CPI to stay worrisome in August, US PPI, consumer-centric data are also important ahead of next week’s FOMC.

GBP/USD licks US inflation-linked wounds around 1.1500 as the cable traders await the UK Consumer Price Index (CPI) data amid hawkish hopes from the Bank of England (BOE). In doing so, the quote pares the biggest daily decline since May during early Wednesday morning in Europe.

“The Bank of England (BOE) looks set to hike borrowing costs by another 50 basis points (bps) next week, although it may opt for an even bigger move, adding to the woes of indebted households already facing a cost of living crisis,” stated the latest Reuters poll of economists.

Improvement in the market sentiment could also be linked to the GBP/USD pair’s rebound. That said, the same could be linked to the comments from US President Joe Biden, as well as hopes of more stimulus from China and a solution to the European energy crisis.

Furthermore, news from the UK’s Daily Mail, quoting the Irish PM Micheál Martin, also seemed to have helped the GBP/USD buyers. The Irish PM Martin said, per the news, that Queen's death is a chance to 'reset' relations between Britain and Ireland and 'enhance' links following Brexit rows.

On the other hand, fears emanating from the US-Taiwan ties and the US inflation numbers challenge the GBP/USD buyers ahead of the key UK CPI data. The US Treasury bond yields continue to signal the recession woes ahead and hence challenge the pair buyers. That said, the US 10-year Treasury yields poke a three-month high around 3.45% while its two-year counterpart prints 3.80% figures at the latest. With this, the inverted yield curve between the 10-year and the two-year bond coupons keeps suggesting the fears of economic slowdown. On the same line could be Wall Street’s biggest daily slump in two years, as well as cautious moves of the S&P 500 Futures.

Furthermore, headlines suggesting Taiwan’s hosting of multiple foreign lawmakers in Washington to Push China sanctions and US lawmakers voting on financing arms for Taipei also test the GBP/USD bulls.

It's worth noting that market sentiment worsened the previous day, which in turn drowned the GBP/USD prices, after the US Consumer Price Index (CPI) for August rose past 8.1% market forecasts to 8.3% YoY, versus 8.8% prior.

Looking forward, the UK CPI, expected 10.2% YoY versus 10.1%, will be crucial for the GBP/USD bulls amid hawkish hopes from the BOE and a delayed monetary policy due to the British Queen’s death. Should the inflation numbers keep flashing upbeat outcomes, the odds of the BOE’s next rate hike will escalate and can help the GBP/USD to extend the latest rebound.

Also important will be Thursday’s August month US Retail Sales and Friday’s preliminary reading of the Michigan Consumer Sentiment Index for September.

Technical analysis

GBP/USD pair’s sustained pullback from the 21-DMA, around 1.1670 by the press time, coupled with the impending bear cross of the MACD, keep the sellers hopeful of revisiting the yearly low surrounding 1.1400.

• AUD/USD consolidates the biggest daily loss in 2.5 years.
• Market sentiment improves amid hopes of more stimulus, recovery in commodity prices.
• Australia’s employment data, RBA’s Lowe can entertain traders together with US consumer-centric statistics.
• US inflation-led blow can keep bears hopeful ahead of next week’s FOMC.

AUD/USD picks up bids to pare recent losses around 0.6750 amid Wednesday’s sluggish Asian session. In doing so, the Aussie pair licks its wounds during a sluggish session, after falling the most since March 2020 the previous day.

The quote’s latest rebound could be linked to the comments from US President Joe Biden, as well as hopes of more stimulus from China and a solution to the European energy crisis. However, fears emanating from the US-Taiwan ties and the US inflation numbers keep the AUD/USD bears hopeful.

Recently, US President Joe Biden mentioned, “I'm not concerned about the inflation report released today.” The US leader also added that the stock market does not always accurately represent the state of the economy.

Furthermore, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping and US Trade Representative Katherine Tai’s EU visit to meet European Commission Vice President Valdis Dombrovskis also favor the cautious optimism.

It should, however, be noted that the US Treasury bond yields continue to signal the recession woes ahead and hence challenge the pair buyers. That said, the US 10-year Treasury yields poke a three-month high around 3.45% while its two-year counterpart prints 3.80% figures at the latest. With this, the inverted yield curve between the 10-year and the two-year bond coupons keeps suggesting the fears of economic slowdown. On the same line could be Wall Street’s biggest daily slump in two years, as well as cautious moves of the S&P 500 Futures.

Furthermore, headlines suggesting Taiwan’s hosting of multiple foreign lawmakers in Washington to Push China sanctions and US lawmakers voting on financing arms for Taipei also weigh on the AUD/USD prices.

Market sentiment worsened the previous day, which in turn drowned the AUD/USD prices, after the US Consumer Price Index (CPI) for August rose past 8.1% market forecasts to 8.3% YoY, versus 8.8% prior.

Looking forward, the US Producer Price Index (PPI) can entertain the bears before Thursday’s Australia jobs report and Friday’s speech from the Reserve Bank of Australia (RBA) Governor Philip Lowe. Also important will be Thursday’s August month US Retail Sales and Friday’s preliminary reading of the Michigan Consumer Sentiment Index for September. Above all, next week’s Federal Open Market Committee (FOMC) will be a crucial event for the pair traders to watch for clear directions.

Technical analysis

Unless providing a daily closing beyond the 50-DMA, around 0.6890 by the press time, AUD/USD remains directed towards the yearly low of 0.6680.

• NZD/USD bulls are moving in and eyeing a deeper correction.
• The price is on the way to the key Fibos of the sell-off range.

At this juncture, the W-formation's support is key. If the bulls commit, then the price will be destined for structure and resistance near the 38.2% Fibonacci level ahead of a 50% retracement thereafter. This is a level that meets the bounce halfway through the sell-off (the green candle) where the 78.6% Fibonacci meets where prices were agreed, so this would be expected to act as the firmest of the resistances. 

As per the prior analysis, NZD/USD bulls are moving in for the last day of the week from key support, the bird did indeed rally but ran into critical resistance and subsequently has fallen in the wake of a fresh bid in the US dollar. 

Prior analysis, H1 chart

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

NZD/USD update, H1 chart

The price moved up from the expected support level in a grind higher until the key US inflation data hit the screens. However, the pair is now decelerating, correcting into what could become resistance for the day ahead:

At this juncture, the W-formation's support is key. If the bulls commit, then the price will be destined for structure and resistance near the 38.2% Fibonacci level ahead of a 50% retracement thereafter. This is a level that meets the bounce halfway through the sell-off (the green candle) where the 78.6% Fibonacci meets where prices were agreed, so this would be expected to act as the firmest of the resistances. 

Japanese Chief Cabinet Secretary Hirokazu Matsuno said on Wednesday, they are “ready to take necessary steps if recent currency moves continue without ruling out any options.”

Additional quotes

Market reaction

USD/JPY is pulling back sharply from 144.96 highs after the BOJ offered to buy more JGBs and amidst the Japanese verbal intervention. The pair was last seen trading at 144.46, down 0.05% on the day.

• Market sentiment dwindles as fears of recession, Fed’s aggression jostle with hopes higher stimulus.
• US inflation triggered market’s pessimism, Wall Street had the biggest daily loss in two years.
• Treasury bond Yields refreshed multi-day high, inverted curve highlighted economic slowdown woes.
• Second-tier US data, headlines surrounding stimulus/energy plan can entertain traders ahead of next week’s FOMC.

Global markets take a breather after the US inflation-led volatility, amid a lack of major data/events during Wednesday’s Asian session.

The market’s latest consolidation could also be linked to comments from US President Joe Biden, as well as hopes of more stimulus from China and a solution to the European energy crisis.

Recently, US President Joe Biden mentioned, “I'm not concerned about the inflation report released today.” The US leader also added that the stock market does not always accurately represent the state of the economy.

Furthermore, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping and US Trade Representative Katherine Tai’s EU visit to meet European Commission Vice President Valdis Dombrovskis also favor the cautious optimism.

Alternatively, the S&P 500 Futures print mild gains around 3,960, up 0.20% intraday, while the US 10-year Treasury yields poke a three-month high around 3.45%. It should, however, be noted that the inverted yield curve between the 10-year and the two-year bond coupons keeps suggesting the fears of economic slowdown. That said, the 10-year yields print 3.45% mark while its two-year counterpart rises to 3.80% by the press time.

It’s worth observing that Wall Street witnessed the sea of red the previous day, marking the biggest daily slump in two years after the US inflation data. That said, 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% in previous readings. The core CPI, which means CPI ex Food & Energy, also crossed 6.1% consensus and 5.9% prior to print 6.3% for the said month.

Looking forward, updates concerning the energy plan, China’s stimulus and the Russia-Ukraine tussle may entertain traders. Following that, the US Producer Price Index (PPI) before Thursday’s August month US Retail Sales and Friday’s preliminary reading of the Michigan Consumer Sentiment Index for September, will direct the moves. Above all, next week’s Federal Open Market Committee (FOMC) will be a crucial event for the pair traders to watch for clear directions.

• USD/CHF struggles to extend the previous day’s run-up, remains sidelined of late.
• Bearish MACD signals, 50-DMA challenge buyers amid sluggish session.
• Multiple barriers to test sellers before directing them to yearly low.

USD/CHF bulls take a breather around 0.9610, after rising the most in three months the previous day. In doing so, the Swiss currency (CHF) pair fails to extend the bounce off the 200-DMA during Wednesday’s sluggish Asian session.

That said, the bearish MACD signals and the failure to cross the 38.2% Fibonacci retracement level of June-August declines, around 0.9630, appear to lure the intraday sellers of the USD/CHF pair. Also acting as an immediate hurdle is the 50-DMA level near 0.9650.

In a case where the USD/CHF price rises beyond 0.9650, the 50% and the 61.8% Fibonacci retracement levels, around 0.9715 and 0.9795 respectively, could test the bulls before directing them to the key horizontal resistance area established in June near 0.9870-85.

Meanwhile, pullback moves could initially aim for the 23.6% Fibonacci retracement level near 0.9530 ahead of revisiting the 200-DMA support close to 0.9480.

Following that, the 0.9400 threshold and the previous monthly low near 0.9370 could entertain the USD/CHF bears before directing them to the yearly bottom surrounding 0.9090.

Overall, USD/CHF bulls need validation from the 50-DMA to retake control.

USD/CHF: Daily chart

Trend: Pullback expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.9116 vs. the last close of 6.9690.

About the fix

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

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

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

• USD/CAD grinds higher around one-week top after rising the most since August 2021.
• US dollar rallied as US CPI renewed hawkish Fed bets, recession woes.
• Oil’s supply crunch fears, OPEC’s demand hopes probed pair buyers.
• Second-tier data can entertain traders ahead of next week's FOMC.

USD/CAD remains mildly bid around 1.3175, after rising the most in 13 months, as softer oil prices join sluggish market sentiment during early Wednesday. The Loonie pair’s latest gains could be linked to the US inflation data, as well as downbeat prices of Canada’s main export item WTI crude oil.

That said, WTI crude oil extends the previous day’s pullback from the weekly top, down 0.35% around $87.00 by the press time. In doing so, the black gold pays more attention to the recession woes than the fears of a supply crunch and the optimistic demand forecasts from the Organization of the Petroleum Exporting Countries (OPEC).

Also read:

On Tuesday, US inflation data renewed fears of the Federal Reserve’s aggressive rate hike, as well as propelled the recession woes. Also favoring the USD/CAD bulls were the geopolitical concerns surrounding China and Russia. That said, 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% in previous readings. The core CPI, which 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 CPI announcement, the hawkish Fed bets increased, 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.

The inversion between the short-term and the long-term US Treasury bond yields also widened after US inflation data and propelled the recession woes, which in turn propelled the USD/CAD 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, which in turn favored the bulls.

Recently, US President Joe Biden mentioned, “I'm not concerned about the inflation report released today.” The US leader also added that the stock market does not always accurately represent the state of the economy.

Looking forward, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping will be important as it will directly affect oil prices and the USD/CAD in turn. Following that, the US Producer Price Index (PPI) before Thursday’s August month US Retail Sales and Friday’s preliminary reading of the Michigan Consumer Sentiment Index for September, will direct the moves. Above all, next week’s Federal Open Market Committee (FOMC) will be a crucial event for the pair traders to watch for clear directions.

Technical analysis

A strong bounce off the 1.2955-60 support confluence, comprising the 50-SMA and the 38.2% Fibonacci retracement level of June-July upside, keeps USD/CAD buyers hopeful of challenging the yearly high near 1.3225 marked in July.

• Gold price is expecting more weakness after a decisive drop below $1,700.00.
• A higher-than-expected US CPI brutally slaughtered the gold prices.
• Going forward, the US Retail Sales and Michigan sentiment data will be of utmost importance.

Gold price (XAU/USD) has given a downside break of the consolidation formed in a narrow range of $1,700.80-1,703.38 in the Asian session. The precious metal slipped below the psychological support of $1,700.00 and is expected to resume its downside momentum ahead. On Tuesday, the yell metal witnessed a vertical fall after failing to sustain above the critical hurdle of $1,730.00.

The gold prices witnessed a decent selling interest despite a higher-than-expected US inflation rate. The inflation-hedged asset nosedived after the headline Consumer Price Index (CPI) escalated to 8.3% against the forecast of 8.1% but landed lower than the prior release of 8.5%. While the US dollar index (DXY) displayed a juggernaut rally on rising expectations of a third consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed).

The DXY advanced to the psychological resistance of 110.00 on a significant increase in the core CPI that exclude food and oil prices. The catalyst increased significantly to 6.3% against the expectations of 6.1% and the prior release of 5.9%.

This week, the major trigger will be US Retail Sales data, which is showing no improvement in the overall demand. Also, the Michigan Consumer Sentiment Index will remain kin focus, which is seen higher at 60.0 vs. 58.2 recorded earlier.

Gold technical analysis

On an hourly scale, gold prices witnessed a steep fall after a breakdown of the Ascending Triangle whose upward-sloping trendline is placed from the previous week’s low at $1,691.46 while the horizontal resistance is plotted from Thursday’s high at $1,728.24. The precious metal is now forming an Inverted Flag chart pattern n which the inventory distribution is followed by a sheer downside move.

The 20-period Exponential Moving Average (EMA) at $1,708.76 will remain a major hurdle for the counter.

Gold hourly chart

• USD/JPY is attempting to score fresh cycle highs, but verbal intervention is already underway. 
• The US dollar is reaching resistance following a fresh move into the greenback on the back of US CPI. 

USD/JPY has printed a session high in the Tokyo open but remains near to flat on the day following a strong recovery in the US session due to an unexpected beat in the critical US inflation data. The US dollar rallied against the yen with the market pricing in a hawkish for longer Federal Reserve. At the time of writing, USD/JPY is trading at 144.43 but is volatile for the day so far having already travelled between a low of 144.06 and a high of 144.96.

The Labor Department reported on US Consumer Prices that unexpectedly rose in August. The dollar index DXY, which measures the greenback against a basket of currencies rallied to 110.01 in its biggest one-day percentage gain since March 2020. The yield on the US 10-year Treasury note, meanwhile, 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 Federal Reserve will release its policy decision at the close of its two-day meeting next week, on Sept. 20-21.

Traders expect the Fed to hike by 75 basis points hike which would lift the Fed's current 2.25% to 2.5% policy rate range to 3% to 3.25% in its third straight hike. However, rate contracts now also reflect about one-in-four odds of a surprise full-percentage-point increase at the Sept. 20-21 meeting.

Analysts at Nomura, for instance,  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. 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.

Meanwhile, the yen remains a concern for officials in Japan and the jawboning of the currency has already begun in trade today. Japan's Ministry of Finance's Masato Kanda who is its top currency official has said he is concerned about recent sharp yen moves and that they will respond appropriately to FX moves without ruling any options out while monitoring FX moves with a sense of urgency.

USD/JPY technical analysis

The harmonic pattern is bearish and a break of 141.50 will be a key development in the days ahead, should that eventuate. The US dollar is on heat right now so attempting to pick a top would be futile, but monitoring for a deceleration in the rally will go a long way in determining when an opportunity to short the length of this rally could be in the offing. 

DXY H4 chart

The chart above illustrates the market structure and key support levels should the US dollar take a turn for the worst in the coming days which could prompt a buying camping in the yen. 

• EUR/USD remains sidelined around weekly low after falling the most in two years.
• US inflation renewed hawkish Fed concerns ahead of next week’s FOMC.
• Slump in stocks, yield curve inversion also underpinned the greenback’s safe-haven demand.
• EU’s von der Leyen to announce energy price cap plans, USTR Tai visits EC VP Dombrovskis.

EUR/USD licks US inflation-led wounds around the weekly bottom, picking up bids to 0.9980 during Wednesday’s Asian session. In doing so, the major currency pair consolidates the biggest daily fall in two years ahead of the European Union’s (EU) diplomatic moves.

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 EUR/USD are the geopolitical concerns surrounding China and Russia. That said, 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.

On the other hand, Eurozone ZEW Economic Sentiment dropped to -60.7 for September, versus -52 expected and -54.9 prior. For Germany, the sentiment gauge slide to -61.9 compared to -60.0 market forecasts and -55.3 previous readings. “We face a threat of recession next year,” German Economy Minister Robert Habeck said following the data on Tuesday. On the same line, the Economy Ministry update stated that German economic outlook for H2 dramatically worsened, output in H2 could stagnate or contract.

It should be noted that the hawkish Fed bets increased, 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.

The inversion between the short-term and the long-term US Treasury bond yields also widened after US inflation data and propelled the recession woes, which in turn drowned the EUR/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.

Furthermore, US President Joe Biden’s chip plans to increase hardships for China, as well as the rush toward stronger ties with China to fuel the Sino-American woes. Additionally, expectations that Russia will hit hard after retreating from some parts of Ukraine also weighed on the market sentiment and the EUR/USD prices.

Recently, US President Joe Biden mentioned, “I'm not concerned about the inflation report released today.” The US leader also added that the stock market does not always accurately represent the state of the economy. The reason could be linked to the biggest slump in the US equities in two years after the US inflation data release.

Moving on, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping and US Trade Representative Katherine Tai’s EU visit to meet European Commission Vice President Valdis Dombrovskis will be important to watch for nearby moves. Also crucial will be the US Producer Price Index (PPI) 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 downside break of the weekly bullish channel directs EUR/USD bears towards the yearly bottom surrounding 0.9860.

• EUR/GRBP is witnessing back-and-forth moves around 0.8670 ahead of UK Inflation data.
• The cross remained lackluster despite mixed UK employment data and a weaker Eurozone ZEW Survey.
• An upbeat UK earnings data will facilitate households to offset their inflation-adjusted payouts.

The EUR/GBP pair is displaying topsy-turvy moves in a narrow range of 0.8664-0.8678 in the Asian session. The asset didn’t display a meaningful response to the UK employment data, released on Tuesday. On a broader note, the asset is oscillating in an inventory adjustment phase in a 0.8649-0.8672 range.

A mixed UK employment data kept the pound bulls on a sideways note but households are quite delighted with upbeat Average Hourly Earnings data. The earnings data improved dramatically to 5.2% vs. the estimates of 5.0% and the prior release of 4.7%. Forced higher payouts to the households due to soaring price pressures were unable to get offset by lower-valued paychecks. Now an increment in households’ earnings will support them to cater to soaring energy bills and food prices.

Investors should be aware of the fact that the UK economy reported an increase in jobless benefits claims by 6.3k against an expectation of a decline of 9.2k. While the Unemployment Rate scaled down to 3.6% in relation to the forecasts and the prior release of 3.8%.

Going forward, the UK inflation data will be a major trigger for the cross. 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 double-digit inflation figure will compel the Bank of England (BOE) to come forward with a bumper rate hike next week.

Meanwhile, the shared currency bulls have defended themselves despite a significant decline in ZEW Survey- Economic Sentiment. The economic data declined sharply to -60.7 against the expectations of -52 and the prior release of -54.9.

“The Bank of England (BOE) looks set to hike borrowing costs by another 50 basis points (bps) next week, although it may opt for an even bigger move, adding to the woes of indebted households already facing a cost of living crisis,” stated the latest Reuters poll of economists.

Key findings

Also read: GBP/USD Price Analysis: Steadies around 1.1500 with eyes on UK inflation

• GBP/USD licks its wounds after falling the most since early May.
• Clear U-turn from 21-DMA, two-month-old horizontal resistance keeps bears hopeful.
• Yearly low can restrict immediate downside ahead of 61.8% FE of August-September moves.

GBP/USD struggles to defend the corrective pullback from the weekly low, retreating to 1.1500 during Wednesday’s Asian session. In doing so, the Cable pair portrays the trader’s bearish bias ahead of the UK Consumer Price Index (CPI) release. It’s worth noting that the US inflation data triggered the quote’s biggest daily loss in 2.5 months the previous day.

Given the quote’s sustained pullback from the 21-DMA, around 1.1670 by the press time, could with the impending bear cross of the MACD, the GBP/USD sellers are likely to keep the reins.

Even if the quote crosses the 1.1670 DMA hurdle, a two-month-old horizontal resistance area near 1.1740-60 could challenge the pair buyers before giving them control.

Following that, a run-up towards the late August swing high around 1.1900 can’t be ruled out.

Alternatively, the previous day’s bottom around 1.1490 and the yearly low near 1.1400 appear the immediate supports for the GBP/USD bears to watch during the quote’s further weakness.

However, a clear downside break of the 1.1400 threshold won’t hesitate to aim for the 61.8% Fibonacci Expansion (FE) of August-September moves, near 1.1270.

Also read: GBP/USD oscillates below 1.1500 ahead of UK Inflation

GBP/USD: Daily chart

Trend: Further weakness expected

• AUD/NZD is scaling higher to recapture the critical resistance of 1.1250.
• The Australian economy is expected to display the addition of payrolls in the labor market by 35k.
• Considering the consensus, the NZ economy will expand by 0.2% on an annual basis.

The AUD/NZD pair is advancing towards the critical hurdle of 1.1250 after a rebound to near 1.1214 in the early Tokyo session. On a broader note, the asset is marching higher from the past week after hitting a low of 1.1120. The market participants are capitalizing on every correction as buying opportunity on expectations of upbeat Australian employment data.

As per the consensus, the Australian Bureau of Statistics will report an addition in job additions data by 35k against a lay-off of 40.9k payrolls. Also, the Unemployment Rate is seen steady at 3.4%. An occurrence of the same will delight the Reserve Bank of Australia (RBA) to escalate the Official Cash Rate (OCR) further unhesitatingly. Adding to that, the release of the Consumer Inflation Expectation data by the University of Melbourne also holds significant importance.

The Consumer Inflation Expectation is expected to shift extremely higher at 6.7% against the prior release of 5.9%. This will compel the RBA Governor Philip Lowe to announce a fifth consecutive 50 basis points (bps) rate hike in its October monetary policy meeting.

On the NZ front, investors are awaiting the release of the Gross Domestic Product (GDP) data, which is due on Thursday. A mixed performance is expected as the consensus is showing an expansion in the kiwi economy by 0.2% against the 1.2% reported earlier. While the quarterly data will result in an expansion of 0.8% vs. a contraction of 0.2%.

• US Dollar Index grinds higher after rising the most in 30 months.
• US CPI for August bolstered hawkish Fed bets.
• Yield curve inversion widened after US inflation data, signaled recession, stocks marked the biggest daily loss in two years.
• US PPI, other consumer-centric data may entertain traders ahead of next week’s FOMC.

US Dollar Index (DXY) bulls take a breather at the weekly top, retreating to 109.80 during Wednesday’s Asian session, amid a lack of major data/events. That said, the greenback’s gauge versus the six major currencies rallied the most since March 2020 after the US inflation data propelled hawkish Fed bets and fears of the economic slowdown.

That said, 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% in previous readings. The core CPI, which means CPI ex Food & Energy, also crossed 6.1% consensus and 5.9% prior to print 6.3% for the said month.

Following the data, hawkish Fed bets increased, 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.

Further, 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.

Also contributing to the DXY strength are US President Joe Biden’s chip plans to increase hardships for China, as well as the rush toward stronger ties with China to fuel the Sino-American woes. Additionally, expectations that Russia will hit hard after retreating from some parts of Ukraine also weighed on the market sentiment and fuelled the US Dollar Index.

It should be noted that US President Joe Biden recently mentioned, “I'm not concerned about the inflation report released today.” The US leader also added that the stock market does not always accurately represent the state of the economy. The reason could be linked to the biggest slump in the US equities in two years after the US inflation data release.

Moving on, Thursday’s August month US Retail Sales and Friday’s preliminary reading of the Michigan Consumer Sentiment Index for September may entertain DXY traders ahead of the next week’s Federal Open Market Committee (FOMC). Given the firmer odds of the 0.75% rate hike and the hawkish Fed bias, the DXY is likely to remain on the bull’s radar.

Technical analysis

DXY’s U-turn from the 50-DMA, around 107.60 by the press time, keeps buyers hopeful of witnessing a fresh 20-year high, currently around 110.78.

• AUD/USD could be primed for a bullish correction prior to the next leg to the downside. 
• Bears have the 0.6713, 0.6699 and 0.6682 levels in their sights. 

If the market doesn't just continue to freefall, then a correction in AUD/USD would be expected at this juncture. The following illustrates a potential flight path for the Aussie over the coming sessions, while also taking into consideration the key jobs data on Thursday.

AUD/USD daily chart

From a daily perspective, the bearish impulse is powerful and this is a falling knife. However, if the bulls do somehow manage to take back control, 0.6800 will be eyed as a current 38.2% Fibonacci retracement of the sell-off. In any scenario, the downside is favourable either before the correction or after and the 0.6713, 0.6699 and 0.6682 levels will be of interest as prior daily lows. 

AUD/USD H1 chart

From an hourly perspective, the 38.2% of the hourly impulse is a touch beyond the midpoint of the 0.67 area guarding a deeper correction towards the 61.8% Fibonacci level around 0.6780 that has a confluence of the prior mid-way bounce (green candle).

• WTI remains sidelined after refreshing weekly top, before snapping three-day uptrend.
• OPEC forecasts robust energy demand during 2022, 2023 despite inflation woes.
• US inflation price triggered risk-off mood and drowned commodities.
• API stockpiles increase, focus on EIA inventories, US data for fresh impulse.

WTI crude oil traders seek clear directions around $87.50 during Wednesday’s Asian session, after reversing from the weekly high. That said, the black gold’s latest indecision could be linked to the mixed concerns over the demand-supply matrix.

Oil demand will increase by 3.1 million barrels per day (bpd) in 2022 and by 2.7 million bpd in 2023, unchanged from last month, the Organization of the Petroleum Exporting Countries (OPEC) said in a monthly report, per Reuters. The news also mentioned the signs that major economies were faring better than expected despite headwinds such as surging inflation.

Also positive for the energy prices could be the headlines suggesting the US plans to rebuild its emergency oil stocks, as well as the German and the European move to cap Russian oil gas prices. Furthermore, chatters that the Western oil deal with Iran is far also adding strength to the supply crunch fears and should have favored the energy bulls.

On the contrary, 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 WTI crude oil are the fears of economic slowdown due to the concerns surrounding China and Russia.

That said, 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% in previous readings. The core CPI, which means CPI ex Food & Energy, also crossed 6.1% consensus and 5.9% prior to print 6.3% for the said month.

It should be noted that the weekly prints of the industry inventory report from the American Petroleum Institute (API) also contributed to the commodity’s weakness. The API Weekly Crude Oil Stock increased to 6.035M during the week ended on September 09 versus 3.645M prior.

Looking forward, the black gold may remain pressured amid a firmer US dollar and the recession woes. However, the supply crunch woes can test the bears ahead of today’s official weekly inventory data from the US Energy Information Administration (EIA). Also important to watch will be 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 hurdle, around $89.25 by the press time, directs oil bears towards the previous monthly low near $85.75.

• GBP/JPY is facing barricades around 166.50 as the focus shifts to UK inflation data.
• The asset didn’t respond well to the mixed UK employment data.
• The Japanese administration is worried over the sheer depreciation of yen.

The GBP/JPY pair is facing feeble hurdles around 166.50 in the early Tokyo session. The asset has attempted a rebound after picking bids around the critical support of 166.00. The pair didn’t display a decent response to the release of the UK employment data on Tuesday.

The UK Office for National Statistics reported an increment in the number of jobless benefits claims by 6.3k against the expectations of a decline by 9.2k. While the Unemployment Rate scaled down to 3.6% in relation to the forecasts and the prior release of 3.8%.The catalyst which delighted the households and the Bank of England (BOE) policymakers is upbeat Average Hourly Earnings data.

The UK labor cost index has improved dramatically to 5.2% vs. the estimates of 5% and the prior release of 4.7%. Earlier, households were facing the headwinds of declining paychecks due to subdued wage-rate hikes. Therefore, inflation-adjusted payouts were not getting offset by lower paychecks. Now, an increase in earnings will strengthen them to pay energy and food bills effectively.

In today’s session, the UK Consumer Price Index (CPI) data will be of utmost importance. 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. The deadly duo of soaring jobless benefits claimed and price pressures will create more troubles in an already laborious job of BOE policymakers.

Meanwhile, yen bulls are focusing on the Industrial Production data, which is seen steady at -1.8% on an annual basis. The Japanese administration is worried over the sheer depreciation of yen. Japanese Deputy Chief Cabinet Secretary Seiji Kihara urges the country’s government to take necessary steps to counter excessive declines in the yen.

• A risk-off impulse kept the EUR/JPY from reaching a fresh YTD high at around the 146.00 psychological figure.
• EUR/JPY’s failure to re-test the 145.63 sent the pair tumbling below the 145.00 mark.
• Short term, the EUR/JPY might be headed downwards, but upside risks remain once the pair clears 145.00.

The EUR/JPY opens Wednesday’s Asian Pacific session with decent gains of 0.24%, after Tuesday’s 0.34% loss, courtesy of a risk-off impulse when data from the US flashed inflation decelerating less than estimates, fueling possibilities for a US Fed 75 bps rate hike. At the time of writing, the EUR/JPY is trading at 144.41.

EUR/JPY Price Analysis: Technical outlook

On Tuesday, the EUR/JPY rallied towards the new YTD high reached on Monday at 145.63 but fell short and dived below the 145.00 figure. That, alongside a minimal negative divergence between the EUR/JPY price action and the RSI, could open the door for a fall towards the September 12 daily low at 143.37, ahead of the 143.00 figure.

Short term, the EUR/JPY is neutral-to-downward biased. Even though a negative divergence emerged, EUR/JPY consolidated in the 144.15-145.00 range, with the 20-EMA at 144.15, being the first demand zone, which, once cleared, would pave the way for further losses.

If the above scenario plays out, the EUR/JPY’s next support would be the confluence of the 50-EMA and the daily pivot at around 142.14/19. Break below will expose the 100-EMA at 139.98, ahead of the S1 daily pivot at 139.67.

On the other hand, if the EUR/JPY clears the September 13 high at 145.37, a YTD high re-test is on the cards.

EUR/JPY Key Technical Levels

“As interest rates rise, Japanese banks will be at a disadvantage to US rivals,” said an official from Japan’s Financial Services Agency (FSA) during early Wednesday morning in Asia.

The official also signalled a close observation on the US dollar funding of the country’s banks, suggesting a move in the docket from the Bank of Japan (BOJ).

FX implications

There have been multiple Japanese officials suggesting an intervention to restrict the yen’s slump of late. However, no threats have been conveyed to the BOJ’s easy money policy, which in turn keeps the USD/JPY bulls hopeful around the 24-year high marked in the last week near 145.00.

Also read: USD/JPY Price Analysis: Marches firmly towards 144.40 after elevated US CPI

• AUD/JPY has picked bids around 97.20 on higher consensus for the Australian labor market.
• The Australian economy is expected to disclose job additions against lay-offs reported for July.
• Widening RBA-BOJ policy divergence will send the AUD/JPY towards 100.00.

The AUD/JPY pair has sensed a decent buying interest after hitting a low of 97.20 in the late New York session.  The risk barometer is aiming higher and will regain the bullish trajectory after overstepping the critical hurdle of 98.00. On Tuesday, the cross witnessed a steep fall after failing to cross the crucial resistance of 98.50 despite multiple attempts. The selling pressure faced by the aussie bulls is a short-term phenomenon as the cross is in a bull trend after demolishing the volatility contraction pattern on a higher timeframe.

The next trigger which will bring fireworks to the asset will be the Australian employment data, which will release on Thursday. As per the consensus, the Australian Bureau of Statistics will report an addition in job additions data by 35k against a lay-off of 40.9k payrolls. This will strengthen the Reserve Bank of Australia (RBA) in hiking interest rates further. Also, the Unemployment Rate is seen steady at 3.4%.

Apart from the employment data, Consumer Inflation Expectation will be released by the University of Melbourne, which is a significant inflation indicator. The economic data is expected to land significantly higher at 6.7% vs. the 5.9% reported earlier. This will force RBA Governor Philip Lowe to announce a fifth consecutive 50 basis points (bps) rate hike in its October monetary policy meeting.

On the Tokyo front, the Industrial production data will be keenly watched on Wednesday. The economic data is expected to remain stable at -1.8% and 1% on an annual and monthly basis respectively. The AUD/JPY pair is bound to hit the psychological resistance of 100.00 in the upcoming trading sessions as RBA-Bank of Japan (BOJ) policy divergence is expected to widen further on soaring price pressures in the Australian region.

• NZD/USD remains depressed at the 29-month low after New Zealand data.
• New Zealand Current Account deficit increased more than expected in Q2.
• Bears printed the biggest daily slump since March 2020 after US inflation data renewed recession woes.
• Thursday’s New Zealand GDP, US Retail Sales will be important for fresh impulse.

NZD/USD holds lower ground at the recently flashed two-year bottom of 0.5987 after New Zealand’s (NZ) second quarter (Q2) Current Account data was published during Wednesday’s initial Asian session. The Kiwi pair slumped the most in 30 months the previous day after the US Inflation data renewed recession fears.

New Zealand’s Q2 Current Account dropped to $-5.224B versus $-4.7B expected and $-6.143B prior. However, the Current Account – GDP Ratio improved to -5.224% from -7.4% market forecasts and -6.5% in previous readings.

On the other hand, 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.

The US inflation data renewed fears of the Federal Reserve’s aggressive rate hike as 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.

Further, 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 NZD/USD price.

Having witnessed a show of bears, the NZD/USD may experience a sidelined move amid a light calendar ahead of the US session that offers Producer Price Index (PPI) data for August. However, major attention will be given to Thursday’s NZ Q2 Gross Domestic Product (GDP) and August month US Retail Sales for fresh impulse.

Technical analysis

Unless bouncing back beyond July’s low of 0.6060, NZD/USD is on the way to visiting a four-month-old descending support line, close to 0.5920 by the press time.