• Silver remains pressured around intraday low, extending the week-start pullback from 21-DMA.
• Steady RSI hints at the metal’s further downside towards an ascending support line from mid-May.
• Convergence of 21-DMA, 13-day-old resistance line and 23.6% Fibonacci retracement level appears a tough nut to crack for bulls.

Silver (XAG/USD) stays on the back foot for the second consecutive day, taking offers at around $21.35, during Thursday‘s Asian session.

In doing so, the bright metal extends the recent pullback amid failures to cross the short-term key hurdles. Also keeping sellers hopeful is the steady RSI (14).

That said, the commodity prices drop towards an upward sloping support line from May 13, at $21.00 by the press time.

However, the monthly low of $20.89 and May’s bottom surrounding $20.45 will challenge the quote’s further declines ahead of highlighting the $20.00 psychological magnet for bears.

Alternatively, the 21-DMA, a two-week-old descending trend line and 23.6% Fibonacci retracement of the April-May downside together offer a strong resistance around $21.80-85.

Should the quote manage to rise past $21.85, an upward trajectory towards the 50-DMA and then to the monthly high, respectively around $22.40 and $22.50, can’t be ruled out.

Overall, silver prices are likely to witness further downside but the room to the south appears limited.

Silver: Daily chart

Trend: Further downside expected

• USD/CAD picks up bids to defend the previous day’s rebound from one-week low.
• WTI crude oil remains pressured around monthly low amid chatters over gas tax holiday.
• Bulls stay hopeful amid market’s anxiety, Fed Chair Powell’s defense to the biggest rate hike since 1994.

USD/CAD refreshes intraday high around 1.2960 during the initial Asian session on Thursday, extending the rebound from the weekly low. In doing so, the Loonie pair takes clues from softer oil prices, as well as the US dollar’s reluctance to decline further, amid a quiet session.

WTI crude oil prices dropped 0.85% to $103.50, down for the second consecutive day around the lowest levels in six weeks. The black gold’s latest weakness could be linked to the bearish weekly inventory data from the American Petroleum Institute (API). As per the API Weekly Crude Oil Stock for the period ended on Jun 17, stockpiles rose 5.607 million barrels versus an increase of 0.736 million barrels the previous week. Additionally, talks that US President Joe Biden will announce gas tax relief by the end of the week also weighed on the oil prices.

It should be noted that the market’s indecision following the Fed Chair Jerome Powell’s Testimony and the fears of recession, as well as aggressive monetary policy actions, also propel the USD/CAD prices.

Federal Reserve (Fed) Chairman Jerome Powell’s justification for the recent rate hike, the biggest since 1994, managed to gain acceptance, at least during the first round of the Testimony on the bi-annual Monetary Policy Report. However, Powell’s rejection of the need for a heavy rate increase seemed to exert downside pressure on the greenback afterward.

While portraying the mood, Wall Street managed to pare the day-start losses but ended Wednesday with mild losses whereas the US 10-year Treasury yields marked the biggest daily fall in a week by ending the day at around 3.16%. That said, the S&P 500 Futures print mild losses by the press time.

Talking about data, Canada’s headline Consumer Price Index (CPI) rose to 7.7% YoY versus 7.4% expected and 6.8% prior. The more observed inflation figure, namely the Bank of Canada CPI Core, rose 6.1% YoY compared to 5.9% market consensus and 5.7% previous readings.

Moving on, the US S&P Global PMIs for June will entertain the USD/CAD traders along with the weekly US Jobless Claims and the second round of Fed Chair Jerome Powell’s Testimony.

Technical analysis

10-DMA puts a floor under short-term USD/CAD declines around 1.2930. However, the double tops around 1.3075-80 appear a tough nut to crack for the bulls.

• A downside break of an inverted flag has bolstered the Swiss franc bulls.
• The 20- and 50-EMAs are trending southwards, which signals a bearish bias.
• The RSI (14) has shifted into a bearish range which adds to the downside filters.

The USD/CHF pair is juggling in a narrow range of 0.9581-0.9625 in the early Asian session after a downside move below the critical support of Friday’s low at 0.9619. Sustainability below the critical support for a sufficient time dictates that the asset bulls have accepted their defeat and are aiming for an imbalance auction on the downside.

On an hourly scale, the asset has given a downside break of the Inverted Flag chart formation. A downside break of the above-mentioned chart pattern indicates that the inventory distribution is over now and the asset is ready for a markdown phase.

The 20- and 50-period Exponential Moving Averages (EMAs) at 0.9630 and 0.9650 respectively are scaling lower, which adds to the downside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bearish range of 20.00-40.00, which signals more downside ahead.

A minor rebound towards Friday’s low at 0.9619 will be a selling opportunity, which will activate the Swiss franc bulls and will drag the asset towards May 27 low at 0.9545, followed by March 16 high at 0.9460.

On the flip side, the greenback bulls could regain control if the major overstep Friday’s high at 0.9733, which will send the asset towards June 9 high at 0.9817. A breach of the latter will drive the asset towards June 14 low at 0.9874.

USD/CHF hourly chart

• AUD/JPY refreshes intraday low after Australia’s S&P Global PMIs for June.
• Manufacturing, Services PMIs came in firmer, Composite PMI eased during the stated month.
• Sluggish markets add strength to the pair’s inaction ahead of Japan PMIs, inflation data.

AUD/JPY takes offers to refresh daily lows on mixed Aussie PMI data for June. That said, the cross-currency pair retreats to 94.15 by the press time of early Thursday morning in Asia, extending the previous day's pullback from a two-week high.

Preliminary readings of Australia’s S&P Global PMIs for June came in mixed as the Manufacturing and Services PMIs rose past market forecasts and priors but the Composite PMI eased below the previous readouts. The Manufacturing PMI rose to 55.8 versus 54.7 expected and 55.7 prior whereas the S&P Global Services PMI rose past 49.1 market consensus to 52.6, versus 53.2 previous readings. It should be noted that the Composite PMI eased below 52.9 to 52.6 in June.

It’s worth noting that the market’s inaction also appears to weigh on the risk barometer cross-currency pair. Given the latest indecision following the Fed Chair Jerome Powell’s Testimony and the fears of recession, as well as aggressive monetary policy actions, traders await clear directions.

Federal Reserve (Fed) Chairman Jerome Powell’s justification for the recent rate hike, the biggest since 1994, managed to gain acceptance, at least during the first round of the Testimony on the bi-annual Monetary Policy Report. However, Powell’s rejection of the need for a heavy rate increase seemed to exert downside pressure on the greenback afterward.

Amid these plays, Wall Street managed to pare the day-start losses but ended Wednesday with mild losses whereas the US 10-year Treasury yields marked the biggest daily fall in a week by ending the day at around 3.16%. That said, the S&P 500 Futures print mild losses by the press time.

Looking forward, Japan’s first readings of Jibun Bank PMIs for June and Friday’s inflation data will be crucial as the Bank of Japan (BOJ) keeps resisting higher rates despite the weaker yen.

Technical analysis

Unless breaking the 93.80 support confluence including the 21-DMA and a six-week-old support line, AUD/JPY bears remain off the table. 

• NZD/USD is heavy against a 38.2% Fibo area near 0.6280.
• 0.6252 could be the last area of support before a run towards liquidity around 0.6340. 

NZD/USD was heavily sold-off on Wednesday before it managed to draw in a bid on the back of US dollar weakness, (more on DXY technical analysis here). The moves have created a lot of new market structures which are worthy of a multi-timeframe top-down analysis as follows:

NZD/USD weekly chart

The weekly downtrend remains intact and there are prospects of a move into the grey zone below the market which is a price imbalance near 0.6120 that guards a firm area of demand. The mid point of this demand area is located near 0.6040.

NZD/USD daily charts

The daily chart's structure was broken to form a lower low from where it has rallied in a 50% mean reversion. The bears took over and the price is making its way in a grind back to the downside and would be expected to continue lower towards the weekly demand area. 

However, when zooming in on the structure, an M-formation is in development.

Zoomed in on the M-formation:

The M-formation is a reversion pattern and the price would be expected to fill any price imbalances left behind towards the neckline, as illustrated above. There is a price imbalance at this juncture, at 0.6318, but the close of the current daily candle will determine whether the price left a void of bids or not for the remaining sessions of the week. Judging by the following short-term analysis, this void of bids is less likely to be mitigated before the end of the day with the bias towards 0.6250.

NZD/USD H4 chart

On the 4-hour chart, the schematic is a busy one...

We have a market trying to correct towards the price imbalance (PI) and a 61.8% Fibonacci near 0.6310. However, the 50% mean reversion and 38.2% ratios are holding things up below 0.63 the figure. This leaves the scope for a revisit to the order block (OB) or demand/support area near 0.6250. If bulls commit there, then there will be more gas in the tank for the bird to fly through 0.6310 and towards liquidity higher up in the prior order block that is situated in and around 0.6340.

NZD/USD H1 chart

On the hourly time frame, we have had a recent break of structure to the upside. Should the price fail to move higher from the 38.2% Fibo area near 0.6280, then there is a higher probability that the price imbalance between 0.6270 and 0.6261 will be mitigated which guards the mid point of the demand area, or order block (OB) at 0.6252. This would be expected to result in a flurry of bids and a subsequent run towards liquidity towards 0.6340. 

• AUD/USD is not responding much to the higher-than-expected Aussie PMI data.
• The Manufacturing PMI has landed at 55.8 while the Services PMI has been recorded at 52.6.
• The DXY has failed to capitalize on hawkish guidance in Fed Powell’s testimony.

The AUD/USD pair is ignoring the higher-than-expected Purchase Managers Index (PMI) data reported by the IHS Markit. The Services PMI has landed at 52.6, significantly higher than the expectations of 49.1 but lower than the former figure of 53.2. While the Manufacturing PMI has been recorded at 55.8, higher than the consensus and the prior print of 54.7 and 55.7 respectively.

On a broader note, the antipodean is underperforming against the greenback despite the positive June meeting minutes from the Reserve Bank of Australia (RBA). As per the RBA minutes, the Australian economy doesn’t see any signs of a recession on the current horizon. Household spending is resilient despite depreciated paychecks due to higher price pressures.

On the employment front, the Unemployment Rate at 3.9% is going to remain untouched while fixing the inflation mess, which indicates that the labor market in the Australian economy is extremely tight. A minor increase in the Unemployment Rate while addressing the inflation mess could be manageable.

Meanwhile, the US dollar index (DXY) has faced barricades around 104.30 and is expected to extend its losses after violating the round-level support of 104.00. It looks like the hawkish guidance from Federal Reserve (Fed) chair Jerome Powell in his testimony has failed to fetch bids for the DXY. Fed Powell is expecting a consecutive 75 basis point (bps) interest rate hike in July monetary policy. Achievement of price stability in the economy is their ultimate goal. And, for the achievement of the same, a tight labor market and resilient demand in the US economy are highly supportive.

• EUR/USD treads water after three-day uptrend, dribbles around two-week high.
• Clear break of 10-DMA, impending bull cross on MACD favor buyers.
• Convergence of 21-DMA, 50-DMA appears a tough nut to crack for the bulls.
• One-week-old ascending trend line adds to the downside filters.

EUR/USD bulls take a breather around 1.0570, following a three-day uptrend, as traders await the preliminary PMIs for June month from Eurozone and the US during early Thursday.  

Even so, the major currency pair defends the previous day’s breakout of the 10-DMA, the first since early June, which in turn keeps buyers hopeful. Additionally suggesting the quote’s further upside is the looming bull cross of the MACD.

With this, the EUR/USD buyers are all set to challenge the 1.0610 hurdle comprising the 50-DMA and the 21-DMA.

It should be noted, however, that the pair’s ability to cross the 1.0610 key resistance will propel it towards a two-month-old downward sloping resistance line, at 1.0690 by the press time.

On the contrary, pullback moves remain elusive until the EUR/USD prices remain beyond the 10-DMA level of 1.0500.

Following that, a one-week-long support line, close to 1.0485 at the latest, will act as an additional downside filter before directing the pair towards the recently flashed multi-month low of 1.0349.

EUR/USD: Daily chart

Trend: Further upside expected

• Despite backing away from weekly highs, the AUD/JPY is gaining 0.72% weekly.
• Risk-aversion abates appetite for risk-sensitive currencies, boosting the JPY.
• AUD/JPY Price Analysis: Remains upward biased, but sellers are lurking as a rising wedge dawn.

The AUD/JPY recoils from weekly highs as a bearish piercing pattern materializes in the last couple of days’ price action, which tumbles the cross-currency below the 95.00 mark on Wednesday. As the Asian session begins, the AUD/JPY is trading at 94.25, down by a minimal 0.08% at the time of writing.

Asian futures slide late in the New York session, illustrating a dismal mood. Fears that the US might get into a recession and threatens to trigger a more profound global economic slowdown weighed on the AUD/JPY. Additionally, the US Fed Chair Jerome Powell acknowledging the possibilities of causing a recession kept investors uneasy.

AUD/JPY Price Analysis: Technical outlook

Daily chart

The cross-currency stays upward biased, as shown by the daily chart. Nevertheless, AUD/JPY’s Wednesday’s price action shifted negatively in sync with the Relative Strength Index (RSI), crossing below the RSI’s 7-day SMA, indicating that sellers are stepping into the pair. That, alongside a rising wedge surfacing, might open the door for further losses if the AUD/JPY breaks below the wedge’s bottom trendline.

For that scenario to play out, the AUD/JPY bears need to step in and drag prices lower. In that case, the AUD/JPY first support would be the June 22 low at 93.58. A breach of the latter would send the pair slumping towards 93.00, followed by the June 16 cycle low at 91.96.

AUD/JPY Key Technical Levels

• GBP/USD fails to extend the corrective pullback from weekly low, sidelined of late.
• Fears of Tories double defeat in by-elections join unimpressive UK data to weigh on prices.
• Fears of recession, BOE’s refrain from higher rates and Brexit woes are an extra burden to consider.
• Fed Chair Powell’s measured comments couldn’t propel USD, UK/US PMIs for June will be important catalysts.

GBP/USD treads water around 1.2265 during the early Asian session on Thursday, after failing to extend the recovery from a weekly low beyond 1.2315. The cable pair’s latest inaction could be the mixed plays, as well as cautious sentiment ahead of the preliminary PMIs for June month from the UK and the US.

Fears of Conservatives’ defeat in the UK’s by-elections appear the latest blow to UK PM Boris Johnson as he struggles to defend the leadership amid the partygate scandal. “The Conservatives are braced to lose two parliamentary by-elections, according to senior party strategists, in moves that could prompt a renewed backlash against Boris Johnson,” per the Financial Times (FT). The news mentioned polls on Thursday in Wakefield, West Yorkshire, and Tiverton and Honiton in Devon, in by-elections prompted by the resignations of Tory MPs.

Elsewhere, the UK Consumer Price Index (CPI) matched 9.1% YoY market forecasts for May, above 9.0% prior, which in turn exerted additional downside pressure on the GBP/USD prices. The reason is the data-driven push on the Bank of England (BOE) to accelerate the pace of rate hikes versus the policymakers’ reluctance to do so.

Furthermore, fears of a hard Brexit weighing on the UK economy, which is on the brink of recession, also challenged the cable pair’s previous rebound. On Wednesday, The Telegraph said that Jacob Rees-Mogg has unveiled a new website so that Britons can “countdown” the scrapping of the more than 2,000 EU laws still in force. It’s worth noting that the UK PM Johnson is under fresh criticism from UK fishers due to the Brexit tussles with the European Union.

On the contrary, Federal Reserve (Fed) Chairman Jerome Powell’s justification for the recent rate hike, the biggest since 1994, managed to gain acceptance, at least during the first round of the Testimony on the bi-annual Monetary Policy Report. However, Powell’s rejection of the need for a heavy rate increase seemed to exert downside pressure on the greenback afterward.

Elsewhere, Wall Street managed to pare the day-start losses but ended Wednesday with mild losses whereas the US 10-year Treasury yields marked the biggest daily fall in a week by ending the day at around 3.16%.

Moving on, the first readings of the UK and the US S&P Global PMIs for June will be crucial amid fears of recession and inflation. The UK S&P Global/CIPS Manufacturing PMI is likely to ease to 53.7 from 54.6 while the Services PMI could recede to 53.0 versus 53.4.

Given the expectations of softer numbers from Britain, coupled with the market’s anxiety and the latest political jitters in the UK, GBP/USD may remain pressured. Also likely to exert downside pressure on the cable pair are the upbeat expectations from the US data.

Technical analysis

Despite the latest inaction, GBP/USD managed to cross the two-week-old descending trend line, now support around 1.2245, which in turn suggest another attempt to cross the 21-day EMA hurdle, at 1.2355 by the press time.

• USD/JPY is holding itself above 136.00 as investors are focusing on PMI figures.
• Costly oil and food prices contaminate Japan’s inflation figure near 3%.
• Fed Powell is expected to dictate a consecutive 75 bps interest rate hike in July.

The USD/JPY pair is displaying back and forth moves in a narrow range of 136.10-136.30 in the Asian session. The asset has turned sideways after taking support from 135.69 on Wednesday. Investors should brace for a volatility contraction and be biased to the greenback bulls on a broader note.

Federal Reserve (Fed) chair Jerome Powell’s testimony on Wednesday is expected to strengthen the greenback bulls against the Japanese yen. Fed Powell has guided a similar interest rate hike in July like the June monetary policy with 75 basis points (bps) interest rate hike and an extreme hawkish tone. The focus of the Fed is to bring price stability to the economy, which currently demands higher interest rates. What music to the ears is that the economy is strong enough to tackle the headwinds of tight monetary policy.  

In today’s session, investors’ focus will remain on the Purchase Managers Index (PMI) figures. The Manufacturing PMI is expected to slip to 56 from the prior print of 57. While the Services PMI may advance marginally to 53.5 from the former figure of 53.4. On the yen front, the Jibun Bank Manufacturing PMI is seen surging to 54.4 vs. 53.3 reported earlier. However, the Services PMI may slip to 52.2 vs. 52.6 prior.

Meanwhile, the yen investors are majorly focusing on the Consumer Price Index (CPI) figures, which are due on Friday. The annual National CPI is likely to increase to 2.9% from the former print of 2.5%.  It is worth noting that the core CPI may slip to 0.4% vs. 0.8% recorded earlier. This clears that the price pressures in Japan are majorly contributed by higher oil and food prices.

“An early look at the state of the U.S. job market in June from payroll provider UKG suggests some strengthening, even as the Federal Reserve lifts interest rates sharply and economists raise alarms over the likelihood of a recession,” said Reuters late Wednesday.

Key quotes

Workforce activity increased slightly in the first two weeks of the month, according to the firm which tracks shift work in real-time. It mostly declined during the prior three months.

Particularly notable, the firm said, was an increase in demand for workers in retail, the first such increase since the start of the year.

Powell on Wednesday said he does not see current recession risks as being particularly elevated, though a downturn will be "challenging" to avoid, especially because so many of the factors putting upward pressure on prices are beyond the Fed's control, such as Russia's war and China's COVID-19 lockdowns.

But Powell also said he believes the labor market is "unsustainably hot," suggesting that he would welcome some cooling.

Market reaction

The news fails to gain any major reaction as most currency pair’s remained sidelined and the S&P 500 Futures print mild losses by the press time.

Also read: Forex Today: Recession and inflation, the perfect storm

• Gold price is stabilizing below $1,840.00 as investors await the release of the US PMI.
• Fed Powell stated that the economy is rock solid to bear the consequences of higher interest rates.
• The US PMI is expected to deliver a vulnerable performance.

Gold price (XAU/USD) is displaying volatility contraction as investors are shifting their focus to US Purchase Managers Index (PMI) figures after the testimony from Federal Reserve (Fed) chair Jerome Powell. The commentary from Fed Powell remained in line with the expectations of the market.

Fed Powell is in favor of maintaining the status quo as bringing price stability to the economy is their supreme motive. The economy is facing the headwinds of runaway inflation, however, the economy is much solid to bear the consequences of the price pressures. The labor market is really tight and is providing support to the Fed in extreme policy tightening. Demand for labor is extremely higher however its supply constraints are restricting more payrolls.

The positive commentary from Fed Powell on the US economy has fumed confidence in the sentiment of the market participants. Now, the PMI figures have become the focus area. As per the market consensus, investors should brace for a vulnerable performance. The Services PMI is seen at 49.1 against the prior print of 53.2. While the Manufacturing PMI is expected to slip to 54.7 from the former figure of 55.7. A slippage in the Services and the Manufacturing PMI eventually indicates a plunge in the aggregate demand.

Gold technical analysis

On an hourly scale, the gold prices have overstepped the downward sloping trendline placed from June 12 high at $1,879.26, adjoining June 16 high at $1,857.40. The precious metal is balancing and is expected to extend recovery after sustaining above the critical hurdle of $1,840.00. A bull cross, represented by 20- and 50-period Exponential Moving Averages (EMAs) at $1,835.20 add to the upside filters. The Relative Strength Index (RSI) (14) is expected to extend gains after violating 60.00 decisively.

Gold hourly chart

• The AUD/USD edges down, weighed by sour market sentiment, despite a soft US dollar.
• The US 10s-2s yield curve stays in positive territory but below the 1% threshold.
• Fed’s Powell acknowledged that the Fed could tip a recession in the US.
• AUD/USD Price Analysis: in the near term, it is downward biased and might print a fresh YTD low.

The AUD/USD snaps two days of gains and slides for the first time in the week, reaching a fresh weekly low at around 0.6881, though it achieved a comeback and settled around 0.6920s. At 0.6925, the AUD/USD is down 0.62% as the New York session ends.

Sentiment turns sour, risk-sensitive currencies fall

US equities could not hold to gains and recorded losses of around 0.15% on average, weighing on market sentiment. Likewise, the Federal Reserve’s aggressive tightening, further emphasized by Fed Chair Powell in the US Congress, and fears that the US central bank might get the US economy into a recession, put a lid on the AUD/USD and dragged the major down.

Jerome Powell, the Federal Reserve Chair, said that the Fed is strongly committed to bringing inflation down and added that the pace of tightening would depend on incoming data, alongside the US economic outlook. Also, and for the first time, he acknowledged that Fed actions could tip the US into a recession.

In the meantime, US Treasury yields would remain the primary focus for traders as they grasp the chances of a recession in the US. The US 10s-2s yield curve uptick and stays around 0.098%, after shifting to the recessionary territory around -0.08% in April 2022.

Elsewhere,  the US Dollar Index, a measure of the greenback’s value against its peers, remains heavy, falling 0.22%, at 104.196.

Data-wise, the Australian economic docket will reveal a pack of S&P Global PMIs indices. On the US front, the US calendar will feature Fed Chief Jerome Powell’s second day at the US Congress, Initial Jobless Claims, and S&P Global PMIs.

AUD/USD Price Analysis: Technical outlook

In the near term, the AUD/USD 4-hour chart depicts the pair as in a downtrend. Additionally, it faced solid resistance at the 50-simple moving average (SMA), which, in the last couple of days, being a dynamic resistance, kept AUD buyers contained from lifting exchange rates near the 0.7000 figure.

Therefore, the AUD/USD path of least resistance is downwards, and its first support would be 0.6900. Break below will expose the S1 daily pivot at 0.6880, followed by the S2 daily pivot point at 0.6840.

• DXY is being sold off on the shorter-term time frames, 103.13-eyed near-term, 102.39 thereafter. 
• The bias remains bullish on the daily chart until a break of downside structure, or 101.297.

Despite the persistent message from Fed members that there is a ''need to raise interest rates 'a good deal more' over the coming months,'' the US dollar has been on the back foot.

While it has been breaking the short-term structure and the trend from 101.297, as illustrated below, the long-term bullish playbook remains very much in play, at least from a technical standpoint. 

The following is a top-down analysis that arrives at a bullish bias for the longer term, albeit noting the prospects of a near-term significant correction on the shorter-term charts. 

DXY H1 charts

As illustrated in the hourly time frame, the price has broken the structure of the bullish short-term trend and the market is biased to the downside. Zooming in, we can see the market structure broken down through a lense:

The recent bearish impulse took out a number of short-term higher lows in a break of structures (BoS). Therefore, the downside is to play for. However, there is a price imbalance that could be mitigated prior to a full-on move to the downside.

A 61.8% Fibo aligns with the first area of imbalance around 104.32. Thereafter, a restest of a liquidity area or 'order block' (OB) could be the last defence for a move down to the next significant demand area near 103.13, or there about. 

DXY daily chart

Meanwhile, however, from a daily perspective, the price remains in a bullish uptrend. The market structure is as follows:

The break of structure led to a higher high. What could be playing out is a mere run on liquidity across the various currencies supporting the index and the US dollar, aka, a healthy correction in the forex market. In the DXY index, there has already been a 61.8% Fibo correction to 103.33 and a touch below where the price rallied.

However, given the breakdown of the short-term market structure, as illustrated above, then this leaves the price imbalance just below 103 vulnerable. Below there, we have a demand area's mid point located at 102.3904, another at 101.9889 and then finally 101.336.

DXY bullish

In any scenario, the bias remains bullish on the daily chart until a break of downside structure, or 101.297, as follows:

What you need to take care of on Thursday, June 23:

The dollar finished Wednesday against most major rivals, although the slide was limited. Most major pairs remain within familiar levels, with volatility limited.

The main event of the day was US Federal Reserve chief Powell’s testimony before Congress. Powell kick-started his speech, saying that the central bank is strongly committed to bringing inflation back down and that the ongoing interest rate increases will remain appropriate. By the end of the event, he added that they would never take any size of rate hike off the table, regardless higher interest rates are likely to be painful and could cause a recession.

Concerns about inflation and potential recessions remain the same. UK inflation hit 9.1% YoY in May, a 40-year high, while the Canadian Consumer Price Index surged by 7.7%, the highest in 39 years. It is not just about the US, but a global scenario, a result of the pandemic. The risk of a US recession, however, is increasing and the one most worrisome for financial markets.  

Meanwhile, persistent tensions in Ukraine exacerbate commodity and food prices. German Chancellor Olaf Scholz diminished the chances of a pacific solution as he noted that Russian President Vladimir Putin still believes in a dictated peace.

Different US Federal Reserve officials were on the wires but added nothing new to what markets already now. A 75 bps rate hike is on the table for July, while inflation will likely remain high throughout 2023.

The EUR/USD pair advanced for a third consecutive day but remained below the 1.0600 threshold. GBP/USD briefly advanced beyond 1.2300 but ended the day at around 1.2260. Safe-haven CHF appreciated against the greenback, while USD/JPY consolidated and settled at around 136.10.

Commodity-linked currencies posted modest losses against the greenback, recovering from their early slides, as US indexes managed to hold ground, ending the day mixed around their opening levels. Asian and European indexes, on the other hand, closed in the red.

US Treasury yields edged lower amid recession fears, with that on the 10-year note currently at 3.14%.

Gold advanced at the beginning of the day but once again met sellers around the $1,850 rea and finished the day at around $1,838 a troy ounce. Crude oil prices remained at the lower end of their weekly range, with WTI settling at $105.50 a barrel.

• Gold moves higher on US dollar weakness following Powell's testomony.
• Gold is trading between two levels of resistance & support, $1,810, or thereabout, on the downside and $1,875, or there about on the upside.

The nearest test demand area, or order block, is located at around $1,826. There is a price imbalance between there and the current spot price that could be mitigated in the near term, drawing the market towards the demand zone. If the bulls commit, then there will be a case for a move higher towards areas of imbalance above on the way towards $1,875. 

At $1,840, the price of gold is a little lower than the highs but still, the bulls are 0.4% higher on the day. The price has travelled between a low of $1,823.45 and a high of $1,847.93 so far. A threat in US Treasury yields and the US dollar has bolstered bullion's appeal amid growing recession concerns but it has started to give up early gains as investors move into US stocks and risk assets despite higher interest rates.

Bond yields fell ahead of testimony by Federal Reserve chair Jerome Powell to Congress and his delivery was taken as less hawkish. The softer yields are bullish for gold since the yellow metal offers no interest. The yield on the US 10-year note was last seen down 3.8% to 3.156%, falling from a high of 3.283% to a low of 3.124%. Meanwhile, US stock markets have reversed course from early losses and moved higher, with the Dow Jones up 0.6% and the S&P 500 index last seen up 0.75%. The NASDAQ is higher by 0.9%. The US dollar edged down 0.3% as measured by the DXY index, falling from a high of 104.95 to a low of 103.858.

Federal Reserve Chair Jerome Powell said the US central bank is "strongly committed" to bringing down inflation, but there was a sigh of relief that Powell was not any more hawkish than he was when the Fed raised its benchmark overnight interest rate by three-quarters of a percentage point, its biggest hike since 1994.

While Powell said that the Fed was strongly committed to returning inflation to its 2% objective, he did not state that this commitment is unconditional, as the Monetary Policy Report did last week. Additionally, during the Q&A he tried to convince the audience that a soft landing is possible, but that price stability is his first priority right now. However, recession fears are mounting.

This is offering support to gold bugs looking for a peak in market pricing for Fed hikes, analysts at TD Securities noted. ''Markets are increasingly discounting a recession looming on the horizon, which historically has led a pivot in Fed policy. However, this hiking cycle differs from recent historical analogs as the Fed's ability to control inflation is limited, given that the supply-side is disrupted.''

''In turn, gold bugs sniffing out a potential stagflationary outcome associated with lower growth but lingering inflation should also consider that central banks, facing a credibility crisis, could also continue to raise rates for longer than they otherwise would. In this scenario, pricing for a Fed pivot would be less associated with recession odds than in prior episodes,'' the analysts explained further.

''In the immediate term, CTA trend followers are also supporting the yellow metal, after Chair Powell tactfully manufactured a sell-the-news rally in gold following a 75bp hike, which has manifested as a whipsaw for CTA trend followers.''

Gold technical analysis

The above illustration of the 4-hour time frame pinpoints the areas of liquidity in the order blocks (OBs), or the expected levels of demand and supply, and the areas where the price is yet to mitigate the price inefficiencies (PI), or 'price imbalances' (a miss-match in bids and offers). This leaves the price trapped between $1,810, or thereabout, on the downside and $1,875, or there about on the upside.

The nearest test demand area, or order block, is located at around $1,826. There is a price imbalance between there and the current spot price that could be mitigated in the near term, drawing the market towards the demand zone. If the bulls commit, then there will be a case for a move higher towards areas of imbalance above on the way towards $1,875. 

• The common currency stages a recovery and gains vs. the pound, up by some 0.41% in the week.
• The market mood remains fragile, though choppy trading is expected in the pair.
• EUR/GBP Price Analysis: Per the daily and 4-hour chart, the pair is upward biased, and a re-test of the YTD highs is on the cards.

The EUR/GBP climbs for the fourth trading session, up by 0.44% on Wednesday amidst a mixed market mood. At 0.8615, the EUR/GBP trades near weekly highs around 0.8624 after bouncing off 0.8568 daily lows printed earlier.

Depicting the mixed sentiment is European bourses trading in the red while US equities rise. The euro rallied after UK’s inflation rose above the 9% threshold and despite a dismal EU Consumer Confidence, which didn’t deter EUR/GBP traders from opening fresh bets against the stagflationary scenario looming in the UK.

EUR/GBP Price Analysis: Technical outlook

EUR/GBP Daily chart

The EUR/GBP is still upward biased, despite the June 15 reversal, in which the pair plummeted 100 pips. Despite the setback, the EUR/GBP has trimmed 50% of those losses. Traders need to be aware that the exchange rate remains above the spot price, meaning that the upward bias remains intact in the near term. Also, the Relative Strength Index (RSI) in the bullish territory aims higher and has broken above the RSI’s 7-period SMA.

EUR/GBP 4-hour chart

In the near term, the EUR/GBP remains in an uptrend, as well as the daily chart. However, the EUR/GBP faces solid resistance at the R2 daily pivot point around 0.8628. The good news for EUR/GBP bulls is that the 20-hourly EMA has crossed above the 50-EMA one, meaning buyers are stepping in to propel the cross towards higher prices.

Therefore, the EUR/GBP first resistance would be the mentioned-above R1 daily pivot around 0.8628. A breach of the latter would expose the 0.8700 figure, followed by the YTD high around 0.8721.

• The common currency continues its recovery in the week, up by 0.81%.
• The market mood remains fragile, though Wednesday weighed on the greenback.
• EUR/USD Price Forecast: Upward biased in the near-term, a test of the 1.0600 figure is on the cards.

The shared currency extends its gains in the week, advances for the third straight day, up by 0.45%, amidst a mixed market mood surrounding the financial markets. At the time of writing, the EUR/USD is trading at 1.0576.

Sentiment is mixed. European bourses ended with losses, while US equities remain positive. In the meantime, the EUR/USD held its gains, despite a dismal EU Consumer Confidence print of -23.6, compared to expectations of -20.5. The major barely reacted to the news, as the EUR/USD remained underpinned by higher German 10-year yields, alongside a weaker US dollar. Also, traders were focused on Fed Chair Jerome Powell testifying at the US Senate.

On Wednesday, the US Federal Reserve Chief Jerome Powell testified at the US Senate. He said that the central bank remains committed to bringing inflation down and added that data and the US economic outlook would determine the pace of tightening. Additionally, for the first time, he acknowledged that hiking rates could tip the US economy into a recession and called that a soft landing will be “very challenging.”

Elsewhere,  the US Dollar Index, a measure of the greenback’s value against its peers, remains heavy, falling 0.30%, sitting at 104.110, while the US 10-year Treasury yield got no support from Powell, down thirteen basis points, yielding 3.145%.

Ahead of the week, the EU economic docket will be busy, featuring S&P Global PMIs in France, Germany, and the Euroarea. Also, the ECB will host a General Council Meeting. Across the pond, the US calendar will feature Fed Chief Jerome Powell’s second day at the US Congress, Initial Jobless Claims, and S&P Global PMIs.

EUR/USD Price Forecast: Technical outlook

In the last seven days, the EUR/USD has advanced steadily in six, though the negative day was absorbed by June’s 20 and 21 price action. EUR/USD traders should note that the Relative Strength Index (RSI) at 49.45 is aiming higher after breaking above the RSI’s 7-day SMA, suggesting some buying pressure is mounting on the pair.

Therefore, the EUR/USD is upward biased in the near term. That said, the EUR/USD first resistance would be the 1.0600 figure. A breach of the latter would expose the June 10 daily high at 1.0642, closely followed by the 1.0700 mark.

Key Technical Levels

Chicago Federal Reserve Bank President Charles Evans on Wednesday has signalled he is with the core group at the Fed calling for continued rapid rate hikes to battle 40-year high inflation, noting "downside" risks.

"I expect it will be necessary to bring rates up a good deal more over the coming months in order to return inflation to the Committee’s 2 percent average inflation target," Evans said in remarks prepared for delivery in Cedar Rapids for the Corridor Business Journal's mid-year economic review.

"We must be watchful and ready to adjust our policy stance if changes in economic circumstances dictate," Evans said. 

Key quotes

Will need to raise interest rates 'a good deal more' over the coming months.

Many risks to the downside, much be watchful and ready to adjust policy stance.

Inflation is clearly much too high.

Bad news on inflation was an important consideration in my own support for a 75-bps hike in June.

Own viewpoint is roughly in line with expectations for a policy rate of 3.25%-3.5% at year-end, 3.8% by end-2023.

Rates are not on a preset course, the Fed will respond to data.

Less accommodative monetary policy will dampen very high labour demand.

Inflation will cool substantially over the next couple of years.

The labour market is downright tight.

Tighter monetary policy plays a very important role in my forecast of lower inflation.

US dollar update

Despite the persistent message from Fed members that there is a  ''need to raise interest rates 'a good deal more' over the coming months,'' the US dollar has been on the back foot, breaking the short-term structure and the trend from 101.297:

Major US stock indexes rose on Wednesday after Federal Reserve Chair Jerome Powell said the US central bank is "strongly committed" to bringing down inflation, while benchmark Treasury yields eased, leaving the IUIS dollar hung out to dry. The DXY index is down some 0.3% at the time of writing. 

Analysts at MUFG Bank, hold a bullish bias for the USD/JPY pair, reflecting the fact that the US rates market is unlikely to correct dramatically lower over the very short term. They see the pair trading between 130.00 and 138.50 during the weeks ahead. 

Key Quotes:

“Risk-off and general tighter financial conditions remain a key catalyst for further US dollar strength. The historic norm of USD/JPY falling in those market conditions will only return if risk-off starts to influence US yields lower. That has not been the case so far this year and hence the risk correlation with JPY is less robust. We do not expect that to change over the short-term and hence we hold a bullish bias on USD/JPY direction over the short-term. Elevated US rates and JPY valuation should limit the scale of JPY depreciation from here. Furthermore, 

“The statement this month from the BoJ/MoF/FSA expressing concern over JPY depreciation may act to slow or curtail JPY depreciation at higher levels closer to 140.00. In addition, continued concerns over inflation and limited scope for US rates to correct lower should provide support for USD/JPY, especially if rates volatility eases and Japan investor buying of UST bonds starts to pick up again.”

“The main downside risk for USD/JPY in the month ahead would be if the scale of JPY weakness finally triggers a joint policy response from the government and BoJ. But the scale of JGB buying by the BoJ last week suggests action to limit yen weakness is unlikely over the short-term. A sharper correction in US rates lower is another key downside risk and while we expect that to materialize later, it is premature to expect that over the short-term with the primary focus of the Fed still on tackling upside inflation risks.”
 

Inflation in Canada reached in May levels not seen since 1983. Analysts at CIBC point out that CPI numbers makes a 75 basis points interest rate hike at the next meeting a near certainty and suggest that the peak in rates could be higher than 2.75%.

Key Quotes: 

“There was no rest for those of us growing weary of escalating inflationary pressures in May. Headline CPI rose by 1.4% month-over-month, taking the annual rate up from an already elevated 6.8% to an even more gravity-defying 7.7% (consensus +1.0%m/m, 7.3% y/y). While food and energy drove much of the headline increase during the month, price pressures in rebounding services meant that, even excluding food and energy, inflation was very strong. The continuation of sharp and broadly based price pressures makes a 75bp hike from the Bank of Canada a near certainty, and likely means that the peak in interest rates will be higher than we previously anticipated.”

“With little respite from high gasoline prices on average in June, and with food prices likely to continue to increase, headline inflation should easily surpass 8% next month. However, with commodity prices starting to trend lower amid concerns of a global slowdown, inflation should finally moderate in late summer and into the fall. Headline CPI was already running well above the Bank of Canada's April projections prior to today, and so this release makes a 75bp move at the next meeting a near certainty and suggests that the peak in interest rates could be higher than the 2.75% we had previously predicted.”

• UK inflation remains at 40-year highs and rose by 9.1% YoY.
• Fed Chief Powell commented that the central bank is committed to bringing inflation down, though accepted that higher interest rates could cause a recession.
• GBP/USD Price Forecast: In the near-term upward biased.

The British pound remains on the defensive and is edging lower on Wednesday, down by a minimal 0.04% in the North American session. At 1.2272, the GBP/USD remains below the 1.2300 figure, despite a hotter than expected UK inflation, while the US Federal Reserve Chairman Jerome Powell testifies in the US Senate.

The GBP/USD reached daily lows around 1.2160 during the day but recovered some ground later in the day, registering a daily high at 1.2314. UK inflation heightened to 40-year highs at 9.1% YoY and was the cause of the pound’s fall. Traders should remember that the Bank of England (BoE) forecasted inflation to rise as high as 11% and projected a contraction by 2023.

Financial analysts have priced in a 25 bps rate hike by the BoE at its August meeting. The chances of a BoE’s 50 bps rate hike are at 81%, as shown by STIRs.

In the meantime, US Federal Reserve Chairman Jerome Powell is grabbing the headlines. In his opening speech, he said the Fed is “strongly committed to bringing inflation back down.” Additionally, he stated that data and decisions would determine the pace of rate hikes, which will be made “meeting by meeting.”

Powell also acknowledged that hiking rates could tip the US economy into a recession and called that a soft landing will be “very challenging.”

Meanwhile, the US Dollar Index, a gauge of the buck’s value vs. a basket of six currencies, remains on the defensive, dropping 0.34%, sitting at 104.063, while the US 10-year Treasury yield got no support from Powell, down twelve basis points, yielding 3.162%.

In the week ahead, the UK economic docket will reveal the S&P Global/CIPS Manufacturing, Services, and Composite PMIs. Across the pond, the US calendar will feature Fed Chief Jerome Powell’s second day at the US Congress, Initial Jobless Claims, and S&P Global PMIs.

GBP/USD Price Forecast: Technical outlook

The GBP/USD daily chart shows that the major is still downward biased. However, price action in the last five days is consolidating around the 1.2156-1.2300 range after the pair jumped from YTD lows. That, alongside the Relative Strenght Index (RSI), albeit in bearish territory, begins to aim higher.

That said, the GBP/USD’s path of least resistance in the near term is upwards. The major first resistance would be 1.2300. Break above would expose June’s 16 high at 1.2406, followed by the 50-day moving average (DMA) at 1.2510.

Key Technical Levels

The EUR/USD is recovering on Wednesday, trading near 1.0600, boosted amid a weaker dollar. The overall trend remains bearish. Analysts at MUFG Bank continue to see the pair with a bearish bias, expecting it to trade in the 1.0200/1.0800 range. They highlight that further upside could be unlocked if energy supply disruption fears are pared back, and details of the European Central Bank's anti-fragmentation plans are judged as credible by market participants. 

Key Quotes:

“Yield spreads between the euro-zone and US have been moving in favour of a stronger EUR as expectations for policy divergence have narrowed. Those expectations for more aggressive ECB rate hikes have been encouraged both by the Fed’s and SNB’s recent decisions to deliver larger 75bps and 50bps hikes. It has even prompted market participants to price in close to a 50:50 probability of the ECB kicking off their hiking cycle with a larger 50bps hike on 21st July. We see room for those hawkish expectations to be disappointed.”

“The EUR’s recent failure to rebound on the back of the hawkish repricing of ECB rate hike expectations and recent paring back of peripheral risks highlights that overall risks remain titled to the downside in the near-term. The price action suggests that euro-zone growth concerns continue to weigh heavily on the EUR especially related to fears over greater disruption to energy supplies in the region. Those fears have been reinforced by Russia’s decision to restrict gas supply to Germany and Italy. We are not expecting a significant improvement on this front in the month ahead.”

“The main upside risk to our bearish EUR/USD bias could be triggered by a paring back of energy supply concerns in Europe. While we think this is unlikely in the month ahead, the EUR appears well set up to stage a relief rebound if euro-zone growth concerns ease.”
 

• Canada: CPI rises to the highest level since 1983.
• Powell says they would never take any size of rate hike off the table.
• USD/CAD reverses near 1.3000, and now approaches 1.2900.

The USD/CAD lost momentum after approaching the 1.3000 level. During the American session, amid broad-based dollar’s weakness turned to the downside, erasing daily gains. Recently it reached 1.2915 and is it holding under 1.2950 with a negative intraday bias.

The next support for USD/CAD is located around 1.2900. A break lower could open the doors to more losses. The next support levels are seen at 1.2880 and 1.2860. On the upside, above 1.2960, the intraday bias would turn neutral/bullish.

Inflation everywhere

Data released on Wednesday showed the Consumer Price Index in Canada rose to an annual rate of 7.7%, above market expectations. “Annual inflation may still take some time to return to comfortable levels and this morning's report will not reduce the pressure on the central bank to withdraw its monetary accommodation to calm demand. With this morning's report being the last CPI release before the Bank of Canada's next rate decision, today's data should prompt the Bank to announce a 75 basis point increase in the policy rate in July” mentioned analysts at the National Bank of Canada.

Commenting on inflation reaching the highest level since 1983, Bank of Canada Senior Deputy Governor Carolyn Rogers said that it was an "unwelcome number."

BOC's Rogers: May CPI data is an unwelcome number

Inflation figures did not boost the Canadian dollar. The decline of USD/CAD during the American session was triggered by a slide of the dollar amid an improvement in market sentiment, lower US yields and a recovery in commodity prices.

Fed’s Powell comments weighed on the dollar. He mentioned interest rate hikes could cause a recession and warned that is going to be very challenging to achieve a soft landing. The dollar lost ground during Powell’s testimony. He will deliver a new testimony on Thursday.

Technical levels

FOMC Chairman Jerome Powell is testifying before the Senate Banking, Housing, & Urban Affairs Committee on "The Semiannual Monetary Policy Report to Congress."

Key takeaways

"Higher interest rates are painful, but it's the tool we have to bring down inflation."

"The greatest pain would be if we allowed this high inflation to continue."

"Not at all too late for us to get this job done on inflation."

"Our goal is to achieve 2% inflation while keeping labor market strong."

"Would never take any size of rate hike off the table."

"Will make whatever moves are needed to restore price stability."

"We need compelling evidence inflation coming down, don't have that right now."

"Core PCE has moderated over the course of this year, it's still way higher than it needs to be."

"We need to keep moving until we actually see inflation come down."

"I don't see likelihood of recession as particularly elevated right now."

Market reaction

The US Dollar Index recovered modestly on these comments and was last seen losing 0.35% on the day at 104.05.

• Fed’s Powell: It is possible our rate rises could cause a recession.
• SNB's Jordan: We may need to raise rates again.
• USD/CHF approaches May and June lows.

After trading in a range during many sessions, USD/CHF broke to the downside falling below 0.9600, for the first time in two weeks. The US dollar weakened across the board during the American session amid an improvement in risk sentiment and lower US yields.

Key support emerges

The break under 0.9620 triggered more losses. So far USD/CHF bottomed at 0.9579, the lowest level since June 3. As of writing, it is hovering around 0.9600. The negative tone persists and the pair could test the area of the May and June lows around 0.9540.

The US dollar weakened across the board in American hours as market sentiment improved. Main US stocks indexes bounced sharply after a negative opening and are gaining by 0.45% on average. Despite stock turning positive, US yield printed fresh lows and contribute to weakening the dollar.

Fed Chair Powell is presenting the semiannual monetary policy report to Congress. He said that rate hikes won’t bring food and gas prices down. He added Fed’s rate hikes could cause a recession.

Earlier, Swiss National Bank President Thomas Jordan mentioned the central bank may need to raise interest rates again. Last week, the SNB surprised markets with an increase in its policy rate from -0.75% to -0.25%.

Technical levels

FOMC Chairman Jerome Powell is testifying before the Senate Banking, Housing, & Urban Affairs Committee on "The Semiannual Monetary Policy Report to Congress."

Key takeaways

"I have a lot of humility about trying to predict the economy in the next three years."

"Still, there is a path to getting inflation down to 2% with less troubling effects."

"Our goal is to bring inflation down without causing a recession."

"This could be an unusual situation with the possibility of a sharp decline in prices."

"Ultimately, we need to see progress on the supply-side but we're not waiting for it."

"Our job is to get demand down to a more sustainable level so supply can catch up."

"Banking system is very strong."

"Markets have been functioning reasonably well."

Market reaction

The US Dollar Index was last seen losing 0.45% on the day at 103.95.

FOMC Chairman Jerome Powell is testifying before the Senate Banking, Housing, & Urban Affairs Committee on "The Semiannual Monetary Policy Report to Congress."

Key takeaways

"Our goal is for a soft landing, going to be very challenging."

"Been made significantly more challenging the last few months."

"Our ability to do that will depend to some extent on factors outside our control."

"Our other risk is that if we didn't restore price stability, inflation expectations go up."

"We can't fail on bringing down inflation."

Market reaction

The US Dollar Index stays deep in negative territory and was down 0.4% on the day at 104.00 at the time of press.

FOMC Chairman Jerome Powell is testifying before the Senate Banking, Housing, & Urban Affairs Committee on "The Semiannual Monetary Policy Report to Congress."

Key takeaways

"Rate of wage growth not consistent with 2% inflation over time."

"Some evidence wage growth flattening out."

"We don't want to reduce wages, we want a more sustainable pace of increases."

"Over time, we want wages to move up at the highest sustainable rate consistent with the 2% goal."

"Rate rises should impact house prices fairly quickly."

"We are seeing a slowing in housing."

"There are constraints on housing construction."

"We could find there's not enough housing at the right price."

Market reaction

The US Dollar Index stays under bearish pressure and was last seen losing 0.45% on the day at 103.95.

Commenting on the latest inflation data, which showed that the annual CPI jumped to a 39-year high of 7.7% in May, Bank of Canada Senior Deputy Governor Carolyn Rogers said that it was an "unwelcome number," as reported by Reuters.

Additional takeaways

"May cpi data were not totally unexpected."

"CPI s too high, it's hurting Canadians, it's keeping us up at night."

"We are seeing some impact of higher rates."

"I think it's a little ways away yet before inflation starts to bend down."

"We do need to see prices levelling off, not continue to increase, that alone will start to bring inflation down."

"A complete retrenchment from globalization would probably have a negative impact on low and stable inflation."

Market reaction

USD/CAD continues to pull away from daily highs and was last seen trading at 1.2935, where it was up 0.1% on a daily basis.

• On Wednesday, US equities are rising between 0.24% and 0.87%.
• Fed’s Chair Powell: “Fed is strongly committed to bringing inflation back down, moving expeditiously to do so.”
• The Nasdaq Composite leads the pack, followed by the S&P 500 and the Dow Jones.
• The greenback and US Treasury yields are falling despite the Fed’s Chief Powell’s hawkish commentary.

US equities remain in the green despite a hawkish speech by the Federal Reserve Chairman Jerome Powell, who takes the stand at the US Senate Banking Committee on Wednesday as the North American session begins.

At the time of writing, the S&P 500 jumps from hostile territory, recording minimal gains of 0.34%, sitting at 3,780.63, while the Nasdaq Composite leads the pack climbing 0.87%, up at 11,165.14. In the meantime, the Dow Jones Industrial (DJIA) is rising 0.24%, advancing to 30,602.45.

Speaking about sectors, the gainers are Consumer Discretionary, up 1.38 %, followed by Communications Services and Real Estate, each printing gains of 1.27% and 1.25%, respectively. The main lossers are Energy, Materials, and Industrials, dropping by 3.02 %, 0.84%, and 0.30% each.

Meanwhile, the US Dollar Index extends its weekly losses and is tumbling towards 104.165, down by 0.25%. US Treasury yields remain high but down, and the US 10-year note hovers around 3.149%, falling twelve basis points.

Fundamentally nothing has changed, though stocks keep pushing higher, despite the US Federal Reserve Chair Jerome Powell saying that the Fed is “strongly committed to bringing inflation back down.” Furthermore, he added that data and decisions would determine the pace of rate hikes, which will be made “meeting by meeting.”

In the commodities complex, the US crude oil benchmark, WTI plummets 4.53%, exchanging hands at $104.47 BPD. At the same time, precious metals like gold (XAU/USD), grind higher by 0.26%, trading at $1843.70 a troy ounce.

SP 500 Chart

Key Technical Levels

FOMC Chairman Jerome Powell is testifying before the Senate Banking, Housing, & Urban Affairs Committee on "The Semiannual Monetary Policy Report to Congress."

Key takeaways

"I was persuaded it was important we make the 75 bps move now."

"It was important to do it now with inflation coming above target over and over again."

"Longer-run neutral level is around 2.5%."

"Will be appropriate to raise rates to a moderately restrictive level."

"We need to go above that to deal with very high inflation."

"We need to do our job."

"We'll do that by raising rates, but of course we are data-dependent on how far."

"Will be flexible as we see data coming in."

"It is a possibility our rate rises could cause a recession."

"Events around the world have made it more difficult to achieve what we want."

"We said we'll look at selling MBS when balance sheet reduction is well under way."

"We may well need to sell MBS at some future date."

Market reaction

The US Dollar Index extended its slide on these comments and was last seen losing 0.5% on the day at 103.92.

FOMC Chairman Jerome Powell is testifying before the Senate Banking, Housing, & Urban Affairs Committee on "The Semiannual Monetary Policy Report to Congress."

Key takeaways

"We don't think we've seen the full effect of lockdowns in China yet."

"Important to explore how we can harden up and improve global supply chains."

"We are trying to lower demand growth."

"Congress can help increase supply over medium term, but probably not over short term."

Market reaction

The dollar struggles to find demand after these comments and the US Dollar Index was last seen losing 0.23% on the day at 104.12.

FOMC Chairman Jerome Powell is testifying before the Senate Banking, Housing, & Urban Affairs Committee on "The Semiannual Monetary Policy Report to Congress."

Key takeaways

"It's really only at the very short end that real rates are negative."

"Price inflation is a macroeconomic question."

"Our tools can't impact energy and food inflation."

"Focused on part of inflation we can address."

"We can reduce demand."

Market reaction

The US Dollar Index, which tracks the greenback's performance against a basket of six major currencies, stays on the back foot and was last seen losing 0.25% on the day at 104.16.

FOMC Chairman Jerome Powell is testifying before the Senate Banking, Housing, & Urban Affairs Committee on "The Semiannual Monetary Policy Report to Congress."

Key takeaways

"Fed rate hikes won't bring down gas or food prices."

"String of additional rate increases are priced in, that's appropriate."

"Most recent inflation indicators suggested we needed to accelerate the pace of rate hikes."

"We understand the full scope of the inflation problem, we are addressing it vigorously."

"Price stability the bedrock of the economy."

"Market has been reading our reaction function reasonably well."

"You will see continued expeditious progress toward higher rates."

"We are strongly, strongly committed to reducing inflation."

Market reaction

The US Dollar Index stays under modest bearish pressure and was last seen losing 0.22% on the day at 104.20.

• Consumer sentiment in the euro area continued to weaken in June.
• EUR/USD continues to trade in positive territory above 1.0550.

According to the European Commission's flash estimates for June, the Consumer Confidence Indicator decreased in both the EU (1.9 points down from May) and the euro area (2.4 points down).

"At -24.0 (EU) and -23.6 (euro area) points, consumer confidence fell further below its long-term average of -10.6 (EU) and -11.0 (euro area) and closer to the record low recorded in April 2020, at the beginning of the COVID-19 pandemic," the publication further read.

Market reaction

The EUR/USD pair showed no immediate reaction to these figures and was last seen gaining 0.35% on the day at 1.0560.

• USD/JPY corrected from a fresh 24-year high and was pressured by a combination of factors.
• Speculations that authorities could intervene, the risk-off mood boosted the safe-haven JPY.
• The lack of hawkish signals from Powell weighed on the USD and added to the selling bias.

The USD/JPY pair witnessed an intraday retracement slide from a 24-year high, around the 136.70 region touched earlier this Wednesday and eroded a part of the previous day's strong gains. The intraday slide extended through the early North American session and dragged spot prices to a fresh daily low, around the 135.70-135.65 region.

Market players turned caution amid speculations that any further sharp depreciation of the Japanese yen might force some form of practical intervention. This, along with a fresh wave of the global risk-aversion trade, boosted the safe-haven JPY and prompted traders to take some profits off their bullish bets around the USD/JPY pair.

The anti-risk flow triggered a sharp pullback in the US Treasury bond yields, which failed to assist the US dollar to preserve its intraday gains. The USD was further pressured by less hawkish remarks by Philadelphia Fed President Patrick Harker, saying that if demand softens quicker than expected, a 50 bps rate hike for July may be good.

Separately, Fed Chair Jerome Powell, during his testimony before the Senate Banking Committee, said that the US central bank is strongly committed to bringing inflation down. Powell further added that the pace of future hikes will depend on the incoming data, which suggests real GDP picked up in the current quarter and consumer spending remains strong.

Powell's comments, however, failed to provide any clues about the pace of the Fed's policy tightening path, which could keep the USD bulls on the defensive. That said, a big divergence in the monetary policy stance adopted by the Fed and the Bank of Japan (dovish) should act as a tailwind for the USD/JPY pair, warranting caution for bearish traders.

Technical levels to watch

Swiss National Bank (SNB) Chairman Thomas Jordan said on Wednesday that inflation data shows they need to tighten monetary policy but noted that it was unclear when they would take that step, as reported by Reuters.

Jordan further added that they may need to raise rates again.

Market reaction

USD/CHF came under heavy bearish pressure and fell to its lowest level since June 6 after these comments. As of writing, the pair was trading at 0.9603, where it was down 0.6% on a daily basis. 

USD/JPY surged to a fresh multi-decade high on Tuesday as rising US Treasury bond yield's fueled the pair's rally. The peak in USD/JPY is unlikely to come until markets can see the end of this Fed hiking cycle and long-dated yields peak, according to Kit Juckes, Chief Global FX Strategist at Société Générale.

Another high in USD/JPY

“I very much doubt we’ve seen the top of USD/JPY and don’t really expect to see that happen until we see the peak in Treasury yields, which in turn, seems unlikely to come before the end of the summer.”

“Unless we get US yields well above the most recent peak, we’re still unlikely to see USD/JPY above 140 for long, if at all. But that said, buying the yen today is still rather like standing in front of a charging polar bear on the grounds that global warming will make him extinct soon. Timing matters!”

• EUR/USD bounces to the mid-1.0500s, or daily highs.
• Chief Powell failed to lift the dollar at his testimony.
• The flash EMU Consumer Confidence comes next.

The single currency confirmed the U-turn and now pushes EUR/USD to the area of daily highs around 1.0550 on Wednesday.

EUR/USD up post-Powell’s testimony

EUR/USD now extends the advance for the third session in a row helped by the renewed selling pressure in the greenback in the wake of Powell’s Semiannual testimony before the US Senate.

Indeed, no surprises from Powell’s remarks after he stressed that financial conditions are now considerably tighter, adding that the Committee will decide on rates on a meeting-by-meeting basis.

Powell reiterated the Fed’s pledge to bring inflation down and highlighted that the US economy is well prepared to absorb tighter monetary conditions. He noted that the pace of rate hikes will hinge on the economic outlook and policy decisions remain data dependent.

Moving away from Powell, the European Commission will release its preliminary gauge of the Consumer Confidence in the region later in the session.

What to look for around EUR

EUR/USD regains the smile and manages to revert the initial pessimism in response to the lack of news at Powell’s testimony.

In the meantime, the single currency continues to closely follow any developments surrounding the ECB and its plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Flash EMU Consumer Confidence (Wednesday) – ECB General Council Meeting, Flash EMU, Germany PMIs (Thursday) – Germany IFO Business Climate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is up 0.16% at 1.0547 and faces the next hurdle at 1.0601 (weekly high June 15) followed by 1.0635 (55-day SMA) and finally 1.0786 (monthly high May 30). On the flip side, a break below 1.0358 (monthly low June 15) would target 1.0348 (2022 low May 13) en route to 1.0300 (psychological level).

EUR/CHF continues to decline. Economists at Credit Suisse look for a break below 1.0096/86 to open up a move to parity.

Potential “measured triangle objective” seen at 0.9609/00

“We anticipate a further downside to unfold. Support remains at 1.0096/86 initially, which we look to break to support a further downmove to parity, ahead of our long-held core objective at 0.9839/30.”  

We note that the potential ‘measured triangle objective’ is seen at 0.9609/00.” 

“Immediate resistance is seen at 1.0216/33 and then further above at the recent breakout point 1.0339. A quick return above here would potentially negate the strong breakout, though only a sustained break above 1.0514/15 would lead us to question our negative medium-term outlook.”

NZD/USD is falling strongly. A break below 0.6230/6194 should take place soon, in the view of analysts at Credit Suisse.

Break below 0.6230/6194 to take place soon

“With the 55-day and 200-day moving averages continuing to fall and with both short and medium-term momentum pictures staying negative, we remain with our tactically bearish view and look for a move below 0.6194 to take place soon. Below here would inject further downside pressure and open up an eventual move to the next medium-term support at 0.5919/5841.” 

“Short-term resistance is now seen at 0.6351/64 and further above at the minor breakdown point at 0.6418/35. A break above here would likely open the door to the May/June highs at 0.6568/76, though we would look for a ceiling to be found here to maintain the downtrend.”

USD/JPY has now seen a conclusive break above the 135.20 high of 2002. This move should reinforce the bull trend for an eventual rise to 147.62/153.01, according to analysts at Credit Suisse.

Break below 134.55 needed to ease the immediate upside bias

“We maintain our core positive outlook, with resistance seen at 136.81/84 ahead of the 137.21 high of September 1998. We would look for this to cap at first ahead of further strength to the trend channel and price resistance at 139.00/10 next and eventually our ultimate objective in the 147.62/153.01 zone – the 1998 high itself and the 38.2% retracement of the entire fall from the 1982 high.” 

“Support is seen at 135.96 initially, then 135.60/43, which we look to try and hold. Below 134.55 though is needed to ease the immediate upside bias to raise the prospect of a fresh consolidation phase, with support then seen next at 134.03.”

While testifying before the Senate Banking, Housing, & Urban Affairs Committee on Wednesday, FOMC Chairman Jerome Powell said that ongoing interest rate increases will be appropriate.

Key takeaways as summarized by Reuters

"Fed is strongly committed to bringing inflation back down, moving expeditiously to do so."

"Pace of future rate increases will continue to depend on incoming data and evolving economic outlook."

"We will make our decisions meeting by meeting."

"Essential that inflation be brought down if US Ii to have a sustained period of strong labor market conditions that benefit all Americans."

"Available data for May suggest core inflation likely held at April's 4.9% annual pace or eased slightly."

"Fed's overarching focus is returning inflation to 2% goal and keeping longer-run inflation expectations well-anchored."

"Inflation aggravated by longer-lasting supply chain constraints, russian invasion of ukraine; china covid lockdowns likely to exacerbate supply chain problems."

"Recent data suggest real GDP picked up in the current quarter, consumer spending remains strong."

"Growth in business fixed investment appears to be slowing, housing sector appears to be softening in part from higher mortgage rates."

"Tightening of financial conditions should continue to temper growth, help to balance demand and supply."

"Labor demand is very strong, while labor supply remains subdued, with the labor force participation rate little changed since January."

"In face of rapidly evolving economic environment, our policy has been adapting and it will continue to do so."

"Financial conditions have tightened 'significantly,' reflecting both actions taken so far and actions anticipated."

"Fed will continue to communicate its thinking as clearly as possible."

"Inflation has obviously surprised to the upside and further surprises could be in store; fed will need to be nimble in responding to incoming data and the evolving outlook."

"Economy is very strong and well-positioned to handle tighter monetary policy."

Market reaction

These comments don't seem to be having a significant impact on the greenback's performance against its major rivals. As of writing, the US Dollar Index was down 0.1% on the day at 104.30.

GBP/USD reverses losses below 1.21. The pair could enjoy further gains on a close above the 1.23 level, in the opinion of analysts at Scotiabank.

Support aligns at the 1.22 area

“We’re looking for the GBP to close above (and hold) 1.23 for signs that it can extend recent gains.”

“Resistance before the big figure zone is 1.2280.” 

“Support is the 1.22 area followed by the mid-1.21s.”

EUR/JPY has surged higher for its expected retest of the 144.15/26 high. Analysts at Credit Suisse look for an eventual sustained break above here towards the 149.78 high of 2015.

Initial support is seen at 142.45

“We maintain our core bullish outlook and continue to look for an eventual sustained break above the 144.15/26 high and Fibonacci projection resistance in due course, with resistance then seen next at the’“neckline’ to the small top from late 2014 at 144.96/145.00. Whilst we would look for a fresh pause here, we maintain our long-term objective at the 149.78 high of 2015.”

“Support is seen at 142.45 initially, with 141.88/82 ideally now holding to keep the immediate risk higher. A break can see a pullback to the 13-day exponential average and price pivot at 141.29/02, but with this ideally proving a solid floor.”

• AUD/USD witnessed heavy selling on Wednesday and dropped to a one-week low.
• The risk-off impulse was seen as a key factor weighing on the risk-sensitive aussie.
• Intraday USD pullback from highs helped limit losses ahead of Powell’s testimony.

The AUD/USD pair recovered a few pips from a one-week low touched earlier this Wednesday and was last seen trading just above the 0.6900 mark, still down around 0.85% for the day.

Doubts that major central banks could hike interest rates to curb soaring inflation without affecting the economic growth continued weighing on investors' sentiment. Adding to this, the global supply chain disruptions caused by the Russia-Ukraine war and the recent COVID-19 outbreak in China have been fueling fears about a potential recession. This, in turn, triggered a fresh wave of the risk-aversion trade and prompted fresh selling around the risk-sensitive Australian dollar.

The anti-risk flow was reinforced by a steep decline in the US Treasury bond yields, which failed to assist the US dollar to preserve its intraday gains. This, along with less hawkish remarks by Philadelphia Fed President Patrick Harker, dragged the USD to a fresh daily low during the early North American session. In an interview with Yahoo Finance Harker said that if demand softens quicker than expected, a 50 bps rate hike for July may be good.

The emergence of some USD selling offered support to the AUD/USD pair and led to modest bounce of around 30 pips from the 0.6880 area. Spot prices now seem to have stabilized around the 0.6900 round figure as the focus remains on Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Investors will look for fresh clues about the Fed's policy tightening path, which will influence the USD price dynamics and provide a fresh impetus to the pair.

Technical levels to watch

The rebound in EUR/USD has been capped ahead of its recent high around 1.06. A sustained move above here would allow the pair to extend its advance, economists at Scotiabank report.

Support aligns at the 1.05 area

“A re-test and a firm break of 1.06 are key developments for the EUR to prolong its modest rally since mid-month.” 

“Support is the 1.05 zone followed by the overnight low of 1.0469.”

• USD/TRY trades in a tight range above the 17.00 mark.
• Turkey Consumer Confidence dropped to 63.4 in June.
• Chair Powell testifies before the US Senate later in the session.

The Turkish lira extends the bearish note and motivates USD/TRY to trade with modest gains around 17.35 midweek.

USD/TRY looks to Powell, risk trends

USD/TRY appears to have entered a consolidation theme in the last couple of weeks, always above the 17.00 yardstick and at shouting distance from 2022 peaks near 17.40.

In the meantime, the lira is predicted to keep the cautious tone, as the Turkish central bank (CBRT) meets on Thursday. On this, consensus still sees the central bank keeping the steady hand despite the “tightening fashion” in other central banks and the rampant inflation hitting Turkey.

In the calendar, Turkey’s Consumer Confidence deteriorated to 63.4 in June (from 67.6).

Later in the session, Fed’s Powell will testify before the US Senate.

What to look for around TRY

USD/TRY keeps the underlying upside bias well and sound and extends the move above the 17.00 mark, an area last traded back in December 2021.

So far, price action in the Turkish currency is expected to gyrate around the performance of energy prices, the broad risk appetite trends, the Fed’s rate path and the developments from the war in Ukraine.

Extra risks facing TRY also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent.

Key events in Turkey this week: Consumer Confidence (Wednesday) - CBRT interest rate decision (Thursday) – Capacity Utilization, Manufacturing Confidence (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) of the government’s new 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. Upcoming Presidential/Parliamentary elections.

USD/TRY key levels

So far, the pair is gaining 0.22% at 17.3501 and faces the next up barrier at 17.3680 (2022 high June 21) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the flip side, a breach of 16.3136 (monthly low June 3) would aim to 16.1431 (low May 27) and finally 15.6684 (low May 23).

Federal Reserve Chairman Jerome Powell testifies before the Senate Banking, Housing, & Urban Affairs Committee on "The Semiannual Monetary Policy Report to Congress."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."

In an interview with Yahoo Finance on Wednesday, Philadelphia Fed President Patrick Harker said they need to get to the neutral rate of 2.5% quickly and lift it above 3% by the end of the year, as reported by Reuters.

Additional takeaways

"75 bps rate hike helps us get to neutral stance."

"Not ready to make a decision on whether July should be 75 bps or 50 bps."

"If demand softens quicker than I expect, 50 bps hike for July may be good."

"We need to move to a restrictive stance; how we get there depends on data."

"Starting to see signs of demand softening, which is what we want."

"We want to bring economy into a safe position."

"Inflation could still be north of 5% next year, then down to 2.5% following year."

"Could have a couple of negative GDP quarters."

"We still have very tight labor market."

"Don't expect unemployment to rise significantly above 4%."

"Employers don't want to let their employees go, don't see a rapid increase in unemployment."

"Might see pullback on job postings first."

"We're going to continue to have tight labor markets, in my view."

"Worried about fragility of supply chains, will take some time for supply chains to heal."

"Balance sheet shrinkage is essentially on autopilot."

"No concerns at this point on financial stability, but need to be cautious and watch."

"We want to bring inflation down in a way where we don't dramatically impact labor market."

Market reaction

The greenback lost interest after these comments and the US Dollar Index was last seen losing 0.15% on the day at 104.37.

• EUR/USD seems to have moved into a consolidative phase.
• The 4-month resistance line near 1.0700 caps the upside.

EUR/USD regains the 1.0500 mark and above after the earlier drop to the 1.0470/65 band on Wednesday.

So far, and as long as the 4-month line in the 1.0690/1.0700 region limits the upside, extra pullbacks in the pair should remain on the cards in the short-term horizon. Against that, the next support of note comes at the June low at 1.0358 (June 15) ahead of the 2022 low at 1.0348 (May 13).

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.1148.

EUR/USD daily chart

• A combination of factors assisted USD/CAD to regain strong positive traction on Wednesday.
• A slump in oil prices undermined the loonie and extended support amid modest USD strength.
• Hotter-than-expected Canadian CPI failed to provide any impetus ahead of Powell’s testimony.

The USD/CAD pair maintained its bid tone through the early North American session and was last seen trading around the 1.2980 region, just a few pips below the daily high. Spot prices moved little and largely shrugged off stronger Canadian consumer inflation figures.

Statistics Canada reported that the headline CPI climbed 1.4% in May as against the 0.6% previous and a reading of 1.0% estimated. Adding to this, the yearly rate also surpassed expectations and accelerated to 7.7% in May, or the highest level in nearly 40 years. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, rose 0.8% MoM and to 6.1% on yearly basis.

The data reaffirmed bets for a 75 bps rate hike move at the upcoming BoC meeting on July 13, though did little to provide any meaningful impetus to the Canadian dollar. An intraday slump in crude oil prices, down nearly 5% for the day, continued undermining the commodity-linked loonie. Apart from this, modest US dollar strength further acted as a tailwind for the USD/CAD pair, at least for now.

The USD continued drawing support from growing acceptance that the Fed would hike interest rates at a faster pace to combat stubbornly high inflation. Hence, the market focus will remain glued to Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Investors will look for fresh clues about the Fed's policy tightening path, which will drive the USD in the near term.

Traders will further take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair. Meanwhile, the fundamental backdrop seems tilted in favour of bulls and supports prospects for additional gains. That said, it would be prudent to wait for sustained strength beyond the 1.3000 psychological mark before positioning for any further appreciating move.

Technical levels to watch

Citing a new research paper that includes various models analyzed by a senior Federal Reserve economist, the Wall Street Journal reported that the Fed was seeing a slightly higher than 50% chance of a recession over the next four quarters.

Escalating imbalances in markets for goods and services, as well as the labour market, are cited as primary reasons behind the worsening outlook.

Market reaction

The US Dollar Index showed no immediate reaction to this headline and was last seen posting small daily gains at 104.55.

• Inflation in Canada rose at a stronger pace than expected in May.
• USD/CAD continues to trade in positive territory above 1.2950.

The data published by Statistics Canada showed on Wednesday that annual inflation in Canada, as measured by the Consumer Price Index (CPI), climbed to its highest level in 39 years at 7.7% in May from 6.8% in April. This print came in higher than the market expectation of 7.4%. On a monthly basis, the CPI arrives at 1.4%, compared to analysts' estimate of 1%.

Meanwhile, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, rose to 6.1% on a yearly basis from 5.7%, surpassing the market forecast of 5.9%.

Market reaction

USD/CAD's reaction to these data was surprisingly muted. As of writing, the pair was trading at 1.2980, where it was up 0.48% on a daily basis.

• DXY rebounds and falters just ahead of the 105.00 level.
• Further up emerges the 2022 high near 105.80.

DXY extends the upside to the boundaries of the 105.00 neighbourhood on Wednesday.

Ideally, the index should surpass the 105.00 area in the near term to allow for the recovery to gather momentum and attempt a visit to the nearly 20-year peak in the 105.80 zone (June 15).

As long as the 4-month line around 101.90 holds the downside, the near-term outlook for the index should remain constructive.

Looking at the longer run, the outlook for the dollar is seen bullish while above the 200-day SMA at 97.73.

DXY daily chart

• Gold attracted some dip-buying on Wednesday and rallied nearly $20 from a multi-day low.
• The risk-off impulse, sliding US bond yields, modest USD pullback extended some support.
• Hawkish Fed expectations kept a lid on any meaningful upside ahead of Powell’s testimony.

Gold reversed an intraday dip to the $1,823 region, or a four-day low touched earlier this Wednesday and shot to a fresh daily peak during the mid-European session. The XAUUSD was last seen trading around the $1,840 region, with bulls now awaiting a convincing break through the very important 200-day SMA.

The overnight optimistic move in the equity markets fizzled out rather quickly amid worries that a more aggressive policy tightening by major central banks would pose challenges to the global economy. Adding to this, the supply chain disruptions caused by the Russia-Ukraine war and the recent COVID-19 outbreak in China have been fueling fears about a potential recession. This continued weighing on investors' sentiment and triggered a fresh wave of the global risk-aversion trade, which, in turn, offered some support to the safe-haven gold.

The anti-risk flow was reinforced by a steep decline in the US Treasury bond yields and held back the US dollar bulls from placing aggressive bids. Apart from this, some repositioning trade ahead of Fed Chair Jerome Powell's testimony before the Senate Banking Committee forced the USD to surrender its intraday gains, which further benefitted the dollar-denominated gold. That said, expectations that the Fed would hike interest rates at a faster pace to curb inflation kept a lid on any meaningful upside for the non-yielding yellow metal.

Hence, investors will closely scrutinize Powell's comments for fresh clues about the policy tightening path. This will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for gold. This makes it prudent to wait for a sustained move beyond a technically significant 200-DMA before traders start positioning for any further appreciating move for the XAUUSD.

Technical levels to watch

Canada CPI Overview

Statistics Canada will release the latest consumer inflation figures for May later during the early North American session on Wednesday, at 12:30 GMT. The headline CPI is expected to rise 1.0% during the reported month against the 0.6% increase reported in April. The yearly rate is also anticipated to accelerate to its highest in nearly 40 years, to 7.4% in May from 6.8% previous. More importantly, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, is estimated to rise 0.3% MoM in May and to 5.9% on yearly basis from the 5.7% in April.

How Could it Affect USD/CAD?

A stronger inflation report would fuel speculations that the Bank of Canada will match the Fed's recent 75bps rate hike move when it next meets on July 13. This would be the biggest hike in 24 years and lend some support to the domestic currency. That said, a slump in crude oil prices could act as a headwind for the commodity-linked loonie.

Conversely, a softer print - though seems unlikely - would be enough to trigger some short-covering around the USD/CAD pair. That said, any immediate reaction is likely to remain limited ahead of the key event risk - Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the pair is to the upside.

Key Notes

  •   USD/CAD Analysis: Bulls looking to seize back control, Canadian CPI/Powell’s testimony eyed

  •   USD/CAD: Break above 1.31 to open up additional gains towards 1.3334 – Credit Suisse

  •   USD/CAD Price Analysis: Advances towards 1.3000 on symmetrical triangle breakout

About Canadian CPI

The Consumer Price Index (CPI) released by Statistics Canada 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 CAD is dragged down by inflation. The Bank of Canada aims at an inflation range (1%-3%). Generally speaking, a high reading is seen as anticipatory of a rate hike and is positive (or bullish) for the CAD.

• EUR/JPY fails once again to surpass the 144.00 zone on Wednesday.
• Gains could likely accelerate on a breakout of the 2022 high at 144.25.

EUR/JPY trades on the defensive for the first time after three consecutive daily advances on Wednesday.

Despite the corrective move, the cross keeps the upside momentum well and sound and the continuation of this move should put a potential test of the 2022 high at 144.25 (June 8) back on the radar sooner rather than later.

Once cleared, the next target of note should come at the 2015 high at 145.32 (January 2) prior to the 2014 high at 149.78 (December 8).

In the meantime, while above the 3-month support line near 137.60, the short-term outlook for the cross should remain bullish. This area appears reinforced by the proximity of the 55-day SMA.

EUR/JPY daily chart

International Energy Agency (IEA) Chief Fatih Birol said on Wednesday that Russia may seek to cut off gas completely and advised the European Union to work on contingency plans, as reported by Reuters.

"Russia is seeking leverage over European countries in the winter months," Birol added. "Russian reduction of gas flows is designed to make it harder for Europe to fill up its storage."

Market reaction

Safe-haven flows continue to dominate the markets after these comments. As of writing, the Euro Stoxx 600 Index was down 1.4% on a daily basis.

Economist at UOB Group Ho Woei Chen, CFA, re-assesses the performance of the Chinese economy this year.

Key Takeaways

“China’s economic data were better than expected in May. Industrial production has shown greater resilience as it returned to expansion but retail sales contracted for the third straight month. Fixed asset investment slowed but is expected to benefit from accelerated infrastructure investment rollout in the later part of the year.”

“The labour market remains of concern as the urban surveyed jobless rate has stayed above the official target of 5.5%, at 5.9% in May. Meanwhile, the 31 major cities jobless rate climbed further to a fresh record high of 6.9% in May from 6.7% in Apr.”

“Taking into consideration of the data released, we think China’s economy will avoid a contraction in 2Q22 which we are now expecting growth of around 1.0% y/y (1Q22: 4.8%). Thereafter, a lower comparison base and government’s stimulus will boost GDP growth to slightly above 5% y/y in 2H22.”

“While the data in May were better than expected and we expect activities in China to pick up further, China’s zero-COVID policy will continue to pose downside risks to its economic recovery in 2H22. Furthermore, there is now increasing headwinds to global growth as higher inflation is prompting central banks to step up their monetary policy tightening which will inevitably slow the economies. Our revised forecast for China’s GDP growth is now at 4.1% for 2022, down from previous projection of 4.9%.”

Economist at UOB Group Lee Sue Ann reviews the latest GDP results in New Zealand.

Key Takeaways

“GDP unexpectedly contracted by 0.2% q/q in 1Q22, in contrast to the 3.0% q/q gain in 4Q21, and against expectations for a print of +0.6% q/q. The quarter was largely marked by the community spread of the Omicron COVID-19 variant, which saw low travel due to border restrictions. Compared to the same period one year ago, GDP rose by 1.2% y/y, following a 3.1% y/y print in 4Q21, and just half of expectations for a gain of 2.4% y/y.”

“We expect a stronger pickup in the subsequent two quarters (2Q22 and 3Q22) as the economy moves past the domestic COVID-19 disruptions. However, 4Q22 will likely see some loss of momentum as rising interest rates start to bite. This will set the scene for slower growth in 2023. Our GDP forecast for growth in 2022 has been lowered to 2.4% from 3.6% previously. For 2023, our forecast remains broadly unchanged at 3.0%.”

“Following the two back-to-back half-point increases in Apr and May, we expect the Reserve Bank of New Zealand (RBNZ) to tune back to the more usual pace of 25bps hikes from Jul onwards, bringing the Official Cash Rate (OCR) to 3.00% by year-end. The next RBNZ meeting is on 13 Jul.”

• Silver witnessed fresh selling on Wednesday and broke through the $21.50 horizontal support.
• The technical set-up favours bearish traders and supports prospects for an extension of the fall.
• Sustained strength beyond the $22.00 mark is needed to negate the near-term bearish outlook.

Silver came under renewed selling pressure on Wednesday and broke down below the $21.50-$21.45 support zone held since the beginning of the current week. The intraday decline extended through the first half of the European session and dragged spot prices to a one-week low, around the $21.25 region.

Given that the XAG/USD has been struggling to find acceptance above the 200-period SMA on the 4-hour chart and repeatedly failed ahead of the $22.00 mark, the downfall favours bearish traders. The negative outlook is reinforced by the fact that oscillators on 4-hour/daily charts have again started drifting into the bearish territory.

The technical set-up supports prospects for a further near-term depreciating move and could drag the XAG/USD back to the $21.00 mark en-route the monthly low, around the $20.90 region. The downward trajectory could get extended towards the YTD low, around the $20.45 region set in May, before the white metal drops to the $20.00 psychological mark.

On the flip side, any meaningful recovery attempt now seems to confront stiff resistance near the $21.45-$21.50 horizontal support breakpoint. A subsequent move up would be seen as a selling opportunity near the $21.75 region (200-period SMA). This, in turn, should cap the upside for the XAG/USD near the $21.90-$22.00 heavy supply zone.

Silver 4-hour chart

Key levels to watch

• GBP/USD witnessed heavy selling on Wednesday and dropped to a fresh weekly low.
• Dovish BoE expectations, recession fears, Brexit woes undermined the British pound.
• A goodish pickup in the USD demand further exerted downward pressure on the pair.
• The downside seems cushioned as the focus remains on Fed Chair Powell’s testimony.

The GBP/USD pair refreshed its weekly low during the early part of the European session, albeit managing to find some support ahead of mid-1.2100s and recovering a few pips thereafter. The pair was last seen trading around the 1.2225-1.2230 region, still down nearly 0.40% for the day.

The US dollar regained positive traction amid growing market acceptance that the Fed would stick to its policy tightening path and raise interest rates at a faster pace to curb soaring inflation. In fact, the markets have been pricing in another 75 bps rate hike at the next FOMC meeting in July. This, along with a fresh wave of the global risk-aversion trade, boosted the safe-haven USD and exerted downward pressure on the GBP/USD pair.

The British pound was further weighed down by expectations that the Bank of England would adopt a more gradual approach to raising interest rates amid recession fears and the cost of living crisis. The market fears were further fueled by the latest UK consumer inflation data, showing that the headline CPI climbed to a new 40-year high of 9.1% in May. On a monthly basis, the gauge decelerated sharply from a 2.5% increase in April and rose 0.7%.

Apart from this, the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement further undermined sterling and contributed to the GBP/USD pair's intraday decline. Meanwhile, the global flight to safety triggered a modest pullback in the US Treasury bond yields and held back the USD bulls from placing aggressive bets. This, in turn, was seen as the only factor that assisted the pair to rebound around 65-70 pips from the daily low.

It, however, remains to be seen if the GBP/USD pair is able to capitalize on the intraday bounce as investors await Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Market participants will look for fresh clues about the Fed's policy tightening path, which would play a key role in influencing the USD price dynamics. This, in turn, should assist traders to determine the next leg of a directional move for the GBP/USD pair.

Technical levels to watch

UK Finance Minister Rishi Sunak said on Wednesday that they have all the tools they need to reduce inflation and added that he expects the Bank of England (BOE) to act forcefully, as reported by Reuters.

"I'm confident we're providing the right support to the economy," Sunak further noted and argued that pay rises need to be proportionate and balanced while saying that pension increases don't affect inflation in the same way as to pay rises.

Market reaction

GBP/USD erased a portion of the losses it suffered after the UK inflation data on these comments. As of writing, the pair was down 0.4% on the day at 1.2225.

• EUR/USD slips back below the 1.0500 mark.
• The greenback appears well bid ahead of Powell.
• EMU Flash Consumer Confidence is due later.

The appetite for the risk complex appears mitigated and forces EUR/USD to shed part of the recent ground and retreats to the area below 1.0500 the figure midweek.

EUR/USD looks to data, Powell

After two consecutive daily advances, EUR/USD now comes under pressure on the back of the resumption of the sentiment towards the greenback, particularly ahead of the upcoming testimony by Chief Powell before the Senate.

In addition, speculation around the ECB’s fragmentation toll appears on the rise and the lack of details/further progress could have undermined the recent bullish bias in the European currency.

Spot is expected to be under scrutiny throughout the session, as investors will closely follow Powell’s testimony and any mention of the potential next moves by the Federal Reserve in the current context of tightening monetary conditions.

In the domestic calendar, the advanced Consumer Confidence for the broader Euroland is due later along with speeches by ECB Board members de Guindos, Elderson and McCaul; while weekly MBA Mortgage Applications and speeches by FOMC’s Evans, Barkin and Harker are all due later in the NA session.

What to look for around EUR

EUR/USD succumbs to the renewed buying interest around the greenback, which has been also exacerbated by speculation of a hawkish message from Chief Powell at his testimony later on Wednesday.

In the meantime, the single currency continues to closely follow any developments surrounding the ECB and its plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Flash EMU Consumer Confidence (Wednesday) – ECB General Council Meeting, Flash EMU, Germany PMIs (Thursday) – Germany IFO Business Climate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is losing 0.15% at 1.0514 and a break below 1.0358 (monthly low June 15) would target 1.0348 (2022 low May 13) en route to 1.0300 (psychological level). On the upside, the pair faces the next hurdle at 1.0601 (weekly high June 15) followed by 1.0635 (55-day SMA) and finally 1.0786 (monthly high May 30).

Gold has dropped to $1,825. Still, economists at Commerzbank expect the yellow metal to hold above the $1,800 level.

Gold not solid as a rock

“Gold has failed repeatedly in recent weeks to live up to its reputation as a safe haven, despite recession fears being behind the price slide suffered by cyclical commodities.”

“Over the past few weeks, increased buying interest could be observed at prices just above the $1,800 mark – preventing the gold price from dipping below this threshold in any lasting manner. We expect much the same to happen this time, too, and do not envisage any more pronounced decline in the gold price.”

“Inflation will be the main topic today at Fed Chair Powell’s semi-annual testimony before the US Senate Banking Committee. If the market learns anything new from the testimony, this is also likely to have an impact on gold via movements in the EUR/USD and bond yields.”

See – Gold Price Forecast: XAUUSD to break above $1,895 on escalation of geopolitical tensions – Standard Chartered

• Gold edged lower for the fourth successive day on Wednesday and dropped to a multi-day low.
• Fed rate hike bets underpinned the USD and exerted pressure on the dollar-denominated metal.
• The risk-off mood failed to lend support as the focus remains on Fed Chair Powell’s testimony.

Gold witnessed some selling for the fourth successive day on Wednesday and dropped to a four-day low, around the $1,823 region during the first half of the European session.

Investors seem convinced that the Federal Reserve would retain its aggressive policy tightening stance and raise interest rates at a faster pace to curb soaring inflation. In fact, the markets have been pricing in another 75bps rate hike at the next FOMC meeting in July. Hawkish Fed expectations extended some support to the US dollar, which, in turn, undermined demand for the dollar-denominated gold. Bulls seemed rather unimpressed by the prevalent risk-off mood, which tends to benefit the safe-haven XAUUSD.

The market sentiment remains fragile amid doubts that major central banks could hike interest rates to curb soaring inflation without affecting economic growth. This, along with global supply chain disruptions caused by the Russia-Ukraine war and the recent COVID-19 outbreak in China, continued fueling recession fears. The worsening global economic outlook weighed on investors' sentiment, which triggered a fresh wave of the global risk-aversion trade and led to a steep fall in the equity markets.

Apart from a stronger greenback, the downfall could further be attributed to some technical selling amid repeated failures near the very important 200-day SMA over the past two trading sessions. It, however, remains to be seen if bears are able to retain control or refrain from placing aggressive bets ahead of Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee. Market participants will look for fresh clues about the Fed's policy tightening path, which will influence the USD and help determine the next leg of a directional move for the non-yielding gold.

Technical levels to watchc

The European Central Bank (ECB) researchers said Wednesday in a report, the European economy is unlikely to witness a stagflation scenario similar to the one seen in the 1970s.

Key takeaways

While growth forecasts were cut and price expectations raised following Russia’s invasion of Ukraine, economic activity is still seen increasing next year and inflation is expected to slow below 2% in the second half of 2023.”

“Current expert forecasts remain far from a stagflation scenario.”

“However, uncertainty has increased,” leading to a greater range of estimated outcomes.

“Some differences between the current situation and the 1970s “make it less likely that stagflation will develop now.” 

Related reads

• EUR/USD Forecast: Euro defines consolidation range ahead of Powell
• ECB’s de Guindos: Fragmentation is a significant worry for the central bank

The US Dollar Index (DXY) has seen a fresh setback. Nonetheless, economists at Credit Suisse expect DXY to advance nicely towards the 109.25/110.25 region.

Support at 102.55/15 set to hold

“Dips will stay seen as corrective ahead of further strength to the 78.6% retracement of the 2001/2008 bear trend and September 2002 high at 109.25/110.25.” 

“Whilst we would expect a fresh phase of consolidation to develop at 109.25/110.25, we stay biased to an eventual break higher in due course and see no reason not to look for the USD bull trend to extend in due course to test the 121.02 high of 2001.”

“Support at 102.55/15 ideally holds to keep the immediate risk higher.”

US President Joe Biden on Tuesday, he would decide by the end of the week whether to ask Congress to suspend the tax to help with high gas prices.

A potential suspension of the federal gasoline tax would have some, but not significant, impact on highway funds, Biden said.

Attention now turns towards his press conference scheduled later this Wednesday at 1800 GMT.

Market reaction

WTI is rebounding above 104.00, having reached fresh monthly lows at 102.78 earlier in the day on reports that Biden may cut fuel costs for drivers. The US oil is down 4.53% on the day, as of writing.

Further range bound trading within 6.6600-6.7400 is predicted in USD/CNH in the next weeks, commented FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘there is scope for USD to weaken but a sustained decline below 6.6700 is unlikely’. USD subsequently dropped to 6.6720 before rebounding to close little changed at 6.6955 (+0.06%). The underlying tone has firmed somewhat and USD could edge higher but 6.7200 is unlikely to come into the picture. Support is at 6.6860 followed by 6.6750.”

Next 1-3 weeks: “Our update from Monday (20 Jun, spot at 6.7080) still stands. As highlighted, the recent build-up in downward momentum has eased and USD is likely to trade between 6.6600 and 6.7400 for now. Looking ahead, a clear break of 6.6600 would indicate that USD is ready to head lower towards 6.6300.”

• A combination of factors assisted USD/CAD to regain traction and snap a two-day losing streak.
• A slump in crude oil prices undermined the loonie and extended support amid a stronger USD.
• Investors now eye the Canadian CPI for some impetus ahead of Fed Chair Powell’s testimony.

The USD/CAD pair caught fresh bids on Wednesday and snapped a two-day day losing streak, stalling its recent pullback from the YTD peak around 1.3080 region. The intraday positive move extended through the early part of the European session and pushed spot prices back closer to the 1.3000 psychological mark.

Concerns about slowing global economic growth and fuel demand continued acting as a headwind for crude oil prices. Apart from this, a push by US President Joe Biden, to bring down soaring fuel costs, triggered a steep fall and dragged the black liquid to over a one-month low. This, in turn, undermined the commodity-linked loonie, which, along with a goodish pickup in the US dollar demand, provided a goodish lift to the USD/CAD pair.

Firming expectations that the Federal Reserve would retain its aggressive policy tightening stance to curb soaring inflation continued lending support to the USD. In fact, the markets are pricing in another 75 bps rate hike at the next FOMC meeting in July. Apart from this, a fresh wave of the global risk-aversion trade - as depicted by a sea of red across the equity markets - further boosted demand for the safe-haven greenback.

The market sentiment remains fragile amid doubts that major central banks could hike interest rates to curb soaring inflation without affecting global economic growth. This comes amid the global supply chain disruptions caused by the Russia-Ukraine war and the latest COVID-19 outbreak in China, which continued fueling recession fears. The worsening economic outlook forced investors to take refuge in traditional safe-haven assets.

Despite the combination of supporting factors, bulls might refrain from placing aggressive bets around the USD/CAD pair ahead of the key data/event risks. Wednesday's economic docket highlights the release of the latest Canadian consumer inflation figures, which along with oil price dynamics, will influence the CAD. The focus, however, will remain on Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee.

Technical levels to watch

• DXY picks up pace and flirts with 105.00.
• US yields correct lower across the curve on Wednesday.
• Chief Powell’s testimony will be the salient event this week.

The greenback, in terms of the US Dollar Index (DXY), regains the smile and approaches to the 105.00 mark on Wednesday.

US Dollar Index looks to Powell

The index adds to Tuesday’s small gains and advances decisively towards the 105.00 area despite US yields edge lower during the European morning.

The bid tone surrounding the buck follows investors’ expectations ahead of Powell’s Semiannual Monetary Policy Report before the US Senate, where the Fed’s next steps regarding its normalization process are expected to take centre stage.

Further events in the US docket includes the weekly MBA Mortgage Applications and speeches by Chicago Fed C.Evans (2023 voter, centrist), Rischmond Fed T.Barkin (2024 voter, hawk) and Philly Fed P.Harker (2023 voter, hawk).

What to look for around USD

The index looks to extend further the rebound following the post-FOMC lows in the 103.40 region (June 16).

The dollar, in the meantime, remains well supported by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy, all factors supportive of a stronger dollar in the next months.

Key events in the US this week: MBA Mortgage Applications, Powell’s Semiannual Testimony (Wednesday) – Initial Claims, Flash PMIs, Powell’s Semiannual Testimony (Thursday) – Final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Powell’s “softish” landing… what does that mean? Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is gaining 0.29% at 104.73 and a break above 104.94 (weekly high June 22) would expose 105.78 (2022 high June 15) and then 107.31 (monthly high December 2002). On the downside, the next support aligns at 103.41 (weekly low June 16) seconded by 102.62 (55-day SMA) and finally 101.29 (monthly low May 30).

Gold has held key support at $1,775-$1,800 thus far. The yellow metal could break above the $1,895 resistance on escalation of geopolitical tensions, strategists at Standard Chartered report.

XAUUSD to plunge towards $1,675 on a drop under $1,775

“Geopolitical uncertainty and elevated worries of policy mistakes are likely to continue to be supportive, and any escalation on either worry could see gold breaking above the $1,875-$1,895 resistance, with a target near $1,960, especially if USD strength starts to slow.” 

“A break below $1,775 would risk a positioning led sell-off towards $1,675.”

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, further upside pressure could lift USD/JPY to the 137.50 region in the next weeks.

Key Quotes

24-hour view: “The strong surge in USD to a high of 136.70 came as a surprise (we were expecting sideway-trading). While overbought, the rally has scope to extend even though a clear break of 137.00 appears unlikely. On the downside, a breach of 135.55 (minor support is at 135.85) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “Two days ago (20 Jun, spot at 135.20), we highlighted that upside risk is building but USD has to close above 136.00 before a sustained advance is likely. We did not expect the ease by which USD jumped above 136.00 and surged to 136.70. Upward momentum remains strong and USD could rise further to 137.00, as high as 137.50. The upside risk is intact as long as USD does not move below 135.00 (‘strong support level was at 133.90 yesterday).”

Palladium is under pressure. Nevertheless, only below the $1,542 low of 2021 would mark a major top, changing significantly the trend lower, economists at Credit Suisse report.

Resistance at $2,095/2,120 set to cap

“We see risk for a test of long-term support at $1,594/$1,542 – the 61.8% retracement of the entire 2016/2022 bull trend and key low of 2021. Only below here though (and then quickly ideally $1,495) would see a major top established to mark a significant change of trend lower, with supports then seen next at $1,268, ahead of $1,140 and then the 78.6% retracement at $1,092.”

“Resistance from the recent reaction high and 200-day average at $2,095/$2,120 ideally caps to keep the immediate risk lower.”

See – Palladium Price Analysis: XPD/USD to surge towards $2,100 by year-end – Commerzbank

• NZD/USD broke down through a three-day-old trading range amid broad-based USD strength.
• Fed rate hike bets, the risk-off mood boosted the USD and weighed on the risk-sensitive kiwi.
• Spot prices seem vulnerable to slide further as the focus shifts to Fed Chair Powell’s  testimony.

The NZD/USD pair extended the previous day's rejection slide from the 0.6365-0.6370 resistance zone and witnessed heavy selling on Wednesday. The pair continued losing ground through the early European session and dropped to a multi-day low, around mid-0.6200s in the last hour.

The US dollar was back in demand amid growing acceptance that the Fed would stick to its aggressive policy tightening path and hike rates at a faster pace to combat stubbornly high inflation. In fact, the markets have been pricing in another 75 bps rate hike move at the next FOMC policy meeting in July. This, along with a fresh wave of the global risk-aversion trade, provided an additional lift to the safe-haven buck and exerted downward pressure on the risk-sensitive kiwi.

The market sentiment remains fragile amid doubts that major central banks could hike interest rates to curb soaring inflation without affecting global economic growth. This comes amid the global supply chain disruptions caused by the Russia-Ukraine war and the latest COVID-19 outbreak in China, which continued fueling recession fears. The worsening economic outlook took its toll on the global risk sentiment, which was evident from a fresh leg down in the equity markets.

With the latest leg down, the NZD/USD pair seems to have confirmed a near-term bearish break through a three-day-old trading range and remains vulnerable to decline further. Hence, a subsequent slide back towards testing sub-0.6200 levels, or the YTD low touched earlier this month, looks like a distinct possibility. Market participants now turn their focus to Fed Chair Jerome Powell's testimony before the Senate Banking Committee later during the North American session.

Technical levels to watch

Platinum is back below its 200-day and 200-week averages to leave the spotlight firmly on the lows of the past year at $905/$897. A break below here would open up additional losses towards $730, strategists at Credit Suisse report.

Break above $1,037 needed to mark a near-term base

“Only a sustained move below $905/$897 would be seen to mark a significant bearish continuation pattern, with supports then seen next at $860, ahead of $828 and eventually $730.”

“Above $1,037 is needed to mark a near-term base in the range, easing the immediate downside pressure.”

See – Platinum: Forecast for year-end lowered to $1,050 – Commerzbank

USD/JPY’s strength remains indefatigable. The pair remains bullish unless it sustains declines under the 50-day moving average (DMA) at 129.72, Benjamin Wong, Strategist at DBS reports.

USD/JPY remains in an ebullient mood

“USD/JPY remains in an ebullient mood unless it breaks under the 50-DMA 129.72.”

“If the pair overcomes the next resistance cluster at 136.84-137.20, a Fibonacci extended move to 139.23 looks plausible. Before that, keep a strong tussle as we near 138.25.”

“The Federal Reserve emphasises price stability and is singularly focused on taking out inflationary pressure while the Bank of Japan takes a laggard approach to shifting its Yield Curve Control policy. This Fed-BoJ policy divergence remains supportive of USD/JPY.”

Gold stays sidelined. $1787 and $1,874/79 are the key levels to watch to determine the yellow metal’s next direction, strategists at Credit Suisse report.

Move above $1,874/79 to see the near-term risk turn higher

“Beneath $1,787 though remains needed to reinject downside momentum again for a test of the lower end of the two-year range at $1,691/77. Only below here though would see an important top established.”

“Above $1,874/79 would see the near-term risk turn higher in the broader range with resistance then seen next at $1,895, then $1,920.”

European Central Bank (ECB) Vice President Luis de Guindos voices his concerns over the fragmentations risk.

Key quotes

Market reaction

EUR/USD is accelerating its decline below 1.0500 amid a negative open on the European stocks while the US dollar rallies hard on risk-off flows.

The spot is down 0.43% on the day at 1.0477, as of writing.

Dollar regains strength as focus shifts to Powell's testimony. Economists at ING expect the US Dollar Index (DXY) to edge higher towards the 105.00/50 region on a hawkish Federal Reserve.

Powell sticks to his hawkish script

“Richmond Fed President Thomas Barkin said that the Fed should raise rates as fast as possible without breaking anything. Expect this message to be communicated again today when Powell delivers his semi-annual testimony to the Senate.”

“The Fed's terminal rate priced for 2023 is currently near 3.60% (off a recent high at 3.90%) and could go higher again on Powell's testimony. Presumably, that should see some bearish flattening of the US yield curve – which is a dollar positive.”

“DXY could drift towards the 105.00/105.50 area on a hawkish Fed and a difficult international environment that is seeing Asian FX come under pressure again.”

Here is what you need to know on Wednesday, June 22:

The dollar is capitalizing on safe-haven flows early Wednesday and gathering strength against its major rivals. Investors grow increasingly concerned over a global recession as major central banks remain on track to continue to tighten their policies to battle inflation. FOMC Chairman Jerome Powell will testify before the US Senate Banking Committee in the hearing titled "The Semiannual Monetary Policy Report to the Congress." The European economic docket will feature the European Commission's preliminary Consumer Confidence Index data for June and Statistics Canada will release the May inflation report.

According to Bloomberg, Citigroup economists now see a nearly 50% chance of the global economy tipping into recession. Meanwhile, Richmond Fed President Thomas Barkis said that he was not expecting the US economy to experience the stable growth of the past decade at least for the next two years. Reflecting the risk-averse market environment, US stock index futures are down 1.2% and 1.4% in the early European session and the US Dollar Index is rising 0.4% at 104.83.

USD/JPY surged to a fresh multi-decade high on Tuesday as rising US Treasury bond yield's fueled the pair's rally. Earlier in the day, the minutes of the Bank of Japan's (BOJ) latest policy meeting showed that board members agreed that there was no need to change the bank's stance of taking additional easing steps without hesitation if needed. USD/JPY stays relatively quiet near mid-136.00s early Wednesday.

GBP/USD stays on the back foot and edges lower toward 1.220 in the European morning. The data published by the UK's Office for National Statistics showed on Wednesday that annual inflation, as measured by the Consumer Price Index (CPI), edged higher to 9.1% in May from 9% in April. The Core CPI, however, declined to 5.9% from 6.2% in the same period and caused investors to reassess the Bank of England's (BOE) rate outlook.

Pressured by the renewed dollar strength, EUR/USD retreated below 1.0500 in the early European session. European Central Bank (ECB) Governing Council member Olli Rehn said on Tuesday that it was very likely for the ECB to hike its policy rate by more than 25 bps in September. The positive impact of these comments on the shared currency faded with markets turning risk-averse mid-week.

Gold closed the third straight trading day in negative territory on Tuesday as the benchmark 10-year US Treasury bond yield registered modest gains. XAU/USD trades with modest losses slightly below $1,830 early Wednesday.

Bitcoin has lost its recovery momentum and was last seen falling toward $20,000. Ethereum is down more than 4% already on the day and trades below $1,100.

GBP/USD has been unable to sustain its break below the 78.6% retracement of the entire 2020/2021 uptrend at 1.2017. However, strength stays seen as corrective ahead of an eventual fall to 1.1500/1.1409, in the view of analysts at Credit Suisse.

Initial resistance stays seen at 1.2431

“GBP/USD has been unable to sustain its break below the 78.6% retracement of the entire 2020/2021 uptrend at 1.2017 but with GBP holding a top in Trade Weighted Terms and with the USD also expected to stay strong strength stays seen as corrective and temporary.”

“We continue to look for a sustained break below 1.2017/00 in due course to clear the way for further weakness to 1.1500/1.1470, potentially the 1.1409 low of 2020.”

“Resistance stays seen at 1.2431 initially, with 1.2668 ideally continuing to cap.”

Aluminium (LME) has seen a sharp decline lower from the $4,074 record high. Below $2,455, the metal is set to confirm a major top with downside potential seen toward $2,015/2,000, strategists at Credit Suisse report.

Potential large top threatening

“Aluminium remains below the key intersection of the 55 and 200-day averages, currently seen at $2,972/77. With the 55-DMA just crossing below the 200-DMA, this could mark a significant turn lower from here.” 

“A break of the 61.8% retracement of the whole 2020/2022 upmove at $2,455 would confirm a major top and we would then expect the industrial metal to continue its decline toward $2,305, the May 2021 low, and then the crucial 78.6% retracement and key psychological mark at $2,015/2,000, where we would expect at least a temporary floor again.”

• EUR/GBP takes the bids to refresh intraday high after UK inflation data.
• UK CPI matches YoY forecasts, Core CPI eases in May.
• Weekly symmetrical triangle challenges immediate moves, RSI hints at the further upside.

EUR/GBP regains upside momentum on mixed UK inflation data during early Wednesday morning in Europe. In doing so, the cross-currency pair takes the bids to refresh daily top around 0.8590 by the press time.

UK’s Consumer Price Index (CPI) matches 9.1% YoY forecasts versus 9.0% prior. However, the Core CPI dropped to 5.9%, below 6.0% market consensus and 6.2% previous readouts.

Read details: Breaking: UK annualized inflation rises by 9.1% in May vs. 9.1% expected

Technically, the quote bounced off the 100-HMA following the inflation data, staying inside a one-week-old symmetrical triangle.

Given the EUR/GBP pair’s latest rebound from the short-term key moving average, backed by data, the upside momentum is likely to poke the resistance line of the stated triangle, near 0.8600.

It’s worth noting that the firmer RSI adds strength to the recovery moves, which in turn could propel the prices towards Friday’s peak of 0.8635 ahead of highlighting the monthly high near 0.8720.

Meanwhile, pullback moves need validation from the 100-HMA level of 0.8577, a break of which could drag EUR/GBP prices towards the support line of the mentioned triangle, at 0.8565 by the press time.

If the pair declines below 0.8565, the previous weekly low near 0.8510 and the monthly bottom surrounding 0.8485 will be in focus.

EUR/GBP: Hourly chart

Trend: Limited upside expected

Copper (LME) remains clearly below the intersection of the key 55 and 200-day averages, currently seen at $9,676/700. A weekly close below $8,570 would clear the way for a susbtantial drop towards $6,295, economists at Credit Suisse report.

Copper seen under great pressure

“We identify next supports at the recent $8,938/830 low and then the indicated $8,740/8570 monthly chart lows, which we still look to hold to maintain the long-term range. Nevertheless, we note that a break below $8,570 on a weekly closing basis would however complete a large top, with a ‘measured objective’ seen much lower at $6,295.”

“Only above the previous record highs at $10,748/845 would reinject fresh upside momentum into the market, with resistance then seen next at the psychological $11,000 level and then Fibonacci projections seen at $11,246/496.”

• AUD/USD met with a fresh supply on Wednesday and dropped back closer to the 0.6900 mark.
• Fed rate hike bets, the risk-off mood boosted the USD and weighed on the risk-sensitive aussie.
• The market focus remains glued to Fed Chair Jerome Powell’s two-day congressional testimony.

The AUD/USD pair came under some renewed selling pressure on Wednesday and dropped to a fresh weekly low, around the 0.6910-0.6905 region during the early European session. The downfall comes on the back of repeated failures ahead of the 0.7000 psychological mark over the past two trading days and favours bearish traders amid the emergence of fresh US dollar buying.

Firming expectations that the Federal Reserve would retain its aggressive policy tightening stance to curb soaring inflation turned out to be a key factor that continued lending support to the USD. In fact, the markets are pricing in another 75 bps rate hike at the next FOMC meeting in July and the bets were reaffirmed by Fed Governor Christopher Waller's comments on Sunday.

Investors also seem worried that a more aggressive move by major central banks to combat stubbornly high inflation would pose challenges to global economic growth. This, in turn, took its toll on the risk sentiment, which was evident from a fresh leg down in the equity markets. The anti-risk flow further benefitted the safe-haven buck and weighed on the risk-sensitive aussie.

With the latest leg down, the AUD/USD pair has erased its modest weekly gains. Some follow-through selling, leading to a subsequent break through the 0.6900 mark, would be seen as a fresh trigger for bearish traders. This would pave the way for a further near-term depreciating move and drag spot prices back towards challenging the monthly low, around mid-0.6800s.

Market participants now turn their focus to Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee, due later during the North American session. Traders will take cues from the US bond yields and the broader market risk sentiment. The combination of factors would drive the USD demand and provide a fresh trading impetus to the AUD/USD pair.

Technical levels to watch

EUR/NOK has broken above its key medium-term resistance zone at 10.4004/10.3828. Economists at Credit Suisse look for further upside to unfold in the medium-term, with scope to reach 10.8583 in due course. 

EUR/NOK looks set for further medium-term strength

“Though a short pullback may slow the advance in the near-term, the rising 55-day and 200-day moving averages, as well as weekly MACD momentum turning outright positive, continue to point toward further strength in the medium-term.”

“We stay biased higher and look for a move to the July 2021 high at 10.7038 in due course, with a break above here seeing scope to reach the 38.2% retracement of the 2020/22 fall at 10.8583.”

See – Norges Bank Preview: Forecasts from five major banks, split between a 25 bps and a 50 bps rate hike

Economists at Société Générale expect the Turkish lira to depreciate further and underperform forwards vs. the dollar. They forecast USD/TRY at 22 by end-2022.

Lira likely to remain under pressure

“We expect the weakening of the lira will continue. Inflation will very likely accelerate above 80% in the coming months. The current account is deteriorating due to the sharply worsening energy balance, and the IMF estimates this year’s current account deficit at 5.7% of GDP. The summer season may bring some relief due to the export of tourism services, but its magnitude is still uncertain given the impact of the war in Ukraine and the difficult economic situation in Russia due to sanctions.” 

Our base case sees USD/TRY at 22 at end-2022. However, the probability of a faster sell-off is increasing, notably due to the accelerating inflation and higher energy prices.”

“We recommend staying away from the TRY in this period of stress. The focus of the market will increasingly be on political and geopolitical developments ahead of the upcoming election, as well as the possibility of an early election.”

The Indonesian rupiah has weakened against the US dollar in reaction to the rise in US yields in the last two weeks. Still, the rupiah has remained relatively stable, in contrast to its “high beta” reputation. Economists at Credit Suisse the USD/IDR pair to move within a 14,500-15,200 range.

BI policy rates are still relatively high

“We expect a USD/IDR forecast range of 14,500-15,200.” 

“We expect no policy change at the 23 June BI meeting, with hikes likely to begin on 21 July. This ‘slow tightening’ leaves USD/IDR subject to upward pressure as the Fed hikes rapidly. Still, we think that favourable balance of payments and the fact that real rates in Indonesia not as negative as those in the Philippines means that IDR will be more stable than PHP.” 

“Real policy rates in Indonesia are high compared to the Philippines and the US. This ‘less negative’ real policy rate should help slow down (but not fully offset) foreign outflows from rupiah government bonds.” 

USD/CAD remains within its broad 1.24-1.31 range. That said, potential breakout risks remain pointed to the upside, with a sustained break above 1.31 likely triggering a further advance to 1.3334, analysts at Credit Suisse report. 

1.23-1.31 range to be sustained for now

“We stick with our view for further sideways motion within the highlighted broader 1.24-1.31 range, though with a bias for a short-term swing back lower toward the middle of the channel.”

“With our positive DXY view in mind, we see the risk of an upside breakout as more likely than a downside breakout, with a sustained break above 1.3076/1.3100 signaling a more constructive medium-term outlook and opening the door to the 50% retracement of the 2020/21 fall at 1.3334.”

Norges Bank meets on Thursday, June 23 at 08:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks regarding the upcoming central bank's Interest Rate Decision. 

There are good arguments for hiking by 50 bps already now. However, some analysts expect the NB to stick to 25 bps this week.

Nordea

“We expect Norges Bank to hike its policy rate by 25 bps in June and signal that the next interest rate hike will come at the meeting in August. We see the new rate path signaling an overwhelming probability for four more rate hikes after June until the end of 2022. 

TDS

“We expect a 50 bps hike in June and 25 bps hikes through to mid-2023, bringing the terminal policy rate to 3.00%, well above Norges Bank's estimate of 1.7%. This overshoot is driven by a number of factors, but unique to Norway in the region is its oil and gas exports, which are now in especially high demand owing to the war in Ukraine. Only as inflationary pressures wane do we expect the central bank to cut rates, reaching a neutral position of 2.50% by the end of 2024.”

ING

“With oil prices high and global market interest rates rising, we think Norges Bank will follow through with a 50 bps hike next week – or failing that, hint strongly that it could begin hiking at every meeting, as opposed to every alternate one.”

Danske Bank

“We expect NB to hike policy rates for the fourth time in this cycle by 25 bps. We expect NB to stick to its 'gradual' strategy but also open the door for an August hike. We expect a forward guidance signal of close to a 50/50 split between August and September as the timing for the next 25 bps hike but still with verbal guidance towards September. We expect the top point of the rate path to fall in the 2.50-2.75% range by end-2023 and that the subsequent inversion will prove steeper than in the March Monetary Policy Report leaving a close to unchanged end-point of around 2.3% in Q4 2025. The steeper inversion reflects a much worse employment-inflation trade-off than expected in the last monetary policy report. If this call proves right it would be a disappointment to markets and lead to lower short-end rates. Admittedly, the balance of risk to our call is skewed towards a more aggressive NB.”

Swedbank

“We should not rule out the bank will opt for 50 bps – something the Bank has not done in more than 20 years. 50 bps clearly remains a viable option, but we stick to our long-held view that Norges Bank will deliver a standard hike of 25 bps, but front-load the hikes to include both a hike in August and high probability for a hike also in November – in addition to the more conventional hikes in September and December.” 

The Indonesian rupiah is set to remain on a solid foot until the end of the year. However, economists at Société Générale expect IDR to move back lower in 2023.

Bullish IDR trend to reverse next year

“We expect IDR to remain resilient and continue to ride the commodity story until the end of this year.” 

“China’s growth rebound in 2H should be beneficial to the IDR.” 

“We expect IDR’s strength to gradually unwind from 2023 onwards, as strong domestic demand should drive the current account back into a deficit and global commodity prices start normalising lower.”

UK Deputy Prime Minister Dominic Raab said on Wednesday that “if we want to get inflation down quicker, we cannot relent to unions.”

“We can't allow militant unions to win an argument over strikes,” he added.

more to come ....

Market volatility in the USD/CNY has intensified in both directions. Economists at Société Générale expect the pair to peak out in the third quarter.

Moderate upside risk to USD/CNY

“We maintain a moderate upward bias to the currency pair at 6.80 for Q3, but expect it to pull back from 6.80 in 3Q to 6.60 in Q4 as COVID-related economic disruption eventually dissipates.”

“There are factors that should keep the USD/CNY high until Q3. First, monetary policy in the US and China is set to diverge further. Second, China’s export momentum should fade as saturation is reached, leading to a smaller trade surplus ahead. Third, current market expectations are for weaker US consumer spending and lower US asset prices.” 

“Subdued US consumer growth could eventually have a ripple effect on EM assets, including in China. We also doubt that US tariff reductions would be a viable option for US authorities.”

FX option expiries for June 22 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0395-00 570m
• 1.0410-15 285m
• 1.0435-40 600m
• 1.0500 594m
• 1.0550 284m
• 1.0580 576m
• 1.0595-00 717m

- GBP/USD: GBP amounts        

• 1.2245 658m

- AUD/USD: AUD amounts  

• 0.6800 200m
• 0.6925 425m
• 0.7025-30 333m

- USD/CAD: USD amounts       

• 1.3020 520m
• 1.3150 735m

- NZD/USD: NZD amounts

• 0.6200 532m
• 0.6300 1.0b
• 0.6430 300m

- EUR/CHF: EUR amounts

• 1.0250 350m
• 1.0275 270m
• 1.0300 764m

Gold Price is extending its losing streak into the fourth straight trading day on Wednesday. XAUUSD bears aim for $1,800, FXStreet’s Dhwani Mehta reports.

XAUUSD’s daily technical set up lean bearish

“The daily setup is outrightly leaning in favor of bears, with a test of the rising trendline support at $1,810 inevitable following rejection above the 200 DMA on multiple occasions.”

“The bearish 21 DMA is set to cross the horizontal 200 DMA for the downside, which if happens will confirm a bear cross formation. The bearish crossover will add credence to the renewed downtrend in the yellow metal. Sellers will then challenge the June lows of $1805 on their way to the key $1,800 round figure.”

“Gold needs a sustained move above the critical 200-Daily Moving Average (DMA) at $1,843 barrier to reverse the ongoing downside momentum. The 21 DMA coincides at that level. Acceptance above the latter could test the $1,850 psychological level. Daily closing above that level will threaten the intermittent tops at $1,858.”

• GBP/USD takes offers to refresh daily low as UK CPI matches upbeat forecasts.
• UK CPI rises 9.1% YoY, Core CPI ease below market expectations.
• Mixed inflation numbers, BOE’s failures to impress bulls weigh on the cable prices.
• Fed Chair Powell’s testimony will be crucial amid recession fears.

GBP/USD renews intraday low to 1.2221 as the UK inflation numbers fail to lure bulls. That said, the risk-aversion wave and fears of a recession in Britain, not to forget doubts over the Bank of England’s (BOE) capacity to restore economic optimism in the UK, also weigh on the Cable pair during early Wednesday morning in Europe.

That said, the UK’s Consumer Price Index (CPI) matches 9.1% YoY forecasts versus 9.0% prior. However, the Core CPI dropped to 5.9%, below 6.0% market consensus and 6.2% previous readouts.

Also read: Breaking: UK annualized inflation rises by 9.1% in May vs. 9.1% expected

It’s worth noting that the sluggish inflation numbers allow the BOE to continue on its 0.25% rate hike trajectory, which in turn has recently gained the market’s criticism and drowned the GBP/USD prices.

Further, the UK’s Confederation of British Industry (CBI) marked an unexpected softening in price pressures during June’s data. The Domestic Price Expectation sub-index of the survey declined to its lowest level since September at +58 in June from +75 in May, per Reuters.

Additionally, fears of a £470 contraction in the British workers’ real pay due to the Brexit, as signaled by the Resolution Foundation think tank and London School of Economics also drown the GBP/USD prices.

Above all, the market’s anxiety ahead of Fed Chair Jerome Powell’s Testimony and recession woes are the key downside catalysts for the GBP/USD prices.

Amid these plays, the S&P 500 Futures drop 1.10% intraday to reverse the two-day rebound from the lowest levels since late 2020. It’s worth noting that the US Treasury yields also fail to cheer the risk-aversion as the benchmark 10-year Treasury yields dropped five basis points (bps) to 3.25% at the latest. The sour sentiment helps the US Dollar Index (DXY) to refresh its intraday high around 104.65, rising for the first day in three, by the press time.

Moving on, Fed Chair Powell’s ability to tame recession fears and justify the biggest rate hike since 1994 is necessary for the GBP/USD bears to keep reins.

Technical analysis

GBP/USD bears justify the pair’s sustained pullback from the 21-day EMA, around 1.2360 by the press time, to direct immediate fall towards May’s low of 1.2155. Following that, the 1.2100 threshold and the 1.2000 psychological magnet will lure the bears. However, RSI conditions may challenge the pair’s further downside around the yearly bottom of 1.1933.

• GBP/JPY is holding itself above 166.50 as the UK Inflation has landed in line with the estimates.
• The UK Inflation has landed at 9.1% while the core CPI is been recorded at 5.9%.
• Prudent commentary in the BOJ minutes has supported the yen bulls.

The GBP/JPY pair has not displayed any wild move as the UK Inflation has landed in line with the forecasts at 9.1%. The core Consumer Price Index (CPI) has been recorded at 5.9%, lower than the estimates of 6% and the prior print of 6.2%.

Even a stable inflation print demands a 50 basis point (bps) rate hike by the Bank of England (BOE) in its July monetary policy. It is worth noting that the BOE elevated its interest rates by 25 bps in June. Lower growth prospects tied the hands of the BOE policymakers to see beyond the nominal rate hike figure.

The labor market is extremely tight in the UK economy as the administration has managed to generate sufficient employment opportunities in the first quarter. Also, the Claimant Count Change data tumbled significantly in May. The UK economy recorded only 19.7K jobless claims vs. -65.5k recorded earlier.

On the Tokyo front, June’s monetary policy minutes from the Bank of Japan (BOJ) have supported the yen bulls broadly.  As per the BOJ minutes, the central bank will stick to its ultra-loose monetary policy. The overall demand in the Japanese economy is not so strong and a higher inflation rate seldom banks upon costly fossil fuels and food prices.

• UK CPI rises by 9.1% YoY in May vs. 9.1% expected.
• Monthly UK CPI arrives at 0.7% in May vs. 0.6% expected.
• GBP/USD drops to daily lows at 1.2217 on mixed UK CPIs.

The UK Consumer Prices Index (CPI) 12-month rate came in at 9.1% in May when compared to 9.0% registered in April while matching estimates of a 9.1% print, the UK Office for National Statistics (ONS) reported on Wednesday. 

Meanwhile, the core inflation gauge (excluding volatile food and energy items) eased to 5.9% YoY last month versus 6.2% booked in April, missing the market forecast of 6.0%.

The monthly figures showed that the UK consumer prices arrived at 0.7% in May vs. 0.6% expectations and 2.5% previous.

FX implications:

In an initial reaction to the mixed UK CPI numbers, the GBP/USD pair fell further to hit a daily low at 1.2217.

The pair was last seen trading at 1.2233, down 0.32% on the day. US dollar rebounds amid broad risk-aversion.

Why UK inflation matters to traders?

The Bank of England 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.

European Central Bank (ECB) policymaker and French Central Bank head Francois Villeroy de Galhau said on Wednesday, France should escape recession this year but inflation is still too high.

Additional comments

Market reaction

EUR/USD was last seen trading down 0.34% on the day at 1.0487.

USD/CHF takes the bids to refresh intraday high around 0.9690 heading into Wednesday’s European session.

The Swiss currency (CHF) pair refrain from clearly printing options market bias while ignoring the latest bearish signals.

That said, the one-month risk reversal (RR) of the USD/CHF pair, a gauge of calls to puts, eased to -0.020 by the end of Tuesday’s North American session.

In doing so, the options market catalysts portray a neutral bias of the traders, considering the previous day’s print of +0.020.

It’s worth noting that the latest full-week RR dropped the most in a month while flashing -0.555 figures by the end of Friday.

Also read: USD/CHF Price Analysis: Inverted Flag advocates a bearish momentum

• Asian equities have tumbled as risk-off soars ahead of Fed Powell’s testimony.
• Household spending is likely to disrupt quantity-wise as a higher inflation rate is depreciating their paychecks.
• Oil prices have tumbled to near $105.00 as the odds of a slump in the global demand accelerate.

Markets in the Asian domain have witnessed a steep fall as the sentiment turned risk-off after the closing bell on Wall Street. The US dollar index (DXY) has been strengthened after stabilizing above Tuesday’s high at 104.60 and is now aiming to recapture Monday’s high at 104.82. The expectations of a hawkish commentary from Federal Reserve (Fed) chair Jerome Powell in his testimony have underpinned the negative market sentiment.

At the press time, Japan’s Nikkei225 dropped 0.10%, China A50 eased 0.46%, Hang Seng surrendered more than 1%, and Nifty50 tumbled 0.80%.

Taking into account, the runaway inflation and an extremely tight labor market in the US economy, Fed chair Jerome Powell is expected to sound extremely hawkish in his testimony. Household spending is likely to disrupt quantity-wise as soaring price pressures are depreciating their paychecks. No doubt, Fed Powell could dictate a continuation of a June monetary policy announcement for July. This may accelerate the recession fears but the Fed is left with no other option than to paddle the interest rates.

On the oil front, advancing odds of a slump in the global demand are forcing the market participants to dump fossil fuels. The oil prices have tumbled to near $105.00 and are expected to add losses are more interest rate hikes by various central banks are on their way.

Open interest in natural gas futures extended the downtrend on Tuesday and went down by around 3.6K contracts considering advanced prints from CME Group. Volume, instead, remained choppy and increased by more than 92K contracts.

Natural Gas faces initial support near $6.35

Prices of natural gas remained under pressure on Tuesday amidst diminishing open interest. That said, the continuation of the leg lower could be running out of steam and faces the next contention at the 100-day SMA around $6.36 per MMBtu.

• Gold Price extends pullback from 200-DMA, refreshes weekly low by the press time.
• Risk-aversion, hawkish Fed concerns renew US dollar demand.
• Fed’s Powell needs to win over the recession fears to convince greenback bulls.

Gold Price (XAU/USD) takes offers to refresh weekly low around $1,825 as risk-aversion weighs on the yellow metal ahead of Fed Chair Jerome Powell’s testimony on the bi-annual Monetary Policy Report. In doing so, the bullion declines for the fourth consecutive day while extending Friday’s downside break of the 200-DMA.

The market’s risk-aversion takes clues from the fears of an economic slowdown amid hawkish central bank actions.

On Tuesday, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported. On the same line, European Central Bank (ECB) Governing Council member Olli Rehn also mentioned that “It is very likely that September rate hike is bigger than 25 bps,” said ECB’s Rehn per Reuters.

Elsewhere, Economists polled by Reuters expect the Fed will deliver a 75-basis-point interest rate hike next month, followed by a half-percentage-point rise in September, and won't scale back to quarter-percentage-point moves until November at the earliest.

It’s worth noting that US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable but the market refrain from buying the assurance.

While portraying the risk-aversion, the S&P 500 Futures drop 1.10% intraday to reverse the two-day rebound from the lowest levels since late 2020. It’s worth noting that the US Treasury yields also fail to cheer the risk-aversion as the benchmark 10-year Treasury yields dropped five basis points (bps) to 3.25% at the latest. The sour sentiment helps the US Dollar Index (DXY) to refresh its intraday high around 104.65, rising for the first day in three, by the press time.

Looking forward, multiple central bank policymakers are in the line for speeches and can exert additional downside pressure on gold prices if they push for aggressive rate hikes. Above all, Fed Chair Powell’s ability to tame recession fears and justify the biggest rate hike since 1994 will be needed by XAU/USD sellers.

Technical analysis

Gold justifies repeated failures to stay beyond the 200-DMA as it drops back towards six-week-old horizontal support around $1,805. Following that, the $1,800 threshold and the yearly low near $1,786 could lure the XAU/USD bears.

Meanwhile, a clear upside break of the 200-DMA hurdle, around $1,845 by the press time, may not invite gold buyers as a downward sloping trend line from early March and the 50-DMA could challenge the following upside momentum around $1,850 and $1,875 in that order.

Gold: Daily chart

Trend: Further downside expected

A potential test of 0.6850 emerges on the horizon if AUD/USD closes below the 0.6900 level, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that ‘momentum indicators are mostly neutral’ and we expected AUD ‘trade sideways within a range 0.6920/0.7010’. Our view for sideway-trading turned out to be correct even though AUD traded within a narrower range than expected (0.6935/0.6993). Downward momentum has improved somewhat and AUD could drift lower to 0.6930. The next support at 0.6900 is unlikely to come into the picture. On the upside, a breach of 0.6995 would indicate that the current mild downward pressure has eased.”

Next 1-3 weeks: “There is not much to add to our update from Monday (20 Jun, spot at 0.6955). As highlighted, AUD is likely still consolidating within a range of 0.6900/0.7100. Looking ahead, only a daily closing below 0.6900 would indicate that AUD is ready to move to 0.6850.”

According to preliminary readings from CME Group for crude oil futures markets, traders scaled back their open interest positions for yet another session on Tuesday, now by around 1.4K contracts. In the same line, volume reversed two daily builds and shrank markedly by around 192.8K contracts.

WTI: Next on the downside comes the May low near $98.00

Tuesday’s negative performance of WTI prices came on the back of shrinking open interest and volume, hinting at the idea that a sustained pullback looks unlikely in the very near term. Against that, crude oil prices are expected to meet contention at the May low at $98.23 (May 11).

International Energy Agency (IEA) chief Fatih Birol issued a warning to Europe, urging governments to remain prepared over a total shutdown of Russian gas exports this winter, the Financial Times (FT) reports.

Key quotes

“Europe should be ready in case Russian gas is completely cut off.”

“The nearer we are coming to winter, the more we understand Russia’s intentions.”

“I believe the cuts are geared towards avoiding Europe filling storage, and increasing Russia’s leverage in the winter months.”

“Emergency measures taken by European countries this week to reduce gas demand, such as firing up old coal-fired power stations, were justified by the scale of the crisis despite concerns about rising carbon emissions.”

Market reaction

Amid risk-off sentiment and broad US dollar demand, EUR/USD is extending its weakness, with the above comments adding to the EUR’s plight.

The pair is down 0.30% on the day at daily lows of 1.0493, as of writing.

Cable is expected to navigate the 1.2040-1.2400 range in the next weeks, according to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that GBP ‘is likely to trade sideways within a range of 1.2190/1.2300’. However, GBP subsequently rose to 1.2325 before easing off. Despite the advance, upward momentum has barely improved and GBP is unlikely to advance further. For today, GBP is more likely to trade between 1.2225 and 1.2325.”

Next 1-3 weeks: “On Monday (20 Jun, spot 1.2225), we highlighted that the outlook is mixed and GBP could continue to trade in a choppy manner, likely between 1.2040 and 1.2400. Despite the subsequent quieter price actions, we continue to expect GBP to trade between 1.2040 and 1.2400.”

CME Group’s flash data for gold futures markets noted open interest rose for the third session in a row on Tuesday, this time by around 2.6K contracts. Volume followed suit and went up by around 40.7K contracts after two consecutive daily drops.

Gold: On its way to $1,800?

Gold prices extended the downside on Tuesday against the backdrop of rising open interest and volume, indicative that extra losses remain on the cards for the precious metal in the very near term. That said, the key $1,800 mark per ounce troy now emerges as the next magnet for bears ahead of the 2022 low at $1,780 (January 28).

The UK CPIs Overview

The cost of living in the UK as represented by the Consumer Price Index (CPI) for May month is due early on Wednesday at 06:00 GMT. May’s inflation data will be keenly watched by the GBP/USD traders as a positive side deviation in overall and core inflation figures will bolster the odds of a 50 basis point (bps) rate hike by the Bank of England (BOE) and downside pressure on already vulnerable Gross Domestic Product (GDP) numbers.

The annual UK Inflation is seen refreshing the four-decade high at 9.1% vs. 9% reported earlier. While the Core CPI that doesn’t include volatile food and energy prices is expected to shift lower to 6% against the prior print of 6.2%. Talking about the monthly figures, the CPI could fall significantly to 0.6% versus 2.5% prior.

It’s worth noting that the recent pressure on average earnings and upbeat jobs report 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 rise from 13% to 13.7% on a non-seasonally adjusted basis whereas the monthly prints may increase to 2% versus 1.6% reported earlier. Furthermore, the Retail Price Index (RPI) is also on the table for release and is expected to rise to 11.4% YoY from 11.1% prior while the MoM prints could hit to 0.5% from 3.4% in previous readings.

In this regard, Karl Paraskevas, Chief Economist at VARIANSE said,

Deviation impact on GBP/USD

How could it affect GBP/USD?

GBP/USD looks vulnerable after a downside break of the round-level support of 1.2250 in the Asian session.  The cable is marching downside towards 1.2200 as higher price pressures will dampen the GDP numbers further. No doubt, the labor market is getting tighter in the UK economy. Thanks to the lower Claimant Count Change at -19.7k for May and the upbeat Employment Change at 177k till March, which are supporting the BOE to dictate higher interest rate hike for July monetary policy. The jobless rate elevated to 3.8% but a figure below 4% is still manageable. However, lower growth prospects will restrict the BOE to take bold decisions without hesitation.

The UK’s Office for National Statistics reported the monthly GDP at -0.3% against the prior print of -0.1%. Also, the monthly Industrial Production tumbled to -0.6% from the expectation of 0.2%. A higher inflation rate will further dampen the UK economic data and henceforth will restrict the BOE to dictate higher interest rate hikes.

Technically, the cable is auctioning in Thursday’s range from the past three trading sessions that signal a volatility contraction. At the press time, the greenback bulls have dragged the asset below Tuesday’s low at 1.2240 and more downside looks likely if the asset drops further below Friday’s low at 1.2173. On a daily scale, the asset is trading below all short-to-long term Moving Averages (MA), which strengthens the greenback bulls.

Key notes

GBP/USD: Looks cheap for good reason

GBP/USD teases bears around 1.2250 ahead of UK inflation, Fed Chair Powell’s testimony

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).

• USD/JPY rebounds from intraday low as weekly support line defends buyers.
• Upbeat RSI, sustained trading beyond 200-HMA joins upside break of short-term horizontal hurdle to favor bulls.
• Rising wedge teases sellers at multi-year high, bulls aim for 136.70 hurdle.

USD/JPY fails to confirm the weekly rising wedge bearish chart pattern as it bounces back from the pattern’s support line to regain upside momentum around the highest levels since 1998. That said, the yen pair picks up bids to 136.25 heading into Wednesday’s European session.

Other than the pair’s rebound from the short-term support line, a successful break of the one-week-old horizontal hurdle, now support around 135.40 joins the firmer RSI (14) line to keep buyers hopeful.

However, multiple pullbacks from 136.70 test the USD/JPY pair’s upside momentum.

Following that, the upper line of the stated wedge, near 136.90, will precede the 137.00 round figure and the 140.00 psychological magnet to lure the pair buyers.

On the contrary, a clear downside break of 136.20 support could direct the USD/JPY pair towards the resistance-turned-support line near 135.40.

However, the 200-HMA level of 134.60 may challenge the quote’s weakness past 135.40, failures to do so highlight the theoretical target of the rising wedge, around 131.00.

USD/JPY: Hourly chart

Trend: Further upside expected

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang noted EUR/USD is still seen trading between 1.0390 and 1.0650 in the next weeks.

Key Quotes

24-hour view: “Yesterday, we expected ‘further EUR consolidation within a range of 1.0470/1.0560’. However, EUR rose briefly to 1.0582 before easing off. Downward momentum has improved a tad and the bias for EUR is tilted to the downside. However, any weakness is unlikely to challenge 1.0470 (1.0500 is already quite a strong support level). Resistance is at 1.0555 followed by 1.0580.”

Next 1-3 weeks: “We have expected EUR to consolidate since late last week. There is no change in our view for now but the decreased volatility over the past couple of days suggests a 1.0390/1.0650 range is likely enough to contain the price actions in EUR for now (vs 1.0350/1.0650 previously).”

• EUR/USD fades weekly gains as risk-aversion underpins US dollar rebound.
• Fears of recession join hawkish Fed concerns to exert downside pressure.
• ECBspeak, Eurozone Consumer Confidence may entertain traders ahead of Fed Chair Powell’s Testimony.

EUR/USD holds lower grounds near 1.0510, after refreshing the daily low near 1.0500, on bear’s return after a two-day advance. In doing so, the major currency pair awaits comments from the European Central Bank (ECB) and the US Federal Reserve (Fed) policymakers while justifying the risk-aversion wave amid early Wednesday morning in Europe.

The quote’s latest weakness could be linked to the broad US dollar rebound ahead of Fed Chair Jerome Powell’s testimony on the bi-annual Monetary Policy Report. Also exerting downside pressure on the pair are the fears of economic slowdown due to the central bankers’ aggressive rate hikes.

US Dollar Index (DXY) picks up bids to refresh its intraday high around 104.65, rising for the first day in three, by the press time. That said, the greenback gauge’s latest moves part ways from the previous day’s downbeat US data.

US Existing Home Sales dropped to the lowest levels in two years when talking the annualized number. Further, the Chicago Fed National Activity Index also dropped to 0.01 in May versus a revised down 0.04 prior.

It’s worth noting that hawkish comments from ECB Governing Council member Olli Rehn also favored the EUR/USD prices the previous day. “It is very likely that September rate hike is bigger than 25 bps,” said ECB’s Rehn per Reuters. His comments raised doubts about the ECB’s latest verdict suggesting a 0.25% rate hike in July and September.

On a different page, the options market remains hopeful of the EUR/USD rebound as the risk reversal (RR), the spread between calls and puts, prints firmer figures of late. That said, the daily RR rose during the last two days, +0.110 at the latest, whereas the weekly gauge of options market behavior eyes the strongest print in a month by snapping a three-week downtrend, around +0.140 by the press time.

Moving on, multiple ECB policymakers are up for speaking on Wednesday and can trigger a rebound of the EUR/USD prices. Also important will be the preliminary readings for Eurozone Consumer Confidence for June, expected -20.5 versus -21.1 prior.

Above all, Fed Chair Powell’s ability to justify the biggest rate hike since 1994 will be crucial for the EUR/USD prices as any failures to convince bulls, could easily propel the quote.

Technical analysis

EUR/USD justifies the previous day’s downside break of a symmetrical triangle while teasing sellers around 1.0500. Also favoring sellers is a looming bear cross on the MACD and a clear U-turn from the 200-SMA, around 1.0590 by the press time. However, a one-week-old ascending support line, near 1.0490 by the press time, challenges the EUR/USD pair’s nearly downside.

According to a Bloomberg survey of 45 analysts, the Australian GDP rate is seen growing at a slower pace than previously expected, as the aggressive interest rate hikes to tackle inflation is likely to have a first-order impact on the economy.

Key takeaways

“The A$2.2 trillion (S$2.1 trillion) economy will grow an annual 3.3 percent in the fourth quarter and 3.1 percent in the first 3 months of 2023, down from previous forecasts of 3.8 percent and 3.6 percent, respectively.”

“Expect the cash rate to finish the year at an average 2.45 percent, from 1.75 percent previously, before climbing to 2.6 percent in the first quarter and then holding there.”

Related reads

• AUD/USD tumbles below 0.6920 as market mood sours, Fed Powell eyed
• Australian Treasurer Chalmers: Inflation likely to get worse before it gets better in 2022

• Steel Price consolidates the previous day’s gains from five-month low.
• Fears of oversupply from China magnify after the latest trade numbers.
• Sour sentiment amid fears of recession, hawkish Fed also weigh on commodity prices.

Steel Price fails to extend the previous day’s corrective pullback from a five-month low as supply fears escalate. Also weighing on the metal is the market’s risk-off mood, as well as a firmer US dollar.

That said, the construction steel rebar on the Shanghai Futures Exchange fell 1.3%, while the hot-rolled coil dipped 1.1%. stainless steel rose 0.6%, per Reuters. The industrial metal recovered from the lowest levels since January by posting nearly 3.0% daily gains the previous day.

It’s worth noting that the latest data from the Shanghai Metals Market (SMM) raised oversupply fears by saying that China's stainless steel imports dropped 24% YoY in May, but exports rose 32.91% YoY. “In May 2022, stainless steel imports totaled 229,800 metric tonnes, down 9,176 mt or 3.84% month-on-month and 24.05% year-on-year,” add the SMM per Reuters.

SMM also cites the vigorously developing stainless steel industry in Southeast Asia, India and Vietnam by citing new plants opening one after another.

On the other hand, fears of the Fed’s aggression, as well as concerning the US recession. US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable. Further, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported.

While portraying the mood, the S&P 500 Futures drop 1.10% intraday to reverse the two-day rebound from the lowest levels since late 2020. It’s worth noting that the US Treasury yields also fail to cheer the risk-aversion as the benchmark 10-year Treasury yields dropped five basis points (bps) to 3.25% at the latest.

Given the fears of oversupply and recession, Steel Price may witness further downside. However, the shift in the market sentiment could offer breathing space to the bears if Fed Chair Jerome Powell again fails to impress bulls during his testimony on the bi-annual Monetary Policy Report.

• A symmetrical triangle breakout has strengthened the greenback bulls for an upside move towards 1.3000.
• The formation of positive divergence on the RSI (14) has confirmed a bullish reversal.
• The greenback bulls have surpassed the 50-EMA which confirms a short-term uptrend.

The USD/CAD pair has overstepped the crucial hurdle of 1.2963 firmly in the Asian session. The asset is scaling higher strongly after sensing a responsive buying action below 1.2920. A corrective move in the asset after printing a monthly high of 1.3079 on Friday is expected to convert into a fresh impulsive move.

An upside break of the Symmetrical Triangle has strengthened the greenback bulls. The downward sloping trendline of the above-mentioned chart pattern is placed from Friday’s high at 1.3079 while the other is plotted from Thursday’s low at 1.2861.

The asset has recaptured the 50-period Exponential Moving Average (EMA) at 1.2953, which signifies that the short-term trend is hinting at an upside movement. Also, the 200-EMA at 1.2898 is scaling higher, which confirms that the long-term trend is intact.

A Positive Divergence was recorded after the asset made a higher low at around 1.2907 while the momentum oscillator Relative Strength Index (RSI) (14) made a lower low. This dictates an oversold situation in an uptrend and indicates a fresh leg of rally going forward. Meanwhile, the RSI (14) has crossed 60.00, which put the greenback bulls in a dominant position.

A pullback move towards the 50-period EMA at 1.2953 will be an optimal buy for the bargain investors, which will drive the asset towards the psychological resistance and Friday’s high at 1.3000 and 1.3079 respectively.

Alternatively, the Positive Divergence formation could negate if the asset drops below Thursday’s low at 1.2861. This will drag the asset towards June 10 high at 1.2813, followed by May 23 low at 1.2766.

USD/CAD hourly chart

• USD/INR retreats from record top as Indian rupee bulls brace for central banks’ aggression.
• RBI is up for publishing June Meeting Minutes, chatters over 75-100 bps rate hike amplify.
• Fed’s Powell has a tough task to defend the biggest rate hike since 1994.

USD/INR takes a U-turn from the all-time high surrounding 78.40, remains pressured at 78.15 during the initial hour of the Indian trading session on Wednesday.

In doing so, the Indian rupee (INR) pair justifies the Indian market’s hawkish bias over the Reserve Bank of India’s (RBI) next move. It’s worth noting that the pair’s weakness fails to respect the broad US dollar rebound amid the market’s anxiety ahead of the key events, namely Fed Chair Powell’s Testimony on the bi-annual Monetary Policy Report, as well as RBI Monetary Policy Meeting.

India’s Monetary Policy Committee is likely to hike the key repo rate by another 75-100 basis points in the next six months, while USD/INR is likely to rise further, DBS said per Reuters. The upbeat view for USD/INR also takes clues from the fears of surging inflation and the recently firmer data from India.

On the other hand, risk-aversion weighs on the US stock futures and the Treasury yields but helps the US dollar to consolidate the recent losses. That said, the S&P 500 Futures drop 1.10% intraday to reverse the two-day rebound from the lowest levels since late 2020. It’s worth noting that the US Treasury yields also fail to cheer the risk-aversion as the benchmark 10-year Treasury yields dropped five basis points (bps) to 3.25% at the latest.

Fears of the Fed’s aggression, as well as concerning the US recession, act as the key catalysts to weigh on risk appetite. US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable. Further, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported.

Moving on, USD/INR sellers may seek hawkish comments from the RBI Monetary Policy Meeting Minutes to keep the reins. However, major attention will be given to Fed’s Powell. Should Powell manage to justify the biggest rate hike since 1994, as well as portray Fed’s aggression in taming inflation, the risk-off mood may get a boost, which in turn could propel the US dollar.

Technical analysis

USD/INR forms double tops around 78.40, which in turn teases bears if the prices sustained a downside break of the 77.87 horizontal support, comprising multiple lows marked in the last one week.

• WTI remains pressured around one-month low as it breaks two-month-old support line.
• 100-DMA, 61.8% Fibonacci retracement level may test bears but recovery remains elusive until crossing weekly resistance line.
• Bearish MACD, clear downside break of important support favor sellers.

WTI crude oil slumps to the lowest levels in five weeks after breaking an upward sloping trend line support from April, now resistance. That said, the black gold refreshed its monthly low by breaking the stated trend line around $104.57 before recently taking rounds to $105.20.

In addition to the trend line breakdown, the bearish MACD signals and the previous day’s pullback from the 50-DMA also suggest the energy benchmark’s further downside.

However, the 100-DMA and the 61.8% Fibonacci retracement of the April-June upside, respectively around $104.20 and $103.50, challenge the short-term downside of the WTI.

Following that, a south-run towards the $100.00 and then to May’s low near $97.20 can’t be ruled out.

Alternatively, the support-turned-resistance line around $105.90 guards immediate recovery ahead of the 50-DMA level of $109.15.

Even if the quote rises past 50-DMA, the $110.00 round figure and a one-week-old descending resistance line, around $111.40 by the press time, will be important to watch for the commodity buyers.

Overall, WTI is back on the bear’s radar after ahead of the week’s key events, namely Fed Chair Jerome Powell’s testimony and a speech from US President Joe Biden concerning oil prices.

WTI: Daily chart

Trend: Further weakness expected

• AUD/USD has slipped firmly below 0.6920 as a risk-off impulse has rebounded ahead of Fed Powell.
• Investors should brace for a Double Distribution trading session which indicates more downside ahead.
• The positive comments from the RBA minutes have failed to strengthen the aussie bulls.

The AUD/USD pair has witnessed a steep fall after slipping below the round-level support of 0.6940 in the Asian session. The asset is expected to display a bearish Double Distribution trading session. The major initiated the trading session with a minor consolidation and later the greenback bulls dragged the asset firmly. An intraday low of 0.6913 has been recorded at the press time and second inventory distribution is expected to take place later.

It looks like the positive minutes from the June monetary policy of the Reserve Bank of Australia (RBA) have failed to provide strength to the aussie bulls. As per the RBA minutes, the Australian economy doesn’t see any signs of recession in the current horizon. Household spending is resilient despite depreciated paychecks due to higher price pressures.

As per the minutes, the jobless rate is going to remain untouched while fixing the inflation mess, which indicates that the labor market in the Australian economy is extremely tight. A minor increase in the Unemployment Rate could be witnessed while addressing the inflation mess but that will be manageable. The only concern for the RBA is the lower wage growth rate, which is required to be accelerated at 3.5%.

Meanwhile, the US dollar index (DXY) is holding itself above Tuesday’s high at 104.60 as the negative market sentiment has rebounded. Investors are uncertain over Federal Reserve (Fed) chair Jerome Powell’s testimony, which is expected to bring more restrictive measures to contain the soaring inflation and on injecting liquidity into the economy.

• Gold prices have extended their losses after slipping below the cushion of $1,830.00.
• Fed Powell’s testimony is expected to be extremely hawkish considering the runaway inflation rate.
• The EU is supposed to ban gold trading from Russia.

Gold price (XAU/USD) has extended its losses in the Asian session after violating the critical support of $1,830.00.  The precious metal was declining gradually earlier as investors were on the sidelines ahead of Federal Reserve (Fed) chair Jerome Powell’s testimony. Now, a decisive move below $1,830.00 has infused an adrenaline rush into the gold bears, which may drag the gold prices significantly lower.

Investors are hoping that Fed Powell is going to dictate an extremely hawkish stance on July monetary policy. The Fed has already elevated its interest rates to 1.50-1.75% in the last four months, however, the impact on the inflation mess is still not visible. This has supported the US dollar index (DXY), which is attempting to sustain above Tuesday’s high at 104.60.

On the global front, European Union (EU) Leaders Summit could ban imports or exports of gold or both from Russia after banning oil imports, as per Reuters. If that occurs, it may bring more uncertainty to the gold prices.

The monetary policy plans from various central banks are indicating hawkish guidance for the upcoming policies, which will keep the gold bulls on the tenterhooks.

Gold technical analysis

On an hourly scale, gold prices have displayed a downside break of the Descending Triangle, whose horizontal support is placed from $1,834.39 while the downward sloping trendline is plotted from Thursday’s high at $1,857.04. The 50-period Exponential Moving Average (EMA) at $1,835.74 is declining, which adds to the downside filters. Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bearish range of 20.00-40.00, which signals more downside ahead.

Gold hourly chart

Australian Treasurer Jim Chalmers said on Wednesday that he expects inflation to reach its highest level in 32 years by the end of 2022, calling for more interest rates from the Reserve Bank of Australia (RBA) before Christmas.

Key quotes

‘We’ll see that later. Certainly, the expectation across the board is that inflation will get significantly higher than the 5.1 percent we saw in the March quarter.”

“Across the board, inflation is expected to worsen before it gets better, and then interest rates will rise again.”

“Obviously, as interest rates continue to climb, as directed by the Reserve Bank governor, it will become more difficult for Australians to pay off their mortgages.”

“So this is a very difficult time, and I welcome the candor and candor with which Governor Lowe has described the challenges ahead.

“This is already making life very difficult for Australians, and for Australian industry too, as prices for goods and services and supplies are skyrocketing.”

Market reaction

AUD/USD remains uninspired by the hawkish RBA rate hike expectations, as recession fears weigh heavily on the investors’ sentiment.

The pair is currently trading at 0.6937, down 0.47% on a daily basis.

• Risk appetite sours after two-day optimism amid fears of recession, pre-Powell anxiety.
• S&P 500 Futures drops half a percent while reversing the bounce off yearly low.
• US 10-year Treasury yields fade upside momentum near 11-year top.
• Fed Chair Powell may defend bears by fueling rate hike expectations.

Global markets fade the two-day optimism as traders await Fed Chair Jerome Powell’s key testimony amid fears of recession. Also keeping the risk-aversion active is the lack of major data/events during Wednesday’s Asian session.

While portraying the mood, the S&P 500 Futures drop 0.54% intraday to reverse the two-day rebound from the lowest levels since late 2020. It’s worth noting that the US Treasury yields also fail to cheer the risk-aversion as the benchmark 10-year Treasury yields dropped three basis points (bps) to 3.27% at the latest.

Fears of the Fed’s aggression, as well as concerning the US recession, act as the key catalysts to weigh on risk appetite. US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable. Further, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported.

On Tuesday, expectations of US President Joe Biden’s ability to tame energy prices joined the downbeat US data to offer another positive day during the full markets.

“Oil prices skidded in early trade on Wednesday amid a push by U.S. President Joe Biden to bring down soaring fuel costs, including pressure on major U.S. firms to help ease the pain for drivers during the country's peak summer demand,” said Reuters. It’s worth noting that Biden eyes a pause in the federal gas tax to ease the energy prices.

Elsewhere, US Existing Home Sales dropped to the lowest levels in two years when talking the annualized number. Further, the Chicago Fed National Activity Index also dropped to 0.01 in May versus a revised down 0.04 prior.

Looking forward, traders are likely to remain cautious ahead of Fed Chair Powell’s Testimony on the bi-annual Monetary Policy Report. Should Powell manage to justify the biggest rate hike since 1994, as well as portray Fed’s aggression in taming inflation, the risk-off mood may get a boost, which in turn could propel the US dollar and weigh on commodities.

Analysts at Goldman Sachs back the view for further sterling underperformance, in the face of the Bank of England’s (BOE) monetary policy divergence with its global peers.

Key quotes

"The Bank of England delivered another 25bp hike last week-an underwhelming response to acute inflation pressures-but signaled that it is willing to potentially act more "forcefully" if inflation proves more persistent (which we interpret to be a reference to 50bp hikes in the next couple of meetings).”

"We and the market interpreted last week's policy statement as a slight softening in the "transitory" inflation view. Still, some on the MPC appear to have a high bar for what would qualify as “more persistent" inflation pressures, and the BoE's actions continue to stand out relative to its DM peers. So, we continue to look for further Sterling underperformance ahead, especially as the ECB debates a faster exit with a credit backstop in place, but the risk-reward of Sterling shorts has deteriorated somewhat, in our view.”

• Silver Price Analysis: XAG/USD renews weekly low as bears approach $21.20 support
• Five-week-old horizontal support area lures sellers amid bearish MACD signals, descending RSI.
• Bulls need successful break of three-week-old resistance to retake control.

Silver (XAG/USD) prices drop amid failures to cross the 200-SMA, as well as a short-term key resistance line. That said, the bright metal stays on offer to renew daily low around $21.40 during Wednesday’s Asian session.

In addition to the pullback from a downward sloping resistance line from June 03 and the 200-SMA, bearish signals from the MACD and downbeat RSI line, not oversold, also keep XAG/USD sellers hopeful.

However, a horizontal support area comprising multiple levels marked since mid-May, around $21.20, appears a tough nut to crack for the silver bears.

Should the quote drop below $21.20, the monthly low surrounding $20.90 may entertain sellers before directing them to May’s bottom of $20.45.

On the flip side, the 200-SMA and the aforementioned resistance line, respectively near $21.75 and $21.85, precede the $22.00 threshold to challenge the short-term XAG/USD rebound.

Following that, the monthly high near $22.50 will be crucial as a break of which could reverse the bear trend established in April.

Silver: Four-hour chart

Trend: Further weakness expected

• NZD/USD is meeting the demand area which opens risk to the upside.
• A 61.8% ratio reversion to 0.6317 could be on the cards.  

NZD/USD has been pressured but there is potential for a reversal that is taking shape on the lower timeframes identified on a 1-hour analysis and then down to a 5-min entry condition as follows:

NZD/USD H1 chart

The 1-hour time frame is broadly bearish following the break of structure below the counter trendline as illustrated above. However, there is a meanwhile correction that likely needs to take place. 

We can see more closely in a zoomed-in version of the same chart and schematic that the price has left an M-formation. These are reversion patterns and should support hold, then there the likelihood of a correction is probable. 

From a five-minute perspective, the price is meeting the demand area and a break of structure to the upside will open the risk of a 61.8% ratio reversion to 0.6317 or into the neckline of the hourly M-formation at 0.6327

The jawboning from the Japanese authorities continues, with an unnamed official noting on Wednesday that dramatic FX moves are not ideal.

Further comments

Market reaction

USD/JPY is extending its retreat from 24-year highs of 136.71 reached in the US last session. The pair is now trading at 136.17, down 0.33% so far.

• GBP/USD snaps two-day uptrend, flirts with intraday low at the latest.
• Brexit pessimism joins UK’s political chaos to portray downbeat conditions at home.
• BOE’s failure to impress bulls highlights UK CPI amid hopes of faster/heavier rate hikes.
• Powell needs to justify the biggest rate increase since 1994 and signal Fed’s aggression to please USD bulls.

GBP/USD fails to stay on the bull’s radar as it retreats to 1.2250 during the mid-Asian session on Wednesday. The cable pair’s latest weakness could be linked to the market’s risk-off mood, as well as anxiety ahead of the key UK Consumer Price Index (CPI) and Fed Chair Jerome Powell’s Testimony. Also drowning the quote is the pessimism surrounding Brexit and the UK’s political conditions, not to for fears of disappointment from the Bank of England (BOE).

Market sentiment sours amid fears of the Fed’s aggression, as well as concerning the US recession. US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable. Further, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported. While portraying the mood, S&P 500 Futures and the US 10-year Treasury yields fade the recent upside momentum.

On the other hand, fears that Fed’s Powell will push for more rate hikes, as well as downbeat expectations from the UK CPI, also weigh on the GBP/USD prices. Forecasts suggest that the UK CPI could ease to 0.6% MoM in May versus 2.5% prior even if it manages to stay firmer with 9.1% YoY figures, compared to 9.0% prior. Further, the Retail Price Index is also expected to ease while the Producer Price Index may increase during the stated month.

Elsewhere, a study by the Resolution Foundation think tank and London School of Economics mentioned that the British workers’ real pay will be cut by £470 thanks to Brexit, per the UK Mirror. “The research estimates that labor productivity will be reduced by 1.3% by the end of the decade by the changes in trading rules alone,” mentioned the news.

Furthermore, major rail strikes in the UK and Prime Minister Boris Johnson’s struggle to defend the position, especially following the allegations of breaking covid rules, exert downside pressure on the GBP/USD prices.

Looking forward, the GBP/USD pair may witness a kneejerk upside in case of the firmer UK inflation data. However, the recovery could gain a boost if Fed’s Powell fails to impress the greenback buyers.

Technical analysis

The GBP/USD pair’s successful trading above the 100-HMA and 200-HMA, as well as the RSI’s support to the recent higher lows in prices, keeps the pair buyers hopeful. That said, the latest pullback remains elusive until the quote stays above the 200-HMA support of 1.2230.

Meanwhile, recovery moves need validation from the 1.2310 hurdle, comprising the nearby triangle’s resistance line.

White House (WH) Economist Heather Boushey said at a Washington Post (WaPo) event late Tuesday, she remains optimistic right now that the US can avoid recession.

Key quotes

"It's part of the job description to worry about when the next recession will happen.”

"But ... right now we remain optimistic that we will not have to see something that will lead to the kinds of scarring of American families that we really don't want to see."

“President Joe Biden's policies had helped fuel strong job creation and quicker-than-expected drops in unemployment, which were good indicators of the strength of the US economy.”

Asked about Biden's recent comment that a recession was not inevitable, Boushey said she agreed, adding strong family balance sheets, the low unemployment rate and the economy's ability to weather the COVID-19 pandemic and other "storms," without elaborating on specific data.

"That gives us some confidence that should oil prices continue to be high or maybe go up, which would be horrible, ... there's enough of wiggle room that businesses and families will be able to make it through because they have resources to fall back on." 

Market reaction

The US dollar index was trading around 104.50 on the above comments.

• The oil prices have recorded more losses after violating the critical support of $109.00.
• Renewed recession fears about hiking interest rates have brought a sell-off in the oil prices.
• Investors have ignored the supply constraints in the oil market.

West Texas Intermediate (WTI), futures on NYMEX, has extended its losses in the Asian session after slipping below the crucial support of $109.00. The oil prices have delivered a downside break of the consolidation formed in a narrow range of $108.79-110.00. The black gold is expected to extend its losses further after slipping below Monday’s low at $106.78.

Fears of recession in the Western countries are galloping as higher inflation rates are demanding tight quantitative policy measures. Various central banks have elevated their interest rates in June significantly. Things got worsened further when the Swiss National Bank (SNB) elevated its interest rates for the first time in the past 15 years. The SNB paddled up its interest rates by 50 basis points (bps). It looks like the SNB has understood that higher oil and food prices could also affect their economy in later stages. Therefore, a balanced rate hike measure is for the greater good.

Higher interest rates are stating a sheer liquidity squeeze from the market and eventually a steep fall in the aggregate demand, which will bring a decent slippage in the demand for oil.

Meanwhile, investors have ignored the expectations of a rise in the summer season demand in the US. Also, tight supply in the oil market has failed to support the oil prices. The embargo on Russian oil imports will have multiplier effects on the oil prices for a prolonged period. Going forward, Federal  Reserve (Fed) chair Jerome Powell’s testimony will remain in focus. Fed Powell is expected t sound hawkish on further guidance, which could bolster the recession signs further.

• EUR/USD takes offers to refresh intraday low after breaking weekly triangle the previous day.
• Impending bear cross on the MACD, sustained pullback from the 200-SMA keep sellers hopeful.
• Bulls need validation from 1.0645 to retake control, weekly support line probes immediate declines.

EUR/USD renews intraday low as bears attack 1.0500 threshold on their return after a two-day absence. That said, the major currency pair justifies the previous day’s downside break of a symmetrical triangle during Wednesday’s Asian session.

In addition to the triangle breakdown, a looming bear cross on the MACD and a clear U-turn from the 200-SMA also favor the pair sellers.

However, a one-week-old ascending support line, near 1.0490 by the press time, challenges the EUR/USD pair’s nearly downside.

Following that, the monthly low of 1.0359 and the yearly low surrounding 1.0350 could probe the pair sellers before directing them to the July 2002 peak of 1.0200.

Alternatively, recovery remains elusive until the quote stays below the 200-SMA level of 1.0590. Also acting as an upside filter is the June 10 swing high near 1.0645.

It should be noted that the aforementioned triangle’s support and the previous weekly top, respectively around 1.0555 and 1.0600, could offer additional upside filters during the EUR/USD pair’s recovery.

Overall, bears retake control of the major currency pair as traders brace for Fed Chair Jerome Powell’s testimony.

EUR/USD: Four-hour chart

Trend: Further weakness expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at  6.7109 vs. an estimated 6.7060 and the prior 6.6851.

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 snaps two-day downtrend, grinds higher around daily tops.
• Market’s anxiety ahead of Powell’s testimony joins fears of recession to underpin USD rebound.
• Oil prices also drop as US President Biden pushes for gas tax relief.
• Canada Retail Sales came in firmer, Canada inflation data for May eyed as well.

USD/CAD bulls return to the table after a two-day absence as the quote refreshes intraday top near 1.2950 during Wednesday’s Asian session. In doing so, the Loonie pair traces a firmer US dollar amid the market’s risk-off mood ahead of Fed Chair Jerome Powell’s testimony. Adding to the upside momentum is the fall in oil prices, Canada’s key export item.

US Dollar Index (DXY) prints the week’s first daily gains around 104.60 as sentiment sours amid fears of the Fed’s aggression, as well as concerning the US recession. US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable. Further, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported.

On the other hand, WTI crude oil prices refresh monthly low at around $108.00, down 1.5% by the press time, as US President Biden pushes for lower energy prices. “Oil prices skidded in early trade on Wednesday amid a push by U.S. President Joe Biden to bring down soaring fuel costs, including pressure on major U.S. firms to help ease the pain for drivers during the country's peak summer demand,” said Reuters. It’s worth noting that Biden eyes a pause in the federal gas tax to ease the energy prices.

On Tuesday, Canadian Retail Sales rose the most in three months, by 0.9% in April versus 0.8% forecasts and an upwardly revised 0.2% prior. In the US, Existing Home Sales dropped to the lowest levels in two years when talking the annualized number. Further, the Chicago Fed National Activity Index also dropped to 0.01 in May versus a revised down 0.04 prior.

Given the latest risk-aversion wave underpinning the US dollar’s recovery moves, as well as favoring the oil bears, the USD/CAD is likely to witness further upside ahead of Fed Chair Jerome Powell’s key testimony. Also important to watch is the Bank of Canada’s (BOC) Consumer Price Index Core, expected 5.9% YoY versus 5.7% prior, for May. It’s worth noting that Canada's CPI is likely to rise 1.0% versus 0.6% prior during the stated month.

Technical analysis

USD/CAD buyers remain unconvinced despite the latest rebound as the quote holds onto the previous day’s downside break of an ascending trend line from June 08, around 1.3090 by the press time.

The Federal Reserve (Fed) will deliver another 75-basis-point interest rate hike in July, followed by a half-percentage-point rise in September, and won't scale back to quarter-percentage-point moves until November at the earliest, according to economists polled by Reuters.

Key findings

Also read: EUR/USD defends bulls around 1.0550 ahead of Fed Chair Powell’s testimony

• AUD/USD takes offers to renew intraday low, pares weekly gains.
• Short-term triangle restricts immediate downside below the key SMAs.
• Steady RSI, failures to cross moving averages keep bears hopeful.

AUD/USD holds lower ground near 0.6950, after refreshing daily lows with 0.6944, as traders jostle inside a short-term triangle during Wednesday’s Asian session.

In addition to the nearby triangle formation, steady RSI also challenges the AUD/USD pair’s immediate moves. However, failures to cross the 50-SMA and the 200-SMA join Thursday’s “death cross” to favor sellers.

That said, a clear downside break of the 0.6940 support appears necessary for the pair sellers to retake controls, after a two-day absence.

Following that, the 0.6900 round figure and the monthly low 0.6850 could gain the AUD/USD pair bear’s attention.

Meanwhile, the 50-SMA and upper line of the stated triangle, respectively around 0.6975 and 0.6985, precede the 0.7000 psychological magnet to challenge short-term AUD/USD buyers.

Even if the quote rises past 0.7000, the 200-SMA level of 0.7055 could probe the upside momentum.

It should be noted, however, that the Aussie pair’s ability to stay firmer past 0.7055 enables it to challenge the monthly peak of 0.7283.

AUD/USD: Four-hour chart

Trend: Further weakness expected

• USD/JPY bears take over and eye 136 the figure, or thereabouts. 
• The 10-min chart's M-formation's neckline aligns with a 36.2% Fibo, offering additional conviction for the downside bias.  

USD/JPY has been an early mover on Wednesday in Asia, falling from a high of 136.71 and dropping to 136.24 so far. The price is however stalling here and consolidation is taking shape after the dovish Bank of Japan Minutes.

• BoJ Minutes: Will ease further if needed, USD/JPY stalling in the sell-off

Before the sell-off in USD/JPY, the yen weakened to the lowest point since 1998 as investors bought up risk assets following last week's rout in equities.  Bargain hunting put a global bid on equities. MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.3%, moving higher from a more than five-week low and set for its best day in around two weeks.

Japan's benchmark Nikkei average gained 2.22%. European shares also closed higher for a second consecutive day on Tuesday. The Stoxx Europe 600 gained 0.35%, London's FTSE 100 added 0.42%, France's CAC rose 0.75% and Germany's DAX edged up by 0.20%. The Swiss Market Index was off 0.06%. On Wall Street, all sectors in stocks are in the green with the Dow Jones Industrial Average (DJI) climbing 641.47 points, or 2.15%, to 30,530.25, and the S&P 500 adding 89.95 points, or 2.45%, at 3,764.79. The Nasdaq Composite put on 270.95 points, or 2.51%, at 11,069.30.

Consequently, the yen is gaining against a softer US dollar and rising euro. The single unit rose on Tuesday, drawing support from the European Central Bank's plans to raise interest rates to contain inflation. The dollar index DXY, which tracks the greenback against six major peers including the euro and the yen, was down 0.2% at 104.23, with eyes on Federal Reserve Chair Jerome Powell's testimony to Congress, which kicks off on Wednesday. Investors will be pivoting to Fed Chair's testimony, looking for further clues on future interest rate hikes and his latest views on the economy. 

USD/JPY technical analysis

As per the prior multi-timeframe analysis from the New York session, USD/JPY Price Analysis: Bears are lurking and a significant correction could be on the cards, a topping formation was highlighted on the 5-min chart:

The price has subsequently dropped as follows, leaving a menacing M-formation on the hourly chart:

The bulls are moving in at this juncture and the price imbalance could be mitigated below any further downside towards 136 the figure. If, on the other hand, the bears commit at this juncture, then the 36.2% Fibo may be confirmed as a strong enough correction:

The 10-min chart's M-formation's neckline aligns with the Fibo, offering additional conviction to the downside case: 

• The DXY is displaying a balanced market profile ahead of Fed Powell’s testimony.
• Fed Powell will unlock the guidance on inflation, demand prospects, and July monetary policy.
• The US Services and Manufacturing PMI are expected to display a vulnerable performance.

The US dollar index (DXY) is auctioning in a narrow range of 104.40-104.45 ahead of Federal Reserve (Fed) chair Jerome Powell’s testimony. The FX domain is much quiet as investors are expecting a hawkish stance on July monetary policy from Fed Powell in his testimony.

Fed Powell to unlock some mysteries in his testimony

In May’s monetary policy press conference, Fed Powell announced that the 75 basis points (bps) rate hike is not into consideration. Despite that, Fed Powell features a bumper rate hike, which signals that the inflation mess is worsened now, which has forced Fed Powell to move beyond the statement. The guidance on inflation targets and growth prospects will be of significant importance. Apart from that, the guidance on the extent of the interest rates to be announced in July possesses key importance.

Lower PMI forecasts to trim demand estimates

On Thursday, the IHS Markit will report the Purchase Managers Index (PMI) figures, which are seen as extremely lower. The Services PMI is seen at 49.1 against the prior print of 53.2. While the Manufacturing PMI is expected to slip to 54.7 from the former figure of 55.7. A slippage in the Services and the Manufacturing PMI eventually indicates a plunge in the aggregate demand.

Key data this week: Initial Jobless Claims, S&P Global PMI, Bank Stress Test Info, Michigan Consumer Sentiment Index (CSI), and New Home Sales.

Major events this week:  Fed chair Jerome Powell's testimony and European Union (EU) Leaders summit.

• Gold holds lower grounds inside a bullish chart pattern.
• Risk appetite weakens amid pre-Powell anxiety, yields, S&P 500 Futures pare recent gains.
• Powell’s ability to justify the biggest rate hike since 1994 could favor XAU/USD bears.

Gold (XAU/USD) prints mild losses around $1,830 as sour sentiment weighed on the precious metal during Wednesday’s Asian session. Even so, the commodity prices remain inside a bullish chart pattern ahead of Fed Chair Jerome Powell’s key Testimony.

S&P 500 Futures and the US 10-year Treasury yields portray the market’s cautious mood while pausing the latest run-up and exerting downside pressure on the gold prices. That said, the US equity futures drop 0.20% while the benchmark bond coupon falls two basis points (bps) to 3.28% by the press time.

In addition to the pre-Powell anxiety, chatters surrounding Fed’s rate hikes and the US recession could also be held responsible for the market’s latest risk-off mood, which in turn weighs on the XAU/USD.

Recently, US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable. Further, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported.

It should be noted that the strong performance of Wall Street, after the biggest weekly fall in two years, joined downbeat US data, to try to tease gold buyers the previous day. That said, US Existing Home Sales dropped to the lowest levels in two years when talking the annualized number. Further, the Chicago Fed National Activity Index also dropped to 0.01 in May versus a revised down 0.04 prior.

Moving on, Powell’s art of defending the tighter monetary policies and the rate hikes will be crucial for the gold traders and can recall the bears. However, fears of disappointment can’t be ruled out considering Fed Chair’s latest inabilities to please the bulls.

Also read: Gold Price Forecast: Bears retain control but need a catalyst

Technical analysis

Gold Price dribbles around the lower line of the weekly falling wedge bullish formation after multiple failures to cross the 100-HMA.

The repeated bounces off the immediate $1,828 support join steady RSI to keep buyers hopeful.

However, the 100-HMA and the stated bullish pattern’s resistance line, respectively around $1,838 and $1,842, hold the key for the metal’s further upside, a break of which could quickly propel XAU/USD towards the latest swing high near $1,857.

Alternatively, a downside break of $1,828, short-term horizontal support near $1,813 can probe the gold bears before directing them to the monthly low near $1,805.

Gold: Hourly chart

Trend: Further recovery expected

The Bank of Japan published a study of economic movements in Japan after its actual meeting, coming in as follows:

BoJ minutes

Board members agreed on no change to BoJ's stance of taking additional easing steps without hesitation if needed.

One member said rising raw material costs would hurt the economy so must keep powerful monetary easing.

One member said japan's monetary policy challenge is to address too-low inflation, unlike in the western economy.

One member said inappropriate to change the monetary policy stance as Russia's invasion of Ukraine adds downside risks to Japan's economy.

One member said BoJ must remain mindful of the need to make its monetary framework sustainable as the ultra-loose policy is likely to be prolonged.

Several members said forex should move in a stable manner reflecting fundamentals.

A few members said recent short-term excessive forex volatility could make it hard for firms to set business plans.

Several members said must communicate to markets that BoJ conducts monetary policy to achieve price stability, not at controlling forex moves.

One member said BoJ must look not at commodity, and forex moves, but the impact they have on the economy and prices.

One member said a weak yen is positive for japan's economy at a time like now when the output gap remains big, and the inflation trend is very low.

Govt rep said that they hope BoJ works closely with govt and guides monetary policy appropriately to achieve sustainable price stability.

One member said more companies passing on higher costs to consumers, which is a development not seen during japan's period of deflation.

Many members said trend inflation, excluding the effect of energy prices, remains low.

One member said japan's core consumer inflation may move around 2% for the first half of fiscal 2022 due to rising raw material costs.

One member said core consumer inflation to hover around 2% for time being but is unlikely to exceed 2% in a sustained manner.

One member said there is growing chance core consumer inflation will reach 2% but that is driven by one-off factors.

One member said trend inflation is likely to gradually heighten ahead as a driver of price rises shifts from supply to demand.

USD/JPY update

As per the analysis from the New York session, the yen is firming as follows:

In the prior multi-timeframe analysis, USD/JPY Price Analysis: Bears are lurking and a significant correction could be on the cards, a topping formation was highlighted on the 5-min chart:

Live market:

The price is moving in the direction of the target, although the hourly chart's M-formation would be expected to see the price drawn in to test the neckline as illustrated below:

About the BoJ minutes

These meetings are held to review economic developments inside and outside of Japan and indicate a sign of new fiscal policy. Any changes in this report tend to affect the JPY volatility. Generally speaking, if the BoJ minutes show a hawkish outlook, that is seen as positive (or bullish) for the JPY, while a dovish outlook is seen as negative (or bearish).