• AUD/USD turns lower for the second straight day and drops to a multi-day low.
• Hawkish Fed expectations continue to underpin the USD and exert pressure.
• Recession fears further benefit the USD and weigh on the risk-sensitive aussie.

The AUD/USD pair struggles to capitalize on its intraday recovery move and meets with a fresh supply near the 0.7040 region on Tuesday. Spot prices turn back lower for the second successive day and slip below the 0.7000 psychological mark, hitting a four-day low during the first half of the European session.

The US dollar catches some bids for the third straight day and climbs back closer to the monthly peak, which turns out to be a key factor exerting downward pressure on the AUD/USD pair. Despite last week's softer US CPI report, the recent hawkish comments by Fed officials suggest that the US central bank would stick to its policy tightening path. This remains supportive of elevated US Treasury bond yields and continues to offer support to the greenback.

Apart from this, growing worries about a global economic downturn tempers investors' appetite for perceived riskier assets. The anti-risk mood is evident from a generally softer tone around the equity markets, which further underpins the safe-haven buck and contributes to driving flows away from the risk-sensitive aussie. This, along with weaker commodity prices, exerts additional downward pressure on the resources-linked Australian dollar and the AUD/USD pair.

Bulls seem unimpressed by the Reserve Bank of Australia’s (RBA) August meeting minutes, showing that board members agreed it was appropriate to continue to process of normalizing monetary conditions. Furthermore, weakness below the 0.7000 mark could be seen as a fresh trigger for bearish traders and supports prospects for further losses. The fundamental/technical backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside.

Market participants now look forward to the US economic docket, featuring housing market data and Industrial Production figures,  for some impetus later during the early North American session. Traders will further take cues from the US bond yields, which should influence the USD price dynamics. This, along with the broader market risk sentiment should allow traders to grab short-term opportunities around the AUD/USD pair.

Technical levels to watch

Economist at UOB Group Ho Woei Chen, CFA, comments on the recent releases in the Chinese calendar and the rate cut by the PBoC.

Key Takeaways

“Broad economic weakness resurfaced in Jul as China’s data including the industrial production (IP), retail sales and fixed asset investment (FAI) missed expectations.”

“The national surveyed jobless rate has continued to ease but concerns for the job market have centred on providing employment for new graduates as the youth unemployment rate rose further to a fresh record high of 19.9% in Jul.”

“The People’s Bank of China (PBoC) unexpectedly cut its 1Y medium-term lending facility (MLF) rate by 10 bps to 2.75% … The 7-day reverse repo rate was also cut to 2.00% from 2.10%. However, the central bank withdrew liquidity as expected, by rolling over CNY400 bn out of CNY600 bn of MLF that are maturing this week.”

“This is the first cut since Jan when the 1Y MLF was also reduced by 10 bps, leading to a corresponding 10 bps drop in the 1Y loan prime rate (LPR) subsequently. This time, we are also expecting the 1Y LPR to be fixed lower by 10 bps to 3.60% on 22 Aug while the 5Y LPR may also move lower in addition to the 15 bps reduction in May (current rate at 4.45%). We are retaining our end-3Q22 forecast for the 1Y LPR at 3.55% and then expect the rate to stay on hold through to 1Q23. Further rate reductions in China will be limited as domestic inflation rises while there are also increasing concerns over excessive liquidity in the banking system as credit demand has stayed weak due to the economic uncertainties.”

• Gold witnesses selling for the second straight day on Tuesday amid modest USD strength.
• Hawkish Fed expectations and elevated US bond yields continue to underpin the greenback.
• Recession fears could limit losses for the safe-haven XAU/USD ahead of the FOMC minutes.

Gold attracts fresh selling near the $1,783 region on Tuesday and turns lower for the second successive day. The XAU/USD drops back closer to a one-week low touched the previous day, around the $1,774 area during the first half of the European session and now seems vulnerable to slide further.

Following a brief consolidation through the early part of trading on Tuesday, the US dollar gains some positive traction for the third straight day and exerts some pressure on the dollar-denominated gold. Despite last week's softer US CPI report, Fed officials stressed that it is too soon to declare a victory on inflation and have maintained a hawkish tone. This, in turn, suggests that the Fed would stick to its policy tightening path and continues to underpin the greenback.

In fact, the markets are currently pricing in a greater chance of at least a 50 bps rate hike at the next FOMC policy meeting in September. This remains supportive of elevated US Treasury bond yields, which turns out to be another factor driving flows away from the non-yielding yellow metal. The downside, however, seems cushioned, at least for the time being, as investors might now prefer to move on the sidelines ahead of the FOMC meeting minutes, scheduled for release on Wednesday.

Investors would look for clues about the possibility of a larger 75 bps rate hike move in September. This would play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for gold. In the meantime, growing worries about a global economic downturn could lend some support to the safe-haven precious metal. Traders now look forward to the housing market data and Industrial Production figures from the US for some impetus on Tuesday.

Technical levels to watch

Economist at UOB Group Enrico Tanuwidjaja reviews the latest GDP figures in Thailand.

Key Takeaways

“Thai GDP expanded by 2.5% y/y in 2Q22, faster compared to 2.3% in 1Q22 as household consumption continue to improve as the economy reopens more sustainably.”

“We are much more sanguine for growth momentum in the second half of the year (3Q and 4Q will likely grow circa the 4% region).”

“We keep our 2022 GDP forecast unchanged at 3.2% and to accelerate further to 3.7% next year.”

• Economic sentiment continued to deteriorate in the euro area and in Germany.
• EUR/USD stays under bearish pressure, declines toward 1.0100.

The Economic Sentiment Index component of the ZEW Survey for Germany declined to -55.3 in August from -53.8 in July. This reading came in worse than the market expectation of -53.8. Furthermore, the Current Situation Index declined to -47.6 from -45.8. Finally, the Economic Sentiment Index for the eurozone slumped to -54.9 from -51.5, missing analysts' estimate of -42.5 by a wide margin.

Key takeaways

"Financial market experts expect a further decline in the already weak economic growth in Germany."

"Still high inflation rates and the expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector."

"In contrast, the expectations for the financial sector are improving due to the supposed further increase in short-term interest rates."

Market reaction

The shared currency stays on the backfoot after this report and EUR/USD was last seen losing 0.3% on the day at 1.0128.

• GBP/USD remains depressed for the fourth straight session and drops closer to the monthly low.
• The BoE's gloomy economic outlook continues to undermine sterling amid sustained USD buying.
• The mixed UK employment data fail to impress bullish traders or provide any impetus to the pair.

The GBP/USD pair manages to defend the 1.2000 psychological mark on Tuesday and stages a modest bounce from the vicinity of the monthly low. The attempted recovery, however, lacks follow-through and the pair remains on the defensive, below the 1.2050 area through the early part of the European session.

The UK Office for National Statistics reported that the number of people claiming unemployment-related benefits fell by 10.5K in July against the 32K fall anticipated. The UK unemployment rate, meanwhile, was unchanged at 3.8% during the three months to June. This, to a larger extent, offset stronger wage growth data. The rather unimpressive data comes on the back of the Bank of England's warnings that the economy is likely to slip into recession later this year and acts as a headwind for the British pound.

The US dollar, on the other hand, gains traction for the third successive day and climbs back closer to the monthly peak amid hawkish Fed expectations. This turns out to be another factor exerting some downward pressure on the GBP/USD pair. Despite last week's softer US CPI report, Fed officials stressed that it is too soon to declare a victory on inflation and have maintained a hawkish tone. This, in turn, suggests that the Fed would stick to its policy tightening path and underpins the greenback.

Apart from this, worries about a global economic downturn offer additional support to the safe-haven buck and support prospects for a further depreciating move for the GBP/USD pair. That said, traders might refrain from placing aggressive bets and prefer to move on the sidelines ahead of the FOMC monetary policy meeting minutes, scheduled for release on Wednesday. This makes it prudent to wait for sustained weakness below the 1.2000 mark before positioning for any further near-term losses.

In the meantime, traders on Tuesday might take cues from the US economic docket - featuring the release of housing market data and Industrial Production figures. This, along with the broader market risk sentiment, might influence the USD price dynamics and produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch

The Monetary Authority of Singapore (MAS) delivered a surprising aggressive policy tightening. Subsequently, economists at ING expect the Singapore dollar to strengthen over the coming months.

MAS carries out off-cycle tightening

“Accelerating inflation prompted the Monetary Authority of Singapore to carry out an off-cycle tightening move, re-centring the mid-point of the policy band to prevailing levels.”

“The SGD steadied after the unscheduled tightening by the MAS and could appreciate further in the coming months as the string of tightening pulls SGD stronger.”

USD/MXN has dropped below the 20 level. In the opinion of analysts at ING, the pair could test 19.50 in the not too distant future. 

Peso remains a good candidate for the carry trade

“MXN implied yields through the 3m forwards are near 10% and with Banxico targeting a stable currency – by keeping a 625 bps rate spread over the Fed – the peso should see good demand now. USD/MXN could briefly see 19.50.”

“Expect Banxico to match the next Fed increase (50 bps or 75 bps) in September. Access to US gas prices is an advantage for Mexico.”

• EUR/USD drops and rebounds from the 1.0130 region.
• Germany, EMU ZEW Economic Sentiment in due next.
• Housing Starts, Building Permits, Industrial Production next on tap later.

The European currency remains under scrutiny in the first half of the week and motivates EUR/USD to hover around the 1.0150 region on Tuesday.

EUR/USD focuses on dollar, ZEW survey

EUR/USD loses ground fort the third session in a row and navigates multi-day lows around 1.0150 on the back of the continuation of the bid bias around the greenback and lack of traction in yields on both sides of the Atlantic.

Indeed, the pair comes under further downside pressure following the stronger dollar and investors’ preference for safer assets, which forced the pair to give away more than two cents since last week’s tops near 1.0370 (August 10).

In the domestic calendar, the Economic Sentiment tracked by the ZEW survey is due in both Germany and the broader Euroland. Across the pond, the housing sector will take centre stage along with Industrial/Manufacturing Production results.

What to look for around EUR

EUR/USD’s upside momentum met a decent hurdle around 1.0360/70, an area coincident with the 55-day SMA and the 6-month resistance line so far.

Price action around the European currency, in the meantime, is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

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

Key events in the euro area this week: EMU, Germany ZEW Economic Sentiment, EMU Balance of Trade (Tuesday), EMU GDP Growth Rate (Wednesday) – EMU Final Inflation Rate (Thursday).

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

EUR/USD levels to watch

So far, spot is losing 0.20% at 1.0137 and a break below 1.0096 (weekly low July 27) would target 1.0000 (psychological level) en route to 0.9952 (2022 low July 14). On the other hand, the next up barrier comes at 1.0368 (monthly high August 10) seconded by 1.0505 (100-day SMA) and finally 1.0615 (weekly high June 27).

The Polish zloty looks unlikely to hold recent gains. Economists at ING expect to see another wave of PLN selling in late August/early September.

NBP to reluctantly continue its hiking cycle

“The fundamentals are unchanged, ie, a high risk of a recession in Europe and significantly softened NBP rhetoric. This may trigger another wave of PLN selling in late August/early September.” 

“Longer term prospects of the zloty largely hinge on general CEE sentiment and the dollar (negative correlation of CEE FX and USD has been particularly strong this year).”

“We expect the NBP to reluctantly continue its hiking cycle, offering some support for the zloty, particularly when key central banks end their cycles.”

Falling crude oil prices weighed heavily on the loonie on Monday and USD/CAD climbed above 1.2900. Unless oil suffers another big correction, the pair could drop below 1.25 by the end of 2022.

Waiting for some carry effect

“The Bank of Canada hiked by 100 bps at the last meeting, but we expect a more moderate pace of tightening from now on. Our base-case is a 50 bps hike in September (markets currently pricing in 58 bps).” 

“The BoC frontloaded tightening should leave the loonie with some decent carry advantage, but we still expect such advantage to fully materialise beyond the short term once market sentiment has stabilised.”

“Barring another big correction in oil prices, a move below 1.25 by year-end in USD/CAD still looks on the cards.”

EUR/USD has declined to its lowest level in nearly two weeks below 1.0140 but managed to stage a rebound. Additional losses are likely if 1.0150 is confirmed as resistance, FXStreet’s Eren Sengezer reports.

EUR/USD could suffer further losses in case 1.0150 support fails

“Later in the session, ZEW Survey for the euro area and Germany will be looked upon for fresh impetus. In case these figures fall short of market expectation, EUR/USD is likely to stay under bearish pressure with investors refraining from betting on a potential euro recovery.”

“1.0150 (Fibonacci 23.6% retracement of the latest downtrend) aligns as first support. In case the pair falls below that level and starts using it as resistance, it could continue to fall toward 1.0100 (static level, psychological level) and 1.0050 (static level).”

“On the upside, 1.0200/1.0210 (200-period SMA, 100-period SMA) forms the first resistance area before 1.0230 (Fibonacci 38.2% retracement) and 1.0300 (Fibonacci 50% retracement).”

• USD/JPY regains some positive traction on Tuesday amid some follow-through USD buying.
• Hawkish Fed expectations, elevated US bond yields push the USD closer to the monthly high.
• The Fed-BoJ policy divergence favour bullish traders, though recession fears might cap gains.

The USD/JPY pair attracts some dip-buying near the 132.95 area on Tuesday and climbs to a fresh daily high during the early European session. The pair is currently placed around the 133.70 region and is looking to build on its recent bounce from the 131.75-131.70 region touched last Thursday in the aftermath of the softer US CPI report.

The US dollar gains traction for the third straight day and climbs back closer to the monthly peak, which turns out to be a key factor acting as a tailwind for the USD/JPY pair. Despite last week's softer US CPI report, Fed officials stressed that it is too soon to declare a victory on inflation and have maintained a hawkish tone. This, in turn, suggested that the Fed would stick to its policy tightening path and remain supportive of elevated US Treasury bond yields, offering support to the buck.

In contrast, the Bank of Japan has repeatedly said that it would retain its ultra-easy policy settings and remains committed to keeping the 10-year Japanese government bond yield around 0%. This marks a big divergence in comparison to a more hawkish stance adopted by the US central bank, which underpins the Japanese yen and provides an additional lift to the USD/JPY pair. That said, recession fears continue to weigh on investors' sentiment and extend some support to the safe-haven JPY, which could cap the USD/JPY pair.

Traders now look forward to Tuesday's US economic docket, featuring housing market data and Industrial Production figures, which might influence the USD and provide some impetus to the USD/JPY pair. The focus, however, would remain on the US monthly Retail Sales and the FOMC monetary policy meeting minutes, both scheduled for release on Wednesday. In the meantime, traders might refrain from placing aggressive bets and prefer to move on the sidelines. This might also contribute to keeping a lid on any meaningful gains for the USD/JPY pair.

Technical levels to watch

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang note USD/CNH could edge further up in the short term.

Key Quotes

24-hour view: “We did not expect the sudden lift-off in USD that sent it rocketing by +1.16% (NY close of 6.8135), its largest 1-day advance since Mar 2020. The outsized advance appears to be overdone and USD is unlikely to strengthen much further. For today, USD is more likely to consolidate and trade between 6.7850 and 6.8250.”

Next 1-3 weeks: “We noted yesterday (15 Aug, spot at 6.7400) that downward momentum has waned and the chance for USD to weaken has diminished. We did not expect sudden surge that sent USD soaring to a high of 6.8200. While the rapid rise appears to be running ahead of itself, there is room for USD to move above to the year-to-date high near 6.8400. However, it is left to be seen if USD can maintain a foothold above this major resistance level. In order to maintain the strong build-up in momentum, USD should hold above 6.7700 within these few days.”

Danmarks Nationalbank (DN) is set to mirror the European Central Bank (ECB). Therefore, the EUR/DKK pair is expected to hover around the 7.44 mark into the new year, economists at ING report.

DN set to keep following the ECB

“For now, we see no reasons to doubt that the DN will continue to hike perfectly in line with the ECB.” 

“We forecast EUR/DKK to stay at 7.44 into the new year, but a return to 7.45-7.46 looks more than possible next year.”

The Indonesian rupiah was on the defensive again early but depreciation pressure was capped by the end of July. Economists at ING think that the IDR can enjoy gains once Bank Indonesia (BI) hikes at the end of the third quarter.

IDR will likely move sideways

“The IDR will likely move sideways as depreciation pressure is offset to some extent by their substantial trade surplus.”

“IDR can enjoy a rally once BI finally decides to hike policy rates at the end of Q3.”

• The index gathers extra steam and trades in multi-session highs.
• The risk-off mood keeps bolstering the demand for the dollar.
• Housing data, Industrial Production due next in the US docket.

The greenback rises further and motivates the US Dollar Index (DXY) to trade in multi-session peaks near 106.80 on turnaround Tuesday.

US Dollar Index up on risk-off mood, looks to data

The index advances for the third session in a row and extend further the rebound from last week’s 5-week lows near 104.60, always on the back of the intense offered stance in the risk complex.

The extra improvement in the buck comes despite the muted performance of US yields, which keep hovering around Monday’s closing levels.

In the US data universe, Housing Starts and Building Permits are due later seconded by Industrial Production and the weekly report on US crude oil inventories by the API.

What to look for around USD

The strong rebound in the dollar comes in response to some worsening conditions in the risk complex, which motivates DXY to now shift its attention to the 107.00 neighbourhood.

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

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

Key events in the US this week: Building Permits, Housing Starts, Industrial Production (Tuesday) – MBA Mortgage Applications, Retail Sales, Business Inventories, FOMC Minutes (Wednesday) – Initial Claims, Philly Fed Manufacturing Index, CB Leading Index, Existing Home Sales (Thursday).

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

US Dollar Index relevant levels

Now, the index is gaining 0.07% at 106.55 and a breakout of 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the other hand, immediate support comes at 104.63 (monthly low August 10) seconded by 103.80 (100-day SMA) and finally 103.67 (weekly low June 27).

The South African rand has done much better over the last month than analysts at ING expected. But now, they think that ZAR is set to move back lower.

ZAR remains a very high beta currency

“The scope for a stronger dollar into year-end and further growth challenges in Europe (and maybe China too) makes up sceptical of chasing ZAR higher.”

“Last month the SARB sped up the pace of hikes to 75 bps – taking the policy rate to 5.50%. That is still below headline inflation above 7% and does not offer too much protection to the ZAR. The projected 2% of GDP current account surplus is not large.”

“ZAR remains a very high beta currency and unless one expects current benign conditions to stay all year, ZAR should turn lower.”

USD/RUB ended July in the 64.50-65.00 range before dropping to 60.00-60.50 in August. Economists at ING expect the pair to trade at 60 by the end of the third quarter.

Weaker trade balance needed to assure RUB depreciation

“Current account surplus remained at a colossal $28bn in July despite some recovery of imports from China, as the effect of lower Urals prices in July has yet to show itself in August trade figures.”

“The balance of payments continues to favour rouble appreciation in the medium-term, forcing us to expect 60 at the end of 3Q22. However, the EU embargo, which kicks in later this year, should bring the rouble back on a depreciation track in 4Q22.”

AUD/USD lost nearly 100 pips on Monday and failed to stage a rebound. Economists at ING believe that any rebound to the 0.72/73 area will not be seen until the fourth quarter.

Still not breaking free 

“While the RBA may prove a relatively neutral factor for AUD for the time being, there are lingering downside risks stemming from potential fresh instability in the global risk environment and more grim data coming from China.”

“We suspect that any sustained recovery to the 0.72-0.73 region in AUD/USD would need to wait until Q4.”

So far in Q3, the Canadian dollar is the fourth worst and in August it is the second worst performing in G10. Economists at MUFG Bank believe that the outlook for the loonie is darkening.

The housing market in Canada remains a key risk

“Given the reversal in oil prices, the signs of a loss of momentum for the Canadian economy (May GDP flat, June expected 0.1%), and more specifically the housing market slowdown, we are turning less favourable on CAD than before.” 

“Our sense is that we could see a more pronounced CAD selloff on a weaker CPI print today than CAD strength on a stronger CPI.”

“The 100 bps hike by the BoC leaves them better placed to slow the pace to 50 bps given the global backdrop, some signs of slowing inflation and the downside risks to growth.”

• NZD/USD witnessed some follow-through selling for the second successive day on Tuesday.
• Hawkish Fed expectations push the USD back closer to the monthly top and exert pressure.
• Recession fears further benefit the safe-haven greenback and weigh on the risk-sensitive kiwi.

The NZD/USD pair adds to the previous day's heavy losses and witnesses some follow-through selling for the second successive day on Tuesday. The pair extends its descent through the early European session and drops to a four-day low, around the 0.6325 region in the last hour.

Following a brief consolidation, the US dollar regains positive traction for the third straight day and climbs back closer to the monthly peak. This turns out to be a key factor exerting downward pressure on the NZD/USD pair and supports prospects for a further near-term depreciating move.

The USD continues to draw support from expectations that the US central bank would stick to its policy tightening path, bolstered by the recent hawkish comments by several Fed officials. Apart from this, recession fears underpin the safe-haven buck and weigh on the risk-sensitive kiwi.

The disappointing Chinese economic data released on Monday added to growing market worries about a global economic downturn and tempered investors' appetite for riskier assets. This is evident from a weaker tone around the equity markets, which tends to benefit traditional safe-haven assets.

The aforementioned factors favour the USD bulls, suggesting that the path of least resistance for the NZD/USD pair is to the downside. That said, traders might refrain from placing aggressive bets ahead of this week's important release of the latest FOMC monetary policy meeting minutes.

The markets are currently pricing in a greater chance of at least a 50 bps Fed rate hike in September. Hence, the minutes would be looked upon for clues about the possibility for a 75 bps move, which would influence the USD and provide a fresh directional impetus to the NZD/USD pair.

Investors would further take cues from the US monthly Retail Sales data, also scheduled on Wednesday. In the meantime, Tuesday's US economic docket, featuring housing market and Industrial Production data, might produce some trading opportunities later during the early North American session.

Technical levels to watch

The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on Wednesday, August 17 at 02:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of five major banks.

The RBNZ is seen raising the Official Cash Rate (OCR) by 50 basis points (bps), lifting it from 2.5% to 3.0%. The policy announcement will be accompanied by the updated projections and followed by Governor Adrian Orr’s press conference.

ANZ

“We expect the RBNZ will raise the OCR 50 bps to 3.00%. We expect the Committee to strike a hawkish tone in its choice of words and its OCR track. Recent starting point surprises on domestic inflation and wage growth, as well as recent falls in domestic mortgage rates, give the Committee little choice but to send a clear message.”

Westpac

“We expect the RBNZ to raise the OCR by another 50 bps to 3%. The RBNZ is likely to maintain a similar path for its OCR projections, in contrast to financial markets which have moved to price in a lower peak for this cycle and an earlier start to interest rate cuts. Continuing to tighten monetary policy ‘at pace’ would send a message that while the fight against inflation is well underway, a declaration of victory is a long way off.” 

BofA

“We expect the RBNZ to deliver another 50 bps hike to lift the OCR to 3%. While policy guidance should remain hawkish in light of price pressures, there is risk the Bank may introduce more conditionality on the scale of subsequent policy front-loading. The quarterly Monetary Policy Statement should reflect both modest changes to the OCR track, and unveil softer growth and labour market forecasts. But signs of an inflation peak are not yet in sight.”

TDS

“We expect RBNZ to lift the OCR to 3%. Recent data suggest that the RBNZ's job is not done and near-term risks to inflation should dominate the Bank’s thinking. Updated economic forecasts and the new OCR path will garner market attention.”

ING

“We see some non-negligible risk that the RBNZ will have to revise its rate path projections lower. Even if the RBNZ hikes by 50 bps (as per our base case scenario and market expectations) the downside risks from a dovish repricing are quite material for the kiwi.”

In the view of analysts at ING, the British pound remains vulnerable on recession fears. Beyond some substantial fiscal stimulus, GBP’s best hope is that the Bank of England (BoE) delivers on most of the aggressive tightening currently priced into markets.

 Growth sensitive pound to struggle

“GBP/USD remains vulnerable on the back of continuing dollar strength and the UK economy trapped by slowing growth and a hawkish BoE.” 

“A tricky environment for risk assets in 2H22 – slowing growth, tighter monetary conditions – suggests the growth sensitive pound will struggle.”

“The only thing helping it should be the BoE remaining hawkish all year – lifting rates 50 bp to 2.25% in September – and at least making sterling an expensive sell.”

Rate spreads and the energy income shock make it a very tough environment for the euro. EUR/USD should therefore drift near parity for much of the second half of the year, strategists at ING report.

Late cycle economies will keep the dollar bid

“It looks pretty clear that the US is a late-cycle economy with high inflation and low growth. This stage of the cycle is synonymous with inverted yield curves. The dollar typically stays bid in this part of the cycle until convictions grow that the Fed will ease, and US 2-year yields start dropping. That is probably a story for 1Q23 and not today.” 

“We look for another 125 bps of Fed hikes this year and just 50 bps from the ECB (in Sep.). Risks look skewed to even higher US rates.” 

“With Europe entering recession on the back of a looming energy crisis this winter, EUR/USD can stay near the lows for 2H22.”

After the Swiss National Bank’s (SNB) 50 bps hike in June, EUR/CHF has seen an orderly decline. Economists at ING expect the pair to grind towards 0.95.

Italian elections should also contribute to the EUR/CHF decline

“Remember this is a brave new world, where the SNB wants Swiss franc appreciation to keep the real exchange rate stable”

“Look for EUR/CHF to grind towards 0.95, with expectations that the SNB match the expected 50 bps hike from the ECB in Sep.”

“Italian elections on September 25th should also contribute to the EUR/CHF decline. Italian BTP-German Bund spreads could easily widen to 240 bps again and keep the CHF in demand.”

The Swedish krona rally may have gone a bit too far. Analysts at ING expect the EUR/SEK pair to advance towards the 10.50 zone over the coming weeks.

Riksbank-ECB rate differential still points to some weakness in EUR/SEK

“The big rebound in the SEK may have come too early, as its exposure to a worsening economic outlook in the eurozone and high beta to risk sentiment suggest some room for a correction now.” 

“We see scope for some rebound in EUR/SEK to the 10.50 area (driven by a SEK correction) over the coming weeks. Later on, the Riksbank-ECB rate differential still points at some weakness in the pair, but a return to sub-10.00 levels may need to wait for some improvement in EU sentiment in 2023.”

The dollar stays relatively quiet early Tuesday. Economists at ING see three factors that can keep the dollar strong near term and probably send it a little stronger.

Continued dollar strength

“Ongoing energy shock primarily is being felt through natural gas prices. These prices continue to rise as importers compete for cargoes ahead of the northern hemisphere winter and the very uncertain supply situation. The energy independence of the US leaves the dollar relatively insulated on this score.”

“The People's Bank of China (PBoC) overnight fixed USD/CNY in line with model-based estimates. USD/CNH is now trading through 6.80 and a move through 6.82/84 will certainly raise speculation of something larger afoot akin to the April/May 6% renminbi devaluation. That period saw the DXY dollar index up around 6% too.”

“Today sees the release of July industrial production and tomorrow the release of retail sales. We see better figures for both. The figures should temporarily allay US recession fears and prepare the markets for what could be a hawkish set of FOMC minutes tomorrow night. The Fed probably wants tighter financial conditions now – which implicitly include a firmer dollar.”

EUR/USD stays quiet near 1.0150 early Tuesday. Economists at ING believe that the world’s most popular currency pair could test parity again.

1.0200 should prove short-term resistance

“The trade-weighted euro is a whisker away from the lows of the year and a slightly stronger dollar over the next 48 hours could easily see EUR/USD retesting parity.” 

“1.0200 should now prove short-term resistance.”

The recovery in risk sentiment has fuelled a substantial rebound in the Norwegian krone over the past month. Economists at ING expect the EUR/NOK to remain above the 10 level over the coming month.

A pause for NOK?

“We are currently calling for 25 bps hikes at each of the remaining four meetings of the year by Norges Bank, but the August meeting will be a tight one with risk of 50 bps.” 

“Despite the worsening outlook in Europe, high energy prices are set to keep shielding the Norwegian economy.”

“More risk sentiment instability over the short term may keep EUR/NOK above 10.00 into the end of September, before a more stable downward trend starting from 4Q.”

• USD/CAD is seen consolidating in a range just below a one-week high touched on Monday.
• A modest uptick in crude oil prices underpins the loonie and acts as a headwind for the pair.
• Recession fears, hawkish Fed expectations offer support to the USD and limit the downside.
• Investors eye the Canadian CPI report and US economic data for short-term trading impetus.

The USD/CAD pair struggles to capitalize on the overnight strong rally to a one-week high and witnesses subdued/range-bound price action on Tuesday. The pair remains confined in a narrow trading band through the early European session and is currently placed around the 1.2900 round-figure mark.

A modest uptick in crude oil prices offers some support to the commodity-linked loonie. The US dollar, on the other hand, is seen consolidating its strong gains recorded over the past two trading sessions. The combination of factors acts as a headwind for the USD/CAD pair, though the fundamental backdrop still seems tilted in favour of bullish traders.

The disappointing Chinese economic data released on Monday added to market worries about a global economic downturn, which could hit fuel demand and cap oil prices. Recession fears, along with hawkish Fed expectations, should continue to underpin the safe-haven USD and further contribute to limiting the downside for the USD/CAD pair, at least for the time being.

Despite last week's softer US CPI report, Fed officials stressed that it is too soon to declare a victory on inflation and have maintained a hawkish tone. This, in turn, suggested that the Fed would stick to its policy tightening path and remained supportive of elevated US Treasury bond yields, offering support to the buck ahead of the FOMC minutes on Wednesday.

The markets are currently pricing in a greater chance of at least a 50 bps rate hike at the September FOMC meeting. Hence, the minutes would be looked upon for clues about the possibility for a larger 75 bps move. This would play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the USD/CAD pair.

In the meantime, traders on Tuesday would take cues from the release of the latest Canadian consumer inflation report. The US economic docket, meanwhile, features housing market data and Industrial Production figures. This could drive the USD, which, along with the sentiment surrounding oil prices, would provide a fresh impetus to the USD/CAD pair.

Technical levels to watch

Here is what you need to know on Tuesday, August 16:

The dollar stays relatively quiet early Tuesday as markets await the next significant catalyst. The US Dollar Index gained more than 1% in the two-day recovery that started on Friday and was last seen moving sideways near 106.50. The European economic docket will feature the ZEW Survey results for the euro area and Germany. In the second half of the day, the US Census Bureau will publish the Housing Starts and Building Permits data for July. Meanwhile, markets remain cautious in the European morning with US stock index futures losing between 0.06% and 0.16%. Finally, the benchmark 10-year US Treasury bond yield stays flat below 2.8%.

Although safe-haven flows dominated the financial markets for the majority of the day on Monday, Wall Street's main indexes managed to close the day modestly higher. China’s state planner National Development and Reform Commission (NDRC) announced multiple measures to avoid recession fears as it said, “We pledge to keep the economy within reasonable bounds.” According to Reuters, the NDRC approved 65 fixed-asset investment projects worth a total of 1.028 trillion yuan from January to July and approved 8 fixed-asset investment projects worth a total of 236.8 billion yuan in July. Nevertheless, the Shanghai Composite Index was flat on the day at the time of press.

AUD/USD lost nearly 100 pips on Monday and failed to stage a rebound. During the Asian session, the Reserve Bank of Australia's (RBA) monetary policy meeting minutes showed that policymakers were ready to take further tightening steps. The RBA, however, reiterated that they were not on a pre-set path. As of writing, the pair was down 0.15% at 0.7015 on the day.

Falling crude oil prices weighed heavily on the loonie on Monday and USD/CAD climbed above 1.2900. Pressured by the worsening demand outlook and prospects of Iranian oil entering the market, the barrel of West Texas Intermediate fell more than 4% on Monday before recovering toward $88.50 on Tuesday. Later in the session, Statistics Canada will release the Consumer Price Index data for July.

Following Monday's steep decline, EUR/USD stays quiet near 1.0150 early Tuesday. 

GBP/USD dropped to its weakest level in more than a week at 1.2035 during the Asian trading hours on Tuesday. Although the pair managed to recover to 1.2050, it's struggling to gather recovery momentum.

USD/JPY fluctuated in a relatively wide range on Monday but closed the day virtually unchanged near 133.50. The pair is having a hard time making a decisive move in either direction early Tuesday. 

Gold suffered heavy losses and dropped toward $1,770 on Monday. With the 10-year US T-bond yield edging lower during the American trading hours, XAU/USD edged slightly higher and steadied near $1,780.

Bitcoin struggled to build on the previous week's gains on Monday and seems to have gone into a consolidation phase at around $24,000 on Tuesday. After having failed to break above $2,000 Ethereum edged lower and was last seen losing 1% on the day at $1,880.

In the view of economists at ING, the EUR/GBP could move back lower to the 0.8400/0.8390 area while the GBP/USD has a chance to drop under 1.20 again.

EUR/GBP can soften a little

“News that Germany will impose a gas levy – confirming that the government cannot fully shield households from the spike in gas prices – leaves the UK less of an outlier in Europe. This will be one of the factors helping to limit EUR/GBP gains and could actually favour a drift back to the 0.8390/8400 area.” 

“EUR/GBP can soften a little, but a stronger dollar means that cable can go sub 1.20 again.”

NZD/USD extends pullback ahead of the Reserve Bank of New Zealand (RBNZ) meeting. Economists at ING expect the pair to return to 0.64 by the end of the year.

Watch for a dovish tilt by the RBNZ

“We see some non-negligible risk that the RBNZ will have to revise its rate path projections lower. Even if the RBNZ hikes by 50 bps (as per our base case scenario and market expectations) the downside risks from a dovish repricing are quite material for the New Zealand dollar.” 

“We suspect NZD/USD will struggle to hold onto recent gains over 0.64 over coming weeks.”

“Our base case is a return to 0.64 by year-end in NZD/USD, largely due to some potential USD weakness much later in the year.”

The Reserve Bank of Australia’s (RBA) August meeting minutes provided colour around the third consecutive 50 bps hike and risks to the outlook. AUD/USD consolidates daily losses above 0.70 but the pair is set to slide below this level, according to economists at Commerzbank.

Meeting minutes confirm cautious stance of RBA

“The minutes of the RBA meeting reiterates that the RBA sees downside risks to the economy and will therefore act in a more data-dependent manner going forward. Due to high inflation and the tight labor market, it sees the need for further interest rate hikes. However, there is no predefined path for this, it said. With this rather cautious stance, the RBA offers no reason for higher levels in AUD/USD.”

“If China's economic outlook deteriorates further, this would not be good news for the Australian economy either. The move above 0.70 in AUD/USD could therefore prove to be unsustainable.”

Having corrected 3% lower, some are asking whether the dollar has peaked. Economists at ING argue that the dollar is more likely to retest its highs than correct much lower.

Curb your peak dollar enthusiasm

“Many trading partners would hope that to be the case, but the reality is that the Fed is likely to stay on track with its tightening. We think the dollar is more likely to retest its highs than correct much lower.”

“Driving our view has been consistent rhetoric from the Fed that it will not be blown off target by some softer activity or price data.” 

“It now looks like US activity is accelerating again as lower gasoline prices leave more dollars in the pockets of US consumers. The 2023 US recession narrative looks a tough one to sell near term.”

See: USD strength to persist as Fed’s dovish pivot still sits further in the future – HSBC

The Washington Post (WaPo) carried a story on Tuesday, citing that Chinese authorities ordered factories to suspend production in several major manufacturing regions to preserve electricity, as the country face the worst heat wave in six decades.

Key details

“Sichuan province, home to more than 80 million people, announced Monday that factories in 19 cities and prefectures would halt operations until Saturday to preserve electricity for "use by the people."

“Other areas across China's south have also ordered electricity to be prioritized to run air-conditioners.”

Jin Xiandong, a spokesman for the National Development and Reform Commission (NDRC), said on Tuesday that China was having to rely more on coal for power, as the heat wave and drought were significantly reducing hydropower output.

Market reaction

AUD/USD extends the retreat from daily highs of 0.7040 on the above report, losing 0.06% on the day to 0.7017, at the press time.

As the Bank of England (BoE) is probably acting too cautiously and the election of the new prime minister could cause a bit more nervousness in the markets, the British pound is set to remain under pressure, economists at Commerzbank report.

Election likely to weigh on the pound

“The concerns about the economy – after all, the BoE expects a recession next year – seem to prevent the BoE from implementing a truly active monetary policy to fight inflation. This should make the pound unattractive from an investor's point of view.”

“The pound could remain under depreciation pressure as long as the prospects for Truss to win the election remain favorable.”

The market’s reaction to the July FOMC and Consumer Price Index (CPI)I release shows a premature eagerness to price in a Fed “pivot”. Economists at HSBC believe the Fed’s tightening path and associated USD strength are likely to persist until there is more evidence of slowing US core inflation.

It seems premature for market to price in a Fed dovish pivot

“Until there are further clear and sustained signs that US core inflation is destined to return to target, the Fed’s tightening path and associated USD strength are likely to persist.”

“We suspect the FX market continues to underplay the importance of the global economic slowdown underway. The risk-averse implications of this slowdown will continue to support the USD, given its ‘safe haven’ status.”

The kiwi is lower this morning. Economists at ANZ expect the NZD/USD pair to react positively to a hawkish Reserve Bank of New Zealand (RBNZ) but the impact could be short-lived.

A hawkish RBNZ 

“It’s too soon to say if it’s a factor, but we may just be in the early stages of the USD coming back into favour for safe-haven reasons amid concerns around global growth.”

“We still think the NZD will probably reward RBNZ hawkishness tomorrow, but there are a lot of other balls in the air, and the local impact may well be short-lived.”

“Support 0.6060/0.6290 Resistance 0.6575/0.6660”

With its decision on June 16, the Swiss National Bank (SNB) performed a U-turn. Against the euro, the Swiss franc has since gained a good 6%. And that must be exactly the goal if the SNB wants to fight inflation by means of CHF strength, in the view of economists at Commerzbank.

Can "leaning against the wind" be successful?

“The SNB's new intervention policy is currently preventing any significant EUR/CHF recovery phase. Because an exchange rate that cannot rise significantly is likely to fall with increasing speed, increasing Swiss franc appreciation speed is likely.” 

“Although the SNB also threatens to intervene in the event of excessive CHF appreciation, these are unlikely to prevent significant CHF appreciation in the medium-term if they are interpreted by the market as ‘leaning against the wind’.”

Bets for USD/JPY to slip back to the 131.65 level now appear diminished, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We held the view yesterday that USD ‘is likely to edge lower but is unlikely to threaten the support at 132.40’. Our view was not wrong as USD dropped to 132.54 before rebounding. Downward momentum has eased and USD is likely to consolidate for today, expected to be within a range of 132.60/133.70.”

Next 1-3 weeks: “Our latest narrative was from last Thursday (11 Aug, spot at 132.85) where USD could consolidate for a couple of days first before declining to 131.65. Since then, USD has not been able to make much headway on the downside. Downward momentum is beginning to wane and the odds for USD to decline to 131.65 have diminished. However, only a break of 134.00 (‘strong resistance’ level was at 134.40 yesterday) would indicate that the downside risk has dissipated.”

Economists at Commerzbank expect a recession in the US next year. Nevertheless, as the picture of an overall still robust US economy remains intact, so is the dollar.

USD remains in demand

“It is true that we expect a recession in the US early next year. But the point at which the US Federal Reserve will have to worry seriously about the economy is still some way off. And uncertainty about the extent to which the US economy will weaken at all is still high. It therefore still seems too early to price a recession into US exchange rates.”

“The retail sales data due tomorrow should confirm the picture of a robust US economy for the time being. So as long as there are no clear signs of an economic slowdown yet, the active course of the Fed should support the USD.”

Gold stalled its intraday decline just ahead of the $1,770 area and edged higher during the Asian session on Tuesday. Any meaningful upside, however, seems elusive ahead of the FOMC minutes on Wednesday, FXStreet’s Haresh Menghani reports.

Limited upside potential for XAU/USD ahead of FOMC minutes

“The markets are currently pricing in a greater chance of at least a 50 bps rate hike at the September FOMC meeting. Hence, the minutes would be looked upon for clues about the possibility for a larger 75 bps move. This would play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the non-yielding gold.” 

“Repeated failures to find acceptance above the $1,800 mark warrants some caution for bullish traders. Any further move up, however, might now confront resistance near the $1,788-$1,789 region. This is followed by the aforementioned handle and last week's swing high, around the $1,808 area. Some follow-through buying would mark a breakout and lift gold towards the next relevant hurdle near the $1,824-$1,825 region.”

“The overnight swing low, around the $1,772 area now seems to protect the immediate downside. Sustained weakness below would expose the $1,754-$1,752 strong resistance breakpoint, now turned support. A convincing breakthrough the latter would shift the bias in favour of bearish traders and drag gold towards the $1,728 intermediate support en route to the $1,715 zone.”

FX option expiries for August 16 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0100 278m
• 1.0125 246m
• 1.0145-55 1.15b
• 1.0160-65 469m
• 1.0170-75 842m
• 1.0185-90 365m
• 1.0250 805m

- USD/JPY: USD amounts                     

• 133.00 390m

- USD/CHF: USD amounts        

• 0.9640 500m

- AUD/USD: AUD amounts  

• 0.7000 490m
• 0.7300 640m

- USD/CAD: USD amounts       

• 1.2650 282m
• 1.2800 308m
• 1.2900 290m

According to preliminary readings from CME Group for natural gas futures markets, open interest rose for the third consecutive session on Monday, now by just 230 contracts. Volume followed suit and went up by around 4.5K contracts.

Natural Gas: Upside limited by $9.00

Prices of natural gas charted an inconclusive session at the beginning of the week against the backdrop of rising open interest and volume. That said, the commodity faces prospects for further consolidation ahead of the $9.00 mark per MMBtu. Further upside should put a test of the 2022 high at $9.75 (July 26) back on the radar sooner rather than later.

Economists at Westpac expect that safe-haven demand will give way to a period of US dollar weakness over the year ahead, with a related rise in the New Zealand dollar and other commodity currencies. However, the potential for gains relative to the Australian dollar looks limited, with the NZD/AUD set to hold around current levels.

US dollar to trend down over the coming year

“We expect that the recent period of safe-haven demand will give way to US dollar weakness, with a sharp slowdown in US consumption and investment spending expected over 2023. Consistent with that, we expect to see the US dollar trending down over the coming year.”

“Underpinned by weakness in the US dollar, we expect the New Zealand dollar will rise to 66 cents by year’s end, with a further lift on the cards through 2023.”

“We expect the AUD/NZD pair will remain around the 0.90 level through 2023, with limited scope for a break to the upside despite the prospect of a sharper deceleration in growth for Australia.”

NZD/USD is now expected to navigate within the 0.6300-0.6435 range in the next few weeks, note FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected NZD to ‘trade within a range of 0.6430/0.6475’ yesterday. We did not anticipate the sharp sell-off that sent NZD plunging by a whopping 1.46% (NY close of 0.6362). Not surprisingly, conditions are oversold but there is room for the weakness in NZD to extend to 0.6330 first before stabilization is likely. Resistance is at 0.6385 followed by 0.6405.”

Next 1-3 weeks: “The surprisingly sharp sell-off that took out our ‘strong support’ level at 0.6370 indicates that the NZD strength that started late last week (see annotations in the chart below) has ended. While shorter-term downward momentum has improved somewhat, the current movement is likely part of a consolidation phase. From here, NZD is likely to trade within a range of 0.6300/0.6435.”

• GBP/USD pays little heed to mixed jobs report from the UK.
• UK Claimant Count Change improved in July, Unemployment Rate steadies for three months to June.
• Risk-aversion underpins US dollar rebound but sluggish yields restrict moves ahead of FOMC Minutes.
• Second-tier US data, slowdown chatters will offer additional details for clear directions.

GBP/USD treads water around 1.2050 as the UK employment data fails to impress traders during the initial London open on Tuesday. Also challenging the Cable pair traders is the inaction at the bond markets ahead of Wednesday’s release of the Fed Minutes, not to forget mixed concerns surrounding recession.

As per the latest UK jobs report from the National Statistics, the headline Claimant Count Change improved to -10.533K in July versus -32K expected and -20K prior. Further, the ILO Unemployment Rate matched 3.8% expected and previous readings for three months to June.

Also read: UK ILO Unemployment Rate steadies at 3.8% in June, meets estimates

It should be observed that the Bank of England’s (BOE) push for higher wages seems satisfied with the latest data, suggesting aggressive rate hikes from the “Old Lady”. However, the BOE is already alleged to be slow and hence the GBP/USD buyers couldn’t cheer the data.

Other than the mixed UK data, sluggish yields also challenge GBP/USD traders of late. However, economic slowdown fears join hopes of Fed’s aggression, despite softer US inflation, appear to underpin the US dollar’s safe-haven demand, which in turn keeps the Cable buyers hopeful.

Elsewhere, the British political system appears to be volatile of late as the contenders to the Prime Minister’s (PM) post fail to convince voters that they can freeze energy bills. The same helped Labour Party Leader Keir Starmer to pledge that families would not “pay a penny more” on energy bills this winter after unveiling a £29bn plan, per The Guardian. The political uncertainty also joins the Brexit woes, amid a lack of progress on the Northern Ireland (NI) deal, to keep the GBP/USD buyers in check.

Having witnessed the initial reaction to the UK’s latest employment report, the GBP/USD pair traders should concentrate on the risk catalysts surrounding recession and the UK politics. Also important will be the US Building Permits, Housing Starts and Industrial Production numbers for July.

Technical analysis

A clear downside break of the convergence of the 21-DMA and an upward sloping trend line from mid-July, around 1.2100-2110, keep GBP/USD sellers hopeful. Also suggesting the pair’s further downside is the descending RSI (14), not oversold, as well as a looming bear cross on the MACD.

That said, the pair is likely declining towards the horizontal area comprising multiple levels marked since June, around 1.1930. However, the 1.2000 psychological magnet may offer an intermediate halt during the anticipated fall.

Considering advanced prints from CME Group for crude oil futures markets, traders scaled back their open interest positions by mor than 8K contracts on Monday, following two daily builds in a row. On the other hand, volume partially reversed the previous pullback and went up by around 16.3K contracts.

WTI remains under pressure in the sub-$90.00 area

Prices of the barrel of the WTI extended the leg lower on Monday amidst declining open interest. That said, a deeper pullback appears unlikely in the very near term, while bullish attempts look capped by the 200-day SMA around $95.50 for the time being.

• The Unemployment Rate in the UK steadied at 3.8% in May.
• UK Claimant Count Change arrived at -10.533K in July.
• The UK wages excluding bonuses rose by 4.7% YoY in June vs. 4.5% expected.

The Office for National Statistics (ONS) showed on Tuesday, the UK’s official jobless rate stood unchanged at 3.8% in June vs. 3.8% expected while the claimant count change showed a less than expected drop last month.

The number of people claiming jobless benefits dropped by 10.533K in July when compared to -20K booked previously and -32K expectations.

The UK’s average weekly earnings, excluding bonuses, arrived at +4.7% 3Mo/YoY in June versus +4.3% last and +4.5% expected while the gauge including bonuses came in at +5.1% 3Mo/YoY in June versus +6.2% previous and +4.5% expected.

GBP/USD reaction

GBP/USD shrugs off the mixed UK employment data, as it holds steady at 1.2050, as of writing.

About UK jobs

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

In Australia, growth is likely to hold up better than in several other major economies into 2023. Therefore, economists at Rabobank maintain their forecast of a move to AUD/USD 0.74 on a 12-minth view

Relatively better?

“Australia is facing slowing economic growth into next year. However, even with aggressive interest rate hikes from the RBA this year, the 2023 outlook appears more buoyant than in many other major economies including the US, Eurozone and the UK. This bodes well for the medium-term AUD outlook vs. a basket of other G10 currencies.”

“Although we see risk that another bout of safe haven USD buying could push AUD/USD lower on a one to three-month view, we favour buying the currency pair on dips and expect a move to 0.74 on a 12-month view.”

• Steel price grinds higher around six-week top amid China’s attempt to tame economic slowdown fears.
• China’s state planner braced for more measures to keep the economy afloat as PBOC rate cut fails to impress optimists.
• An increase in Chinese steel output also challenges metal buyers amid fears of hawkish Fed, sluggish yields.

Steel price remains mildly bid as traders take China’s efforts to revive economic optimism with a pinch of salt during early Tuesday in Europe. Also exerting downside pressure on the industrial metal is the recent increase in China’s output and inactive bond markets amid hopes of aggressive rate hikes from the Fed, despite the latest weakness in the US data.

That said, Steel Rebar Futures on the Shanghai Futures Exchange (SFE) gained 0.3% around 4,170 yuan per metric tonne. However, Shanghai hot-rolled coil slipped 0.3% intraday whereas stainless steel dropped 0.4% on a day at the latest.

“Chinese regulators have instructed state-owned China Bond Insurance Co. Ltd. to provide guarantees for onshore bond issuance by a few private property developers, Reuters reported on Monday,” said Reuters.

It’s worth noting that China’s state planner National Development and Reform Commission (NDRC) announced multiple measures to avoid recession fears as it said, “We pledge to keep the economy within reasonable bounds.” The NDRC approved 65 fixed-asset investment projects worth a total of 1.028 trillion yuan in Jan July, per Reuters. The news also mentioned that the NDRC approved 8 fixed-asset investment projects worth a total of 236.8 billion yuan in July.

On the different page, Reuters conveyed data showing an increase in China’s steel output, which in turn challenges the metal buyers amid hopes of more supply, in contrast to the economic slowdown fears. “Average daily crude steel output among member mills of China Iron & Steel Association during the first 10 days of August rose 2.8%, or 53,100 tonnes, to 1.94 million tonnes from late July, consultancy and data provider Mysteel reported,” per Reuters.

Looking forward, steel traders should expect further grinding of the metal prices towards the north amid efforts from the major customer to renew demand concerns. However, a looming recession could challenge the upside momentum. Also important to watch will be the Fed Minutes amid indecision over the US central bank’s next move.

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, GBP/USD could accelerate losses on a breach of the 1.2000 support in the short term.

Key Quotes

24-hour view: “We expected GBP to weaken yesterday but we were of the view that ‘the major support at 1.2050 is not expected to come under threat’. GBP subsequently weakened more than expected as it dropped to 1.2051 before closing at 1.2053 (-0.68%). Despite the decline, downward momentum has not improved by all that much. That said, the risk is still on the downside but a clear break of the next major support at 1.2000 is unlikely. Resistance is at 1.2080 followed by 1.2110.”

Next 1-3 weeks: “We noted yesterday (15 Aug, spot at 1.2135) that upward momentum has dissipated and we expected GBP to trade within a range of 1.2050/1.2245. We did not expect the rapid manner by which GBP approaches the bottom of the expected range (low of 1.2051 in NY). Downward momentum is beginning to build but GBP has to break the major support at 1.2000 before a sustained weakness is likely. On the upside, a breach of 1.2150 would indicate that the build-up in downward momentum has dissipated. Looking ahead, the next support below 1.2000 is at 1.1920.”

Gold closed the fourth straight week in positive territory. Next direction depends on September Federal Reserve hike bets, FXSTreet’s Eren Sengezer reports.

Markets look for fresh clues regarding the size of the Fed’s next rate increase

“On Tuesday, Building Permits and Housing Starts data for July will be featured in the US economic docket. A sharp decline in Housing Starts could trigger a flight to safety and help the dollar gather strength.”

“On Wednesday, the FOMC will publish the minutes of its July policy meeting. If the minutes show that the Fed sees a heightened risk of recession, the greenback could lose interest and open the door for a leg higher in gold. On the other hand, investors could reassess the Fed’s rate outlook in case they are convinced that the Fed will stay on an aggressive tightening path until they see consecutive drops in inflation figures.”

“In short, XAU/USD is likely to remain inversely correlated with the US T-bond yields mid-week.”

Open interest in gold futures markets reversed three consecutive daily builds and shrank by around 3.5K contracts at the beginning of the week, as per flash data from CME Group. Volume, instead, went up by nearly 18K contracts after two daily drops in a row.

Gold: Rebound now targets $1,800

Gold started the week on the back foot, coming all the way down from the area just above the key $1,800 mark. The noticeable downtick was accompanied by shrinking open interest, which removes strength from further retracements and exposes a probable bounce in the very near term. Against that, the immediate hurdle for the precious metal emerges at the $1,800 mark per ounce troy.

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, EUR/USD could slip bck below the 1.0100 level in the next weeks.

Key Quotes

24-hour view: “Our view for EUR to range-trade yesterday was incorrect as it dropped sharply to 1.0153 before closing on a weak note at 1.0160 (0.96%). Strong downward momentum suggests EUR could weaken further but a sustained decline below the early Aug low near 1.0120 is unlikely. On the upside, a breach of 1.0205 (minor resistance is at 1.0185) would indicate that the current weakness has stabilized.”

Next 1-3 weeks: “Yesterday (15 Aug, spot at 1.0260), we highlighted that ‘conditions remain overbought and this coupled with waning momentum suggests the odds for EUR to advance to 1.0400 have diminished’. However, we did not expect the sharp sell-off as EUR cracked our ‘strong support’ level at 1.0230 and plummeted to 1.0153 before closing on a weak note at 1.0160 (-0.96%). The rapid improvement in downward momentum suggests EUR could weaken further to 1.0120, as low as 1.0095. Overall, only a breach of 1.0250 (‘strong resistance’ level) would indicate that the current weakness is unlikely to extend lower.”

• AUD/USD struggling to extend recovery amid calmer risk tones.
• US dollar clings to Monday’s gains while RBA minutes fail to impress.
• Bulls cross on the 1D chart could help the aussie stay afloat.

AUD/USD is fluctuating between gains and losses while trading above 0.7000, as the bull-bear tug-of-war extends into European trading.

After Monday’s risk-aversion-driven broader market sell-off, in the face of poor Chinese activity numbers, the aussie sees calmer tones this Tuesday.

The major consolidates the rebound, with the latest upside fuelled by the RBA minutes, even though the board said that the central bank is not on a pre-set tightening path. 

The Asian markets have also staged a tepid recovery amid expectations of more stimulus from Chinese authorities to revive the economic recovery. The risk reset has paused the dollar rally, for now, helping the aussie stay afloat above 0.7000.

From a short-term technical perspective, the pair continue to find demand at lower levels, as the 21 DMA has crossed the 100 DMA for the upside on a daily closing basis, confirming a bull cross.

Therefore, it could be safe to say that the sell-off triggered following a rejection at a critical horizontal 200-Daily Moving Average (DMA) at 0.7120 may be facing exhaustion.

The 14-day Relative Strength Index (RSI) has turned flat while above the midline, supporting the view of the ‘buy the dips’ trade.

Buyers need to crack the daily high of 0.7070, above which is the 0.7100 round figure.

On the flip side, the immediate downside cap aligns at 0.7000, below which sellers will look to challenge the 0.6970 demand area, where the 21 and 100 DMAs hang around.

AUD/USD: Daily chart

AUD/USD: Additional levels to consider

• USD/JPY picks bids to pare recent losses inside a short-term triangle.
• Multiple key hurdles to the north, sluggish oscillators suggest further grinding.
• Bears need validation from 132.30 to retake control.

USD/JPY regains upside momentum, after snapping two-day advances the previous day, even as the yen pair seesaws inside a short-term triangle around 133.50 heading into Tuesday’s European session.

In addition to the three-week-long symmetrical triangle, sluggish MACD and RSI (14) also suggest further hardships for the latest USD/JPY run-up.

That said, the 100-SMA adds strength to the stated triangle’s resistance line and challenges bulls around 134.25.

Following that, the 200-SMA level near 135.60 will be a crucial hurdle to cross for the USD/JPY buyers before targeting the mid-July swing high surrounding 139.40 and the 140.00 psychological magnet.

Alternatively, the pullback move remains elusive until the quote stays beyond the stated triangle’s support line, at 133.00 by the press time.

It’s worth noting, however, that multiple swing lows around 132.30 could act as extra filters to the south to watch for USD/JPY bears.

Overall, USD/JPY is likely to keep the latest range-bound moves unless crossing the 200-SMA hurdle. Also likely to limit the yen pair’s action are the sluggish yields.

USD/JPY: Four-hour chart

Trend: Further downside expected

• Gold price consolidates the biggest daily fall in a month amid market’s inaction.
• Economic slowdown fears surrounding the US, Europe and China challenge buyers.
• Sluggish yields, lack of market activity ahead of the key Fed Minutes restrict XAU/USD moves.

Gold price (XAU/USD) pares the recent losses at around $1,780 as a sluggish session allows sellers to consolidate downside moves during Tuesday morning in Europe. Even so, market’s fears relating to the economic conditions in the US, Europe and China seem to keep the commodity buyers hopeful.

Softer prints of the US and China data, as well as downbeat Treasury yields, also portray the economic fears, not to forget the Sino-American tussles. On the same line was the German economic crisis. Europe works on a nuclear deal with Iran to battle the energy crisis at home. However, Tehran’s response appears not so positive as Tehran's "additional views and considerations" to the EU text would be conveyed later, per Reuters. It’s worth noting that German Economy Minister Robert Habeck said on Monday, as reported by Reuters, “Germany's Russia-dependent energy model has failed and isn't coming back." 

On the same line could be the geopolitical tussles relating to China. Xinhua reported that China imposes sanctions on a number of Taiwan separatists. Previously, the visit of multiple US lawmakers to Taiwan irritated Beijing, which in turn led to fierce military drills near the Taiwan border and an escalation of the geopolitical risks.

Elsewhere, US NY Empire State Manufacturing Index for August dropped to -31.3 from 11.1 in July and 8.5 in market forecasts. Further, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020. On the other hand, China released downbeat Retail Sales and Industrial Production data for July while also conveying a rate cut from the People’s Bank of China (PBOC). However, market chatters that China’s efforts aren’t enough to restore the market’s sentiment appear to exert additional downside pressure on the XAU/USD prices.

Against this backdrop, the US 10-year Treasury yields snap a two-day downtrend around 2.78% but stays sluggish of late. Further, the S&P 500 Futures decline 0.10% intraday at the latest.

Looking forward, today’s German ZEW Economic Sentiment data for August will precede the US Building Permits, Housing Starts and Industrial Production numbers for July for fresh impulse. Above all, Fed Minutes will be crucial amid indecision over the US central bank’s next move.

Technical analysis

Gold price portrays a corrective pullback from the 61.8% Fibonacci retracement (Fibo.) of August 03-10 upside amid recently firmer MACD.

However, the recovery moves need validation from the previous support line from August 09 and the 200-HMA, respectively around $1,783 and $1,785, to recall XAU/USD bulls.

Even so, the $1,800 threshold and the monthly peak surrounding $1,808 could challenge the metal’s further upside.

Alternatively, a downside break of the 61.8% Fibo. level of $1,775 cold quickly fetches the quote towards the monthly low near $1,754.

It’s worth noting, however, that there are multiple supports to challenge gold bears around $1,740 and the $1,700 round figure to watch past $1,754.

Gold: Hourly chart

Trend: Further weakness expected

• EUR/USD retreats from intraday high during a sluggish session.
• Growth concerns underpin US dollar demand even as downbeat data challenges the pair bears.
• German energy crisis emphasizes ZEW data for fresh impulse.
• Second-tier US economics could also entertain traders ahead of the key Wednesday.

EUR/USD licks its wounds around 1.0160, after a brief corrective pullback, as fears surrounding economic slowdown join pre-data anxiety. With this, the major currency also justifies the bearish technical formation during early Tuesday morning in Europe.

Europe works on a nuclear deal with Iran to battle the energy crisis at home. However, Tehran’s response appears not so positive as Tehran's "additional views and considerations" to the EU text would be conveyed later, per Reuters. It’s worth noting that German Economy Minister Robert Habeck said on Monday, as reported by Reuters, “Germany's Russia-dependent energy model has failed and isn't coming back." 

On the other hand, softer prints of the US and China data and downbeat Treasury yields also portray the economic fears, not to forget the Sino-American tussles. On Monday, US NY Empire State Manufacturing Index for August dropped to -31.3 from 11.1 in July and 8.5 in market forecasts. Further, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020. On the other hand, China released downbeat Retail Sales and Industrial Production data for July while also conveying a rate cut from the People’s Bank of China (PBOC).

Even so, market chatters that China’s efforts aren’t enough to restore the market’s sentiment appear to exert additional downside pressure on the EUR/USD prices.

Furthermore, the fears about the US-China tussles grow and weigh on the EUR/USD prices as Xinhua reported that China imposes sanctions on a number of Taiwan separatists. Previously, the visit of multiple US lawmakers to Taiwan irritated Beijing, which in turn led to fierce military drills near the Taiwan border and an escalation of the geopolitical risks.

Amid these plays, the US 10-year Treasury yields snap a two-day downtrend around 2.78% while the S&P 500 Futures decline 0.10% intraday at the latest.

Given the German crisis, today’s ZEW Economic Sentiment data for August will be crucial to gauge the economic health of the European powerhouse. That said, firmer data could help EUR/USD bears to take a breather ahead of the US session’s scheduled release of the US Building Permits, Housing Starts and Industrial Production numbers for July for fresh impulse. Above all, Fed Minutes will be crucial amid indecision over the US central bank’s next move.

Technical analysis

In addition to the clear downside break of the 21-DMA and monthly ascending trend line, descending RSI (14) and receding bullish bias of the MACD also keep the EUR/USD bears hopeful. With this, the EUR/USD pair becomes vulnerable to visiting the one-month-old horizontal support around 1.0100.

Also read: EUR/USD Price Analysis: Sellers keep control below 1.0200 support-turned-resistance

• USD/INR struggles to extend recent pullback amid off in Indian currency, bond markets.
• Growth fears surrounding China, US keep buyers hopeful amid a sluggish session.
• Hawkish hopes from Fed minutes put a floor under the prices.
• Second-tier US data, risk catalysts can entertain intraday traders.

USD/INR picks up bids to pare recent losses around 79.58 during the mid-Asian session on Tuesday. In doing so, the Indian rupee (INR) pair justifies the market’s risk-off mood amid sluggish trading hours, while also respecting the bullish chart pattern.

That said, economic slowdown fears concerning China and the US appear to be the major challenge for the USD/INR bears. Also putting a floor under the USD/INR prices is the market’s anxiety ahead of Federal Open Market Committee (FOMC) meeting minutes.

The growth fears recently gained momentum after China released downbeat Retail Sales and Industrial Production data for July on Monday. On the same were data suggesting a lack of credit demand for China’s easy loan funds and the surprise rate cut from the People’s Bank of China (PBOC).

The pessimism also escalated as stronger as China President Xi Jinping showed readiness to take more measures after the previous day’s downbeat statistics. Xinhua News Agency quoted China President Xi saying that they will “use new development ideas in economic growth”. The comments rolled out after downbeat prints of Retail Sales, Industrial Production and Loan Growth for July.

It should be noted, though, that the fears about the US-China tussles grow and challenges the USD/INR sellers as Xinhua reported that China imposes sanctions on a number of Taiwan separatists. Previously, the visit of multiple US lawmakers to Taiwan irritated Beijing, which in turn led to fierce military drills near the Taiwan border and an escalation of the geopolitical risks.

On Monday, US NY Empire State Manufacturing Index for August dropped to -31.3 from 11.1 in July and 8.5 in market forecasts. Further, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020. Although the recent US data joins the previous week’s softer inflation figures, the Fed policymakers remain hawkish, which in turn keeps the USD/CNH buyers hopeful.

Against this backdrop, the US 10-year Treasury yields snap a two-day downtrend around 2.79% while the S&P 500 Futures decline 0.10% intraday at the latest.

Given the off in Indian currency and bond markets, USD/INR pair traders will keep their eyes on the US Building Permits, Housing Starts and Industrial Production numbers for July for fresh impulse. However, Fed Minutes will be crucial amid indecision over the US central bank’s next move.

Technical analysis

USD/INR keeps the previous day’s bounce off the 200-SMA after posting a two-day downtrend. The recovery moves also gain support from the firmer RSI (14) line and an impending “golden cross”.

That said, a sustained piercing of the 50-SMA to the 200-SMA appears necessary to confirm the bullish moving average crossover.

In that case, a run-up towards the monthly resistance line near 79.90 becomes imminent. Following that, the 80.00 threshold and the recent record top near 80.20 will be in focus.

Alternatively, a downside break of the two-week-old support line, at 79.40 by the press time, could defy the bullish hopes by directing the USD/INR bears towards the 79.00 round figure.

USD/INR: Four-hour chart

Trend: Further upside expected

The Securities Times carried a story on Tuesday, noting that the People’s Bank of China’s (PBOC) surprise rate cut announced on Monday may be the first in a series of policies to stabilize growth in the second half of the year.

Additional takeaways

“Besides monetary policies, China should also use more fiscal stimulus to boost domestic demand.”

“In addition, more industrial policies and local property market measures are crucial to drive the recovery in production and consumption.”

“Chinese banks are expected to cut the loan prime rates this month following the PBOC’s move on Monday.”

Market reaction

USD/CNY keeps its retracement intact from three-month highs of 6.7942 reached in opening trades. The spot is currently trading at 6.7846, still up 0.16% on the day.

• GBP/USD recovers losses to trade back above 1.2050 amid risk reset.
• The US dollar eases while the US Treasury yields remain sluggish.
• Critical UK economic data are awaited ahead of the Fed minutes.

GBP/USD has paused its three-day sell-off near mid-1.2000s, as bears take breather ahead of the UK employment data release. The UK ILO Unemployment Rate is seen steady at 3.8% in June while the average hourly earnings ex-bonus are likely to tick higher from 4.3% to 4.5% in June.

The last jobs report came in strong and therefore lifted odds for a 50 bps BOE rate hike in September. Ever since, the energy crisis in the UK and Europe has worsened while the global economic outlook has turned dour. Besides, the UK jobs data, Wednesday’s inflation data will hold the key for the BOE’s next rate hike trajectory.

On the USD side of the equation, markets are seeing a bit of a risk recovery amid chatters over potential stimulus from China after the country reported dismal activity numbers a day ago. Although escalating China-Taiwan tensions keep investors unnerved, especially after Beijing sanctioned Taiwanese officials on Tuesday for supporting Taiwan's independence. Democratically self-ruled Taiwan continues to reject China's claim of sovereignty.

The cautious optimism is capping the recent upside in the US dollar against its major peers, with the US dollar index losing 0.07% on the day to trade at 106.48, as of writing. On Wednesday, the US Retail Sales and the Fed minutes will also grab attention, with a 50 bps September Fed rate hike seen as the best bet so far.

GBP/USD: Technical levels to consider

The National Development and Reform Commission, the country’s state planner, reiterated on Tuesday, “we pledge to keep the economy within reasonable bounds.”

Additional comments

Separately a PBOC-backed financial news reported earlier on, “China requires additional policy stimuli to boost economic growth.”

• USD/CNH retreats from three-month high as traders seek fresh clues.
• A jump in Chinese Means of Production Prices also likely to have favored sellers.
• Fears surrounding China’s economic growth, tussles over Taiwan restrict the immediate downside.
• Mixed US data, Fedspeak also keep traders on the edge ahead of Wednesday’s Fed Minutes.

USD/CNH extends pullback from a three-month high to 6.8020 while consolidating the biggest daily jump since March 2020 during Tuesday’s Asian session. In doing so, the offshore Chinese yuan (CNH) pair fails to justify the recent risk-off mood. The reason could be linked to the market’s reassessment of fears that the world’s second-largest economy is on the way to recession despite the policymakers’ hard efforts.

The latest weakness could also be attributed to the second-tier data from China as Xinhua News Agency quotes the National Bureau of Statistics (NBS) while mentioning, “Of the 50 major goods monitored by the government, which include seamless steel tubes, gasoline, coal, fertilizer and some agricultural products mainly used for processing, 27 saw their prices increase, while 20 posted lower prices.”

However, the growth fears seem stronger as China President Xi Jinping showed readiness to take more measures after the previous day’s downbeat statistics.

Xinhua News Agency quoted China President Xi saying that they will “use new development ideas in economic growth”. The comments rolled out after downbeat prints of Retail Sales, Industrial Production and Loan Growth for July.

It should be noted, though, that the fears about the US-China tussles grow and challenges the USD/CNH sellers as Xinhua reported that China imposes sanctions on a number of Taiwan separatists.

Previously, the visit of multiple US lawmakers to Taiwan irritated Beijing, which in turn led to fierce military drills near the Taiwan border and an escalation of the geopolitical risks.

On the same line were the latest comments from China’s State Planner suggesting, “Macro policies should be strong, reasonable and moderate in expanding demand actively,” per Reuters.

On Monday, US NY Empire State Manufacturing Index for August dropped to 31.3 in August from 11.1 in July and 8.5 in market forecasts. Further, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020. Although the recent US data joins the previous week’s softer inflation figures, the Fed policymakers remain hawkish, which in turn keeps the USD/CNH buyers hopeful.

Amid these plays, the US 10-year Treasury yields snap a two-day downtrend around 2.79% while the S&P 500 Futures decline 0.10% intraday at the latest.

Moving on, US Building Permits, Housing Starts and Industrial Production numbers for July should direct intraday moves of the USD/CNH pair ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting minutes.

Technical analysis

USD/CNH holds onto the previous day’s upside break of an ascending resistance line from late May, now support around 6.7980, despite the latest pullback. The bullish bias targeting the yearly high near 6.8385 also takes clues from MACD and RSI.

• AUD/JPY extends rebound from 50% Fibonacci retracement level on RBA Minutes.
• RBA policymakers hint at further rate hikes but signal uncertainty ahead, per the minutes.
• RSI recovery from oversold territory also favors buyers to aim for the previous support line.
• Two-week-old horizontal support zone could test bears past 93.10.

AUD/JPY picks up bids to consolidate intraday losses around 93.60 during Tuesday’s Asian session. In doing so, the cross-currency pair tries to cheer cautiously optimistic statements from the Reserve Bank of Australia’s (RBA) Minutes of the latest monetary policy meeting.

RBA Minutes mentioned that the board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path, per Reuters.

Technically, AUD/JPY rebounds from the 50% Fibonacci retracement level of July 27 to August 02 downturn. The recovery moves also gain support from the RSI (14) as it recovers from the oversold territory.

However, the 200-HMA level surrounding 93.85 restricts the immediate upside of the AUD/JPY pair ahead of the previous support line from August 05, close to the 95.00 threshold at the latest.

On the contrary, a downside break of the 50% Fibonacci retracement level of 93.10 could quickly fetch the AUD/JPY prices toward the fortnight-long horizontal support area near 93.20-30.

AUD/JPY: Hourly chart

Trend: Limited upside expected

• Gold price is looking to extend the previous sell-off as the King dollar remains strong.
• Treasury yields bear the brunt of risk-aversion but fail to offer support to buyers.
• XAU/USD’s path of least resistance appears down ahead of Fed minutes.

Gold price remains vulnerable ahead of the Fed minutes, having failed to find acceptance above the $1,800 mark on several occasions. Risk-off flows dominate amid recessionary fears amplified by the Chinese activity data, keeping the sentiment around the safe-haven US dollar broadly underpinned. Despite mounting growth concerns, the Fed is widely expected to hike rates by 50 bps next month, which also continues to hurt the non-interest-bearing bullion. At the moment, However, the weakness in the US Treasury, in the wake of the flight to safety in the American government bonds, could offer temporary comfort to gold bulls. At the moment, the odds of a 50 bps September rate lift-off stand at 62%.

Also read: Gold Price Forecast: Buying intensity eases amid growth concerns

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is gathering steam to test the previous day’s low of $1,773, below which the previous week’s low of $1,771 will be targeted.

The next downside cap is placed at $1,767, the pivot point one-day S1. The last line of defense for gold bulls is aligned at the Fibonacci 61.8% one-month at $1,764.

more to come ....

Here is how it looks on the tool

About Technical Confluences Detector

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

• AUD/USD portrays corrective pullback from intraday low after mixed RBA Minutes.
• RBA Minutes suggests the policymakers’ acceptance of higher rates but not ignoring the incoming data.
• Economics fears surrounding China, the US exert additional downside pressure.
• US housing, activity data can entertain traders, risk catalysts are the key.

AUD/USD pares intraday losses around 0.7020 after the Reserve Bank of Australia’s (RBA) Minutes of the latest monetary policy meeting. In doing so, the Aussie pair struggles to justify its risk-off mood amid firmer signals from the Minute statement.

RBA Minutes mentioned that the board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path, per Reuters.

Also read: RBA Minutes: Ready to take further tightening steps but not on a pre-set path

Contrary to the RBA Meeting Minutes, sour sentiment also weighs on the AUD/USD prices due to the pair’s risk-barometer status.

Concerns surrounding the economic health of Australia’s largest trading partner China join the fears of the US recession to act as the key negative for the market’s mood.

The growth fears recently gained momentum after China released downbeat Retail Sales and Industrial Production data for July on Monday. On the same were data suggesting a lack of credit demand for China’s easy loan funds and the surprise rate cut from the People’s Bank of China (PBOC).

On the other hand, US NY Empire State Manufacturing Index for August dropped to 31.3 in August from 11.1 in July and 8.5 market forecasts. Further, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020.

It’s worth noting that the recently downbeat inflation data from the US contrasts the Fed policymakers’ hawkish bias, as well as the latest weakness in the statistics, to keep AUD/USD bears hopeful.

Against this backdrop, the US 10-year Treasury yields snaps a two-day downtrend around 2.79% while the S&P 500 Futures decline 0.25% intraday at the latest.

To sum up, AUD/USD remains on the bear’s radar, despite the latest rebound, as traders await Wednesday’s Federal Open Market Committee (FOMC) meeting minutes. For today, US Building Permits, Housing Starts and Industrial Production numbers for July should direct intraday moves.

Technical analysis

AUD/USD rebound remains elusive unless crossing the 200-DMA resistance near 0.7120.

Reserve Bank of Australia’s (RBA) August monetary policy meeting’s minutes showed that the “board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path.”

Additional takeaways

Market reaction

The AUD/USD rebound fizzles out at 0.7025 on the RBA Minutes release. The Minutes offers no new surprise and could be read dovish.

The pair was last trading modestly flat on the day at 0.7017.

• USD/CHF bulls jostle with short-term key resistance line.
• Bullish MACD signals, firmer RSI favor buyers to extend the bounce off four-month low.
• Monthly resistance line, 200-SMA adds to the upside filters.

USD/CHF grinds higher around 0.9460 as buyers attack a seven-week-old previous support line during Tuesday’s Asian session.

In doing so, the Swiss currency (CHF) pair extends the previous week’s rebound from the lowest levels since mid-April. Also keeping the buyers hopeful is the RSI (14) line, as well as the bullish MACD signals.

That said, a clear upside break of the 0.9470 hurdle appears necessary for the USD/CHF bulls to approach a downward sloping resistance line from July, close to 0.9560 at the latest.

Following that, the 200-SMA hurdle near 0.9630 will be an important challenge for the pair’s further upside past 0.9560.

Alternatively, pullback moves may aim for the three-day-old support line, close to 0.9430, but remain unconvincing beyond the monthly low of 0.9370.

Even if the quote drops below 0.9370, January’s peak around 0.9345 may act as the last defense for USD/CHF bulls before giving control to the bears. In that case, March’s low of 0.9195 will be in focus.

Overall, USD/CHF pares recent losses but has miles to go before luring buyers.

USD/CHF: Four-hour chart

Trend: Further upside expected

The People’s Bank of China (PBOC) set the USD/CNY reference rate at 6.7730 on Tuesday when compared to the previous fix and the previous close at 6.7410 and 6.7750 respectively.

China’s central bank injected 2 billion yuan via 7-day reverse repos at 2.00% vs prior 2.00%.

• US Dollar Index steadies around weekly top, prints three-day uptrend.
• Growth concerns, Fedspeak challenge market sentiment amid a sluggish session.
• Second-tier US data, risk catalysts to entertain traders ahead of Wednesday’s FOMC Minutes.

US Dollar Index (DXY) rises for the third consecutive day while picking bids to 106.58 during Tuesday’s Asian session. In doing so, the greenback’s gauge portrays the market’s rush for risk safety amid economic fears surrounding the US and China, as well as geopolitical woes surrounding Russia, China and the Middle East. It’s worth noting that the softer US data and hawkish Fedspeak magnify the market’s indecision and favor the DXY bulls.

That said, the downbeat statistics from China and the US gain major attention from the DXY bulls, especially amid the recession fears.

US NY Empire State Manufacturing Index for August dropped to 31.3 in August from 11.1 in July and 8.5 market forecasts. Further, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020.

Elsewhere, China’s Retail Sales eased to 2.7% YoY in July versus 5.0% expected and 3.1% prior whereas Industrial Production (IP) edged lower to 3.8% during the stated month, from 3.9% prior and 4.6% market forecasts. Additionally, the People’s Bank of China (PBOC) surprised markets on Monday by cutting the one-year medium-term lending facility (MLF) rates by 10 basis points (bps) and trying to push back the bears.

It should be noted that headlines suggesting improved coronavirus conditions in China's financial hub Shanghai and the resumption of the Russian bonds’ trading on Wall Street failed to improve the risk appetite. Furthermore, hopes of a probable meeting between US President Joe Biden and his Chinese counterpart Xi Jinping, as signaled by the Wall Street Journal (WSJ), could favor the risk-on mood. On the same line were comments from China’s President Xi suggesting more efforts to revive the world’s second-largest economy.

Elsewhere, Reuters reported that the United States, South Korea and Japan participated in a missile warning and ballistic missile search and tracking exercise off Hawaii's coast last week, the Pentagon said on Monday. It was also revealed afterward that the US and South Korea will hold joint military drills from August 22 and September 01. The geopolitical fears are an extra burden on the market sentiment and propel the DXY.

Amid these plays, the US 10-year Treasury yields print a three-day downtrend around 2.775% while the S&P 500 Futures decline 0.13% intraday at the latest.

Moving on, today’s second-tier US housing and activity data might entertain the DXY traders ahead of Wednesday’s FOMC Minutes. Should the US data continue to arrive as softer, the greenback’s gauge could remain on the bear’s radar.

Technical analysis

A sustained upside break of the three-week-old resistance line, now support around 106.35, directs DXY bulls towards the monthly peak surrounding 107.00. However, the bulls need validation from late July’s peak near 107.45 to approach the yearly top marked in July around 109.30.

• EUR/USD is extending the previous sell-off, 1.0100 appears at risk.
• US dollar holds higher ground amid a cautious mood, despite weaker yields.
• Daily technical setup suggests more pain for the pair, eyes on German ZEW.

EUR/USD is looking to extend the two-day bearish momentum this Tuesday, as bears aim for the 1.0100 demand area amid a risk-averse market condition.

Despite the Wall Street advance on preference for growth stocks, the Asian markets appear in a cautious mood, as the recent Chinese data inflicted pain and alarmed recessionary fears worldwide.

The reduced appetite for riskier assets keeps the buoyant tone intact around the safe-haven US dollar, despite the ongoing weakness in the Treasury yields. The US dollar index holds steady at around 106.55, at the time of writing, while the benchmark 10-year rates are down about 0.50% to trade at 2.775%.

The market’s attention has now shifted to lingering recession fears, as they also remain worried about the size of the upcoming Fed rate hikes following the softer US inflation data. The minutes of the Fed July meeting will be closely followed to get hints on the central bank’s next policy move.

Ahead of that, the ZEW survey from the Eurozone and Germany will be eyed, as it may confirm a recession in the old continent amid the deepening energy and supply-side crisis. The drying up of the Rhine River has exacerbated the pain in the euro.  

The German headline Economic Sentiment is seen improving slightly to -52.7 in August vs. -53.8 previous while that of the Eurozone is expected at -42.5 vs. -51.1 prior. Meanwhile, investors will also look forward to the US housing data for fresh dollar valuations.

EUR/USD: Technical outlook

Technically, EUR/USD closed Monday below the critical short-term 21-Daily Moving Average (DMA) at 1.0210, opening floors for further downside. The 14-day Relative Strength Index (RSI) hovers below the midline, justifying the bearish potential. Sellers are likely to test the August 3 low of 1.0122 en route to the 1.0100 mark.

EUR/USD: Additional technical levels to watch

• NZD/USD extends pullback from a four-month-old resistance line.
• RSI’s retreat, softer MACD signals also keep sellers hopeful.
• Monthly support line, 50-DMA can challenge bears below 100-DMA.

NZD/USD takes offers to refresh intraday low around 0.6350 as it extends the previous day’s pullback towards the 100-DMA during Tuesday’s Asian session.

In addition to the Kiwi pair’s U-turn from the downward sloping resistance line from late April, around 0.6455 by the press time, recently easing RSI (14) and receding bullish bias of the MACD also favor the latest south-run.

It’s worth noting, however, that the NZD/USD weakness past the 100-DMA support of 0.6320 appears difficult as an upward sloping support line from mid-July, near 0.6260, will precede the 50-DMA level of 0.6244 to challenge the bears.

If at all, the NZD/USD prices remain weak past 0.6244, May’s low around 0.6175 and multiple levels marked near the 0.6100 threshold please the sellers.

On the contrary, recovery remains elusive beneath the aforementioned resistance line, close to 0.6455 at the latest.

Even so, the monthly high near 0.6470 and a horizontal area including highs marked since May, surrounding 0.6570-75, will be crucial to watch for the NZD/USD bulls.

NZD/USD: Daily chart

Trend: Further weakness expected

• USD/JPY takes offers to refresh intraday low, down for the second consecutive day.
• Yields remain pressured for third consecutive day amid recession fears, indecision over Fed’s next move.
• Geopolitical woes can fuel prices as the US, South Korea and Japan held joint military exercises near Hawaii's coast.
• Second-tier US data, risk catalysts are important for fresh impulse.

USD/JPY refreshes intraday low near 133.00 during Tuesday’s initial Tokyo session. In doing so, the yen pair tracks downbeat US Treasury yields, as well as recession fears, during a sluggish session.

Despite the latest rebound, the USD/JPY prices remain weak for the second consecutive day as fears surrounding the economic conditions in China and the US challenge the pair buyers. Also exerting downside pressure on the yen pair is the cautious mood ahead of this week’s Federal Open Market Committee (FOMC) meeting minutes.

China’s Retail Sales eased to 2.7% YoY in July versus 5.0% expected and 3.1% prior whereas Industrial Production (IP) edged lower to 3.8% during the stated month, from 3.9% prior and 4.6% market forecasts. Additionally, the People’s Bank of China (PBOC) surprised markets on Monday by cutting the one-year medium-term lending facility (MLF) rates by 10 basis points (bps) and trying to push back the bears.

On the other hand, the US NY Empire State Manufacturing Index for August dropped to 31.3 in August from 11.1 in July and 8.5 market forecasts. Further, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020.

Given the downbeat data from the world’s top-two economies, fears of recession regain attention after the brief absence during the last week, mainly due to the softer US inflation data.

On a different page, headlines suggesting improved coronavirus conditions in China's financial hub Shanghai and the resumption of the Russian bonds’ trading on Wall Street failed to improve the risk appetite. Furthermore, hopes of a probable meeting between US President Joe Biden and his Chinese counterpart Xi Jinping, as signaled by the Wall Street Journal (WSJ), could favor the risk-on mood. On the same line were comments from China’s President Xi suggesting more efforts to revive the world’s second-largest economy.

Elsewhere, Reuters reported that the United States, South Korea and Japan participated in a missile warning and ballistic missile search and tracking exercise off Hawaii's coast last week, the Pentagon said on Monday. It was also revealed afterward that the US and South Korea will hold joint military drills from August 22 and September 01. The geopolitical fears are an extra burden on the market sentiment and weigh on the USD/JPY prices.

Against this backdrop, the US 10-year Treasury yields print a three-day downtrend around 2.775% while the S&P 500 Futures decline 0.13% intraday at the latest.

Moving on, risk catalysts and the second-tier activity and housing data from the US can entertain intraday traders.

Technical analysis

The 10-DMA guards immediate USD/JPY upside around 133.80 inside a three-week-old symmetrical triangle between 132.35 and 134.20.

Early Tuesday morning in Asia, at 01:30 GMT, the Reserve Bank of Australia (RBA) will release the minutes of the latest monetary policy meeting held in August.

The RBA announced the third consecutive rate hike worth 50 basis points (bps) in August. Even so, the quarterly Monetary Policy Statement drowned the AUD/USD prices despite the rate lift by citing the growth concerns.

Although the RBA is more likely to keep its hawkish bias, the latest challenges for the key customer China and macroeconomic woes could probe the policymakers to adhere to softer rate increases in the future. The hints for such interesting events are likely to be watched in today’s RBA Minutes, making it crucial for the AUD/USD pair traders.

Westpac is on the same line and said,

How could the minutes affect AUD/USD?

AUD/USD holds lower ground near 0.7120 as bears take a breather ahead of the key RBA Minutes, especially after the biggest daily fall in a fortnight. In addition to the pre-event anxiety, an absence of major data/events and mixed concerns surrounding inflation and growth also appear to restrict immediate pair moves.

That said, the Aussie pair’s further downside hinges on how the RBA Minutes manage to keep the bulls happy even if they know that the 50 bps rate hike is given. That being said, talks over the economic transition and neutral rate, as well as surrounding employment conditions, will also be crucial to watch for short-term AUD/USD forecast ahead of this week’s key Wage Price Index for the second quarter (Q2), as well as July’s jobs report.

Technically, lows marked during late 2021 and earlier in the month, respectively around 0.6995 and 0.7030, will challenge the additional upside of the AUD/USD prices.

Alternatively, a clear U-turn from the 200-DMA hurdle, around 0.7120 by the press time, directs AUD/USD prices towards the previous resistance line from April 20, close to 0.6980 at the latest.

Key Notes

AUD/USD stays pressured towards 0.7000 ahead of RBA Minutes

AUD/USD Forecast: Steeper decline on a break below 0.6980

About the RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, begin the week on a negative note while declining to 2.44% at the latest. In doing so, the inflation precursor snapped two-day inaction by adding to the market’s cautious mood ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting minutes.

With this, the inflation expectations join the league of recently downbeat Consumer Price Index (CPI) and the Producers Price Index (PPI) from the US to challenge the hawkish Fed bets. However, officials from the US Federal Reserve (Fed) defend the US central bank’s aggressive rate hikes while wanting to wait for sustained easy inflation numbers for any change in the outlook.

As a result, the market sentiment remains divided even as the Wall Street benchmarks post mild gains and the US 10-year Treasury yields ease.

That said, this week’s Fed Minutes will be crucial for near-term directions amid uncertainty over the policymakers’ bias after the latest inflation readings and the size of the next rate hike.

Also read: Forex Today: Growth-related concerns underpin the greenback

• Silver prices remain pressured after confirming three-week-old bearish chart pattern.
• MACD, RSI conditions join recent pullback from 50-SMA to keep sellers hopeful.
• 200-SMA can offer intermediate support during theoretical slump towards sub-$18.00 area.

Silver price (XAG/USD) holds lower ground near $20.20 after confirming a bearish formation, namely a rising wedge, the previous day. That said, the bright metal’s pullback from the 50-SMA and the downbeat oscillators also favor the sellers during Tuesday’s Asian session.

It should, however, be noted that the $20.00 threshold and the 200-SMA around $19.50 could restrict the short-term downside of the commodity prices.

Following that, multiple levels near $19.00 and the yearly low marked in July around $18.15 might test the XAG/USD bears before highlighting the theoretical target surrounding $17.80.

Meanwhile, the 50-SMA level around $20.40 challenges the quote’s corrective pullback ahead of the stated wedge’s lower line, close to $20.50 at the latest.

Even if the silver buyers manage to cross the $20.50 hurdle an upward sloping trend line from August 01, forming part of the wedge, can challenge the metal’s further advances near the $21.00 Threshold.

Overall, silver’s confirmation of rising wedge joins downbeat MACD and RSI to suggest the metal’s further downside.

Silver: Four-hour chart

Trend: Further weakness expected

• WTI prices fall due to weak China-US economic data.
• China’s Industrial Production and Retail Sales increased less than expected.
• The PBoC reacted and cut interest rates as the bank aims to help reach the 2022 5% GDP target.
• Iran’s nuclear deal could be resolved soon, so oil prices slid.

US crude oil benchmark, also known as WTI (West Texas Intermediate) drops for the second consecutive day on disappointing US and China data, reigniting recession fears worldwide, with traders moving toward safe-haven assets. On Monday, WTI shed 4.37% from its price, closing below its opening price at $87.85. However, as the Asian Pacific session begins, WTI is trading at $88.18 PB, edging up by 0.57%.

In the early Monday session, China’s economic docket reported Industrial Production and Retail Sales, each at 3.8% YoY and 2.7% YoY, respectively, missing forecasts. That said, the People’s Bank of China (PBoC) surprised the markets, slashing its 1-year MLF to 2.75%, a consequence of the previously mentioned.

During the New York session, the NY Fed Empire State Manufacturing Index for August tumbled to -31.3, lower than estimates, as shipments and new orders plunged.

Meanwhile, the latest developments in the Iran nuclear deal weighed on lower crude oil prices. Sources cited by the semi-official Iranian Students’ New Agency said that Tehran’s stance had been sent to the EU top commissioner Josep Borrell.

Iran Foreign Minister Hossein Amirabdollahian commented that an agreement with Washington could be reached to restore the accord “if the US shows a realistic approach and flexibility,” as reported by Bloomberg. Amirabdollahian said that they’re ready to enter the phase of announcing the deal “if our latest points are met” and said that if the US is trying to “gain concession, then we’ll have to talk and negotiate more.”

If Iran’s nuclear deal is approved, oil from Iran would be seen as a relief from high energy prices, particularly consumers, which had been dealing with skyrocketing petrol and gasoline prices, with countries like the US battling inflation at 4-decade highs.

WTI Key Technical Levels

• USD/CAD seesaws around weekly top after positing the biggest daily jump in a month.
• Economic fears surrounding China, increase in oil output in Permian favor WTI bears.
• Risk-off mood also underpins bullish bias ahead of the key data/events.

USD/CAD bulls take a breather around 1.2900, following the longest daily jump in a month, as traders await the key inflation data from Canada. In addition to the pre-data anxiety, cautious mood in the markets and sluggish prices of Canada’s main export item, namely WTI crude oil, also probes The Loonie pair buyers during Tuesday’s Asian session.

WTI crude oil remains sidelined around a six-month low, pausing a two-day downtrend, as bears seek fresh clues to extend the latest south-run. Even so, the black gold remains weak amid chatters of economic weakness in the world’s largest commodity user China and increased output from the Permian basin. “Oil output in the Permian in Texas and New Mexico, the biggest U.S. shale oil basin, is due to rise 79,000 barrels per day (bpd) to a record 5.408 million bpd in September, the U.S. Energy Information Administration (EIA) said in its productivity report on Monday,” per Reuters.

Elsewhere, China’s Retail Sales eased to 2.7% YoY in July versus 5.0% expected and 3.1% prior whereas Industrial Production (IP) edged lower to 3.8% during the stated month, from 3.9% prior and 4.6% market forecasts. Additionally, the People’s Bank of China (PBOC) surprised markets on Monday by cutting the one-year medium-term lending facility (MLF) rates by 10 basis points (bps) and trying to push back the bears.

Headlines suggesting improved coronavirus conditions in China's financial hub Shanghai and the resumption of the Russian bonds’ trading on Wall Street should have favored the risk appetite, but could not. Furthermore, hopes of a probable meeting between US President Joe Biden and his Chinese counterpart Xi Jinping, as signaled by the Wall Street Journal (WSJ), could favor the risk-on mood. On the same line were comments from China’s President Xi suggesting more efforts to revive the world’s second-largest economy.

It should be noted that the Federal Reserve (Fed) policymakers held their hawkish bias, despite recently downbeat US data, while suggesting the need for more proof of softer inflation. The latest from the Fed was Richmond Federal Reserve (Fed) Bank President Thomas Barkin who said that he wants to raise interest rates further to bring inflation under control. "I'd like to see a period of sustained inflation under control, and until we do that I think we are just going to have to move rates into restrictive territory," Barkin told CNBC, per Reuters.

That said, US NY Empire State Manufacturing Index for August, to 31.3 in August from 11.1 in July and 8.5 market forecasts, contributed to the economic slowdown fears. On the same line, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020.

While portraying the mood, the US 10-year Treasury yields dropped six basis points (bps) to 2.79% whereas Wall Street closed with mild gains. It should be noted that the S&P 500 Futures print mild losses by retreating from a three-month high by the press time.

Looking forward, headlines surrounding China may entertain USD/CAD traders ahead of the Canadian Consumer Price Index (CPI) for July. More important to track will be the Bank of Canada (BOC) Core CPI, expected 6.7% YoY versus 6.2% prior.

Technical analysis

A successful upside break of a one-month-old previous resistance line, now support around 1.2880, directs USD/CAD buyers towards the monthly peak of 1.2985.

• GBP/USD remains depressed around one-week low after breaking short-term key support.
• Steady RSI, impending bear cross on MACD also keep sellers hopeful.
• Buyers need validation from two-month-old resistance line, 1.2000 can test intraday sellers.

GBP/USD dribbles around mid-1.2000s as the Cable traders lick their wounds during Tuesday’s Asian session, after the biggest daily fall in a week. Even so, the quote remains on the bear’s radar as it stays beneath the 1.2110-2100 support-turned-resistance.

A clear downside break of the convergence of the 21-DMA and an upward sloping trend line from mid-July keep GBP/USD sellers hopeful. Also suggesting the pair’s further downside is the descending RSI (14), not oversold, as well as a looming bear cross on the MACD.

That said, the pair is likely declining towards the horizontal area comprising multiple levels marked since June, around 1.1930. However, the 1.2000 psychological magnet may offer an intermediate halt during the anticipated fall.

In a case where the GBP/USD prices drop below 1.1930, the odds of witnessing a slump towards the yearly low of 1.1760 seem acceptable.

Alternatively, a corrective pullback need not only to cross the 1.2100-2110 immediate hurdle but a two-month-old descending trend line resistance, close to 1.2265 by the press time, to convince GBP/USD buyers.

Even so, the 100-DMA level surrounding 1.2415 could challenge the quote’s further advances.

GBP/USD: Daily chart

Trend: Further weakness expected

Analysts at Bank of America (BofA) offer their outlook on the USD/JPY pair, maintaining a  bullish outlook over the medium term.

Key quotes

"With lower oil prices and stalling outward M&A by Japan Inc., corporate JPY supply has likely peaked for now. However, investors' USD demand, another pillar of USD/JPY strength this year, could continue as the Fed's rate hikes boost the USD/JPY carry and hedge cost. In the last tightening cycle, USD/JPY declined and JPY strengthened after the Fed stopped hiking rates at end-2018 with developed market (DM) central banks unable to hike as much.”

“Meanwhile, in the preceding cycle before the Global Financial Crisis, USD/JPY rose and JPY weakened while the Fed held policy rate at 5.25% for 14 months after the final hike and DM central banks hiked as aggressively.”

According to the latest Reuters poll of economists, the Reserve Bank of New Zealand (RBNZ) is widely expected to hike the Official Cash Rate (OCR) by 50 basis points(bps) at Wednesday's policy review, taking the cash rate to 3.00% and marking the most aggressive tightening since 1999.

Also read: NZIER: Recommends RBNZ to hike OCR by 50 bps in August

Key findings

“While the RBNZ has signalled plans to increase the rate to 4.00% by mid-2023, almost matching the US Federal Reserve, few see it reaching that level. “

“A handful were actually expecting rates to start easing by mid-next year.”

“That shift in market pricing has been driven by signs of a weakening economy amid the tightening in financial conditions.”

• AUD/USD licks its wounds after falling the most in two weeks.
• Fears of recession joins cautious mood ahead of Fed/RBA Minutes to exert downside pressure on the pair.
• Market sentiment dwindles but Wall Street manages to post mild gains.
• RBA Minutes eyed for hints of further rate hikes amid economic slowdown fears.

AUD/USD holds lower ground near 0.7120 as bears take a breather after the biggest daily fall in a fortnight. That said, the Aussie pair’s inaction during Tuesday’s Asian session could be linked to the caution mood ahead of the Reserve Bank of Australia’s (RBA) Minutes of the latest monetary policy meeting, as well as mixed concerns surrounding growth and inflation.

The quote began the key week on a negative footing after China’s downbeat data and the People’s Bank of China’s (PBOC) surprised rate cut spread fears for the AUD/USD, due to Australia’s strong trade ties with the dragon nation. Also weighing on the Aussie pair was the anxiety over the Fed’s next move after the recently downbeat data and hawkish Fedspeak.

The downbeat print of the US NY Empire State Manufacturing Index for August, to 31.3 in August from 11.1 in July and 8.5 market forecasts, contributed to the economic slowdown fears. On the same line, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020.

It’s worth noting, however, that the Federal Reserve (Fed) policymakers held their hawkish bias while suggesting the need for more proof of softer inflation. The latest from the Fed was Richmond Federal Reserve (Fed) Bank President Thomas Barkin who said that he wants to raise interest rates further to bring inflation under control. "I'd like to see a period of sustained inflation under control, and until we do that I think we are just going to have to move rates into restrictive territory," Barkin told CNBC, per Reuters.

On the other hand, China’s Retail Sales eased to 2.7% YoY in July versus 5.0% expected and 3.1% prior whereas Industrial Production (IP) edged lower to 3.8% during the stated month, from 3.9% prior and 4.6% market forecasts. Additionally, the PBOC cut the one-year medium-term lending facility (MLF) rates by 10 basis points (bps) and tried to push back the bears.

Elsewhere, headlines suggesting improved coronavirus conditions in China's financial hub Shanghai and the resumption of the Russian bonds’ trading on Wall Street should have favored the risk appetite, but could not. Furthermore, hopes of a probable meeting between US President Joe Biden and his Chinese counterpart Xi Jinping, as signaled by the Wall Street Journal (WSJ), could favor the risk-on mood. On the same line were comments from China’s President Xi suggesting more efforts to revive the world’s second-largest economy.

Against this backdrop, the US 10-year Treasury yields dropped six basis points (bps) to 2.79% whereas Wall Street closed with mild gains. It should be noted that the S&P 500 Futures print mild losses by retreating from a three-month high by the press time.

Moving on, AUD/USD traders should pay attention to the risk catalysts ahead of the RBA Minutes. The Aussie central bank announced a 0.50% rate hike in August but the concerns over the economic growth teased bears, which in turn highlights today’s Minute Statement for fresh impulse. Should the policymakers appear unconvinced of the next rate hike, due to the recession woes, the AUD/USD price may have a further downside to track.

Technical analysis

A clear U-turn from the 200-DMA hurdle, around 0.7120 by the press time, directs AUD/USD prices towards the previous resistance line from April 20, close to 0.6980 at the latest.

Citing the latest US Treasury Department data released on Monday, Reuters reported that China’s holdings of American government bonds were reduced for a seventh straight month in June.

Additional takeaways

“China's stash of US government debt dropped to $967.8 billion in June, the lowest since May 2010 when it held $843.7 billion.”

“Japan increased its holdings of Treasuries to $1.236 trillion in June, from a revised $1.224 trillion in May.”

“Overall, foreign holdings of Treasuries rose to $7.430 trillion in June from a revised $7.426 trillion in May.”

“US Treasuries have posted foreign inflows for a second straight month.”

Related reads

• Forex Today: Growth-related concerns underpin the greenback
• S&P 500 could drop 7.0% on Fed’s QT through 2023 – BofA

• AUD/JPY snaps two days of gains, plunges more than 150 pips on risk aversion.
• Weaker economic China and US data, drivers of risk-off impulse in the FX space.
• AUD/JPY Price Analysis: Falling-wedge in the hourly chart might open the door for a leg-up before resuming the downtrend.

After a risk-off impulse in the FX space, the AUD/JPY plunges from around three-week highs around 95.05 and dives towards the 100-day EMA to record its daily low near 92.99 on Monday, courtesy of weaker China and US data, which reignited recession fears. At the time of writing, the AUD/JPY is trading at 93.54.

AUD/JPY Price Analysis: Technical outlook

The AUD/JPY remains trading within the boundaries of a descending channel, as portrayed on Monday. The high of the day was also the top-trendline of the previously mentioned channel, in which sellers leaned on to drive prices lower, sending the pair plunging close to 150 pips, near the 100-day EMA. Nevertheless, an uptick in the Relative Strength Index (RSI), and US traders’ sentiment improvement, capped the downtrend, so the pair closed near the August 10 low at 93.48.

Zooming into the 1-hour scale, the AUD/JPY is neutral to upward biased, with the chart portraying the formation of a falling wedge, which would open the door for further upside before resuming its downtrend. Also, to further confirm the previously mentioned, RSI is about to cross over its 7-hour RSI SMA, which would accelerate the uptrend.

Therefore, the AUD/JPY first resistance would be 93.81; once cleared, it would open the door towards the confluence of the 20/200-hour EMA at 93.86, closely followed by the 100-hour EMA at 94.28.

AUD/JPY Hourly chart

AUD/JPY Key Technical Levels

The winding down of the central bank’s balance sheet poses a risk to equity prices, according to Bank of America (BofA), reported Bloomberg late Monday.

“When looking at the historical relationship between the Fed’s bond purchases and S&P 500 returns from 2010 to 2019, the bank concluded in a research note on Monday that quantitative tightening through 2023 would translate into a 7% drop in the benchmark gauge from current levels,” the bank report also mentioned.

BofA also mentioned, per Bloomberg, “Quantitative Easing (QE) has explained more than 50% of the movement in the market.”

Bloomberg also quotes Chief Investment Officer at Independent Advisor Alliance as saying, “Quantitative Tightening (QT) has undoubtedly taken a back seat to more pressing issues such as inflation and recession angst.”

Key quotes (from Bloomberg)

Also read: Modest losses prevail in stocks

• EUR/USD holds lower ground after breaking short-term key support, now resistance.
• One-month-old horizontal area lures bears amid downbeat MACD, RSI.
• Convergence of 21-DMA, ascending trend line from mid-July guards immediate recovery.

EUR/USD remains pressured around 1.0160 during the initial Asian session on Tuesday, after breaking the 1.0200 key support the previous day.

In addition to the clear downside break of the 21-DMA and monthly ascending trend line, descending RSI (14) and receding bullish bias of the MACD also keep the EUR/USD bears hopeful.

With this, the EUR/USD pair becomes vulnerable to visiting the one-month-old horizontal support around 1.0100.

However, the 1.0000 parity mark can challenge the major currency pair’s further downside, which if ignored could quickly direct the south-run towards the yearly low surrounding 0.9950.

On the contrary, recovery remains elusive until the quote stays below the convergence of the immediate DMA and the upward sloping previous support line from mid-July, around 1.0200.

Even so, the 50-DMA and a descending trend line from May 30, close to 1.0310, appear a tough nut to crack for the EUR/USD bulls.

It’s worth noting that a three-month-old ascending support-turned-resistance line, close to 1.0360-65, appears the last defense of the pair sellers.

EUR/USD: Daily chart

Trend: Further weakness expected

• Gold price remains pressured after confirming a bearish chart pattern.
• US dollar regains upside momentum amid growth concerns, cautious mood ahead of FOMC Minutes.
• Recession fears from China, softer US data weighed on the XAU/USD prices.
• Second-tier US data can entertain traders ahead of Fed Minutes.

Gold price (XAU/USD) keeps the previous day’s downside break of the fortnight-old rising wedge while flashing $1,780 as a quote during the early Asian session on Tuesday. The yellow metal’s latest losses could be linked to the US dollar’s sustained rebound, as well as the cautious mood ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting minutes.

US Dollar Index (DXY) posted the biggest daily gains in a week as the greenback’s gauge versus the six major currencies cheered the market’s fears of recession, as well as concerns surrounding the Fed’s next move.

That said, the downbeat print of the US NY Empire State Manufacturing Index for August, to 31.3 in August from 11.1 in July and 8.5 market forecasts, contributed to the economic slowdown fears. On the same line, the US August NAHB homebuilder confidence index also fell to 49 versus 55, its lowest level since the initial months of 2020.

It should be noted that the softer than expected prints of China’s Retail Sales, Industrial Production and a lack of demand for the loaned funds joined the People’s Bank of China’s (PBOC) surprise rate cut to amplify the growth fears from the world’s biggest commodity user.

Elsewhere, headlines suggesting improved coronavirus conditions in China's financial hub Shanghai and the resumption of the Russian bonds’ trading on Wall Street should have favored the risk appetite, but could not. Furthermore, hopes of a probable meeting between US President Joe Biden and his Chinese counterpart Xi Jinping, as signaled by the Wall Street Journal (WSJ), could favor the risk-on mood. On the same line were comments from China’s President Xi suggesting more efforts to revive the world’s second-largest economy.

Amid these plays, the US 10-year Treasury yields dropped six basis points (bps) to 2.79% whereas Wall Street closed with mild gains.

Moving on, the second-tier US data concerning housing and activities could entertain the gold traders but major attention will be given to how the Fed can defend its hawkish stand in the Minutes amid recession fears and softer inflation data.

Technical analysis

Gold price justifies a confirmation of the two-week-old rising wedge bearish chart pattern by taking rounds to the 50% Fibonacci retracement of the June-July downside, near $1,780. The bearish bias also takes clues from the downbeat RSI (14), not oversold, as well as failures to extend the latest corrective pullback from beyond the 50-SMA.

That said, the XAU/USD bears presently aim for the convergence of the 200-SMA and 38.2% Fibonacci retracement, around $1,753. However, multiple supports around $1,730 and the $1,700 threshold could challenge the metal’s further downside amid likely oversold RSI.

Should the precious metal continues to decline past $1,700, the odds of its slump to the yearly low surrounding $1,680 can’t be ruled out.

Alternatively, a 50-SMA level surrounding $1,785-86 guards the quote’s immediate recovery ahead of the quote’s run-up towards the stated wedge’s lower line, close to $1,795 by the press time.

Following that, the $1,800 threshold and the 61.8% Fibonacci retracement level surrounding $1,805 could test the gold buyers before challenging the wedge’s upper line near $1,815.

Overall, XAU/USD remains on the bear’s radar despite the late Monday’s bounce off $1,773.

Gold: Four-hour chart

Trend: Further weakness expected

Iran responded to the European Union's "final" draft text to save a 2015 nuclear deal on Monday, an EU official said, as the Iranian foreign minister called on the United States to show flexibility to resolve three remaining issues, per Reuters.

While Washington has said, per Reuters, it is ready to quickly seal a deal to restore the 2015 accord on the basis of the EU proposals, Iranian negotiators said Tehran's "additional views and considerations" to the EU text would be conveyed later.

The EU official on Monday provided no details on Iran's response to the text.

"There are three issues that if resolved, we can reach an agreement in the coming days," Iranian Foreign Minister Hossein Amirabdollahian said earlier on Monday, suggesting Tehran's response would not be a final acceptance or rejection.

The Iranian policymaker also said, “We have told them that our red lines should be respected ... We have shown enough flexibility ... We do not want to reach a deal that after 40 days, two months or three months fails to be materialised on the ground.”

The 2015 agreement appeared on the verge of revival in March after 11 months of indirect talks between Tehran and U.S. President Joe Biden's administration in Vienna.

But talks broke down over obstacles including Tehran's demand that Washington provide guarantees that no U.S. president would abandon the deal as Trump did

Biden cannot promise this because the nuclear deal is a non-binding political understanding, not a legally binding treaty.

Market reaction

Given the lack of clear response from the European Union (EU), the news failed to garnet major attention.

Also read: Forex Today: Growth-related concerns underpin the greenback