CFD Markets News and Forecasts — 06-08-2024

• EUR/USD eased on Tuesday despite recovering risk sentiment.
• Markets have leaned back into risk appetite on Fed rate cut hopes.
• Euro-area data soured early Tuesday, calendar looks thin for Wednesday.

EUR/USD trimmed recent gains and slipped back from the 1.1000 handle on Tuesday as markets continue to digest a recent rebalancing in FX market flows. Investors have recovered their footing and resumed betting on an uptick in the pace of rate cuts from the Federal Reserve (Fed) beginning in September. Pan-EU economic data did little to meaningfully move the needle on Tuesday, with a mid-tier release schedule on the cards for Wednesday.

Forex Today: Markets’ attention remains on data and rate cut bets

Pan-EU Retail Sales contracted -0.3% YoY in June, entirely missing the forecast 0.1% and falling from the previous period’s revised 0.5%. German Industrial Production figures are due on Wednesday, expected to recover to 1% growth MoM in June from the previous period’s -2.5% contraction.

Rate markets have fully priced in a September rate cut, and according to the CME’s FedWatch Tool, investors see two-to-one odds of a double cut for 50 basis points when the Federal Open Market Committee (FOMC) delivers its rate call on September 18. At the current cut, rate markets see zero chance of the Fed holding rates steady anymore in 2024, with a total of four quarter-point cuts expected by the end of the year.

EUR/USD technical outlook

Fiber traders have pulled back from 1.1000 after a failed bull run into the major price handle, and price action is poised to collapse back into a rough descending channel on daily candlesticks. EUR/USD has been mired in choppy consolidation around the 200-day Exponential Moving Average (EMA) for most of 2024, and the trend is set to continue as near-term momentum pivots once against into the bearish side. Short side targets will be set at the 1.0800 level, with sellers hoping to crack through and take a fresh run at the last major swing low below 1.0700.

EUR/USD daily chart

• GBP/USD slid nine-tenths of one percent on Tuesday.
• Pound Sterling continues to soften on social unrest, BoE cuts.
• Markets have pivoted back into Fed rate cut bets.

GBP/USD backslid nearly a full percent on Tuesday as the Pound Sterling continues to deflate against the broader FX market. The US Dollar found a soft patch as markets pivot back into a risk-on stance fueled by ongoing hopes for a September rate cut from the Federal Reserve (Fed), but a rapidly-depreciating GBP sent Cable into fresh five-week lows just south of 1.2700.

Forex Today: Markets’ attention remains on data and rate cut bets

The economic calendar is notably thin for both currencies on Wednesday, leaving markets to whittle away the hours until something structurally changes.

The Pound Sterling is seeing a steady decline after the BoE trimmed interest rates to 5.0% from 5.25% recently, sparking outflows from broad-market positioning that was previously heavily-weighted in favor of the GBP. With social unrest throughout the UK over the weekend and into the new week, investors are leery about the economic outlook for the kingdom, investors are paring back bullish bets on the Pound Sterling and waiting for signs of stabilization and a better read on how many more time the BoE will cut in 2024.

Rate markets have fully priced in a September rate cut, and according to the CME’s FedWatch Tool, investors see two-to-one odds of a double cut for 50 basis points when the Federal Open Market Committee (FOMC) delivers its rate call on September 18. At the current cut, rate markets see zero chance of the Fed holding rates steady anymore in 2024, with a total of four quarter-point cuts expected by the end of the year.

GBP/USD technical outlook

Tuesday’s -0.9% drop on Cable has dragged the pair within touch range of the 200-day Exponential Moving Average (EMA) at 1.2646 for the first time since vaulting over the long-run moving average in May. GBP/USD has shed nearly 3% since declining from a 12-month peak of 1.3045 in July.

The few remaining Pound Sterling bulls will be hoping for a technical recovery off the back of a rising pattern of higher lows on daily candlesticks, but an extended drop into 1.2600 will set GBP/USD price action in a path of steady declines to 2024’s lows of 1.2300.

GBP/USD daily chart

Reserve Bank of Australia (RBA) Chief Economist Sarah Hunter said on Wednesday that the Australian economy is running a bit hotter than RBA thought previously. 

Key quotes

Market reaction

At the time of writing, AUD/USD is trading 0.02% lower on the day at 0.6520.   

• USD/CAD trades on a flat note near 1.3785 in Wednesday’s early Asian session. 
• Markets bet that the Fed will start cutting rates next month with a 50 bps reduction to its policy rate.
• The Canadian employment report on Friday will be closely watched. 

The USD/CAD pair trades flat around 1.3785 during the early Asian session on Wednesday. The US Dollar (USD) rebounds as some calm returns to the markets, which helps limit the pair’s losses. Later in the day, the Canadian July Ivey Purchasing Managers Index (PMI) and EIA US crude oil inventories report will be released. 

The markets rebound following the sharp sell-off earlier this week. Chicago Federal Reserve President Austan Goolsbee on Monday warned against taking too much of a signal from the market sell-off, adding that it was prompted by the Bank of Japan's (BoJ) rate decision last week and rising Middle East geopolitical tensions. However, traders expect the US Federal Reserve (Fed) to take some action before it misses the chance after a disappointing US employment report for July. 

Joseph LaVorgna, chief US economist at SMBC Nikko Securities, expects the Fed to cut interest rates by 3 full percentage points by the end of 2025, more aggressive than the current market outlook. Meanwhile, financial markets have priced in 69.5% odds of a 50 basis points Fed rate cut in September, down from 85% on Monday, according to the CME FedWatch tool. 

On the Loonie front, traders will closely monitor the Canadian employment data, which is due on Friday. The Canadian economy is expected to add 22.5K jobs in July, while the Unemployment Rate is projected to rise to 6.5% in the same report period from 6.4% in June. 

The New Zealand Unemployment Rate in the second quarter (Q2) of 2024 climbed to 4.6% from 4.3% in the first quarter, according to data published by Statistics New Zealand on Wednesday. The market consensus was a 4.7% print in the reported period.

Additionally, the Employment Change increased by 0.4% in the second quarter from a 0.2% decline in the previous reading. This figure came in better than the expectation of a 0.2% decrease.

Market reaction to New Zealand employment report

At the time of writing, NZD/USD is trading 0.68% higher on the day at 0.5990.     

• Crude Oil markets remain on the low side despite Middle East concerns.
• Declines in US barrel counts appear to have snapped after API supplies print.
• Crude Oil markets may have found a floor, but price pressure weigh.

West Texas Intermediate (WTI) US Crude Oil fell back below $73.00 per barrel on Tuesday as fossil markets struggle to find a foothold with barrel bids firmly entrenched in the low side after a four-week tumble.

The American Petroleum Institute (API) released their Weekly Crude Oil Stock counts for the week ended August 2, reporting a thin 180K buildup in US barrel counts. Still, the figure looks set to end a multi-week run of sharp declines in US Crude Oil supplies after last week showed a -4.495 million barrel contraction. Crude Oil traders will be looking ahead to the Energy Information Administration’s (EIA) own Crude OIl supplies counts reported on Wednesday.

The ongoing Israel-Palestinian Hamas conflict threatened to bubble over last weekend after two suspected assassinations of Iranian Hezbollah officials. Iran has publicly vowed direct retaliation against Israel for the killings, prompting a naval reaction from US forces to move into the region in advance of any Iranian operations. Despite the significant uptick in geopolitical tensions, Crude Oil markets are having a difficult time finding the bidding pedal, and barrel prices remain subdued.

WTI technical outlook

With US Crude Oil on the backfoot and on pace early to chalk in a fifth straight week of declines, WTI has crumbled back below $73.00 per barrel, though technical pressure has built up to keep bids buoyed over $71.00 as of the time of writing. Price action is tilted firmly towards the downside, with daily candlesticks declining -15.00% peak-to-trough from July’s early peak of $83.93 per barrel.

WTI daily chart

• USD/JPY registers minimal gains, after briefly hitting 146.37.
• Sellers push the pair below 145.00, suggesting potential consolidation between 144.00-146.00.
• Key support levels: 144.00, August 6 low at 143.61, and August 2 bottom at 141.70.
• Resistance levels to watch: 145.00, August 5 peak at 146.37, and August 2 high at 149.77.

The USD/JPY registered minimal gains on Tuesday after hitting a daily high of 146.37. Yet buyers' failure to keep prices above the 146.00 figure sponsored a retracement toward the 144.00 region. The pair trades at 144.61, gaining 0.17% as Wednesday’s Asian session commences.

USD/JPY Price Forecast: Technical outlook

The USD/JPY rebound above 146.00 was short-lived. Sellers stepped in and pushed the exchange rate below 145.00, paving the way for subsequent losses. Although the Relative Strength Index (RSI) remains in oversold territory, price action suggests that the pair might consolidate at around 144.00-146.00 before printing the next leg-down.

If bears drag the exchange rate below 144.00, the next support would be the August 6 low of 143.61, followed by the August 2 bottom at 141.70.

Conversely, if USD/JPY edges above 145.00, the next resistance will be the August 5 peak at 146.37, followed by the 147.00 figure. on further strength, the next resistance is seen at August 2, high at 149.77.

USD/JPY Price Action – Daily Chart

• Pair breaks out of the 0.5900-0.5950 range, but momentum still remains weak.
• RSI and MACD show improving signs.
• Resistance at 0.6000 becomes the target as support shifts to 0.5950.

On Tuesday, the NZD/USD pair extended its gains, rising by 0.35% to 0.5960 and the daily chart shows some favorable signs for the bulls,

The daily chart shows that the Relative Strength Index (RSI) has climbed to 42, indicating a mounting buying pressure but the fact that it remains below 50 means that the selling pressure still dominates. The Moving Average Convergence Divergence (MACD) has turned green, confirming the bullish momentum.

The overall technical outlook for the NZD/USD remains neutral. The bulls have managed to break above a key resistance level, and the technical indicators are now turning in their favor. If the pair manages to hold above the 0.5950 support level, it could continue its upward trajectory toward the 0.6000 level where the 20-day Simple Moving Average (SMA) converges. A break above this level would confirm but if bulls fail, the selling pressure might resume. 

NZD/USD Daily chart

• Silver price drops below $27.00, closing lower for the second consecutive day.
• Bearish momentum with key support at $26.00 and possible 200-DMA test at $26.04.
• Resistances to monitor: $27.00, $28.00, 100-DMA at $28.69, with further at $29.00 and 50-DMA at $29.63.

Silver price dropped some 0.99% on Tuesday and achieved a daily close below $27.00 for the second straight day, which could exacerbate further losses. The grey metal remains pressured by high US yields and a stronger US Dollar but remains boosted by rising tensions in the Middle East. Hence, the XAG/USD trades at $26.97 after hitting a daily high of $27.56.

XAG/USD Price Forecast: Technical outlook

Silver is neutral to downward biased after sliding below the 100-day moving average (DMA), which turned resistance at $28.59. Momentum is bearish as depicted by the Relative Strength Index (RSI), which falls steeply toward oversold conditions. Hence, the XAG/USD could test the 200-DMA at $26.04 in the short term.

In that outcome, Silver’s next support would be $26.00, the March 27 low at $24.33, and the February 28 low at $22.28. Conversely, the XAG/USD first resistance would be $27.00, If buyers reclaim the latter, the next resistance would be  $28.00, followed by the 100-DMA at $28.69. A breach of the latter will expose $29.00, followed by the 50-DMA at $29.63.

XAG/USD Price Action – Daily Chart

• Gold price dips below $2,400, trading at $2,389, extending losses for the second consecutive day.
• Rising US Treasury yields and a stronger US Dollar weigh on bullion prices.
• Geopolitical tensions in the Middle East, with Hezbollah attacks on northern Israel, could support Gold as a safe haven.

Gold price dropped below $2,400 on Tuesday, extending its losses for the second consecutive day as US Treasury yields rose amid an improvement in market mood. Rising tensions in the Middle East capped losses in the golden metal. At the time of writing, the XAU/USD trades at $2,389, down by 0.82%.

The recovery in the financial markets resumed on Tuesday, as the Nikkei recovered and closed 10% above its opening price, following Monday’s 12% plunge. Therefore, European and US equity indices posted solid gains.

Aside from this, the Greenback remains bid, a headwind for Bullion prices. The US Dollar Index (DXY), which tracks the buck’s performance against six currencies, rose 0.30% to 102.97.

Another reason for the drop in the non-yielding metal is elevated US yields. The US 10-year benchmark note coupon climbed ten basis points (bps) to 3.892%, even though traders are bracing for a 50-bps interest rate cut by the Federal Reserve at the upcoming September meeting.

Nevertheless, geopolitical woes loom after Hezbollah launched attacks on northern Israel. A conflict escalation could bolster Gold’s prospects and even pave the way for reclaiming $2,400.

On the central bank space, Federal Reserve policymakers led by San Francisco Fed Mary Daly said the dual mandate risks had come into balance and that they’re open to lower borrowing costs in coming meetings.

Daily digest market movers: Gold price on the defensive amid risk-on mood

• Worries of a US recession had faded, shown by market mood. Despite this, traders expect the Federal Reserve (Fed) will cut interest rates by 50 basis points at the September meeting.
• Market players found some relief following the ISM Services PMI release, which revealed the economy continues to expand at a healthier pace following a dismal ISM Manufacturing PMI report and a dismal US jobs report.
• A deteriorated market mood would continue influencing traders as fears of a US recession ignited a sell-off among the largest stock market indices.
• The Fed decided to hold rates unchanged last week but indicated that favorable data on inflation and further weakening in the labor market could prompt action.
• The CME FedWatch tool shows the odds for a 50 bps Fed rate cut at the September meeting were lowered from 85% on Monday to 69.5%.

Technical analysis: Gold price slumps and hovers around $2,360

Gold price slipping below $2,400 could pave the way for a break below key support levels, dragging prices towards the May 3 low of $2,277. Momentum shifted aggressively bearishly, as depicted by the Relative Strength Index (RSI).

If XAU/USD drops below the 50-day Simple Moving Average (SMA) at $2,366, this would exacerbate a drop to the 100-day SMA At 2342, followed by a support trendline around $2,316. Once cleared, the next support would be $2,300

Conversely, if buyers reclaim $2,400, the next resistance would be the psychological $2,450 mark. A breach of the latter will expose the August 2 peak at $2,477. Followed by the all-time high at $2,483 ahead of $2,500.

• The AUD/JPY bears remain in control despite Tuesday's gap-up.
• The pair gained significant ground but faced firm resistance at 94.50.
• The RSI and MACD indicate bearish momentum is waning.

On Tuesday's session, the AUD/JPY pair gapped up by 1.20% to 94.70, recovering some of the losses seen in the previous sessions. However, the pair seems to have entered in a consolidation period, and the bears remain in control.

The Relative Strength Index (RSI) is currently at 18, indicating an oversold condition. The Moving Average Convergence Divergence (MACD) is showing decreasing red bars, and the recovery of the RSI indicates a loss of bearish momentum.

AUD/JPY daily chart

The AUD/JPY pair is currently trading below its 20,100, and 200-day Simple Moving Averages (SMA), which confirms an overall bearish outlook. A break below the 94.60 level could open the door to a further decline, with the next major support level at 94.00. On the upside, the pair faces resistance at 94.50 - 95.50. A break above might improve somewhat the negative outlook.

• AUD got some momentum after RBA’s hawkish hold.
• Governor Lowe confirmed that the bank has no rush on rate cuts.
• Markets are now pricing in a 25 bps cut by year-end.

The AUD/USD pair is trading around 0.6500, up around 0.30% on the day. The Australian Dollar is benefiting from the Reserve Bank of Australia (RBA) hawkish hold. The RBA left its policy rate unchanged as expected on Tuesday, but Governor Philip Lowe said that no rate cut is on the table in the near term. This has helped to support the Australian Dollar, as it suggests that the RBA is not as dovish as some had expected.

Despite continuous high inflation rates, the data now presents considerable weaknesses in the Australian economy. This revelation has altered market expectations from anticipating a probable RBA rate hike to now considering a rate cut by the year-end.

Market Movers Daily Digest: AUD shows resilience as markets react to RBA's hawkish hold

• The Reserve Bank of Australia distinctly announced its decision to maintain the rates at 4.35%, emphasizing that "the Board is not ruling anything in or out."
• The RBA also stressed the necessity to stay alert for potential inflation risks.
• Notably, updated macro forecasts predict inflation will persist longer, with trimmed mean and headline CPI inflation anticipated to approach the midpoint of the 2-3% band by December 2026 as compared to the June 2026 forecasts in the earlier May forecasts.
• Dovish bets backed away, and markets are now only pricing in 25 bps of RBA easing in 2024.

AUD/USD technical analysis: Bearish sentiment persists, deceleration noted

The AUD/USD pair demonstrated continued fluctuations close to the 0.6500 level. The pair occasionally reflected resistance to the 0.6550 level and support at 0.6400. The trading volume remained steady in recent sessions, possibly indicating conservatism among the investors.

The Relative Strength Index (RSI) signals a consistent bearish momentum with readings ranging from 25 to 41 across the past few sessions. Concurrently, the Moving Average Convergence Divergence (MACD) depicted fewer red bars, hinting at a slow retraction in selling pressure. Therefore, investors need to closely monitor the mentioned support and resistance levels for a potential shift in momentum.

The Greenback managed to regain some composure and partially reverse steep losses recorded in the last couple of days, while stocks worldwide rebounded on the back of shrinking pessimism among market participants. The RBA kept the OCR unchanged, as expected, although it came up with a hawkish message.

Here is what you need to know on Wednesday, August 7:

The USD Index (DXY) rose around a big figure from Monday’s sharp pullback to the 102.00 region, helped by renewed sentiment and the marked bounce in US yields. On August 7, weekly Mortgage Applications tracked by MBA are due, seconded by the EIA’s report on US crude oil inventories.

EUR/USD came under pressure and set aside two sessions in a row of gains, including a move beyond the psychological 1.1000 hurdle. Germany’s Balance of Trade results will only be published on the domestic docket on August 7.

Extra weakness saw GBP/USD add to Monday’s losses and retreated to five-week lows near the 1.2670 region. The UK calendar is empty on August 7.

USD/JPY climbed beyond 146.00 and reversed a multi-day pullback amidst some renewed selling pressure hitting the yen. The preliminary Coincident Index and Leading Economic Index will be published on August 7.

After bottoming out in YTD lows near 0.6350 on Monday, AUD/USD regained some upside traction and reclaimed the area north of the 0.6500 barrier underpinned by another hawkish hold by the RBA. The Ai Group Industry Index is only due in Oz on August 7.

Chinese demand jitters weighed on traders’ sentiment once again, keeping WTI prices depressed around $73.00 amidst the ongoing multi-day bearish leg.

Gold prices retreated further and retested the $2,380 mark per ounce troy in response to the marked rebound in the dollar and higher US yields. Silver prices added to Monday’s retracement and approached recent lows near $26.50 per ounce.

• Mexican Peso trades near lows of the day, USD/MXN above 19.30.
• Weak Mexican auto production and export data highlight economic slowdown, influencing market sentiment.
• Banxico may consider lowering borrowing costs at the August 8 meeting due to slower growth and lower inflation.

The Mexican Peso extended its daily losing streak to four against the Greenback. It remained above the psychological 19.00 figure for the third straight day after the exotic pair breached the previous year-to-date (YTD) high of 18.99. A light economic docket on both sides of the border keeps the Peso adrift to market mood dynamics. The USD/MXN trades at 19.37, climbing some 0.26%

Risk appetite improved, yet the Peso failed to gain traction. Nevertheless, geopolitical risks could shift sentiment sour and spark a flock to safety, weakening most emerging market currencies against the US Dollar.

Auto Production in Mexico grew slower than in June, while Auto Exports plunged. This underscores the ongoing economic slowdown, which coupled with lower inflation readings can allow the Bank of Mexico (Banxico) to lower borrowing costs at the upcoming meeting on August 8.

In the US, the latest Institute for Supply Management (ISM) Services PMI exceeded estimates, hinting that the economy remains solid amid the dip in manufacturing activity, as reported by the ISM last Thursday.

The data calmed US recessionary woes as market players now expect just 110 basis points (bps) of monetary policy easing by the Federal Reserve (Fed) in 2024, compared to 150 bps a day ago.

Earlier, the US Balance of Trade posted a narrower deficit than last month, yet it missed the mark.

Daily digest market movers: Mexican Peso on the backfoot despite market mood improvement

• The Instituto Nacional de Estadistica Geografía e Informatica (INEGI) revealed that Auto Production in July rose 2.7% MoM, down from 3.8% in June. Auto Exports sank from 1.5% in June to -1.6% MoM.
• On Thursday, Mexico’s inflation is expected to rise from 4.98% to 5.57% YoY, while underlying figures are foreseen to dip from 4.13% to 4.02% YoY.
• The US Bureau of Economic Analysis (BEA) featured July’s Balance of Trade, which came at $-73.1 billion, down from $-75 billion, but missed the consensus of $-72.5 billion.
• US Exports and Imports grew from $262 billion to $265.9 billion and from $337 billion to $339 billion, respectively.
• Monday’s ISM Services PMI improvement from July faded fears that the US economy might hit a hard landing instead of a soft landing.
• The CME FedWatch Tool shows the odds of a 50-basis-point interest rate cut by the Fed at the September meeting at 86.5%, up from 74% last Friday.

Technical analysis: Mexican Peso depreciates sharply as USD/MXN rises above 19.30

The USD/MXN uptrend remains intact once it crosses the 19.00 psychological figure, opening the door for further upside. Momentum favors buyers, as depicted by the Relative Strength Index (RSI), which is bullish at overbought territory. Although this could pave the way for a pullback, once RSI normalizes, the trend could resume upwards.

The first resistance would be the psychological 19.50 mark. Once cleared, the next stop would be the 20.00 mark, followed by the current YTD high at 20.22.

Conversely, the USD/MXN first support would be the 19.00 mark. A breach of the latter will expose the August 1 swing low of 18.42, followed by the 50-day Simple Moving Average (SMA) at 18.17.

• The Canadian Dollar gave a lopsided performance on Tuesday.
• Canada labor figures loom ahead on Friday, but data prints remain limited until then.
• After a recovery in market sentiment, the wait for Fed rate cuts continues.

The Canadian Dollar (CAD) gave a mixed performance on Tuesday, rising and falling mostly in step with the broader FX market. The CAD gained ground against the floundering Pound Sterling and eased lower against the recovering Japanese Yen.

Economic data from Canada remains thin through the trading week until Friday’s Canadian labor data dump.  CAD traders can expect the Canadian Dollar to continue drifting along with broader market flows in the meantime as investors continue to keep focus hinged on hopes for rate cuts from the Federal Reserve (Fed) in September.

Daily digest market movers: CAD cruises along market lines

• Risk appetite recovered its balance on Tuesday after several days of panicked risk-off flows.
• A flash of investor hope for an “emergency rate cut” from the Fed fizzled after markets took a second look at recent data prints.
• Tuesday’s economic calendar is strictly low-tier, leaving the Canadian Dollar to drift along with the broader market.
• Bank of Canada (BoC) Summary of Deliberations is slated for release on Wednesday, but is not expected to deliver anything new.
• July’s Canadian Unemployment Rate expected to tick higher to 6.5% from 6.4% on Friday.

Canadian Dollar technical outlook: USD/CAD heads back below 1.3800

The Canadian Dollar (CAD) rose a steep nine-tenths of one percent against the battered Pound Sterling on Tuesday as the GBP was pummeled across the board, while easing back one-fifth of one percent against the day’s top-performing currency, the Japanese Yen. The Canadian Dollar regained its footing and climbed one-fifth of one percent against the US Dollar as the Greenback eased.

USD/CAD slipped back below 1.3800 on Tuesday, easing back after the pair testing into a fresh peak for 2024 just shy of 1.3950. Price action is falling back into a familiar range, but an uptick in bearish momentum has yet to drag the pair back below near-term technical levels at the 50-day Exponential Moving Average (EMA) at 1.3730.

USD/CAD daily chart

• The Dow Jones is looking for a foothold after a broad-market downturn.
• Equities are widely higher on Tuesday, but still at the bottom of a long hole.
• Investors continue to pine for Fed rate cuts, but “emergency cut” appears off the table.

The Dow Jones Industrial Average (DJIA) recovered ground on Tuesday, rallying close to 500 points after the index spent several days facing steep declines. Investors are recovering their balance after a broad downturn in key US economic data sent risk sentiment into the gutter and reignited broad-market fears of a recession within the US.

Markets have regained their composure after sending the Dow Jones for a 7% backslide from last week’s peak near 41,200.00, but Dow Jones bidders will have their work cut out for them to get price action back into the high end. The flow of US economic data has eased for the time being, but hopes for rate cuts from the Federal Reserve (Fed) continue to simmer in the background.

Rate markets have fully priced in a September rate cut, and according to the CME’s FedWatch Tool, investors see two-to-one odds of a double cut for 50 basis points when the Federal Open Market Committee (FOMC) delivers its rate call on September 18. At the current cut, rate markets see zero chance of the Fed holding rates steady anymore in 2024, with a total of four quarter-point cuts expected by the end of the year.

Dow Jones news

A majority of the Dow Jones index is in the green on Tuesday, with less than a third of its constituent securities holding stubbornly in the red. Losses are being led by Intel Corp. (INTC), who recently missed revenue estimates and reduced its forward guidance on 3rd quarter earnings. Citing slim margins and difficult profitability, Intel revenues fell by 1% to a total of $12.8 billion in the second quarter, missing analyst forecasts by $150 million. 

Upon revealing the decline in revenues and missed forecast, Intel announced they would be suspending a December dividend payout and laying off around 10% of their workforce, or around 15,000 people. This comes after Intel received upwards of $8.5 billion dollars of government grants earlier in the year, with the potential for another $11 billion in further grants down the line.

Dow Jones technical outlook

The Dow Jones successfully staved off further declines as broad-market sentiment recovers its footing, keep the index above the 200-day Exponential Moving Average (EMA) at 37,934.50. However, the DJIA remains well off of all-time highs set in July at 41,371.38 and buyers have a long climb back into record peaks.

The 50-day EMA lies in wait above intraday price action at 39,632.50, while bidders will be looking to keep prices bolstered above the 38,500.00 level after Monday’s technical bounce from the price level.

Dow Jones daily chart

• After a shaky Monday, the USD recovered, and Tuesday is unlikely to see much movement.
• Amid renewed market sentiment, US Dollar (DXY) gains and remains near the 103.00 mark.
• The market is pricing in a 100 bps rate cut by year-end.

On Tuesday, the US Dollar (USD), measured by the DXY Index, is capitalizing on recent recovery gains near the 103.00 mark subsequent to an improvement in market sentiment. In addition, caution due to absent news about the Middle Eastern conflict between Iran and Israel is also backing the Dollar's current position. However, the Greenback's trajectory throughout the day could potentially be limited by the high dovish bets on the Federal Reserve (Fed).

Markets are seeing that the US economic outlook is weak due to July’s soft data and seem to be fearing a recession, while officials are asking the public not to overreact to one data point.

Daily digest market movers: USD upside limited as markets price in 100 bps Fed easing by year-end

• Despite the USD gains, its potential is limited by the steady dovish bets on the Fed.
• Market anticipates a rate cut in September, leading to subsequent USD weakening.
• In addition, market is pricing in a 100 bps rate cut by year-end, with some odds of an additional 25 bps.
• Over 200 bps of total easing is priced in for the coming year, barring a deep US recession.
• Market anxiously awaiting incoming data to assess Fed easing narrative.

DXY technical outlook: Bulls step in, but bears still command

On the technical side, the DXY outlook turned bearish after a sharp decline in the Relative Strength Index (RSI), which fell into oversold territory in the last few trading sessions but seemed to recover on Tuesday. However, the outlook remains bearish, with the index still trading below the 20, 100 and 200-day Simple Moving Averages (SMAs).

Supports: 102.50, 102.20, 102.00

Resistances: 103.00, 103.50, 104.00

• EUR/GBP continues to challenge 0.8600 as markets pull back from GBP.
• BoE rate cuts and social unrest weigh on Pound Sterling sentiment.
• Race to the bottom as both currencies underperform following bad EU Retail Sales.

EUR/GBP is in a race to the bottom, with the Pound Sterling winning handily as the pair gets bolstered back into 13-week highs despite a misprint in European Retail Sales figures. Market positioning in the Pound Sterling is still heavily-weighted towards buyers, and market flows are rebalancing out of the GBP with the Bank of England (BoE) racing into a cutting cycle.

The Pound Sterling is seeing a steady decline after the BoE trimmed interest rates to 5.0% from 5.25% recently, sparking outflows from broad-market positioning that was previously heavily-weighted in favor of the GBP. With social unrest throughout the UK over the weekend and into the new week, investors are leery about the economic outlook for the kingdom, investors are paring back bullish bets on the Pound Sterling and waiting for signs of stabilization and a better read on how many more time the BoE will cut in 2024.

On the European side, pan-EU Retail Sales contracted -0.3% YoY in June, entirely missing the forecast 0.1% and falling from the previous period’s revised 0.5%. Despite bad data knocking the Euro broadly lower, EUR/GBP is still rallying into multi-month highs as the Pound Sterling drops faster than markets can short the Euro.

EUR/GBP technical outlook

EUR/GBP has climbed back over 0.8600 for the second time in two days, and daily candlesticks are poised for an extended break of the 200-day Exponential Moving Average (EMA) at 0.8545. The pair is on pace to chalk in a fourth straight daily gain, and bidders will be looking to recapture the 0.8650, a price point the pair hasn’t seen since a tumble in January.

EUR/GBP daily chart

• GBP/USD hits a new five-week low of 1.2672 before rebounding above 1.2700.
• Technical outlook: Bearish momentum with first support at 1.2700, followed by 100-DMA at 1.2683 and 200-DMA at 1.2648.
• For bullish reversal, GBP/USD needs to surpass 50-DMA at 1.2783, targeting 1.2800 and 1.2900.

On Tuesday, the Pound Sterling prolonged its agony and extended its losses against the Greenback. Although sentiment has improved following Monday's stock riot, the buck remains bid, as shown by the GBP/USD pair, which trades at 1.2709, down by 0.49%.

GBP/USD Price Forecast: Technical outlook

During the trading session, the GBP/USD tested the 100-day moving average (DMA) At 1.2683 and dipped to a new five-week low of 1.2672, but buyers emerged and lifted the exchange rate above 1.2700. Despite this, momentum favors sellers, as depicted in the Relative Strength Index (RSI), standing bearish.

With the path of least resistance being tilted to the downside, the GBP/USD first support would be 1.2700. Once surpassed, the pair will test the 100-DMA at 1.2683, followed by the 200-DMA at 1.2648. On further weakness, the pair could challenge the 1.2600 figure.

Conversely, if the GBP/USD climbs above the 50-DMA at 1.2783, that would exacerbate a rally past 1.2800 and expose the 1.2900 figure.

GBP/USD Price Action – Daily Chart

• AUD/USD rises slightly to near 0.6500 as the RBA delivers a hawkish interest rate guidance.
• The near-term outlook of the US Dollar remains uncertain on firm Fed rate-cut prospects.
• Investors see the Fed reducing interest rates by 50 bps in September.

The AUD/USD pair gains slightly to near the psychological figure of 0.6500 in Tuesday’s New York session. The Aussie asset moves higher despite a sharp recovery in the US Dollar (USD), suggesting sheer strength in the Australian Dollar (RBA) in the aftermath of monetary policy announcement by the Reserve Bank of Australia (RBA).

The RBA left its Official Cash Rate (OCR) unchanged at 4.35% for the sixth time in a row, as expected. However, the RBA delivered hawkish guidance on interest rates as price pressures are significantly higher than bank’s target of 2%. The Australian Consumer Price Index (CPI) accelerated to 3.8% in the second quarter on an annualized basis.

In the monetary policy statement, the RBA said, “Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range. Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out,” Reuters reported.

Meanwhile, the US Dollar moves higher but the near-term outlook remains uncertain. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to near 103.00. Growing speculation that the Federal Reserve (Fed) will pursue an aggressive policy-easing stance could dampen the US Dollar’s recovery.

Currently, financial markets expect that the Fed will cut its key borrowing rates by 50 basis points (bps) to 4.75%-5.00% in the September meeting. The Fed is also expected to reduce interest rates by more than 100 bps this year.

OPEC+ retains its plan to revive production starting October. Chinese lower than expected demand in the second half of 2024 have put downward pressures on prices. However, the geopolitical premium following the resurgence of tensions in the Middle-East is keeping prices in check. Our outlook for Brent is to average 85 $/b in Q3 and Q4 as the economic recovery in main markets takes more time to gain momentum, ABN AMRO senior energy economist Moutaz Altaghlibi notes.

OPEC+ may revisit plans to revive production in September

“Brent prices averaged 83.9 $/b in July after the short lived recovery in June reversed as the market priced-in several development such as the potential revive of production by OPEC+ in October, the lower expected demand from China for the second half of 2024, and the higher supply by non-OPEC+ producers. Brent prices are currently trading around 76 $/b.”

“From the supply side, as communicated in our last update, OPEC+ announced a phasing out of their voluntary cuts over one year starting in October 2024. The cartel emphasized that the increase in production is subject to market conditions. From the demand side, there are no signs of strong recovery from main markets yet. Data on crude demand from China in the first half of the year was lower than expected.”

“If the Middle-East tensions subdued in the coming days/weeks, we think that cc to maintain prices above 80 $/b. We retain our outlook for Brent for the third quarter of 2024 to average 85 $/b. However, we revisit our end of year price downward from 90 to 85 $/b as the expected recovery in economic activity in main markets moves towards 2025.”

Systematic flows in Gold markets have remained relatively muted, in contrast to the large-scale selling activity that has hit the tapes in the remainder of the commodities complex, TDS Senior Commodity Strategist Daniel Ghali notes.

Shanghai traders liquidate their length from near-record levels

“However, a revisit of the $2400/oz range could spark the first notable selling program from CTAs, the impact of which could potentially be exacerbated by a liquidity vacuum. We see few offsets to downside flows in the Yellow Metal for the time being, amid evidence that macro fund positioning is not only bloated but is now tapped out.”

“Shanghai traders have finally begun to notably liquidate their length from near-record levels and Asia remains on a buyer's strike in physical markets. After all, Shanghai trader positioning was likely related to a currency-depreciation hedge, the driver of which has significantly deteriorated with Asian currencies notably strengthening over the last weeks.”

“The implications of a deleveraging event could be significant in Gold markets, which places our attention on a potential bounce in yields as a possible catalyst for large-scale mechanical selling activity from risk parity and vol-control funds, CTAs, macro funds and Shanghai traders.”

Analyzing the cross-section of commodities returns points to an extreme repricing in demand sentiment over the course of the summer, which has clearly been more significant than the recent deterioration in macro data, TDS senior commodity strategist Daniel Ghali notes.

More upside momentum in the cards

“Dramatic flows have likely exacerbated price action and correlations across markets, suggesting the quantitative read of demand sentiment may also be tinted by the one-way selling activity across all commodities, explaining the overshoot relative to macro growth data.”

“Still, we see risks that selling activity will not yet abate, with continued CTA selling expected in Copper and Zinc markets, potentially exacerbated by the acute risk of deleveraging flows. Market pricing in energy markets is also pointing to some dislocations, with energy supply risk premia disregarding the substantial and imminent geopolitical risk associated with Iran.”

“An escalation in the conflict can now asymmetrically lead to more upside momentum with CTA short positions now well populated.”

• USD/CAD rebounds from 1.3800 amid sharp recovery in the US Dollar.
• The Fed is expected to deliver a 50 bp rate cut in September.
• This week, investors will focus on the Canadian Employment data.

The USD/CAD pair bounces back from intraday low of 1.3793 to near 1.3856 in Tuesday’s North American session. The Loonie asset recovers as the US Dollar (USD) gains despite growing speculation that rate cuts from the Federal Reserve (Fed) will be sizeable.

An asset-specific action has been observed in global markets as United States (US) equities have rebounded, while risk-sensitive currencies continue to face a sell-off. S&P 500 futures have posted decent gains in the early American session. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps slightly above 103.00. 10-year US Treasury yields jump to near 3.83%.

While the near-term outlook of the US Dollar remains uncertain on fears of potential US slowdown amid cooling labor market conditions. The US labor market struggles to bear the heat of Fed’s almost three-year long restrictive policy framework.

This has prompted expectations that the Fed will cut interest rates sooner rather than later. According to the CME FedWatch tool, a 50-basis point (bp) rate cut in September appears imminent.

Meanwhile, a slight upside in the Loonie asset and a sharp recovery in the US Dollar suggests that the Canadian Dollar is not significantly weak against other currencies. This week, investors will focus on Canada’s Employment data for July, which will be published on Friday. The Employment report is expected to show that the labor demand witnessed a fresh addition of 22.5K workers after noting a lay-off in June. The Unemployment Rate is expected to increase further to 6.5% from the prior release of 6.4%.

UK Construction PMI data rose strongly in July, reaching 55.3, from 52.2 in June, Scotiabank’s FX strategist Shaun Osborne notes.

Bears push to test the 1.2610/15 area

“The July result was the strongest in more than two years. The data had little impact on the Pound Sterling (GBP) which is the weakest-performing currency among the core majors so far today. At the margin, images of widespread social unrest across the UK over the past week could be weighing on sentiment.”

“Sterling was somewhat immune from yesterday’s volatility, with the uptick in the GBP seen intraday leaving the trend decline in spot since the middle of June uninterrupted. Losses are extending this morning, with the GBP pushing under mild support at 1.2700/10 at writing. A retest of the late June lows around 1.2610/15 looks likely at this rate. Resistance is 1.2840/50.”

Spot has drifted close to a cent from Monday’s peak around the 1.10 point, Scotiabank’s FX strategist Shaun Osborne notes.

Firmer support for the EUR is at 1.0850/60

“Although yesterday’s spot price action was driven by broader market volatility than fundamental developments, a 1.10 handle for the EUR does look fundamentally justifiable, considering the improvement in short-term yield differentials in the EUR’s favour in recent weeks.”

“Spreads are still onerous at -160bps at the 2Y sector of the curve but that compares to levels near –200bps in April. EUR/USD fair value sits just under 1.11 (1.1094), according to our estimate today.”

“Intraday price action looks a little soft for the EUR as the market corrects from yesterday’s intraday peak. Corrective losses may extend below 1.09 but firmer support for the EUR should emerge on dips to 1.0850/60. Resistance is 1.1075.”

The Canadian Dollar (CAD) was all too easily pushed around by the weakness in global stocks yesterday, falling through 1.39 briefly in Asian trade Monday before slowly regaining ground in thin North American trade, Scotiabank’s FX strategist Shaun Osborne notes.

A break below 1.3790 to make CAD positive

“Despite weaker stocks and soft commodity prices, the softness in the CAD is looking stretched on our fair value model. Spot is close to 1 standard deviation above its estimated equilibrium (1.3730) which should imply limited scope for USD gains intraday, all else equal.”

“It may take a little time to fully assess the lasting impact of price action over the past few sessions. But on the technical face of it, yesterday’s USD rally through 1.39, failure and lower close on the day should represent a major technical turn in USD/CAD’s fortunes.”

“The USD had been looking toppy anyway and oscillator signals were warning that the USD’s move higher was overextended. Yesterday’s price action has the characteristics of a ‘blowoff top’. Support is 1.3790; a move below here should allow the CAD to pick up more support.”

• The US Dollar is recovering from Monday’s meltdown and advances against the Japanese Yen. 
• Overnight, the RBA confirmed the Fed’s stance that a few data points are not enough to change the narrative.  
• The US Dollar index flirts with a break above 103.00 and could turn this week’s performance into positive territory. 

The US Dollar (USD) recovers firmly on Tuesday, with the Greenback sprinting higher against the Japanese Yen (JPY). The turnaround was already triggered in the US trading session on Monday when President of the Federal Reserve Bank of Chicago, Austan Goolsbee, tried to soothe markets by saying that a few easing data points are not enough to open the debate on a recession. Royal Bank of Australia (RBA) president Michelle Bullock joined that thesis and even added that another rate hike is not off the table, while the RBA decided to keep its interest rate unchanged during its August meeting earlier on the day. 

On the economic front, the main point for this week is already out of the way. The Institute for Supply Management (ISM) data was released on Monday and helped spark the turnaround in the Dollar’s appeal as the ISM Service Purchasing Managers Index (PMI) expanded at a faster pace than expected. The main theme on Tuesday is the US Trade Balance data for June. Nothing really market moving expected from this. 

Daily digest market movers: Back to normal programming

• Markets are recovering from Monday’s route, and equities move higher across the board. The Greenback is outpacing the Japanese Yen by over 1% in the European trading session.
• US Vice President Kamala Harris has been formally nominated as the Democratic candidate for the upcoming Presidential elections in November. 
• At 12:30 GMT, the US Goods and Trade Balance data for June will be released:
• Goods and Services Trade Balance deficit seen heading from $75.1 billion to a smaller $72.4 billion. 
• Goods Trade Balance deficit was at $96.8 billion in May, though no forecast is available for June. 
• At 14:00 GMT, the TechnoMetrica Institute of Policy and Politics (TIPP) will release its monthly Economic Optimism Survey for August. The previous reading was at 44.2, with an increase to 45 forecasted for August.
• The US Treasury is heading to markets to sell 52-week bills and allocate 3-year notes at sharply lower rates than previously. 
• Equity markets are jumping higher, with the Japanese Nikkei and Topix closing Tuesday with 10% gains each. Europe is trading solidly in positive territory. In theUS futures market, the Nasdaq leads the recovery, rising by nearly 2% in the day.
• The CME Fedwatch Tool shows a 73.5% chance of a 50 basis points (bps) interest rate cut by the Federal Reserve in September.  Another 25 bps cut is expected in November by 54.5%, while a 29.7% chance for a 50 bps cut and 15.8% for no cut at all are being pencilled in for that meeting. 
• The US 10-year benchmark rate trades at a new 52-week low at 3.86%, shooting higher as investors flee away from bonds and back into equities.   

US Dollar Index Technical Analysis: Make way for the King!

The US Dollar Index (DXY) is recovering, and it could turn into a very profitable week for the Greenback. Many investors and experienced traders will have used Monday’s route to do some bargain hunting and used the momentum to go against the tide as a recession in the US is clearly not in focus. With a very light US data calendar ahead, the risk for any underperforming data looks limited, which means that the DXY has room to rally back to July levels.  

The three-tiered recovery is already in play, with the first up at 103.18, a level held on Friday though snapped on Monday in the Asian hours. Once the DXY closes above that level, next up is 104.00, which was the support from June. If the DXY can make its way back above that level, the 200-day Simple Moving Average (SMA) at 104.22 is the next resistance level to look out for. 

On the downside, the oversold Relative Strength Index (RSI) indicator should prevent the DXY from making more hefty losses. Support nearby is the March 8 low at 102.35. Once through there, pressure will start to build on 102.00 as a big psychological figure before testing 101.90, which was a pivotal level in December 2023 and January 2024.

US Dollar Index: Daily Chart

Our CEE region currency preference yesterday held up in the current messy conditions, and we want to keep it that way, being bullish on CZK, neutral on HUF and bearish on PLN, ING’s FX strategist Frantisek Taborsky notes.

A higher EUR/USD to be positive for CEE

“Yesterday's reversal of core rates at the end of the day brings rather more uncertainty to the CEE market, given that local rates don't have much chance to find solid ground. But if anything, we see PLN rates reacting most to the core move, leading to further narrowing of the rate differential. This should keep PLN under pressure, which is also weighed down by the most long positioning within the CEE region.”

“Moreover, we have no data in Poland this week and we also don’t have an NBP meeting this month, and that's mostly supportive of PLN. On the other hand, EUR/CZK touched 25.250 yesterday and CZK shows the most resistance to the global move.”

“This morning we have retail sales data in Hungary and industrial production in the Czech Republic, but the focus will still be on the global story that dominates the markets. The positive here, though, is a higher EUR/USD, which should keep the CEE region at safer limits overall and prevent a bigger sell-off.”

The Reserve Bank of Australia kept rates on hold this morning, as widely anticipated. The statement, economic projections, and press conference all pointed to a hawkish stance given sticky inflation, ING’s FX strategist Francesco Pesole notes.

A return to 0.67+ remains possible before the US election

“The RBA now expects core inflation to stay above 3% for most of next year and only reach the 2.5% target in 2026, and it is not ruling anything in or out in terms of policy decisions. Governor Michele Bullock said that pricing a rate cut in the next six months does not align with the board’s thinking, effectively and explicitly pushing back against current bets for 25bp currently in the curve.”

“She also insisted in the RBA’s independence from any easing pressure coming from peer central banks. All in all, the RBA did not sound worried enough about inflation to suggest another rate hike is on its way, but equally seemed quite uncomfortable with dovish market pricing and probably the big rally in AUD bonds.”

“We are seeing the Aussie dollar doing well against G10 peers this morning, in line with our call. Indeed, a rebounding USD can curb an AUD/USD rally in the very near term, but we expect Bullock’s hawkish statement to set the base for an AUD/USD rally once equity volatility abates. A return to 0.67+ remains possible before the US election.”

EUR/USD briefly printed above 1.10 on Monday on the back of the huge Fed easing repricing. As mentioned above, the dollar may recover a bit more ground today, ING’s FX strategist Francesco Pesole notes.

EUR/USD to trade above 1.10 in short term

“EUR/USD briefly printed above 1.10 yesterday on the back of the huge Fed easing repricing. As mentioned above, the dollar may recover a bit more ground today, and we could see EUR/USD slip back to the 1.090 mark.”

“The 2-year EUR:USD swap rate differential is now -100bp after having touched -71bp yesterday. This is huge volatility, but also follows a tightening trend in the spread that started in April (when it was at -160bp). Our short-term models indicate EUR/USD should be trading above 1.10 even if that spread rewidens by another 20bp in favour of the dollar.”

“In the rest of Europe, NOK should lead the pack in an equity rebound after taking the hit yesterday due to its low liquidity character. We would expect SEK to lag NOK due to lower beta-to-risk sentiment and speculation on a 50bp cut by the Riksbank on 20 August.”

Japanese stocks have rebounded some 7% after the recent collapse, and stock futures in Europe and the US are also pointing to a strong open later today. But yesterday’s price action told us something interesting about the equity-FX link, ING’s FX strategist Francesco Pesole notes.

The USD should head lower once stock markets stabilize

“The key takeaway at this stage is that the US Dollar (USD) has lost its safe-haven appeal. That is because soft US data was behind the market turmoil, and investors are not reluctant to price in aggressive Fed easing as a reaction, which is a USD negative and highly favours the other safe-havens JPY and CHF. The bet here was that Fed Chair Jerome Powell would react to an equity selloff.”

“After all, Austan Goolsbee said that the Fed won’t overreact to one soft jobs print, the ISM service rebounded above 50 yesterday, and there are explicit concerns about the inflation trajectory at the Fed. All this may not be entirely consistent with the 111bp of easing priced into the USD curve by year-end. The question is perhaps whether Powell has a line in the sand for the stock market after which it would deliver an off-meeting rate cut.”

“Once stock markets ultimately stabilise – and barring an inflation surprise next week – the USD should head lower, in our view. The repricing lower in the Fed terminal rate now means that the USD’s rate advantage has been trimmed and there is room for pro-cyclical currencies to readjust higher versus USD on the back of more favourable rate differentials.”

• USD/JPY faces pressure after recovering to near 146.40 amid firm Yen’s safe-haven appeal.
• Fears of global slowdown and a higher-than-expected BoJ rate hike have strengthened the Japanese Yen.
• The Fed is see reducing its key rates by 50 bps in September.

The USD/JPY pair faces pressure in an attempt to extend recovery above the intraday resistance of 146.40 in Tuesday’s European session. The asset struggles to extend its recovery due to the firm appeal of the Japanese Yen (JPY) as a safe haven.

Earlier, the major discovered buying interest after a five-day losing spell as the US Dollar (USD) bounced back from a fresh six-month low. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to near 103.00. Meanwhile, the Japanese Yen has also posted a fresh seven-month low at 141.70 against the US Dollar.

The appeal of the Yen as a safe haven has significantly improved due to fears of a global slowdown. Fears of a potential United States (US) slowdown have deepened as its labor market demand has slowed significantly. Also, the US Unemployment Rate has risen to 4.3%, which is the highest since November 2021.

Potential US economic vulnerability has also prompted expectations of bulk rate cuts by the Federal Reserve (Fed). According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that traders see a 50-basis point (bp) cut in interest rates in September as imminent.

Meanwhile, the Bank of Japan's (BoJ) larger-than-expected rate hike has also improved the Yen’s outlook. Last week, the BoJ raised its key interest rates by 15 bps and adjusted them to a range of 0.15%- 0.25%. Furthermore, the central bank announced tapering of monthly purchases of Japanese government bonds (JGBs) to ¥3 trillion, with effect from the first quarter of 2026.

• EUR/USD eases on Tuesday after it briefly peaked above 1.10 on Monday. 
• Markets are digesting Monday’s market rout after the Japanese indices meltdown. 
• Monthly Germany’s Factory Orders unexpectedly surged 3.9% in June. 

EUR/USD eases below 1.0950 on Tuesday after it added another tranche of gains at the beginning of the week to its stellar move following the poor US Nonfarm Payrolls (NFP) report on Friday. Markets were spooked by recession fears, sparking an equity crisis in Asia where the two major Japanese indices, the Nikkei and the Topix, lost over 10% of value in just one trading day. Markets are recovering on Tuesday, with the US Dollar (USD) gaining against its peers and recovering most of the incurred losses from Monday. 

The EUR/USD correction on Tuesday does not look to be very big or quick. Germany’s June Factory Orders data underpins the Euro (EUR) after a stellar performance. Expectations were for a very mild 0.8% month-over-month increase in June after a decline of 1.6% in May. The data exceeded expectations by coming in at a positive 3.9%. 

Overnight, President of the Federal Reserve Bank of Chicago Austan Goolsbee and San Francisco Federal Reserve President Mary Daly calm traders' nerves in the market. Both US Federal Reserve (Fed) officials said that a few softer numbers are no reason for concern and that the job market is still holding strong, with no substantial and widespread permanent layoffs taking place. Recession fears may have eased for now, though markets are starting to get afraid that the Fed has overpromised on rate cuts and might underdeliver when the moment is there to act. 

Daily digest market movers: EUR/USD softening a touch

• On Tuesday, the Asian session started off quite quickly, with Japan’s Nikkei and Topix equity indices hitting their circuit breakers. This time, this was due to substantial moves to the upside, in contrast to their sharp declines earlier this week. 
• The US Dollar sees some strength across the board, with the USD/JPY pair being the biggest outlier. The US Dollar (USD) outperforms the Japanese Yen (JPY) by over 1% on Tuesday.
• On the US political front, current Vice President Kamala Harris was officially nominated as the Democratic candidate for the upcoming Us presidential elections in November. 
• On the old continent, German Factory Orders data for June were an upbeat surprise, increasing by 3.9% month-over-month after the -1.6% registered in May. Additionally, there were some lighter but still positive numbers for the German Construction Purchase Managers Index (PMI) for July, which ticked up from 39.7 to 40.0. Despite the uptick, the PMI number remains stuck in contraction. 
• France’s private sector payrolls were unchanged in the second quarter. The preliminary number came in at 0.0% against 0.3% for the final reading of the first quarter.

Technical Analysis: EUR/USD cooling down in search of support 

EUR/USD is retreating after sellers came in hard on Monday once the pair briefly popped above 1.10. With that firm rejection at the psychological level and with the price action now falling back below that red descending trend line, it looks like EUR/USD will need to find support in order to regain strength for the next leg higher. As the Relative Strength Index (RSI) indicator is nearly overbought, it makes sense to let it ease back first before a possible next rally can spark.  

On the upside, three stages can be recognised. First up is the 1.1017 area, where sellers came in hard on Monday. Should EUR/USD be able to rally above there, another leg higher to December’s peak at 1.1139 comes into focus. A surprise move towards 1.1275 could unfold if the Fed is forced to make a surprise emergency rate cut in case markets get out of control again for several days in a row. 

Looking for support, the round level of 1.09 is an ideal candidate. In case the US Dollar gains momentum, the belt of moving averages in the 1.08 region is the next area to watch. Certainly, the 200-day Simple Moving Average (SMA) at 1.0830 looks very appealing, givenits importance in previous periods. 

EUR/USD: Daily Chart

The Fed has no intention of delivering an emergency rate cut before the FOMC meeting on September 18. The Fed wants markets to view the coming rate cuts as preserving the soft landing and supporting jobs, OCBC senior FX strategist Philip Wee notes.

US ISM Services Survey helps ease growth worries

“Although the sell-off spilled over into the rest of the world including US equities, the futures market expects a positive US opening today. The DXY Index extended its sell-off to 102.2 before ending the session at 102.7, near Friday’s closing level. The US Treasury 10Y yield plunged to 3.66% before returning to Friday’s 3.79%; bond sellers emerged below 3.68%.”

“The Fed has no intention of delivering an emergency rate cut before the FOMC meeting on September 18. San Francisco Fed President Mary Daly reckoned markets overreacted to last Friday’s weaker-than-expected jobs report triggering US recession fears. In her opinion, monetary policy works as intended to lower inflation by cooling the economy and the labour market.”

“The Fed wants markets to view the coming rate cuts as preserving the soft landing and supporting jobs. The better-than-expected US ISM Services Survey helped ease growth worries. The overall PMI improved to 51.4 in July, beating the consensus for a rise to 51.0 from 48.8 in June. The ISM employment index also strengthened to 51.1 from 46.1, while the prices index increased to 57.0 from 56.3.”

• Silver price weakens as the US Dollar and bond yields recover.
• The Fed is expected to cut interest rates by 50 bps in September.
• Investors’ concerns over Silver’s demand as a metal have deepened.

Silver price (XAG/USD) skids below the crucial support of $27.00 in Tuesday’s European session. The white metal weakens as investors worry about the growing demand for Silver as a metal, which has applications in various industries, such as Electric Vehicles (EV), Renewable Energy, wires and cables, etc.

Market participants remain concerned over fears of a global slowdown as major economies face a slump in domestic demand. After China and the Eurozone, investors worry that the United States (US) could enter a recession due to the long maintenance of a restrictive monetary policy framework by the Federal Reserve (Fed). This has boosted expectations that the Fed will announce rate cuts sooner rather than later.

Financial markets expect the Fed to cut its key borrowing rates by 50 basis points (bps) to 4.75%- 5.00% in the September meeting and reduce interest rates by more than 100 bps this year.

Meanwhile, higher bond yields and a decent recovery in the US Dollar (USD) have also weighed on the Silver price. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs to near 103.00 after recovering from more than a six-month low near 102.15. 10-year US Treasury yields jump to near 3.84% Historically, higher yields on interest-bearing assets reduce the opportunity cost of non-yielding assets, such as Gold.

Silver technical analysis

Silver price drops sharply after facing stiff resistance near the 50-day Exponential Moving Average (EMA), which trades around $27.57. The near-term outlook of the Silver price has become bearish as the 14-day Relative Strength Index (RSI) has shifted into the 20.00-60.00 range from the bullish range of 40.00-80.00. The momentum has leaned on the downside and any pullback move will be considered a selling opportunity by the market participants.

On the downside, the horizontal line plotted from May 2 low near $26.00 will be key support for the Silver price bulls.

Silver daily chart

USD/JPY and AUD/USD are back above 145 and 0.65 this morning amid profit-taking in the Asia ex-Japan currencies, OCBC senior FX strategist Philip Wee notes.

Risk aversion may be levelling off in the short-term

“The Japanese Yen (JPY) initially rallied 3.4% against the Greenback (USD/JPY was 141.70) on Monday but retained 1.6% of its gains (144.18) by the end of the session.”

“AUD/USD reduced its losses to 0.2% (0.6498) from 2.5% (0.6350) yesterday. Today, the Reserve Bank of Australia will likely push back against the market’s bet for a rate cut in November or December.”

“USD/JPY and AUD/USD are back above 145 and 0.65 this morning amid profit-taking in the Asia ex-Japan currencies.”

Many factors lie behind this deterioration between China and the West, which we will discuss below. While Europe and some other Western countries are still more reluctant than the US to start a full blown trade war with China, Europe’s patience with China’s trading practices is increasingly wearing thin, Rabobank’s senior macro strategist Teeuwe Mevissen notes.

Trade between China and the West to deteriorate further

“Until 2018, the trade relationship between China and the West was characterized by a rules-based approach under the WTO framework. The trade relationship between China and the West is expected to deteriorate further.”

“The deterioration in the trade relationship between China and the US began under the Trump administration. The Biden administration has kept most of Trump’s trade measures in place.”

“The EU has been more reluctant to take a hawkish stance on trade with China, but their patience with China’s trading practises is increasingly wearing thin.”

Silver prices (XAG/USD) fell on Tuesday, according to FXStreet data. Silver trades at $26.97 per troy ounce, down 1.07% from the $27.26 it cost on Monday.

Silver prices have increased by 13.34% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 89.51 on Tuesday, up from 88.42 on Monday.

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• Gold price hovers above $2,400 and sees more upside on multiple tailwinds.
• The Fed is expected to cut interest rates by more than 100 bps this year.
• Investors worry that the US could face a recession.

Gold price (XAU/USD) holds key ground at $2,400 as the US Dollar (USD) and bond yields give up some of their gains in Tuesday’s European session. The precious metal gains while investors look for fresh cues, which could clarify whether the United States (US) enters a recession. Also, market participants await signals about how much the Federal Reserve (Fed) will reduce interest rates this year.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs to near 103.00 after recovering from more than a six-month low near 102.15. The 10-year US Treasury yields surrender some of its gains but hold above 3.86%. Historically, higher yields on interest-bearing assets reduce the opportunity cost of non-yielding assets, such as Gold.

Meanwhile, the overall outlook of the Gold price remains firm due to multiple tailwinds. Deepening Middle East tensions have improved the Gold’s appeal as a safe-haven asset. Market participants brace for a serious escalation in conflicts between Iran and Israel as the former launched dozens of missiles on Israeli territory on Saturday in retaliation to the assassination of Hamas leader Ismail Haniyeh by an Israeli airstrike in Tehran.

Daily digest market movers: Gold price rises as markets see sooner rate cuts by the Fed

• Gold price remains on a positive trajectory on firm speculation that fears of a US economic slowdown will bolster bulk rate cuts by the Fed. Fears of the US facing a recession were prompted by soft labor demand, a higher Unemployment Rate, and contracting activities in the manufacturing sector.
• The signal that confirms a technical recession is two consecutive declines in the nation’s Gross Domestic Product (GDP). The US economy performed strongly in the first half of this year. In the second quarter, the economy expanded by 2.8% on an annualized basis, double the growth rate recorded in the first quarter.
• Meanwhile, a faster-than-expected expansion in the US ISM Services Purchasing Managers Index (PMI) has also diminished recession fears. Commenting on the Services PMI performance, Chris Williamson, chief business economist at S&P Global Market Intelligence said, “The July surveys are indicative of the economy continuing to grow at the start of the third quarter at a rate comparable to GDP rising at a solid annualized 2.2% pace."
• According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows traders see a 50-basis point (bp) cut in interest rates in September as imminent. The data also shows that the Fed is expected to reduce its key borrowing rates by more than 100 bps this year.
• The expectations of sooner rate cuts have also been bolstered by Fed officials’ dovish outlook on interest rates. On Monday, comments from Chicago Federal Bank President Austan Goolsbee, in an interview on CNBC’s "Squawk Box" program, indicated that the central bank is prepared to respond to signs of economic weakness. Goolsbee said, “It doesn’t make sense to maintain a "restrictive" policy stance if the economy is softening,” Reuters reported.

Technical Analysis: Gold price hovers above $2,400

Gold price trades in a channel formation on a daily timeframe, which is slightly rising but broadly exhibited a sideways performance for more than three months. The 50-day Exponential Moving Average (EMA) near $2,370 continues to provide support to the Gold price bulls. 

The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting indecisiveness among market participants.

A fresh upside would appear if the Gold price breaks above its all-time high of $2,483.75, which will send it into unchartered territory.

On the downside, the upward-sloping trendline at $2,225, plotted from the October 6 low near $1,810.50, will be a major support in the longer term.

The latest US Employment Situation report by the Bureau of Labor Statistics (BLS) last Fri (2 Aug) possibly marked a turn in the sentiment for the US labor market. It reported a worse than expected (but still positive) Jul job creation while unemployment rate moved surprisingly higher to 4.3% and wage growth cooled more than forecast, UOB Group senior economist Alvin Liew notes.

Expect two 25 bps cuts in Sep and Dec

“The Jul US employment report was troubling, as job creation slowed sharply to 114,000, but more damaging was the spike in unemployment rate to 4.3% (highest since Oct 2021) as unemployed numbers rose further by 352,000 in Jul while participation rate edged up slightly to 62.7%. Wage growth cooled more than forecast to 0.2% m/m, 3.6% y/y in Jul, ebbing inflation worries.”

“While job creation in the first 7 months was clearly on a moderating trend (compared to the prior three years), there was also a narrowing base of job creation among the sectors in Jul with more services sectors losing jobs.”

“The ‘triggering’ of Sahm indicator on US recession due to the spike in unemployment rate set off the equity market selloff and a sharp repricing of rate cuts and a rush of analysts revising their calls to more and deeper Fed rate cuts this year. We keep to our forecast of two 25 bps cuts in Sep and Dec, but we acknowledge the balance of risk has swung sharply from less (or no) cuts to markedly more and deeper cuts.”

As expected, the Reserve Bank of Australia (RBA) decided to leave its cash rate target unchanged at 4.35% in Aug, for a sixth straight meeting. It also kept the interest rate paid on Exchange Settlement balances unchanged at 4.25%, UOB Group economist Lee Sue Ann notes.

RBA set to stay on a ‘higher for longer’ gear

“The Reserve Bank of Australia (RBA) kept rates at a 12-year high of 4.35% today (6 Aug), as expected, and continued to emphasize ‘the need to remain vigilant to upside risks to inflation’.

“It expects underlying inflation to be higher than previously estimated, seen easing to 3.5% by the end of this year, and then hitting 3.1% in mid-2025. It is forecast to reach the RBA’s 2-3% target band at the end of 2025.”

“A combination of sluggish growth and slow progress on inflation will likely mean the RBA will have to stay on a ‘higher for longer’ gear. We are penciling the first rate cut in Nov, though this remains highly data dependent and there is increasing risk of a push back in timing.”

Instead of continuing to weaken, the US Dollar (USD) is likely to trade in a 7.1100/7.1700 range. Further USD weakness is not ruled out, but the low near 7.0635 is solid support now, UOB Group FX strategists Quek Ser Leang and Lee Sue Ann note.

May try to test 7.1700 in mid term

24-HOUR VIEW: “While we expected USD to weaken yesterday, we indicated that ‘the support at 7.1300 is unlikely to come under threat.’ We obviously did not anticipate the wild price action, as USD plunged to 7.0636 and then snapped back to close at 7.1350 (-0.48%). The rebound in severely oversold conditions suggests instead of continuing to decline, USD is likely to trade in a 7.1100/7.1700 range today.”

1-3 WEEKS VIEW: “We have held a negative USD stance since late last month. Yesterday (05 Aug, spot at 7.1490), we indicated that ‘the recent price action continues to suggest further USD weakness, even though it is too early to determine if the long-term support near 7.0980 is within reach.’ USD subsequently not only broke below 7.0980, but also fell further to a low of 7.0636. While downward momentum has slowed somewhat with the strong rebound from the low, only a breach of 7.2000 (no change in ‘strong resistance’ level) would mean that the weakness has stabilised. Until then, further USD weakness is not ruled out, but the low near 7.0635 is solid support now.”

The US Dollar (USD) is likely to trade in a range, probably between 142.60 and 148.00. The next significant support level is some distance away at 140.80, but it remains to be seen if this level will come into view, UOB Group FX strategists Quek Ser Leang and Lee Sue Ann note.

USD can’t find a direction

24-HOUR VIEW: “USD is likely to trade in a range, probably between 142.60 and 148.00. We indicated yesterday that USD ‘is likely to continue to weaken, but the potential for further decline is unclear.’ We pointed out that ‘support levels are at 144.00 and 143.00.’ USD subsequently plunged to 141.66, and then snapped back, closing at 144.17 (-1.62%). Downward momentum appears to be slowing. This, combined with severely oversold conditions suggest USD is likely to trade in a range today, probably between 142.60 and 148.00.”

1-3 WEEKS VIEW: “Yesterday (05 Aug, spot at 145.25), we noted that ‘the weakness in USD has not stabilised.’ We pointed out that ‘the next significant support level is some distance away at 140.80, but it remains to be seen if this level will come into view.’ We continue to hold the same view. Overall, the USD weakness is intact as long as 148.60 is not breached.”

• AUD/USD struggles to capitalize on modest intraday gains amid reviving USD demand.
• China’s economic woes further contribute to capping gains despite RBA’s hawkish bias.
• Investors look to US Trade Balance data ahead of Chinese trade figures on Wednesday.

The AUD/USD pair attracts fresh sellers following an intraday uptick to the 0.6540 region and drops to the lower end of its daily range during the first half of the European session on Tuesday. Spot prices currently trade around the 0.6500 psychological mark and for now, seem to have stalled the goodish recovery move from the YTD low touched on Monday.

The Australian Dollar (AUD) got a minor lift earlier this Tuesday after the Reserve Bank of Australia (RBA) kept interest rates unchanged and indicated that it will keep policy restrictive in the wake of still sticky inflation. The outlook was reaffirmed by RBA Governor Michele Bullock, saying that inflation might take too long to return to target and that interest rates might need to remain higher for an extended period. This, along with a positive turnaround across the global equity markets, offered some support to the AUD/USD pair.

That said, concerns about an economic downturn keep a lid on any further appreciating move for the China-proxy Aussie. Apart from this, a goodish pickup in the US Dollar (USD) demand, bolstered by a solid bounce in the US Treasury bond yields, further contributes to capping the upside for the AUD/USD pair. This, along with the risk of a further escalation of geopolitical tensions in the Middle East, makes it prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom.

Tuesday's US economic docket features the only release of Trade Balance data, leaving the USD at the mercy of the US bond yields. Furthermore, the broader risk sentiment will play a key role in influencing the near-term USD price dynamics and provide some impetus to the AUD/USD pair ahead of Chinese Trade Balance data during the Asian session on Wednesday.

• Eurozone Retail Sales fell 0.3% YoY in June vs. +0.1% estimate.
• Retail Sales in the bloc arrived at -0.3% MoM in June vs. -0.1% forecast.

Eurozone’s Retail Sales dropped at an annual rate of 0.3% in June after increasing by 0.5% in May, the official data released by Eurostat showed on Tuesday. The data missed the market consensus of +0.1%.

On a monthly basis, Retail Sales in the old continent declined by 0.3% in the same period vs. May’s +0.1% and -0.1% expected.

FX implications

The downbeat Eurozone data keeps the Euro under moderate heavy selling pressure. At the time of writing, the EUR/USD pair is trading 0.28% lower on the day at 1.0920.

• NZD/USD loses ground due to the increased risk aversion amid fears of an economic slowdown in the US.
• CME FedWatch tool indicates a 74.5% probability of a 50-basis point rate cut by the Fed in September.
• RBNZ is partly expected to deliver an early interest rate cut in August and fully expect one by October.

NZD/USD extends its losses for the second successive day, trading around 0.5930 during the European session on Tuesday. Growing Middle East tensions and fears of an economic slowdown in the United States (US) have dampened the appeal of risk-sensitive currencies like the New Zealand Dollar (NZD).

However, the downside of the NZD/USD pair could be limited as the US Dollar (USD) could struggle due to the expectation of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September. The CME FedWatch tool indicates a 74.5% probability of this relatively larger cut occurring at the September meeting, a significant increase from the 11.4% chance reported a week earlier.

According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”

In New Zealand, expectations of an early interest rate cut by the Reserve Bank of New Zealand (RBNZ) are putting pressure on the Kiwi Dollar, affecting the NZD/USD pair. This sentiment follows recent data indicating that the domestic annual CPI rate fell to its lowest level in three years for the June quarter. The RBNZ's next policy meeting is scheduled for August 14, with markets partly anticipating a rate cut at that meeting and fully expecting one by October.

Traders will likely monitor the release of China’s July Consumer Price Index (CPI) on Friday for new momentum. The CPI is expected to show a 0.4% year-on-year increase. A weaker-than-expected reading or signs of an economic slowdown in China could impact the New Zealand Dollar, given China’s close trading relationship with New Zealand.

The New Zealand Dollar (NZD) could rise, potentially reaching 0.6010. The major resistance at 0.6035 is unlikely to come under treat. Price action continues to suggest NZD could recover, possibly to 0.6035.

Support is at 0.5920

24-HOUR VIEW: “We expected NZD to trade in a range between 0.5915 and 0.5965 yesterday. We did not anticipate the spike in volatility as NZD plunged sharply, but briefly, to 0.5849 and then rebounded strongly to 0.5969. NZD continues to rise in early Asian trade today, and it could potentially reach 0.6010. The next resistance at 0.6035 is unlikely to come under threat. Support is at 0.5940; a breach of 0.5920 would mean that NZD is not rising further.”

1-3 WEEKS VIEW: “Last Thursday (01 Aug, spot at 0.5950), we indicated that ‘the recent two-week NZD weakness has ended.’ We also indicated that ‘the current recovery phase could extend to 0.5990.’ We added, ‘we will continue to hold the same view as long as 0.5890 (‘strong support’ level) is not breached.’ While NZD broke below 0.5890 yesterday (low of 0.5849), it rebounded strongly from the low. Notwithstanding the breach of 0.5890, the price action continues to suggest NZD could recover, possibly towards 0.6035. On the downside, the ‘strong support’ level is still at 0.5890.”

The Australian Dollar (AUD) could continue to rebound; any advance is unlikely to reach 0.6600. AUD weakness from late last month has stabilised; it is likely to trade in a 0.6400/0.6600 range for the time being, UOB Group FX strategists Quek Ser Leang and Lee Sue Ann note.

Bears may strive to push towards 0.6475

24-HOUR VIEW: “Yesterday, we indicated that AUD ‘is likely to edge lower, possibly dropping below last week’s low of 0.6480.’ We also indicated that ‘the significant support at 0.6425 is highly unlikely to come under threat.’ We were correct on the first count, but incorrect on the second. AUD plunged sharply, but briefly to 0.6349 before rebounding sharply. AUD then closed at 0.6497 (-0.23%). Today, AUD could continue to rebound, but any advance is unlikely to reach 0.6600 (there is another resistance level at 0.6550). Support levels are at 0.6475 and 0.6445.”

1-3 WEEKS VIEW: “We have held a negative AUD view since late last month. As we tracked the decline, in our most recent narrative from last Friday (02 Aug, spot at 0.6490), we indicated that ‘while AUD could continue to weaken, it is unclear if it has enough momentum to break the significant support at 0.6425.’ Yesterday, AUD broke below 0.6425, reaching a low of 0.6349 before snapping back up. The sharp bounce from the low suggests AUD is unlikely to weaken further. In other words, the AUD weakness has likely stabilised. From here, we hold a neutral view on AUD. Given the recent volatility, it could trade in a relatively broad range of 0.6400/0.6600 for the time being.”

Downward momentum has slowed further; there is a low of confidence in a sustained break below 1.2710, UOB Group FX strategists Quek Ser Leang and Lee Sue Ann note.

May test 1.2710 in short term

24-HOUR VIEW: “Two days ago, GBP soared to a high of 1.2840. Yesterday, we indicated that ‘the rapid rise appears to be overdone, and instead of continuing to rise, GBP is more likely to trade in a range between 1.2740 and 1.2840.’ However, in London trade, GBP fell briefly to 1.2710, rebounded to 1.2817, and then traded sideways for the rest of the session. Further sideways trading seems likely today, expected to be in a range of 1.2745/1.2840.”

1-3 WEEKS VIEW: “We have held a negative view in GBP since 26 Jul, when it was trading at 1.2855. After GBP plummeted to 1.2709 and rebounded strongly last Friday, we indicated yesterday (05 Aug, spot at 1.2785) that ‘downward momentum has slowed, and any further GBP weakness is likely limited to a retest of the 1.2710 level.’ In London trade, GBP dropped to 1.2710 and then rebounded again. Momentum continues to slow, and we do not have high confidence of a sustained decline below 1.2710. On the upside, if GBP breaks above 1.2840 (no change in ‘strong resistance’ level), it would mean that GBP is not weakening further.”

Provided that the Euro (EUR) remains above 1.0910, it could retest the 1.1010 level before another pullback is likely. EUR is still positive, but it has to surpass 1.1010 before further advance to 1.1070 can be expected, UOB Group FX strategists Quek Ser Leang and Lee Sue Ann note.

Likely to test the 1.1010 level

24-HOUR VIEW: “We indicated yesterday that EUR ‘could continue to rise, but it is unlikely to break last month’s high near 1.0950.’ Our view of EUR rising was correct, but we did not anticipate the strong advance that reached a high of 1.1008. EUR pulled back from the high, closing on a strong note at 1.0952 (+0.40%). Conditions are overbought, but today, provided that EUR remains above 1.0910 (minor support is at 1.0930), EUR could retest the 1.1010 level before another pullback is likely.”

1-3 WEEKS VIEW: “After holding a negative EUR view for more than a week, we turned positive yesterday (05 Aug, spot at 1.0905), indicating that ‘there is a chance for EUR to advance further.’ We also indicated that ‘if it can break above 1.0950, it could trigger a rapid rise to 1.1000.’ While our view was not wrong, the rapid manner in which the price action developed was surprising. EUR broke above both 1.0950 and 1.1000 in London trade before pulling back from a high of 1.1008. We will continue to view EUR positively as long as 1.0855 (‘strong support’ level was at 1.0820) is not breached. That said, the 1.1010 level is solid resistance level now. EUR has to surpass this level before further advance to 1.1070 can be expected.”

• WTI drifts into negative territory for the fourth straight day on Tuesday.
• Demand concerns weigh on the commodity amid a notable USD demand.
• The worsening Middle East crisis might help limit losses for the black liquid. 

West Texas Intermediate (WTI) US crude Oil prices attract fresh sellers following an intraday uptick to the $74.00/barrel mark and turn lower for the fourth successive day on Tuesday. The commodity trades around the mid-$72.00s during the early part of the European session, albeit manages to hold above its lowest level since January 17 touched on Monday.

Concerns about an economic downturn in the US and China – the world's two largest economies – continue to act as a headwind for Crude Oil prices. Adding to this, the emergence of some US Dollar (USD) buying – bolstered by a bound in the US Treasury bond yields – exerts additional pressure on the USD-denominated commodity. That said, concerns about supply disruptions from the Middle East, amid the risk of a broader conflict in the key Oil producing region, could help limit losses for the black liquid. 

From a technical perspective, the recent breakdown through and repeated failures near the very important 200-day Simple Moving Average (SMA) favours bearish traders. Moreover, oscillators on the daily chart have been gaining negative traction and are still away from being in the oversold territory. This, in turn, suggests that the path of least resistance for Crude Oil prices is to the downside and supports prospects for an extension of the downward trajectory witnessed over the past month or so.

In the meantime, the $72.00 round figure is likely to protect the immediate downside ahead of the overnight swing low, around the $71.20-$71.15 region. Some follow-through selling below the $71.00 mark will reaffirm the negative bias and make Crude Oil prices vulnerable to accelerate the fall towards intermediate support near mid-$70.00s en route to the $70.00 psychological mark. The depreciating move could extend further towards the next relevant support near the $69.60-$69.50 horizontal zone.

On the flip side, any meaningful recovery attempt now seems to confront stiff resistance near the daily swing high, around the $74.00 mark. A sustained strength beyond might trigger a short-covering rally and lift Crude Oil prices to the $74.90-$75.00 region. The recovery momentum could extend further towards the next relevant hurdle near the $75.60 zone en route to the $76.00 round-figure mark. The latter should act as a key pivotal point for short-term traders and cap any further upside for the commodity.

WTI daily chart

• GBP/JPY rebounds from its lowest level of 180.10 since January, recorded on Monday.
• Japan’s Labor Cash Earnings rose by 4.5% YoY in June, the highest increase since January 1997.
• The Pound Sterling received pressure as sluggish market sentiment has dampened the appeal of risk-sensitive currencies.

GBP/JPY trades around 184.50 during the European hours on Tuesday, rebounding from its lowest level of 180.10 since January, recorded on Monday. However, The GBP/JPY cross faced challenges as the Japanese Yen (JPY) strengthened due to growing expectations that the Bank of Japan (BoJ) may implement further monetary policy tightening.

Japan’s Chief Cabinet Secretary Yoshimasa Hayashi stated on Tuesday that “wage increases are expected to extend to part-timers and small businesses by autumn, supported by strong Shunto results and minimum wage hikes.” Hayashi did not provide comments on foreign exchange levels.

Japan’s Labor Cash Earnings came in at 4.5% year-on-year increase in average income for June, exceeding both the previous 2.0% and the expected 2.3% readings. This is the highest increase since January 1997, reinforcing Japan's transition toward a rising interest rate environment.

The Pound Sterling (GBP) exhibited a weak performance as dismal market sentiment has dampened the appeal of risk-sensitive assets. Growing Middle East tensions and fears of an economic slowdown in the United States (US) have improved the appeal of safe-haven assets, such as the Japanese Yen, undermining the GBP/JPY cross

Additionally, the British Pound faced challenges as the Bank of England (BoE) delivered a broadly expected 25-basis point rate cut at its August meeting held last week.

BRC Like-For-Like Retail Sales in the United Kingdom rose 0.3% year-on-year in July, reversing from a 0.5% fall in June and matching market forecasts. Traders await S&P Global/CIPS Construction PMI for July, gauging business activity in the UK’s construction sector.

USD/CNY broke below the key 7.2 level and made a run for the 7.1 handle amid the carry unwind and volatility surge. Onshore firms and exporters were probably caught offside by this move and likely exacerbated the price action by selling USD/CNY and USD/CNH spot to quickly unwind their carry position, TDS FX and macro strategist Alex Loo notes.

USD/CNY to move towards 7.40 for by year-end

“We reckon there is still more to unwind and this could sustain the CNY rally in the near-term as exporters have likely built up a hefty long USD position – firms haven't been converting their US Dollar (USD) proceeds for some time given the low conversion ratio and settlement balance trends.”

“However, we see a floor for USDCNY at 7.1. We suspect the PBoC will flip its stance soon and allow the CNY to weaken more despite fending off depreciation pressure in recent months. Stronger-than-expected fixing deviation fell sharply today to 136 pips and we could see a return to a period of weaker-than-expected fixings.”

“While a value rotation to Asia low yielders is plausible amid the carry blowup, we doubt investors will pile into CNY longs. Our tracker of composite data trends, surprises and consensus revisions show China still sitting below the US which is bearish the CNY. We still stick to our long USD conviction and an eventual move towards 7.40 for USD/CNY by year-end.”

• The Pound Sterling falls against the US Dollar to near 1.2750 amid weak appeal for risk-sensitive currencies.
• Investors worry that the US economy could enter a recession.
• The British currency will be guided by market speculation for BoE rate cuts.

The Pound Sterling (GBP) declines to near 1.2750 against the US Dollar (USD) in Tuesday’s London session. The GBP/USD pair weakens as the US Dollar steadies after rebounding from fresh six-month low. The US Dollar Index (DXY), which tracks the greenback’s value against six major currencies, recovers to near 103.00.

The outlook for the US Dollar remains vulnerable as market participants worry about growing speculation of a recession in the United States (US) and an announcement of emergency rate cuts by the Federal Reserve (Fed).

Market expectations of potential US recession grew after a string of weak US economic data. The Unemployment Rate rose to 4.3%, the highest since November 2021, labor demand slowed, and the Manufacturing Purchasing Managers Index (PMI) contracted at a faster pace in July. However, an economy is considered in a technical recession if its Gross Domestic Product (GDP) contracts consecutively for two quarters, which appears the opposite in the US’s case, knowing that the economy expanded at a pace of 2.8% on an annualized basis in the second quarter. The pace at which the US economy grew was double the growth rate recorded for the January-March period.

Also, the US Services PMI, a sector that accounts for two-thirds of the economy, expanded at a faster pace in July after contracting in June. The PMI report showed that activities in the service sector expanded at a faster-than-expected pace of 51.4. Investors anticipated a growth in the Services PMI to 51.0 from the former release of 48.8.

Daily digest market movers: Pound Sterling rises against Yen and Swiss Franc 

• The Pound Sterling remains on the back foot against its major peers but performs strongly against the Japanese Yen (JPY) and the Swiss Franc (CHF), as both faced profit-booking on Tuesday. The British currency continues to face pressure from widespread risk aversion.
• Apart from fears of a US slowdown, a likely all-out war between Israel and Iran has also kept risk sentiment on tenterhooks. Fears of escalating Middle East conflicts were prompted after Iran-backed Hezbollah said it launched dozens of missiles on Israel on Saturday in retaliation to the assassination of Hamas leader Ismail Haniyeh by an Israeli airstrike in Tehran.
• On the domestic front, the Pound Sterling will be guided by market speculation for the Bank of England (BoE) amid an absence of top-tier events. Market participants expect that the BoE could also deliver subsequent rate cuts to fight against the ripple effects of the US slowdown.
• Last week, the BoE cut interest rates by 25 basis points (bps) to 5%, with a 5-4 vote split, as expected. The BoE suggested that the central bank will use a cautious approach in its policy normalization process.

Technical Analysis: Pound Sterling hovers near 1.2750

The Pound Sterling is at a make-or-break near the lower boundary of a Rising Channel chart formation on a daily timeframe. Historically, a pullback move in the aforementioned chart pattern is considered a buying opportunity by market participants.

The GBP/USD pair fell on the back foot after breaking below the crucial support of 1.2900. The Cable is an inch away from the 50-day Exponential Moving Average (EMA) near 1.2790, suggesting uncertainty in the near-term trend.

The 14-day Relative Strength Index (RSI) declines to near 40.00, which is expected to act as a cushion for the momentum oscillator.

On the downside, the round level of 1.2800 will be a crucial support zone for the Pound Sterling bulls. Meanwhile, the two-year high near 1.3140 will be a key resistance zone for the Cable.

• USD/MXN trades near its highest level of 20.23 since September 2022
• A broad selloff in financial markets has negatively impacted emerging market currencies like the Mexican Peso.
• San Francisco President Mary Daly noted that there is openness to the possibility of cutting rates in upcoming meetings.

USD/MXN trades around 19.30 during the early European session on Tuesday, following a retreat from its highest level of 20.23 since September 2022, reached on Monday. The USD/MXN pair faced challenges due to increased risk aversion. Recent downbeat labor market data from the United States (US) has raised concerns that the Federal Reserve may be falling behind in addressing an economic downturn.

Growth worries in the United States have triggered a broad selloff in financial markets, which has negatively impacted emerging market currencies such as the Mexican Peso. However, the upside of the USD/MXN pair could be limited as the US Dollar (USD) could struggle due to the expectation of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September. The CME FedWatch tool shows a 74.5% probability of this rate cut at the September meeting, up sharply from the 11.4% chance reported just a week ago.

According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”

The Mexican Peso (MXN) faces challenges as concerns about a slowing economy raise speculation about a potential dovish shift from the Bank of Mexico (Banxico). Mexico’s Gross Domestic Product (GDP) grew by only 0.2% in the second quarter ending in June, down from the 0.3% growth recorded in the previous quarter. Traders are expected to focus on the July Auto Exports data due on Tuesday, with further attention turning to inflation data and Banxico’s monetary policy decision on Thursday.

• USD/CAD stages a goodish rebound from a one-week low touched earlier this Tuesday.
• Sliding Crude Oil prices undermine the Loonie and lend support amid a stronger USD.
• Dovish Fed expectations and the risk-on mood might cap gains for the USD and the pair.

The USD/CAD pair attracts some dip-buying following an intraday dip to sub-1.3800 levels, or a one-week low and touches a fresh daily top during the early part of the European session on Tuesday. Spot prices currently trade around the 1.3835-1.3840 region and for now, seem to have stalled a sharp retracement slide from the highest level since October 2022 touched on Monday. 

Against the backdrop of worries about an economic downturn in China, the incoming softer US macro data suggested that the world's largest economy was slowing faster than initially expected. This is expected to dent fuel demand and drags Crude Oil prices lower for the fourth straight day, which, in turn, is seen undermining demand for the commodity-linked Loonie. Apart from this, a goodish pickup in the US Dollar (USD) demand, supported by rebounding US Treasury bond yields, turn out to be a key factors acting as a tailwind for the USD/CAD pair. 

That said, a turnaround in the global risk sentiment, along with dovish Federal Reserve (Fed) expectations, might hold back the USD bulls from placing aggressive bets and cap gains for the currency pair. In fact, the markets are currently pricing in a near 100% chance that the US central bank will cut interest rates by 50 basis points in September. This should keep a lid on any further upside for the US bond yields and the Greenback, warranting caution for the USD/CAD bulls in the absence of any relevant market-moving economic releases from the US or Canada.

Furthermore, the risk of a broader Middle East conflict continues to fuel concerns about supply disruptions from the key Oil producing region and could help limit losses for Crude Oil prices. This further makes it prudent to wait for strong follow-through buying before positioning for the resumption of the USD/CAD pair's recent upward trajectory witnessed over the past month or so.

• A combination of factors assists USD/CHF to snap a five-day losing streak to a multi-month trough.
• The risk-on impulse undermines the safe-haven CHF and offers support amid reviving USD demand.
• Bets for a 50 bps Fed rate cut in September should cap the USD and act as a headwind for the pair.

The USD/CHF pair attracts some buyers near the 0.8500 psychological mark on Tuesday and builds on the overnight goodish rebound from its lowest level since early January. Spot prices, for now, seem to have snapped a five-day losing streak and trade just above the mid-0.8500s during the early European session. 

Global equity markets rose sharply amid some bargain buying following the recent steep losses and undermine demand for the safe-haven Swiss Franc (CHF). Meanwhile, the risk-on impulse leads to a solid bounce in the US Treasury bond yields, which assists the US Dollar (USD) to recover further from a multi-month low touched on Monday. This, in turn, pushes the USD/CHF pair higher, though any meaningful appreciating move still seems elusive. 

The incoming softer US macro data fueled worries about a downturn in the world's largest economy and raised expectations for bigger interest rate cuts by the Federal Reserve (Fed). In fact, the markets are now pricing in a nearly 100% chance of a 50 basis points rate cut at the September FOMC policy meeting. This might keep a lid on the US bond yields and hold back the USD bulls from placing aggressive bets, which, in turn, should cap the USD/CHF pair. 

Furthermore, the risk of a broader Middle East conflict remains in play and should keep a lid on the market optimism. The fears resurfaced after Iran, Hamas and Lebanese group Hezbollah pledged to retaliate against Israel for last week’s assassination of Hamas political chief Ismail Haniyeh in Tehran. This should limit losses for the CHF and warrants caution before positioning for any further appreciating move for the USD/CHF pair in the absence of relevant US macro data.

• EUR/GBP trades in positive territory for the fourth consecutive day around 0.8575 in Tuesday’s early European session.
• German Factory Orders climbed 3.9% MoM in June vs. -1.6% prior, better than expected. 
• BoE’s Bailey said the central bank must be careful about further rate cuts, while investors bet on more rate cuts before year-end. 

The EUR/GBP cross extends the rally near 0.8575 during the early European session on Tuesday. The uptick of the Euro (EUR) is bolstered by the recent upbeat German economic data. Traders will take more cues from the Eurozone June Retail Sales for June, which is due later on Tuesday. 

The stronger-than-expected German Factory Orders contribute to the shared currency’s further upside. Data released by the Federal Statistics Office showed on Tuesday that the country’s Factory Orders jumped 3.9% MoM in June from a fall of 1.6% in May. This figure was above the market consensus of 0.8%. 

The Eurozone June Retail Sales are expected to increase 0.1% YoY in June. If the retail sector in the Eurozone shows improvement, this could lift the Euro (EUR) against the Pound Sterling (GBP). On the other hand, the downbeat outcome might trigger the potential European Central Bank (ECB) interest rate cuts in September, which might drag the shared currency lower. 

On the GBP’s front, the Bank of England (BoE) decided to cut its interest rates by 25 basis points (bps) to 5% last week. BoE governor Andrew Bailey noted that the rate decision will be decided "from meeting to meeting,"  but market players expect the UK central bank will deliver more rate cuts in September, with the chance of a move at its next meeting in September seen as a nearly 55% probability.

Here is what you need to know on Tuesday, August 6:

Financial markets seem to have stabilized early Tuesday, following Monday's highly volatile action. Eurostat will release Retail Sales data for June and the US economic docket will feature June Goods Trade Balance and RealClearMarkets/TIPP Economic Optimism data for August later in the day. Investors will continue to pay close attention to developments surrounding the conflict in the Middle East.

The market mood seems to have improved early Tuesday, with US stock index futures rising between 1% and 1.8% on the day. On Monday, the S&P 500 and the Nasdaq Composite indexes both lost around 3%. Meanwhile, the US Dollar Index clings to modest recovery gains at around 103.00 and the benchmark 10-year US Treasury bond yield rises about 2% at near 3.85%.

During the Asian trading hours on Tuesday, the Reserve Bank of Australia (RBA) announced that it left the policy rate unchanged at 4.35% as expected. In its policy statement, the RBA reiterated that the policy "will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range." In the post-meeting press conference, RBA Governor Michele Bullock noted that interest rates might need to stay high for longer, adding that a rate cut is not on the agenda in the near term. AUD/USD edged higher following this event and was last seen rising 0.3% on the day above 0.6500.

EUR/USD gathered bullish momentum and climbed above 1.1000 for the first time since early January but closed the day below this level. The pair continues to correct lower early Tuesday and was last seen trading below 1.0950. The data from Germany showed earlier in the day that Factory Orders expanded by 3.9% on a monthly basis in June, following the 1.6% contraction recorded in May.

Despite the heavy selling pressure surrounding the US Dollar, GBP/USD failed to shake off the bearish pressure and close in negative territory on Monday. The pair continues to stretch lower in the European morning on Tuesday and was last seen trading at around 1.2750.

USD/JPY erased a large portion of its daily losses in the second half of the day on Monday but still lost 1.6% on a daily basis. The pair gathers recovery momentum early Tuesday and rises nearly 1% on the day at around 145.50. Atsushi Mimura, Japan’s newly appointed Vice Finance Minister For International Affairs and top foreign exchange official said in a statement on Tuesday that they “discussed big moves in the financial and stock market with the Bank of Japan (BoJ) and the Financial Services Agency (FSA).”

Gold declined sharply on Monday but falling US Treasury bond yields and the US Dollar weakness helped XAU/USD limit its losses. Early Tuesday, the pair holds steady slightly above $2,400.

Atsushi Mimura, Japan’s newly appointed Vice Finance Minister For International Affairs and top foreign exchange official said in a statement on Tuesday that they “discussed big moves in the financial and stock market with the Bank of Japan (BoJ) and the Financial Services Agency (FSA).”

Additional comments

FX option expiries for Aug 6 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0700 800m
• 1.0815 1.7b    
• 1.0820 459m
• 1.0830 900m
• 1.0885 628m
• 1.0895 499m
• 1.0935 786m

- GBP/USD: GBP amounts     

• 1.2750 400m

- USD/JPY: USD amounts                     

• 144.00 680m

- USD/CAD: USD amounts       

• 1.3675 426m
• 1.3700 497m  
• 1.3840 431m

Germany’s Factory Orders jumped sharply in June, according to the official data published by the Federal Statistics Office on Tuesday, suggesting that the German manufacturing sector recovery has caught up with momentum.

Over the month, contracts for goods ‘Made in Germany’ jumped by 3.9%, having registered a 1.6% decline in May while beating the estimates of a 0.8% growth.

Germany’s Industrial Orders plunged 11.8% in the year through June, as against the previous slump of 8.6%.

FX implications

The Euro remains offered following the mixed German data, as the EUR/USD pair holds lower ground near 1.0950, almost unchanged on the day, as of writing.  

• EUR/USD trades with a mild negative bias around 1.0950 in Tuesday’s early European session. 
• Fed’s Goolsbee said the central bank could take action if the economy deteriorated.  
• Traders await the Eurozone Retail Sales on Tuesday for fresh impetus, which is expected to ease to 0.1% YoY in June. 

The EUR/USD pair trades with mild losses around 1.0950 during the early European trading hours on Tuesday. The improved risk sentiment provides some support to the Greenback and caps the major pair’s upside. Traders will take more cues from the release of Eurozone Retail Sales, which is expected to ease to 0.1% YoY in June. 

The sell-off spread across the financial markets on Monday as investors were concerned about the recession in the US economy. This, in turn, dragged the US Dollar (USD) lower to the year-to-date lows near 102.15. However, a turnaround in the global risk sentiment alleviates some fears in the market. “Markets panicked after the U.S. employment report on Friday,” said Andrzej Szczepaniak, an economist at Nomura. Traders are now pricing in around 60% odds of emergency easing by the US Federal Reserve (Fed). 

On Monday, Chicago Fed President Austan Goolsbee noted that the Fed would respond if economic or financial conditions deteriorate. Any comments from Fed officials about earlier rate cuts might undermine the USD in the near term. 

On the bright side, the US ISM Service Purchasing Managers Index (PMI) came in stronger than expected, rising to 51.4 in July from 48.8 in June, data released by the Institute for Supply Management (ISM) showed Monday. 

Apart from a possible emergency Fed rate cut. Investors expect the European Central Bank (ECB) to reduce interest rates by 0.5 percentage points at its next meeting in September. The Eurozone Retail Sales on Tuesday might offer some hints about the economic condition in the Eurozone and the path of the ECB rate cut. In case of the stronger-than-expected readings, this could lift the Euro (EUR) against the USD. 

Reserve Bank of Australia (RBA) Governor Michele Bullock is speaking at a press conference following the central bank's August monetary policy decision announced on Tuesday.

Bullock is responding to questions from the media, as part of a new reporting format for the central bank starting this year.

At its August policy meeting, the RBA maintained the key interest rate at 4.35% for the sixth consecutive meeting.

Key quotes

developing story ....

Market reaction

AUD/USD is extending gains, underpinned by the above comments, up 0.45% on the day at 0.6524, as of writing.

Gold prices remained broadly unchanged in India on Tuesday, according to data compiled by FXStreet.

The price for Gold stood at 6,500.20 Indian Rupees (INR) per gram, broadly stable compared with the INR 6,500.47 it cost on Monday.

The price for Gold was broadly steady at INR 75,821.85 per tola from INR 75,820.16 per tola a day earlier.

FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.

(An automation tool was used in creating this post.)

• AUD/NZD remains stronger following the RBA’s decision to keep the Official Cash Rate at 4.35% at Tuesday’s meeting.
• The upside Australian Dollar could be retrained as the second-quarter inflation data has reduced odds for another RBA rate hike.
• The New Zealand Dollar struggles as the RBNZ is highly expected to deliver an early interest rate cut in October.

AUD/NZD extends its winning streak for the third successive session, trading around 1.0980 during the Asian hours on Tuesday. The AUD/NZD cross appreciates following the Reserve Bank of Australia’s (RBA) monetary policy decision to keep the Official Cash Rate (OCR) at 4.35% for the sixth time. Traders will likely pay close attention to RBA Governor Michele Bullock’s upcoming speech, which could offer insights into the board’s future policy direction.

The Australian Dollar (AUD) could struggle against its peers as the second-quarter inflation data has diminished expectations for another RBA rate hike. Markets estimate an RBA rate cut in November, a move anticipated much earlier than previously forecasted for April next year.

On the Kiwi front, expectations of an early interest rate cut by the Reserve Bank of New Zealand (RBNZ) put pressure on the Kiwi Dollar and support the AUD/NZD cross. This sentiment follows data showing that the domestic annual CPI rate dropped to its lowest level in three years for the June quarter. The RBNZ's next policy meeting is set for August 14, with markets partly anticipating a rate cut then and fully expecting one by October.

Traders will likely watch the release of China’s July Consumer Price Index (CPI) on Friday for new momentum. The CPI is expected to show a 0.4% year-on-year increase. A weaker-than-expected reading of an economic slowdown in China could affect both antipodean currencies, as China is a significant trading partner for Australia and New Zealand.

• AUD/JPY attracts some buyers and builds on the overnight recovery from the YTD low.
• The risk-on impulse undermines the safe-haven JPY and lends some support to the cross.
• The RBA’s decision to leave interest rates unchanged does little to provide any impetus.

The AUD/JPY cross gains strong positive traction during the Asian session on Tuesday, albeit struggles to capitalize on the move and attracts some intraday sellers near the mid-95.00s. Spot prices, meanwhile, stick to modest intraday gains around the 94.50 level and move little after the Reserve Bank of Australia (RBA) announced its decision.

As was widely anticipated, the Australian central bank decided to leave the Official Cash Rate (OCR) unchanged at 4.35% at the end of the August policy meeting. Traders, however, await more cues about the RBA's next policy move amid stubbornly high inflation. Hence, the market focus will remain glued to the post-meeting press conference, where comments by the RBA Governor Michele Bullock will influence the Australian Dollar (AUD) and provide some impetus to the AUD/JPY cross. 

In the meantime, the risk-on impulse – as depicted by a relief rally across the global equity markets – is seen undermining the safe-haven Japanese Yen (JPY) and lending some support to the risk-sensitive Aussie. That said, a rise in Japan's real wages in June for the first time in more than two years bodes well with market expectations that the Bank of Japan (BoJ) will tighten monetary policy again. This, in turn, should help limit deeper JPY losses and cap gains for the AUD/JPY cross. 

Apart from this, worries about a slowdown in China – the world's second-largest economy – warrant caution before placing aggressive bullish bets around the China-proxy AUD. Hence, it will be prudent to wait for strong follow-through buying before confirming that the AUD/JPY cross has formed a near-term bottom. Nevertheless, spot prices, for now, seem to have snapped a five-day losing streak to the lowest level since March 2023, around the 90.15-90.10 region touched on Monday.

• GBP/USD posts modest gains around 1.2770 in Tuesday’s Asian session. 
• The negative bias of the pair remains intact, with bearish RSI indicator. 
• The immediate resistance level is seen at 1.2840; the first downside target is located at 1.2735. 

The GBP/USD pair trades with mild losses near 1.2770 during the Asian trading hours on Tuesday. The modest recovery of the US Dollar (USD) helps limit the pair’s losses after retracing to 1.2710 in the previous session.  

According to the 4-hour chart, the major pair keeps the bearish vibe unchanged, with the price holding below the key 100-period Exponential Moving Average (EMA). The downward momentum is also supported by the Relative Strength Index (RSI) which stands below the 50-midline near 44.0, supporting the sellers for the time being. 

The lower limit of the Bollinger Band at 1.2735 acts as an initial support level for GBP/USD. A breach of this level will expose the 1.2700-1.2710 region, portraying a low of August 2 and a psychological mark. The additional downside filter to watch is 1.2615, a low of July 2. 

On the bright side, the first upside target will emerge at 1.2840, s high of August 2. Further north, the next hurdle is seen at 1.2887, the 100-period EMA. A break above this level will see a rally to 1.3038, the upper boundary of the Bollinger Band.  

GBP/USD 4-hour chart

• Silver prices depreciate as a widespread selloff in financial markets reduces the metal's safe-haven appeal.
• The non-yielding Silver may strengthen as the Fed is expected to deliver a 50-basis point rate cut in September.
• San Francisco President Mary Daly noted that there is openness to the possibility of cutting rates in upcoming meetings.

Silver price (XAG/USD) remains tepid, trading around $27.20 per troy ounce during the Asian session on Tuesday. Growth concerns in the United States (US) have led to a broad selloff in financial markets, dampening the safe-haven appeal of the metal. Recent disappointing US labor market data has heightened fears that the Federal Reserve may be lagging in preventing an economic downturn.

However, the downside of non-yielding metals like Silver could be restrained due to the expectation of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September. The CME FedWatch tool shows a 74.5% probability of this rate cut at the September meeting, up sharply from the 11.4% chance reported just a week ago. Lower yields on investments could drive investors to choose assets with better returns.

According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”

Additionally, the geopolitical tensions in the Middle East could have provided support for the safe-haven demand of Silver. Israeli airstrike hit two schools and resulting in at least 30 casualties on Sunday, according to Palestinian officials. This escalation follows a round of talks in Cairo that ended without progress, as reported by Reuters.

Israel and the United States are preparing for a potential escalation in the region following Iran and its allies, Hamas and Hezbollah, pledging retaliation against Israel for the killing of a Hamas leader.

• EUR/JPY gains strong positive traction, albeit it struggles to find acceptance above the 160.00 mark.
• The risk-on impulse undermines the safe-haven JPY and prompts short-covering around the cross.
• The divergent BoJ-ECB policy outlook warrants some caution before positioning for further upside.

The EUR/JPY cross builds on the previous day's goodish bounce from the 154.40-154.35 region, or the YTD low and scales higher during the Asian session on Tuesday. Spot prices, however, retreat nearly 100 pips from the daily top and currently trade around the 159.25-159.20 region, still up over 0.80% for the day.

A positive turnaround in the risk sentiment – as depicted by a relief rally across the global equity markets – undermines demand for the safe-haven Japanese Yen (JPY) and prompts some follow-through short-covering around the EUR/JPY cross. That said, a combination of factors helps limit deeper JPY losses, which, along with the divergent Bank of Japan (BoJ)-European Central Bank (ECB) policy expectations, fails to assist spot prices to capitalize on the strength beyond the 160.00 psychological mark.

Against the backdrop of China's economic woes, the incoming US macro data suggested that the world's largest economy was slowing faster than initially expected. This, along with geopolitical risks stemming from the ongoing conflicts in the Middle East, should keep a lid on the market optimism. Furthermore, bets that the BoJ will tighten monetary policy again, bolstered by a rise in Japan's real wages in June for the first time in more than two years, contribute to capping gains for the EUR/JPY cross. 

Official data released earlier today showed that Japan's inflation-adjusted real wages increased by 1.1% in June, while nominal pay grew by 4.5% or the fastest pace in nearly three decades. Moreover, public broadcaster NHK reported that the Japanese labour ministry has decided to raise the national average minimum wage by about 5% – the biggest ever jump. This bodes well with the BoJ's plan to steadily raise interest rates and warrants some caution before placing bullish bets around the EUR/JPY cross.

Japan’s Chief Cabinet Secretary Yoshimasa Hayashi said on Tuesday that “wage rises will likely spread to part-timers, small businesses toward autumn with strong Shunto results and minimum pay hikes.”

Additional comments

Market reaction

At press time, USD/JPY continues to hold the renewed upside near 145.30, adding 0.85% on the day.

• The Japanese Yen pulls back from six-month highs due to slowing unwinding of carry trades.
• The downside of the JPY could be limited due to increasing odds of further rate hikes by the BoJ.
• The US Dollar faces challenges from rising expectations of a 50-basis point rate cut by the Fed in September.

The Japanese Yen (JPY) retreated from its six-month highs on Tuesday as the unwinding of carry trades slowed. However, the JPY strengthened against the US Dollar (USD) due to growing expectations that the Bank of Japan (BoJ) may implement further monetary policy tightening.

The Bank of Japan raised its short-term rate target by 15 basis points (bps), adjusting it to a range of 0.15%-0.25%. Furthermore, the central bank announced a plan to cut its monthly purchases of Japanese government bonds (JGBs) to ¥3 trillion, starting in the first quarter of 2026.

The upside potential for the USD/JPY pair may be constrained as the US Dollar encounters headwinds from increasing expectations of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September. The CME FedWatch tool shows a 74.5% probability of this rate cut at the September meeting, up sharply from the 11.4% chance reported just a week ago.

Daily Digest Market Movers: Japanese Yen may rise further due to hawkish mood surrounding BoJ

• Japan’s Labor Cash Earnings data showed a 4.5% year-on-year increase in average income for June, surpassing both the previous 2.0% and the expected 2.3% readings. This is the highest increase since January 1997, reinforcing Japan's transition toward a rising interest rate environment.
• According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”
• Chicago Fed President Austan Goolsbee stated on Monday that the US central bank is prepared to act if economic or financial conditions worsen. Goolsbee emphasized, "We're forward-looking about it, and so if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.” according to Reuters.
• US ISM Services PMI rose to 51.4 in July, from the previous reading of 48.8. The index has exceeded the market expectation of 51.0 reading.
• The minutes from the Bank of Japan's June meeting showed that some members expressed concerns about rising import prices due to the recent decline in the JPY, which could pose an upside risk to inflation. One member noted that cost-push inflation might intensify underlying inflation if it results in higher inflation expectations and wage increases.
• US Nonfarm Payrolls (NFP) increased by 114K in July from the previous month of 179K (revised down from 206K). This figure came in weaker than the expectation of 175K, data showed on Friday. Meanwhile, the US Unemployment Rate rose to the highest level since November 2021, coming in at 4.3% in July from 4.1% in June.
• The Bank of Japan (BoJ) released the full version of its Quarterly Outlook Report on Thursday, noting that there is a possibility wages and inflation could exceed expectations. This could be accompanied by rising inflation expectations and a tight labor market.
• Last week, Reuters reported that Japan’s Ministry of Finance confirmed suspicions of market intervention by authorities. In July, Japanese officials spent ¥5.53 trillion ($36.8 billion) to stabilize the Yen, which had fallen to its lowest level in 38 years.

Technical Analysis: USD/JPY advances to near 145.00

USD/JPY trades around 145.20 on Tuesday. The daily chart analysis shows that the pair has halted its losing streak that began on July 30. The 14-day Relative Strength Index (RSI) is below 30, indicating that the currency pair is oversold and may experience a short-term rebound.

The USD/JPY pair may test the throwback support at the 140.25 level, a point observed in December.

On the upside, the USD/JPY pair might encounter resistance at the nine-day Exponential Moving Average (EMA) around 149.22. A break above this level could diminish the bearish bias and allow the pair to test the "throwback support turned resistance" at 154.50, followed by the 50-day EMA at 155.58.

USD/JPY: Daily Chart

• WTI attracts some buyers on Tuesday amid rising geopolitical tensions in the Middle East. 
• China’s economic woes, along with US recession fears, keep a lid on any meaningful upside.
• The USD draws support from rebounding US bond yields and contributes to capping gains.

West Texas Intermediate (WTI) US crude Oil prices edge higher during the Asian session on Tuesday and recover further from a multi-month low, around the $71.20-$71.15 region touched the previous day. The commodity, however, struggles to capitalize on the move beyond the $74.00 mark and currently trades with only modest intraday gains, just above mid-$73.00s.

Iran, Hamas and the Lebanese group Hezbollah pledged to retaliate against Israel for last week’s assassination of Hamas political chief Ismail Haniyeh in Tehran. This keeps the risk of a broader Middle East conflict in play and fuels concerns about supply disruptions from the key Oil producing region. Apart from this, subdued US Dollar (USD) price action, amid rising bets for a bigger interest rate cut by the Federal Reserve (Fed), turn out to be key factors acting as a tailwind for Crude Oil prices. 

The intraday positive move, however, lacks bullish conviction in the wake of worries about an economic downturn and slowing demand in China – the world's top oil importer. Adding to this, the incoming softer US macro data suggested that the world's largest economy was slowing faster than initially expected, which, in turn, could hurt fuel demand. This, in turn, is holding back traders from placing aggressive bullish bets around Crude Oil prices and keeping a lid on any meaningful appreciating move. 

The aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the black liquid has bottomed out in the near term. In the absence of any relevant US economic releases on Tuesday, fresh geopolitical developments surrounding the ongoing conflicts in the Middle East will continue to influence Crude Oil prices. Apart from this, the American Petroleum Institute (API) report on US Oil inventory might provide some impetus to the commodity.

• The Indian Rupee edges higher in Tuesday’s early Asian session. 
• India’s foreign outflows and the unwinding trade in major Asian peers might continue to undermine the INR. 
• All eyes will be on the RBI interest rate decision on Thursday.

The Indian Rupee (INR) recovers on Tuesday amid the decline of the US Dollar (USD). The upside of the local currency might be limited as risk sentiment is likely to influence the markets. On Monday, the INR fell to an all-time low at the open as traders feared a looming US recession that could lead to further foreign outflows from India and other emerging markets. Additionally, the unwinding trade amid a rally in the Chinese Yuan and Japanese Yen could create a headwind for the Indian Rupee. 

Nonetheless, the expectations of deeper rate cuts by the Federal Reserve (Fed) could exert some selling pressure on the Greenback and drag the pair lower. Market participants expect the US central bank to cut its interest rate by 50 basis points (bps) in both September and November and another quarter-point cut in December. Traders will closely monitor the Reserve Bank of India (RBI) interest rate decision on Thursday. The RBI is anticipated to keep the repo rate unchanged at 6.5% due to risks from higher food inflation.

Daily Digest Market Movers: Indian Rupee rebounds, potential upside seems limited

• Indian HSBC Services PMI declined to 60.3 in July from 60.5 in the previous reading, weaker than the 61.6 estimated. 
• The US ISM Service Purchasing Managers Index (PMI) rose to 51.4 in July from 48.8 in June. This figure came in better than the estimation of 51.0.
• The US S&P Global Composite PMI was worse than expected, declining to 54.3 in July versus 55 prior. 
• Chicago Fed President Austan Goolsbee said on Monday that the US central bank would respond if economic or financial conditions deteriorate.
• San Francisco Fed President Mary Daly stated that the central bank will monitor if the next job market report reflects the same dynamic or reverses, adding that the Fed is prepared to act as they get more information.
• Financial markets are now pricing in nearly 85% possibility that the Fed will cut the rate by 50 basis points (bps) in September, up from only 11.5% last week, according to the CME FedWatch Tool.

Technical analysis: USD/INR’s constructive bias remains in place

Indian Rupee trades on a stronger note on the day. The bullish outlook of the USD/INR pair remains strong on the daily chart, with the pair holding above the key 100-day Exponential Moving Average (EMA) and being underpinned by the uptrend line since June 3. However, the 14-day Relative Strength Index (RSI) showed the overbought condition above the 70.0 zone, indicating that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation.

The immediate resistance level for the pair emerges at the 84.00 psychological level. Any follow-through buying above the mentioned level will see a rally to 84.50. 

On the flip side, the initial downside target is seen at the uptrend line around 83.78. A break below this level could pave the way to 83.51, a low of July 12. The crucial contention level is located at 83.47, the 100-day EMA. 

• Gold price edges higher and moves away from a one-week low touched on Monday. 
• Bets for a 50-bps Fed rate cut in September and geopolitical risks lend some support.
• A turnaround in the global risk sentiment and rebounding US bond yields could cap gains.

Gold price (XAU/USD) touched a one-week low on Monday, although it managed to defend and rebound from the 50-day Simple Moving Average (SMA) support around the $2,365-2,364 region. The incoming softer US macro data fueled worries about a downturn in the world's largest economy and raised expectations for bigger interest rate cuts by the Federal Reserve (Fed). This led to the recent slump in the US Treasury bond yields, which, along with the worsening Middle East crisis, offers some support to the safe-haven precious metal. 

That said, a turnaround in the risk sentiment – as depicted by a relief rally in the equity markets – could act as a headwind for the Gold price amid rebounding US bond yields, which offers support to the US Dollar (USD). Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of bullish traders and suggests that the path of least resistance for the XAU/USD is to the upside. Hence, weakness below the $2,400 mark might continue to attract buyers and remain limited in the absence of relevant US economic releases. 

Daily Digest Market Movers: Gold price draws support from bets for bigger Fed rate cuts and Middle East tensions

• The US macro data released last week showed that business activity in the manufacturing sector contracted more sharply than expected in July and jobs growth slowed more than anticipated last month.
• This sparks fear of a possible recession in the US and the prospects for a more aggressive policy easing by the Federal Reserve, which, in turn, triggered the recent steep decline in the US Treasury bond yields. 
• In fact, the yield on the benchmark 10-year US government bond slumped to its lowest level since mid-2023 as traders are now pricing in a near 100% chance of a 50-basis points Fed rate cut in September. 
• This, to a larger extent, overshadowed Tuesday's upbeat release of the US Services PMI, which improved to 51.4 in July from 48.8 in the previous month and surpassed consensus estimates for a reading of 51.
• Iran, Hamas and the Lebanese group Hezbollah pledged to retaliate against Israel for last week’s assassination of Hamas political chief Ismail Haniyeh in Tehran, further underpinning the safe-haven metal.
• That said, the risk-on impulse, along with rebounding US Treasury bond yields and a modest US Dollar uptick, fails to assist the commodity in attracting meaningful buyers during the Asian session on Tuesday.

Technical Analysis: Gold price looks to build on the overnight bounce from the 50-day SMA pivotal support

From a technical perspective, the overnight bounce reaffirmed strong support near the 50-day SMA, currently pegged near the $2,365-2,364 area. This should now act as a key pivotal point for short-term traders, which if broken decisively should pave the way for an extension of the recent pullback from the vicinity of the all-time peak. Some follow-through selling below last week's swing low, around the $2,353-2,352 region, will reaffirm the negative bias and drag the Gold price to the $2,342 zone, or the 100-day SMA. A convincing break below the latter might shift the near-term bias in favor of bearish traders and prompt aggressive technical selling. 

On the flip side, the $2,430 level could offer some immediate resistance ahead of the $2,448-2,450 horizontal zone. The next relevant hurdle is pegged near the $2,468-2,469 region, above which the Gold price could aim to challenge the all-time top near the $2,483-2,484 area touched in July. The latter is followed by the $2,500 psychological mark, which if cleared decisively will set the stage for a further near-term appreciating move.

• The Australian Dollar advances ahead of Tuesday’s RBA policy decision.
• The RBA is expected to maintain the Official Cash Rate at 4.35% for the sixth consecutive meeting.
• The US Dollar declines as recent downbeat labor data fuels odds of a Fed rate cut in September.

The Australian Dollar (AUD) recovers its recent losses ahead of the Reserve Bank of Australia's (RBA) monetary policy decision scheduled for Tuesday. The RBA is widely anticipated to maintain the Official Cash Rate (OCR) at 4.35% for the sixth consecutive meeting. Traders will likely closely watch RBA Governor Michele Bullock's speech, which may provide insights into the Board's future policy direction.

The AUD faced challenges against the US Dollar (USD) due to central banks’ rapid policy adjustments and increasing fears of a hard landing for the US economy. Additionally, the second-quarter inflation data has diminished expectations for another RBA rate hike. Markets estimate an RBA rate cut in November, a move anticipated much earlier than previously forecasted for April next year.

The US Dollar loses ground as expectations grow for a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September. The CME FedWatch tool indicates a 74.5% probability of this cut occurring at the September meeting, a significant increase from the 11.4% chance reported a week earlier.

Daily Digest Market Movers: Australian Dollar advances ahead of RBA policy decision

• Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target, according to Reuters. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”
• Chicago Fed President Austan Goolsbee stated on Monday that the US central bank is prepared to act if economic or financial conditions worsen. Goolsbee emphasized, "We're forward-looking about it, and so if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.” according to Reuters.
• US ISM Services PMI rose to 51.4 in July, from the previous reading of 48.8 reading. The index has exceeded the market expectation of 51.0 reading.
• The Judo Bank Australia Composite PMI dropped to 49.9 in July from 50.2 in June, falling below the neutral 50 mark for the first time since January. The Services PMI decreased to 50.4 in July from 51.8 in June. While this represents the sixth consecutive month of expansion in services activity, the growth rate was marginal and the slowest observed in this sequence.
• US Nonfarm Payrolls (NFP) increased by 114K in July from the previous month of 179K (revised down from 206K). This figure came in weaker than the expectation of 175K, data showed on Friday.
• US Average Hourly Earnings eased to 0.2% month-over-month in the same reported period, below the market consensus of 0.3%. On an annual basis, the figure decreased to 3.6% from the previous reading of 3.8%.
• On Tuesday, China's Caixin Services Purchasing Managers Index (PMI) rose to 52.1 in July, from June's 51.2 reading. The index has exceeded the market expectation of a 51.4 reading. Last week, Caixin Manufacturing PMI posted a reading of 49.8 for July, falling short of the expected reading of 51.5 and the previous reading of 51.8. Since both nations are close trade partners, volatility in the Chinese economy can significantly impact the Australian market.

Technical Analysis: Australian Dollar moves above 0.6500

The Australian Dollar trades around 0.6520 on Tuesday. The daily chart analysis shows that the AUD/USD pair has breached above the descending channel, indicating a weakening of a bearish bias. The 14-day Relative Strength Index (RSI) is slightly up the oversold 30 level, which suggests a potential for more upward correction.

The AUD/USD pair could find immediate support around the throwback support of 0.6470 level, followed by the lower boundary of the descending channel around the level of 0.6450

On the upside, resistance is first encountered at the nine-day Exponential Moving Average (EMA) at 0.6540, followed by the "throwback support turned resistance" at 0.6575 level. A breakout above the latter could propel the AUD/USD pair toward a six-month high of 0.6798.

AUD/USD: Daily Chart

Japanese Finance Minister Shunichi Suzuki said on Monday that he sees bright aspects in the Japanese economy. Suzuki further stated that he will do his utmost to manage the economy and finance while cooperating with the Bank of Japan (BoJ). 

Key quotes

Market reaction

At the time of writing, USD/JPY is trading 0.80% higher on the day at 145.35.   

The People’s Bank of China (PBOC) set the USD/CNY central rate for the trading session ahead on Tuesday at 7.1318, as against the previous day's fix of 7.1345 and 7.1454 Reuters estimates.

• USD/JPY hovers around 145.40 in Tuesday’s early Asian session, up 0.83% on the day. 
• A series of downbeat US economic data raises concerns about the US economic downturn.
• An unwinding of Yen carry trades weighs on the pair. 

The USD/JPY pair recovers some lost ground near 145.40 after falling to the lowest level since January 2 around 141.68 during the early Asian session on Tuesday. The sell-off of the Greenback is triggered by fears of the US recession and expectations of deeper rate cuts by the Federal Reserve (Fed). 

Friday’s US employment data showed that the Unemployment Rate rose in July, sparking the likelihood that the US economy is heading into a recession. The markets expect the Fed to cut its interest rate by 50 basis points (bps) in both September and November and another quarter-point cut in December. 

Fed fund futures indicated investors priced in a near 99% possibility of a 50 bps cut in the September meeting, according to LSEG data. The expectation of more aggressive rate cuts from the Fed exerts some selling pressure on the US Dollar (USD) across the board.

Chicago Fed President Austan Goolsbee said on Monday that the Fed would respond if economic or financial conditions deteriorated. Meanwhile, San Francisco Fed President Mary Daly stated that the central bank will monitor if the next job market report reflects the same dynamic or reverses, adding that the Fed is prepared to act as they get more information.

On the other hand, the Japanese Yen (JPY) gains momentum as traders unwind carry trades. Furthermore, the expectation that the Bank of Japan (BoJ) will further tighten monetary policy after raising rates last week might boost the JPY in the near term. 

• NZD/USD rebounds to near 0.5955 in Tuesday’s early Asian session.  
• Traders raise pressure on the Fed to take more aggressive rate action. 
• The interest rate cut by the RBNZ in August cannot be ruled out, said BNZ analysts. 

The NZD/USD pair recovers some lost ground around 0.5955 after retracing to near 0.5850 during the early Asian session on Tuesday. The softer US Dollar (USD) broadly provides some support to the pair. The risk sentiment might influence the markets amid concerns over the likelihood that the US economy might tip into recession. 

Data released on Monday revealed that the US ISM Service Purchasing Managers Index (PMI) surprised to the upside and returned to the expansion zone, rising to 51.4 in July from 48.8 in June. This figure came in better than the estimation of 51.0. However, the S&P Global Composite PMI was worse than expected, declining to 54.3 in July versus 55 prior. A series of disappointing US economic data fuelled the fear of a looming US recession, which triggered the sell-off across the financial markets. 

The Federal Reserve (Fed) kept interest rates at 5.25% to 5.5% after its July meeting last week. Traders are now raising bets on emergency rate cuts. JPMorgan chief economist Michael Feroli noted that there is a "strong case to act before the next scheduled policy meeting on September 17-18. The markets are now pricing in nearly 85% chance that the Fed will cut the rate by 50 basis points (bps) in September, up from only 11.5% last week, according to the CME FedWatch Tool. This, in turn, exerts some selling pressure on the Greenback broadly and creates a tailwind for the NZD/USD pair. 

On the Kiwi front, BNZ analysts said that while they see the first Official Cash Rate (OCR) cut by the Reserve Bank of New Zealand (RBNZ) in November, they reiterated that they wouldn’t rule out an earlier start to OCR cuts, including at the Bank’s August meeting, which they see as live. 

Traders will monitor the release of the Chinese July Consumer Price Index (CPI) on Friday for fresh impetus, which is estimated to show an increase of 0.4% YoY in July. The weaker-than-expected reading or any signs of an economic slowdown in China could undermine the Kiwi as China is a major trading partner of New Zealand.

• EUR/USD bumped higher on Monday before easing back into range.
• European Retail Sales due on Tuesday, economic calendar remains thin.
• Softening US data keeps rate cut hopes pinned to the ceiling.

EUR/USD scrambled for higher ground on Monday, launching bids into 1.1000 before settling back into a familiar range near 1.0950 and failing to set a fresh high for 2024. Broad-market expectations for rate cuts from the Federal Reserve (Fed) have run well ahead of the curve, with investors hoping for an initial double-cut from the Fed in September.

Forex Today: Fed’s rate cut gathers pace

The economic calendar remains thin overall for the trading week, though European Retail Sales will be one last speedbump for the Fiber before markets can fully settle in for the long wait to September’s rate call season. Pan-EU Retail Sales are expected to ease to just 0.1% for the year ended in June compared to May’s YoY period of 0.3%.

Based on the CME’s FedWatch Tool, the rate markets are currently indicating an 85% probability of a 50 basis points double-cut from the Fed on September 18th. This change in sentiment follows mixed US data on Friday and Monday. The economic data calendar for the rest of the trading week is relatively light, which gives the markets some breathing space and time to analyze their current positions.

The US Composite Purchasing Managers Index (PMI) for July came in at 54.3, below the expected 55.0. On the other hand, the ISM Services PMI for the same period increased to 51.4, surpassing the expected 51.0 and returning to expansion territory above 50.0. Despite this, the ISM Services Prices Paid for July rose to 57.0 from 56.3, exceeding the market's anticipated decrease to 55.8. This indicates that inflation pressures at the business level are still present.

EUR/USD technical outlook

Fiber has once again broken out of the top end of a rough descending channel on daily candlesticks, but a lack of determined bullish momentum will likely leave bids to get swamped back into the 200-day Exponential Moving Average (EMA) at 1.0801.

Despite thin, overextended gains on the daily chart, price action has chalked in a rising pattern of higher lows, and bullish hopefuls will be looking to kick EUR/USD into a fresh bullish cycle after the pair spent most of 2024 churning in the midrange.

EUR/USD daily chart