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USD/MXN stays on the front foot, edging higher amid early Wednesday morning in Asia, after reversing from the weekly low the previous day. In doing so, the Mexican Peso (MXN) pair prints mild gains around 16.95 by the press time. It’s worth noting that the quote remains lackluster of late as traders await Federal Open Market Committee (FOMC) monetary policy meeting announcements.

That said, the USD/MXN pair’s previous day’s run-up could be linked to the options market bias as it failed to justify the US Dollar’s retreat from a two-week top.

US Dollar Index (DXY) reversed from a two-week high while snapping a five-day uptrend, falling to 101.26 at the latest.

Talking about the options market signals, the one-month Risk Reversal (RR) of the USD/MXN pair, a measure of the spread between call and put prices, marked a positive close of 0.080 number by the end of Tuesday’s North American trading session.

In doing so, the Mexican Peso pair also takes clues from the weekly RR as it prints 0.063 numbers while staying firmer for the second consecutive week.

Also read: USD/MXN recovers from weekly lows amid risk-on mood, awaits Fed decision

• EUR/USD fails to cheer US Dollar’s retreat as it stays pressured around two-week low after six-day downtrend.
• Downbeat EU data, U-turn from previous support line and bearish MACD signals keep Euro sellers hopeful.
• Multiple levels marked in April-May period test Euro bears ahead of the 1.1000 psychological magnet.
• Two-month-old rising support line, key DMA confluence appear important to watch during further downside.

EUR/USD holds lower grounds near 1.1050 amid early Wednesday morning in Asia, fading the bounce off a two-week low marked late Tuesday, as markets await the all-important Federal Open Market Committee (FOMC) monetary policy meeting announcements.

That said, the Euro pair dropped in the last six consecutive days despite the previous day’s US Dollar retreat as downbeat statistics from the bloc renew recession fears and prod the European Central Bank (ECB) hawks ahead of Thursday’s ECB Interest Rate Decision.

Also read: EUR/USD slumps amid EU’s recessionary fears ahead of Fed and ECB’s decisions

Technically, a clear U-turn from the 10-month-old previous support line, now resistance around 1.1290, joins the bearish MACD signals to keep the EUR/USD sellers hopeful.

However, a slew of levels marked during April and May, around the mid 1.1000s precede the monthly tops registered in February and June, respectively near 1.1030 and 1.1010, to challenge the Euro bears of late.

Following that, a two-month-old rising support line and a convergence of the 50-DMA and 100-DMA, close to 1.0940 and 1.0900 in that order, will be crucial to watch for the EUR/USD sellers.

On the flip side, a daily closing beyond April’s peak of near 1.1100 becomes necessary for the EUR/USD bulls to retake control.

Even so, the 1.1150 and the 1.1200 round figures may prod the Euro buyers before directing them to the support-turned-resistance line of around 1.1290.

EUR/USD: Daily chart

Trend: Limited downside expected

• USD/JPY loses momentum and holds below the 141.00 area in the early Asian session.
• Market anticipated that the Federal Reserve (Fed) would hike rates by 25 basis points (bps) to 5.25–5.50%.
• The Bank of Japan is expected to keep its monetary policy unchanged on Friday.

The USD/JPY pair drops below the 141.00 area after retreating from weekly highs of 141.81 ahead of the Federal Reserve (Fed) meeting. A 25 basis point (bps) rate hike is expected. However, market participants will keep an eye on Fed Chairman Jerome Powell press conference, which could hint at some clues about the possibility of interest rate guidance for the entire year. The major pair currently trades around 140.94, gaining 0.03% on the day.

About the data, the US Conference Board's Consumer Confidence Index increased to 117.0 in July from 110.1 (revised from 109.7), beating the market consensus. The one-year inflation expectation declined to 5.7%. Meanwhile, the S&P/Case-Shiller Home Price Index fell 1.7% YoY in May, while the FHFA's House Price Index climbed 0.7% MoM.

That said, the Fed is widely expected to raise its benchmark rate by another quarter-point on Wednesday. It is widely anticipated that the Fed will increase interest rates by 25 basis points (bps) to 5.25–5.50%. However, investors will take cues from the messaging in the monetary policy statement. A hawkish stance from the Fed could trigger the US Dollar against the Japanese Yen.

On the Japanese Yen front, the Cabinet Office said that inflation is seen at around 0.7% from 2027 to 2032, while for 2023 is expected at 2.6% and 1.9% in 2024. In terms of economic growth, the GDP figure is seen at 1.3% in 2023 and 1.2% in 2024.

The Bank of Japan (BoJ) will announce its monetary policy on Friday. BoJ Governor Kazuo Ueda put an end to speculation of a Yield Control Curve policy change and stated that there was still work to be done before the inflation objective of 2% was reached. 

These comments suggest that Japanese policymakers will likely maintain a dovish stance in order to keep inflation above 2% and are expected to keep their monetary policy unchanged on Friday. BoJ officials added that central banks prefer to examine more data before adjusting monetary policy. The monetary policy divergence between the BoJ and Fed might exert pressure on the Japanese Yen against its major rivals and could be a headwind for the USD/JPY pair.

Looking ahead, market players are now closely watching the Fed's monetary policy meeting on Wednesday. This key event could trigger volatility across financial markets. The focus will shift to the BoJ meetings scheduled for Friday. Investors will monitor this development and find opportunities around the USD/JPY pair.

Early Wednesday morning in Asia, Reuters reports that US 100-member Senate backed the amendment to the National Defense Authorization Act (NDAA) by 91 to 6. This means that the policymakers back legislation requiring US companies to report investment in China technologies like semiconductors and artificial intelligence (AI).

The news also mentioned that the NDAA is expected to become law later in the year and is a version of the Outbound Investment Transparency Act, offered by Democratic Senator Bob Casey and Republican John Cornyn to address the risks of U.S. investment going to foreign adversaries like China, per Reuters.

It should be noted that the latest NDAA amendment is a lighter version of the US Senate measures agreed in 2021 which failed to become law and were considered too rigid, suggesting brighter odds of the legislation reaching US President Joe Biden’s desk for signing and being a law.

Market reaction

Although the stated legislation is still a bit far from being the law, the news prods the previous risk-on mood and probes the risk-barometer AUD/USD pair near 0.6790, especially ahead of the cautious mood before the Federal Open Market Committee (FOMC) monetary policy meeting announcements.

Also read: AUD/USD Price Analysis: Holds gains but struggles at 0.6800, ahead of FOMC’s decision

• AUD/JPY stalls ahead of breaching the 96.00 level after rallying to a new three-week high at 95.86.
• If the resistance at 96.00 is breached, AUD/JPY could target the year-to-date (YTD) high of 97.67.
• A retreat below the July 10 high at 95.47 could see AUD/JPY accelerate its fall towards the Kijun-Sen line at 95.03, potentially dipping below the 95.00 mark.

AUD/JPY rallies to a new three-week high at 95.86, yet stalls ahead of breaching the 96.00 figure, at around 95.86, following an upside break of the Kijun-Sen line. Hence, the AUD/JPY has resumed its uptrend and trades at 95.66, almost flat as the Asian session begins.

AUD/JPY Price Analysis: Technical outlook

The AUD/JPY uptrend remains intact but faces strong resistance at around 96.00. Traders are bracing for the US Federal Reserve (fed) monetary policy later at around 18:00 GMT and also for the Australian inflation figures, which could trigger a reaction in the pair,

If the AUD/JPY breaks the first resistance at 96.00, the next ceiling level would be the July 5 high at 96.83 before hitting 97.00. Once that level is cleared, the AUD/JPY would be poised to test the year-to-date (YTD) high of 97.67.

Conversely, if AUD/JPY retreats below the July 10 high turned support at 95.47, the pair would accelerate its fall toward the Kijun-Sen line at 95.03 before dipping below the 95.00 figure. Next support emerges at the Tenkan- Sen line at 94.82 as the key support level.

AUD/JPY Price Action – Daily chart

• GBP/USD edges higher after reversing from two-week low, snapping seven-day losing streak.
• Cable rises as IMF keeps UK growth forecasts unchanged, BoE likely to announce two more rate increases in 2023 before policy pivot.
• US Dollar pullback, risk-on mood also allow Pound Sterling to better prepare for Fed announcements.

GBP/USD bulls take a breather around 1.2900 during early Wednesday morning in Asia, reversing from a two-month low, as well as snapping a seven-day-long losing streak, amid the broad US Dollar pullback. Apart from that, the International Monetary Fund’s (IMF) economic projections for the UK and Reuters’ poll about the Bank of England’s (BoE) next move also propel the Cable pair.

That said, the risk-on mood allowed the US Dollar to retreat from a multi-day high. Also weighing on the greenback, as well as fueling the Pound Sterling price, could be the market’s preparations for today’s Federal Open Market Committee (FOMC) monetary policy meeting announcements.

It’s worth noting that the upbeat statements from China Communist Party's Politburo meeting and China state planner National Development and Reform Commission (NDRC), suggesting more stimulus from Beijing, bolstered the sentiment the previous day. On the same line could be the recently downbeat statistics from the major economies which flag the end of the rate hike trajectory at the key central banks.

Elsewhere, the IMF sticks to 0.4% forecasts of the 2023 UK Gross Domestic Product (GDP) and relied on heaper energy, better relations with the European Union and calmer financial markets, per Reuters, as the key catalysts to propel the British Pound (GBP). Furthermore, the Reuters poll about the Bank of England’s (BoE) suggests that the Old Lady, as the BoE is informally known, is likely to announce two more rate hikes in 2023, which in turn favor GBP/USD bulls.

Additionally, Reuters’ news stating China state banks’ defense of the Yuan (CNY), by selling the US Dollar, also seemed to have weighed on the US Dollar. That said, the US Dollar Index (DXY) reversed from a two-week high by falling to 101.26 at the latest.

On a different page, the risk-on mood fails to justify upbeat US data as the US Conference Board (CB) Consumer Confidence jumped to 117.0 for July from 110.10 prior (revised) versus market forecasts of 112.10. The survey details unveiled that the one-year consumer inflation expectations edged lower to 5.7% while the Present Situation Index and  Consumer Expectations Index rose to 160.0 and 88.3 in that orders for the said month. That said, the US Housing Price Index for May reprinted the 0.7% MoM growth compared to analysts’ estimation of 0.2% whereas the S&P/Case-Shiller Home Price Indices also repeated the -1.7% YoY figures for the said month versus -2.2% expected.

While portraying the mood, Wall Street benchmarks closed on the positive side for the second consecutive day while the US 10-year Treasury bond yields rose to the highest levels in three weeks before ending Tuesday’s trading near 3.89%.

Moving on, a light calendar at home and the pre-Fed anxiety may allow the GBP/USD pair to consolidate the recent gains. However, the risk catalysts can entertain the Cable pair ahead of the Fed announcements.

Technical analysis

An upside break of an eight-day-old descending resistance line, now immediate support around 1.2875, allows GBP/USD to remain bullish on a key day. That said, the 1.3000 psychological magnet will lure the Cable pair buyers past 1.2875.

• NZD/USD bulls take a breather after two-day winning streak.
• US Dollar fails to cheer upbeat CB Consumer Confidence, housing data and firmer yields as markets brace for Fed.
• Hopes of witnessing more stimulus from China, nearness to policy pivot at major central banks bolster market sentiment of late.
• No major data at home, required Kiwi traders to watch Aussie Inflation, risk catalysts for probable signals.

NZD/USD remains on the front foot around 0.6220 despite the latest pre-Fed inaction amid early Wednesday morning in Asia. That said, the Kiwi pair rose in the last two consecutive days amid a risk-on mood and the US Dollar’s pullback ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting announcements.

Chinese policymakers' signal for another round of heavy stimulus to defend the world’s second-largest economy from losing the post-COVID recovery seemed to have favored the market sentiment, especially in the Asia-Pacific zone on Tuesday. On the same line could be the recently downbeat statistics from the major economies which flag the end of the rate hike trajectory at the key central banks. Furthermore, the International Monetary Fund’s (IMF) upward revision to the global growth forecasts also helped improve the market sentiment and the NZD/USD price.

With the risk-on mood dimming the US Dollar’s haven demand, the greenback dropped the previous day. Apart from the firmer sentiment, Reuters’ news stating China state banks’ defense of the Yuan (CNY), by selling the US Dollar, also seemed to have weighed on the US Dollar. That said, the US Dollar Index (DXY) reversed from a two-week high by falling to 101.26 at the latest.

While portraying the mood, Wall Street benchmarks closed on the positive side for the second consecutive day while the US 10-year Treasury bond yields rose to the highest levels in three weeks before ending Tuesday’s trading near 3.89%.

Talking about the US data, US Conference Board (CB) Consumer Confidence jumped to 117.0 for July from 110.10 prior (revised) versus market forecasts of 112.10. The survey details unveiled that the one-year consumer inflation expectations edged lower to 5.7% while the Present Situation Index and  Consumer Expectations Index rose to 160.0 and 88.3 in that orders for the said month. That said, the US Housing Price Index for May reprinted the 0.7% MoM growth compared to analysts’ estimation of 0.2% whereas the S&P/Case-Shiller Home Price Indices also repeated the -1.7% YoY figures for the said month versus -2.2% expected.

Looking ahead, a light calendar at home and the pre-Fed anxiety may allow the NZD/USD pair to consolidate the recent gains. However, Australia’s headline Consumer Price Index (CPI) data for June, as well as for the second quarter (Q2), can join the risk catalysts to entertain the Kiwi pair.

Technical analysis

A daily closing beyond an eight-day-old descending resistance line, now immediate support around 0.6200, directs NZD/USD prices towards June’s high of near 0.6250. That said, the 50-DMA level of near 0.6170 acts as a strong downside support to watch for the quote’s weakness past 0.6200.

• Following a three-candle morning star pattern, further upside for the AUD/USD pair is expected, though pending Federal Reserve decisions could hinder this.
• Resistance is seen at 0.6800, with further obstacles at the July 20 high of 0.6846, the July 14 high of 0.6894, and the February 21 high of 0.6919.
• On the downside, initial support lies at the confluence of the 20- and 200-day EMA around 0.6752/51.

AUD/USD begins Wednesday’s Asian session with a minimal loss of 0.08% following a positive Tuesday’s session that witnessed the pair gaining 0.78% but failing to climb above the 0.6800 figure after bouncing from a daily low of 0.6725. As of writing, the AUD/USD exchanges hands at 0.6787.

AUD/USD Price Analysis: Technical outlook

In the last couple of days, after tumbling to a new two-week low of 0.6714, the AUD/USD stages a comeback following the formation of a three-candle morning star, warranting further upside is expected. However, fundamental news, mainly the US Federal Reserve (Fed) monetary policy decision looming, could negate its validity if Fed Chair Jerome Powell and Co. give a hawkish signal that could boost the greenback.

If AUD/USD extends its gains past 0.6800, the next resistance would be the July 20 daily high of 0.6846, followed by the July 14 high of 0.6894. A breach of the latter will expose the February 21 high at 0.6919, followed by the 0.7000 mark.

Conversely, if AUD/USD reverses its course, the first support to test would be the confluence of the 20-and 200-day EMA at around 0.6752/51. Once cleared, the next support would be the July 25 low of 0.6725, followed by the weekly low of 0.6714, with further downside risks emerging at 0.6700,

AUD/USD Price Action – Daily chart

• XAU/USD rebounds from 4 consecutive days of losses and jumped above the 100-day SMA.
• Uncertainty ahead of the FOMC press conference and the Fed's monetary policy statement boosted gold prices.
• The US reported solid Housing and Manufacturing sector data.

After a lacklustre start to the week for the XAU/USD, it traded with gains in Tuesday's session, jumping above $1,960 with 0.50% gains. Ahead of the Federal Reserve (Fed) decision on Wednesday, the American yields are trading mixed, with the 2-year rate showing a 1% decline but the 10-year slightly rising to 3.88%.

On the data front, the Housing Price Index from the Federal Housing Agency and S&P/Case-Shiller Home Price Indices (YoY) for May came in higher than expected at 0.7% and -1.7%, respectively. The Richmond Fed Manufacturing Index from July came in at -9, slightly better than the expected -10. 

That being said, tightening expectations by the Fed remain unchanged. According to the CME FedWatch tool, markets have priced in a 25 basis point (bps) hike on Wednesday but aren’t sure about the next steps after July. In that sense, the messaging from the monetary policy statement and Jerome Powell’s stance will set the pace of the bond markets fuelling volatility on the non-yielding metals.

XAU/USD Levels to watch

If the buyers consolidate above the 100-day Simple Moving Average (SMA), the technical outlook for the XAU/USD will be bright. The Relative Strength Index (RSI) stands in positive territory, pointing north, while the Moving Average Convergence Divergence (MACD) prints green bars suggesting that the bulls are gaining strength. 

Resistance levels: $1,970, $1,980, $1,990.
Support levels: $1,965 (100-day SMA), $1,940, $1,900.

XAU/USD Daily chart

• A correction into Silver's Fibonacci scale is underway.
• A break of $24.1062 opens risk of a move into test $23.0000 and below. 

Silver traded positively ahead of the Federal Open Market Committee announcement on Wednesday where it is widely expected to hike 25bp.

''A follow-up hike is partially priced in over H2, but we think tomorrow will be the last hike this cycle. That said, we also expect the FOMC statement and Fed Chair Powell’s press conference to err on the hawkish side where he may re-iterate that back-to-back rate rises are on the table if required. Crucially, he needs to stress that fed funds will remain elevated for an extended period to squeeze inflation,'' analysts at ANZ explained ahead of the event. However, signs that inflation is abating have seen investors increasingly bet on interest rates peaking soon which could be a positive outcome for the precious metals. 

Meanwhile, from a technical perspective, Silver could be about to collapse as follows:

Silver daily chart

The price came into the old resistance area and has been rejected leaving an M-formation on the charts. 

A correction into the Fibonacci scale is underway, but there could be resistance through a 50% mean reversion. A break of $24.1062 opens risk of a move into test $23.0000 and below. 

• Mixed PMI data from the US tempers some optimism, with the market now eyeing ISM Manufacturing and Services PMI release in August.
• Eurozone PMI data points to a deepening recession, exacerbated by downward inflation trends and shifting stances amongst ECB’s hawkish members.
• Deteriorating German business confidence adds to the bearish outlook for the Euro, compounding economic struggles in the bloc’s largest economy.

The EUR/USD slides for the fifth straight session as recessionary Eurozone (EU) fears arose. Simultaneously, traders prepare for the release of the US Federal Reserve (Fed) monetary policy decision on Wednesday, followed by the European Central Bank (ECB) on Thursday. The EUR/USD is trading at 1.1051 after hitting a daily high of 1.1086.

Economic indicators and central bank meetings on both sides of the Atlantic poised to shape the currency pair’s movements

Wall Street continues to drive market mood, with earnings of mega-tech companies, like Microsoft and Google underpinning US bourses. Economic data from the United States (US) showed that consumer confidence is rising, despite foreseeing an upcoming recession in the US, as revealed by the Conference Board (CB) poll. That and house prices boosted the US Dollar (USD) early in the North American session, as the EUR/USD dived to a new weekly low of 1.1020.

The EUR/USD extended its fall on Monday after S&P Global PMIs in the US were mixed, as manufacturing activity improved, but services slumped. Nevertheless, the three-point rise in Manufacturing PMI, from 46.1 to 49, cushioned the Composite PMI reading to 52, from June’s 53.2. Even though figures painted an optimistic outlook in the US, traders would eye the ISM Manufacturing and Services PMI release at the beginning of August.

Contrarily, the Eurozone (EU) is portraying a dismal scenario with manufacturing activity across France, Germany, and the whole EU missing estimates and plunging deeper into recessionary territory, igniting fears that a recession can hit the bloc. Last week’s inflation data pointing downwards, and a sudden change of stance amongst ECB’s most hawkish members in Klas Knot and Joachim Nagel, shifting to a data-dependant mode, could weaken the Euro (EUR) in the near term.

In the meantime, early in the Europe session, business confidence in Germany slipped further, a headwind for the EUR/USD. Analysts warned that Germany’s economy is struggling to recover from a recession, as the Ifo Business Climate stood at 87.3, below the 88.0 consensus.

Given the backdrop, the Federal Reserve is expected to deliver a 25 bps rate increase, with traders eyeing Fed Chair Jerome Powell’s press conference for clues regarding the forward path of monetary policy. Across the pond, the ECB is also expected to lift rates by 25 bps on Thursday, but odds for September continued to diminish as the EU’s economy decelerates.

EUR/USD Price Analysis: Technical outlook

From a technical standpoint, the EUR/USD is neutrally biased, though it halted its ongoing downtrend at the 20-day Exponential Moving Average (EMA) at 1.1058. A daily close below the latter will expose key support levels, like the 1.1000 figure, followed by the 50-day EMA at 1.0966. Conversely, if EUR/USD buyers stepped in at that level, the major could edge toward the 1.1100 mark, followed by the test of the 1.1200 mark.

EUR/USD Daily chart

• The GBP/JPY rose towards 181.80, showing 0.80% gains on the day as bears are giving up.
• British yields are rising, but BoE tightening expectations remain subdued.
• Chinese economic stimulus announcements may provide support to the JPY.

On Tuesday, the GBP gained ground against the JPY, mainly because of rising British yields, which helped the pound trade with gains against most of its rivals. On the other hand, the JPY traded mixed against most of its rivals while markets eagerly await the Bank of Japan (BoJ) decision on Friday.

Ahead of next week’s Bank of England (BoE) decision, markets are not so confident that the bank will deliver a 50 basis point (bps) hike but discount 25 bps hikes in September, November and February, which would see the terminal rate at 5.75%. It's worth noticing that lower inflation figures reported from June and the fears of the UK slipping into a recession are making investors bet on a dovish BoE. However, Core inflation remains high, so the bank will likely attach to their hawkish policy making investors worry about how it could further weaken the economy.

On the Japanese side, the Bank of Japan (BoJ) will meet on Friday and deliver fresh economic projections. As for now, markets expect the bank to stick to its dovish stance, so monetary policy divergence could further weaken the JPY. In addition, the updated protections will be key as they will help investors to model their expectations regarding the bank's next steps. On the positive side for the Yen, the Chinese government announced that they would deliver an economic stimulus to the local economy to bolster local demand, which would benefit the Japanese economy and the JPY.

GBP/JPY Levels to watch

The daily chart shows a neutral to bullish outlook for the short term. On the positive side, the Relative Strength Index (RSI) is in positive territory, with a slightly positive slope, while the Moving Average Convergence Divergence (MACD) indicator prints mild fading red bars, indicating a fading bearish momentum. On the flip side, the buyers lost the 20-day Simple Moving Average (SMA), so as long as they don’t retake it, the upside potential is capped.

Resistance levels: 182.05 (20-day SMA),182.50,183.50.
Support levels: 181.00, 181.50,180.00.

GBP/JPY Daily chart

During the Asian session, Australia will release consumer inflation data, crucial ahead of next week's RBA meeting. Later in the day, the Federal Reserve will announce its decision, and Powell will deliver a press conference.

Here is what you need to know on Wednesday, July 26:

Another positive session for Wall Street, with the Dow Jones recording a 0.08% gain and the Nasdaq rising by 0.61%. The positive tone prevailed ahead of key events for markets, supported by hopes of more stimulus from China and for the near end of the tightening cycle from central banks. Stock investors will continue to digest earnings results, with Meta and Coca-Cola reporting on Wednesday.

The International Monetary Fund upgraded its global growth forecast but warned that the economy is “not out of the woods”. According to the institution, the risk of a crash landing has receded. They see a 3% growth for this year.

The US Dollar Index ended a five-day positive streak on Tuesday, the day before the FOMC decision, weakened by risk appetite and a modest decline in US bond yields. The DXY dropped from 101.60, the highest since July 12, falling below 101.30.

Market participants await the decision from the Federal Reserve. A 25 basis points rate hike is expected. If the Fed delivers as expected, the focus will change to the tone of the statement and Powell's guidance. New Home Sales data is due before the Fed.

Data from the US released on Tuesday showed the Conference Board's Consumer Confidence Index rose in July to 117.0 from 110.1 (revised from 109.7), surpassing expectations. The one-year inflation expected edged lower to 5.7%. The Housing Price Index rose 0.7% in May.

EUR/USD edged lower again and bottomed at 1.1018, the lowest in almost two weeks, before bouncing toward 1.1050. The German IFO survey reflected the deterioration in the growth outlook. The European Central Bank is expected to raise its key interest rates by 25 basis points on Thursday.

• German IFO Business Climate Index drops to 87.3 in July vs. 88.0 expected
• IFO’s Economist: German GDP likely to shrink in the 3rd quarter

GBP/USD rose after falling for seven consecutive days, rising to the 1.2900 area. EUR/GBP tumbled from 0.8625 to 0.8560, falling below the 20-day SMA and posting the lowest close in two weeks.

USD/JPY dropped, falling below 141.00, ahead of the Fed meeting amid lower Treasury yields. The Bank of Japan is expected to keep its monetary policy unchanged on Friday.

AUD/USD rose toward 0.6800, propelled by signs of more stimulus from China and risk appetite, extending the move to the upside after holding above the 20-day Simple Moving Average (SMA). Australia will release inflation data for the second quarter and June. The Monthly Consumer Price Index is expected to show a decline in the annual rate from 5.6% to 5.4%. This data is critical ahead of next week's Reserve Bank of Australia (RBA) meeting.

Australia CPI Preview: Forecasts from seven major banks, inflation data to be a key variable for the RBA

NZD/USD gained ground for the second day in a row on the back of the weaker US Dollar, retaking the 0.6200 mark. 

USD/CAD advanced marginally, ending far from the daily highs and below 1.3200. The pair remains moving sideways between 1.3220 (20-day SMA) and 1.3150.

Gold rose $10, ending above $1,960, helped by the slide of the US Dollar. Silver rose after three days and climbed to $24.65. The outcome of the Fed meeting is likely to trigger sharp volatility in metals on Wednesday. Crude oil prices rose more than 1%, with WTI reaching fresh three-month highs above $79.00.
 

• EUR/GBP could be on the verge of a bullish correction.
• EUR/GBP bulls eye the 61.8% ratio that aligns with the trendline resistance.

Sterling traded higher against both the US dollar and Euro on Tuesday. The Pound has staged a significant rebound after a seven-day losing streak, but bulls are moving into the EUR/GBP at the end of the US session as illustrated below: 

EUR/GBP H1 chart

The price could be on the verge of a bullish correction at this juncture and a move back into the shorts could be on the cards. We have the 50% mean reversion aligned with the prior structure as a meanwhile target to the upside before the bears take on last week's lows while on the front side of the bearish trendline. The 61.8% ratio aligns with the trendline resistance as a higher corrective target near 0.86 the figure. 

• The USD/CHF downtrend remains intact, with a path of least resistance downwards as long as it remains below the 61.8% Fibonacci retracement level at 0.8819.
• Sellers might extend their drive and test the year-to-date (YTD) low of 0.8554 if the pair crosses the 0.8600 mark.
• From an oscillator perspective, the downward aiming Relative Strength Index (RSI) and sellers' influence suggested by the three-day Rate of Change (RoC) align with the bearish bias.

USD/CHF retreats after reaching a daily high of 0.8700 and drops to a new two-day low amid a risk-on mood ahead of the US Federal Reserve (Fed) monetary policy decision. At the time of writing, the USD/CHF exchanges hands at 0.8640, down 0.59%.

USD/CHF Price Analysis: Technical outlook

The USD/CHF downtrend remains intact as long as the exchange rate stays below the May 4 daily low of 0.8819, confluence with the 61.8% Fibonacci (Fibo) retracement. Once that level is broken, the next resistance will emerge at the next confluence of the 50-day EMA and the 78.6% Fibo level at the 0.8875/0.8900 area, followed by the 0.9000 mark.

Nonetheless, the USD/CHF path of least resistance is downwards, as it resumed its fall to a fresh two-day low, past the 23.6% Fibo retracement at 0.8659. The following support emerges at the 0.8600 figure, and if sellers gather momentum, it could extend and test the year-to-date (YTD) low of 0.8554.

From an oscillator standpoint, the Relative Strength Index (RSI) aimed downward as the USD/CHF downtrend resumed, while the three-day Rate of Change (RoC) portrays sellers' entering the market.

USD/CHF Price Action – Daily chart

• GBP/USD bears are meeting demand at a 61.8% ratio support area.
• Bulls are in control front side of bullish trend into he Fed.

Sterling moved out of consolidation in the later part of the New York morning and is finding demand at a daily support area on the charts. However, at 1.1900, the pair is remaining precariously close to recent trend lows ahead of Wednesday's expected Fed 25bp hike.

A hawkish outcome could see GBP/USD back below Monday's low at 1.2799 as traders price a less-hawkish 25bp hike at the Bank of England's meeting on August 3.

The following illustrates the market structure on the daily chart and prospects of a move higher on a dovish outcome at the Fed:

GBP/USD daily chart

GBP/USD is still on the front side of the bullish trend and above last month's highs. Considering the long squeeze into the breakout traders of early July, at the 61.8% ratio, there is a case for the upside. However, it depends on the Fed. 

• USD/MXN bounces back from weekly lows, gaining 0.56% ahead of the anticipated Fed rate decision.
• Despite a surge in US Consumer Confidence, looming recession concerns and worsening Richmond Fed Manufacturing Index adds uncertainty.
• Mexico’s stalled Economic Activity in May overshadows the IMF’s recently improved growth forecast for 2023.

USD/MXN sustains losses after bouncing from weekly lows of 16.7992 due to a risk-on impulse. Simultaneously, traders brace for the US Federal Reserve (Fed) decision on Wednesday, which is expected to deliver another rate hike amid speculations its job is almost done. The USD/MXN is trading at 16.9188, gaining 0.56%.

Strong US Dollar due to the Fed monetary policy decision looming underpins the USD/MXN

US equities continued to trade in the green before the Fed’s decision. A measure of Consumer Confidence rose to a two-year high in July, as revealed by the Conference Board (CB), with the index coming at 117 from 110.1 in June, exceeding estimates of 111.8. Although it’s a positive sign, consumers’ perceptions of a recession increased over the following 12 months. Concurrently, other data showed that House Prices in the US climbed 2.8% YoY, its lowest since April 2012.

Meanwhile, the Richmond Fed revealed its Manufacturing Index, plunging to -9 from June’s -8, portraying a dismal outlook as shipments and new orders plummeted.

Despite mixed US data, market participants expect the Fed to hike 25 bps the Federal Funds Rate (FFR), but uncertainty arises about another increase, as said by some Fed policymakers ahead of their blackout period. Even so, the FOMC’s statement would provide the base for policy, and USD/MXN traders’ focus would remain on Fed Chair Powell’s press conference, which could give some clues regarding the future of monetary policy.

Another reason that acted as a tailwind for the USD/MXN is a strong US Dollar (USD), as depicted by the US Dollar Index (DXY). The DXY, which measures the USD performance against a basket of currencies, is almost flat at 101.375.

Across the south border, the Mexican economic docket revealed that Economic Activity stalled in May at 0% MoM, below 0.4% estimates, trailing April’s 0.9% expansion. Still annually based, the economy grew 4.3% in May in unadjusted terms, above April’s 2.7%.

The International Monetary Fund (IMF) recently updated Mexico’s 2023 growth forecasts from 1.8% in April to 2.6% in July.

USD/MXN Price Analysis: Technical outlook

The USD/MXN trend remains down, as shown by the daily chart. Although the USD/MXN bounced from yearly lows, the 20-day Exponential Moving Average (EMA) at 16.9530 is capping any upside attempts to lift the spot above the 17.00 figure, as the 20-day EMA is tracking price action closely, acting as a dynamic resistance. However, if USD/MXN buyers step in once they clear the 20-day EMA, that would expose the weekly high of 17.0500. A breach of the latter will expose the 50-day EMA at 17.2145, followed by May 17 low-turned resistance at 17.4038, ahead of the 100-day EMA at 17.6202. Failure to break initial resistance at the 20-day EMA, the USD/MXN could challenge the YTD low of 16.6899, ahead of dropping to 16.50.

USD/MXN Daily chart

• The EUR/JPY fell below the 20-day SMA towards the 155.70 area.
• Germany reported lower-than-expected IFO indexes.
• Chinese economic stimulus support the JPY.

On Tuesday, the EUR/JPY cross trades with losses for the second day in a row as the Euro weakened on negative the release of negative IFO indexes. On the other hand, the Japanese Cabinet Office released a fresh inflation forecast while markets await the new Bank of Japan (BoJ) projections on Friday. 

German yields drop amid negative outlook in the Euro area

Germany reported soft IFO indexes. The Business Climate Survey came in at 87.3, lower than the 88 expected and the previous 88.6, and the Current Assessment, dropped to 91.3, below the 93 expected and the last 93.7. The Expectations index was 83.5, higher than the 83 expected but below the previous 83.8.

As a reaction, the EUR is trading losses against most of its rivals, including the USD, GBP, CHF and AUD. In addition, ahead of Thursday’s European Central Bank (ECB) meeting, the 2-year German bond yield dropped to 3.21%, which applied further pressure on the Euro. Regarding the decision, markets await a 25 basis point (bps) hike, but the odds of another hike in September fell to 50% according to the World Interest Rate Probabilities (WIRP) tool. However, the odds of hikes in October and December are largely priced in. In that sense, the bank’s messaging will be critical.

The Japanese Cabinet Office published its longer-term macroeconomic estimates, and in its baseline scenario, it expects headline inflation to be around 0.7% from FY27 to FY32. The report also presented a more optimistic growth scenario in which inflation reaches 2% by FY26 and remains there for the remainder of the 10-year horizon. This comes ahead of Friday’s Bank of Japan (BoJ) meeting, where markets expect policymakers to maintain their dovish stance and updated macroeconomic projections.

In addition, the JPY got a boost on the announcements of China (its leading trading partner) taking up economic policies to bolster economic activity.

EUR/JPY Levels to watch

After losing the 20-day Simple Moving Average (SMA) on the daily chart, further downside may be on the horizon. In addition, technical indicators are pointing south, with the Relative Strength Index (RSI) pointing south near its midline. At the same time, the Moving Average Convergence Divergence (MACD) printed a rising red bar, suggesting that the bears are in command for the short term. 

Support level: 156.00, 155.50, 155.00.
Resistance levels: 156.40 (20-day SMA), 157.00, 157.50. 

EUR/JPY Daily chart

• WTI jumped above $79.00, but RSI and MACD point at overbought condition.
• China announced that they implement economic stimulus to bolster local demand.
• All eyes are now on Wednesday's Federal Reserve (Fed) decision.

The West Texas Intermediate (WTI) records a four-day winning streak on Tuesday, but the upside may be limited to technical indicators starting to flash overbought conditions. Chinese economic stimulus supported Oil prices while focus in the markets shifts to Wednesday’s Federal Reserve (Fed) decision.

Earlier in the day, Chinese news agency Xinhua reported that the Politburo - the ruling Communist Party's top decision-making body - announced they will take up economic policy adjustments to raise domestic demand and bolster confidence. As China is the world's biggest oil importer, a more robust local economy would boost energy prices, increasing the black gold price.

On the other hand, all eyes are on Wednesday’s Federal Reserve (Fed) decision. Markets expected Chair Powell to deliver a 25 basis point (bps) hike to 5.25% and a data-dependent message. According to several analysts, as the US economy is holding resilient and the labour market still shows tightness, the Federal Open Market Committee (FOMC) won’t be so comfortable taking off the table an additional hike past July. In that sense, messaging in the policy statement and Powell’s presser will be key.

WTI Levels to watch

According to the daily chart, the WTI’s upside may be limited as indicators leap towards overbought conditions. The Relative Strength Index (RSI) stands in positive territory near 70.00 while the Moving Average Convergence Divergence (MACD) prints green bars since late June, suggesting that a downward correction may be on the horizon. That being said, the overall outlook for the WTI is bullish as it tardes above its main Simple Moving Averages (SMAs) of 20,100 and 200-days and the cross between the 20 and 100 day averages suggest that the bulls are in command.  

Resistance levels: $80.00,$81.00,$82.60.
Support levels: $76.75 (200-day SMA), $73.90 (20-day SMA),$73.50 (100-day SMA).

WTI Daily chart

• The NZD/USD rose above 0.6200 despite the USD holding its foot. 
• The US reported better-than-expected Confidence and Housing data ahead of the FOMC decision.
• China’s support package policies announcements boosted the NZD.

On Tuesday, the NZD/USD escalated higher despite the USD trading resilient against most of its partners. Ahead of Wednesday's Federal Reserve (Fed) decision, the US reported robust data which could limit the pair’s upside. On the Kiwi’s side, the NZD seem to be strengthening on the Chinese announcement of an economic support package that would benefit the Asian block.

Investors assess Confidence and Housing data ahead of FOMC decision

The US reported solid Housing and Consumer Confidence data from July. The Conference Board reported that individuals' confidence in economic activity jumped to 117, above the expected 112 and the previous 109.7. On the other hand, the S&P/Case-Shiller Home Price Index dropped but was lower than expected in May, coming falling by 1.7% vs -2.2% expected, while the Federal Housing Agency reported that its Housing Price Index increased by 0.7% in the same month, beating the consensus of 0.2%.

Ahead of the Federal Reserve (Fed) two-day meeting, markets await a 25 basis point (bps) hike and data-dependant approach by Chair Powell, as a robust economy and a tight labour market may make the Federal Open Market Committee consider another hike in September. 

In the meantime, the USD DXY Index continued to rise to 101.60 but then retreated towards 101.40, still holding gains while US Treasury yields traded mixed, with the 2-year rate slightly decreased to 4.90%.

NZD/USD Levels to watch

The outlook is tilted to the downside despite the pair tallying a two-day winning strike, according to the daily chart. The Relative Strength Index (RSI) stands below its midline while the Moving Average Convergence (MACD) prints rising red bars. However, if the bulls manage to hold above the 20 and 100-day Simple Moving Average (SMA) convergence above 0.6200, more upside may be on the horizon.

Resistance levels: 0.6230, 0.6250, 0.6270.
Support levels: 0.6200, 0.6190 (100-day SMA), 0.6150.

NZD/USD Daily chart

• Despite a recovery of 0.78% from its year-to-date (YTD) low of 1.3092, the USD/CAD remains below the intermediate resistance level of 1.3243.
• USD/CAD's first resistance would emerge at the 50-day EMA at 1.3293, on its way toward 1.3400.
• The pair key support levels lie at 1.3146, and YTD low at 1.3092.

USD/CAD recovers some ground during the North American session, up 0.20% but is struggling to break above solid resistance levels, impeding the pair from conquering the 1.3200 figure. The USD/CAD is trading at 1.3192 after hitting a daily low of 1.3146.

USD/CAD Price Analysis: Technical outlook

The USD/CAD daily chart portrays the pair as downward biased. However, since reaching a new year-to-date (YTD) low of 1.3092 on July 14, it enjoyed a recovery of 0.78%. Yet, it remains below the July 18 swing high of 1.3243, which is seen as an intermediate resistance level that, once broken, could pave the way for further upside.

If the above scenario plays out, the first resistance would be the 50-day Exponential Moving Average (EMA) at 1.3293 before breaking 1.3300 on its way to the confluence of the 200 and 100-day EMAs at 1.3362/1.3366. Upside risks lie at 1.3400.

Nevertheless, the path of least resistance for the USD/CAD is downwards, cushioned on the upside by the 20-day EMA at 1.3214. That said, the USD/CAD first support would be the weekly low of 1.3146, followed by the July 20 swing low of 1.3119. A breach of the latter will expose the YTD low of 1.3092.

USD/CAD Price Action – Daily chart

• USD/JPY retreats despite the rise in US Treasury bond yields and growing market confidence ahead of the Fed’s decision.
• A boost in US consumer confidence to a two-year high fails to steady USD/JPY as concerns about a potential recession persist.
• Projections from Japan’s Cabinet Office for modest inflation and GDP growth for 2023 and 2024 add further complexity to the currency’s trajectory.

USD/JPY retreats from weekly highs of 141.81 and falls toward current exchange rates amid a risk-on impulse, although US Treasury bond yields are rising. Traders brace for the US Federal Reserve (Fed) July meeting, which starts today and ends tomorrow, followed by the Fed Chair Jerome Powell press conference. At the time of writing, the USD/JPY exchanges hand at 141.05.

Risk-on impulse and rising US Treasury bond yield failed to boost the USD/JPY

Wall Street is trading with gains ahead of the Fed’s decision on Wednesday. The Conference Board (CB) latest US Consumer Confidence report rose to a two-year high in July, jumping to 117 from 110.1 in June and exceeding estimates of 111.8. Even though the news was positive, consumers’ perceptions about a possible recession over the next 12 months ticked up.

Other data witnessed the House Price Index for May in year-over-year figures (YoY) standing at 2.8%, above estimates of 2.6% but below the prior’s month data, while the Richmond Fed Manufacturing Index further deteriorated from -8 in June to -9.

The USD/JPY lost traction of the US 10-year Treasury note yield, up two basis points at 3.900%, while the major dropped some 0.28%. At the same time, the US Dollar Index (DXY), a measure of the greenback’s performance against a basket of peers, clings to 0.05% gains at 101.431.

On the Japanese front, the Cabinet Office updated its projections, which according to Brown Brothers Harriman (BBH) analyst Win Thin, are expected to be aligned with the Bank of Japan’s (BoJ) forecasts. Inflation is seen at around 0.7% from 2027 to 2032 as the baseline scenario, while for 2023 is estimated at 2.6% and 1.9% in 2024. Regarding economic growth, the office sees a 1.3% GDP growth in 2023 and 1.2% in 2024.

USD/JPY Price Analysis: Technical outlook

The USD/JPY daily chart shows the uptrend remains in play, but the ongoing pullback extending below the Kijun-Sen line at 141.15, could open the door for further weakness below the 141,00 figure. Next floor would be an upslope support trendline drawn from March lows of 129.64, at around 140.60/50, followed by the confluence of the Senkou Span A/B at around 140.37/35, followed by the Tenkan-Sen line at 139.59. On the other hand, to flip the trend and resume upwards, USD/JPY must reclaim 142.00, opening the door for further upside toward the year-to-date (YTD) high at 145.07.

Economists at Rabobank analyze AUD/USD outlook.

AUD/USD to struggle to return to this month’s highs

Economists at Commerzbank analyze how Wednesday’s Fed meeting could impact Gold price.

Fed meeting in focus

See – Gold Price Forecast: Confirmation of the Fed’s terminal federal fund rate will be a tailwind for XAU/USD – ANZ

Economists at TD Securities analyze USD outlook ahead of the Fed meeting.

Data trends should outweigh the Fed rhetoric and reinforce the pattern of USD selling

July has so far confirmed that the Brazilian Real and the Mexican Peso are comfortable at their strong levels against the Dollar for the time being. Economists at Commerzbank discuss BRL and MXN outlook.

Further appreciation potential is limited

• CB Consumer Confidence Index in the US rose further in July.
• US Dollar Index stays in positive territory slightly above 101.50.

Consumer sentiment in the US continued to improve in July, with the Conference Board's Consumer Confidence Index rising to 117.0 from 110.1 (revised from 109.7) in June.

Further details of the publication revealed that the Present Situation Index climbed to 160.0 from 155.3 and the Consumer Expectations Index advanced to 88.3 from 80. 

Finally, the one-year consumer inflation expectations edged lower to 5.7%.

Market reaction

The US Dollar preserves its strength following the upbeat consumer sentiment data. As of writing, the US Dollar Index was up 0.15% on the day at 101.55.

Australian Consumer Price Index (CPI) figures will be released on Wednesday, July 26 at 01:30 GMT and as we get closer to the release time, here are forecasts from economists and researchers of seven major banks regarding the upcoming inflation data.

Headline inflation is softening to 5.4% year-on-year in June vs. 5.6% in May. For Q2, headline is expected at 6.2% YoY vs. the prior release of 7.0% while Trimmed Mean is expected at 6.0% YoY vs. 6.6% in Q1.

NAB

ANZ

Westpac

TDS

SocGen

Citi

Wells Fargo

• EUR/USD remains under pressure and drops to 1.1025.
• Further losses could see the 1.1000 key level revisited.

EUR/USD remains well offered and navigates the lower end of the weekly range near the 1.1020 zone on Tuesday.

In light of the recent price action, further losses area expected to accelerate and could motivate the pair to revisit the psychological support at 1.1000 the figure. The loss of the latter exposes a deeper correction to the interim 55-day and 100-day SMAs at 1.0899 and 1.0889, respectively.

Looking at the longer run, the positive view remains unchanged while above the 200-day SMA, today at 1.0699.

EUR/USD daily chart

• DXY reaches new 2-week highs around 101.60.
• Next on the upside comes the 102.60 region.

DXY picks up further impulse and records new multi-session peaks around 101.60 on Tuesday.

The index should clear the 102.60 zone, where the provisional 55-day and 100-day SMAs converge, to alleviate the downside pressure and allow a potential test of the July high in the mid-103.00s seconded by the key 200-day SMA at 103.95.

Looking at the broader picture, while below the 200-day SMA, the outlook for the index is expected to remain negative.

DXY daily chart

Economists at Rabobank discuss the possibility of a tweak in the BoJ’s ultra-easy monetary policy and its implications for the Japanese Yen (JPY).

Signs of sustained wage inflation would be the green light for a policy adjustment

• EUR/JPY adds to Monday’s decline to the 156.00 zone.
• The resumption of the bullish bias should retarget the 158.00 area.

EUR/JPY retreats for the second session in a row on Tuesday, this time revisiting the 156.00 neighbourhood.

While further correction cannot be ruled out for the time being, the cross continues to target the 2023 highs around 158.00. Once cleared, the cross could embark on a move to the round level at 160.00.

So far, the longer term positive outlook for the cross appears favoured while above the 200-day SMA, today at 146.32.

EUR/JPY daily chart

• EUR/JPY is declining towards 155.00 as investors turn cautious ahead of the ECB-BoJ interest rate policy.
• An interest rate hike in July seems necessary for the ECB, knowing the fact that wages are still elevated and global oil prices are recovering.
• In spite of rising wages due to changes in corporate behavior, BoJ needs more time for a sustained move above 2%.

The EUR/JPY pair has come out of the woods and is declining towards the immediate support of 155.00 in the European session. The cross is expected to remain volatile ahead of the interest rate policies by the European Central Bank (ECB) and the Bank of Japan (BoJ), which are scheduled for July 27 and July 28 respectively.

Inflationary pressures in Eurozone have softened from its peak of 10.6% to 5.5% reading in June but are still far from the desired rate of 2%. Therefore, ECB President Christine Lagarde would raise interest rates by 25 basis points (bps) to 4.25%. An interest rate hike in July seems necessary for the ECB, knowing the fact that wages are still elevated and global oil prices are recovering after a long time.

A recovery in the oil prices would propel headline inflation, therefore, making an interest rate hike in September a possibility.

Meanwhile, firms in Eurozone are facing the wrath of higher interest rates by the ECB. In its quarterly survey of 158 big banks, the European Central Bank (ECB) highlighted that “firms' demand for credit dropped to lowest since the survey started in 2003.”

On the Japanese Yen front, BoJ Governor Kazuo Ueda is expected to continue its dovish policy stance as inflation will take time in sustaining confidently above 2%. In spite of rising wages due to changes in corporate behavior, BoJ needs more time for a sustained move above 2%.

The Japanese government is out with its outlook on the country’s inflation, noting that inflation is seen staying around 0.7% in the longer term. “Wages are projected to increase by 2.5% in FY24, following a 2.6% jump in FY23,” the government said.

The Reserve Bank of Australia (RBA) will be closely watching inflation data on Wednesday. Economists at Commerzbank analyze the implications for the AUD.

Expectations of a rate hike in August could be lowered further depending on how much inflation has fallen

• House prices in the US continued to rise in May.
• US Dollar Index stays in positive territory near 101.50.

House prices in the US rose by 0.7% on a monthly basis in May, the monthly data published by the US Federal Housing Finance Agency showed on Tuesday. This reading followed the 0.7% increase recorded in April and came in better than the market expectation of +0.2%.

Meanwhile, the S&P/Case-Shiller Home Price Index arrived at -1.7% on a yearly basis in May, up from -2.2% in April.

Market reaction

The US Dollar Index continues to trade deep in positive territory near 101.50 after this data.

The US Dollar Index is stretching gains for a sixth consecutive session and is near to taking back 50% of the early July sell-off. Shaun Osborne, Chief FX Strategist at Scotiabank, analyzes Greenback’s outlook.

USD to weaken in H2

• AUD/USD is marching towards 0.6800 as investors have digested the hawkish interest rate policy on Wednesday.
• Strength in the USD Index is coming from anxiety among market participants ahead of the interest rate decision by the Fed.
• The Australian Dollar has got strength after the announcement of stimulus in China.

The AUD/USD pair has sensed mild selling pressure after printing a fresh day high at 0.6778 in the European session. The Aussie asset is broadly approaching the round-level resistance of 0.6800 as headlines of fresh stimulus announcement in China has infused optimism in antipodean.

S&P500 futures have added some gains in the London session, portraying further recovery in the risk appetite of the market participants. US equities found decent demand on Monday as investors are clear that the Federal Reserve (Fed) will raise interest rates further by 25 basis points (bps) to 5.25-5.50%.

The US Dollar Index (DXY) has climbed above the immediate resistance of 101.40 and is looking for fresh bids for further upside. Strength in the USD Index is coming from anxiety among market participants ahead of the interest rate decision by the Fed. The Fed is expected to raise interest rates further but the factor that is making investors uneasy is the guidance to be delivered by Fed Chair Jerome Powell.

Investors will focus on whether Jerome Powell would reiterate the need for one more interest rate hike after July’s interest-rate policy. The economic indicator that could propel Jerome Powell to deliver hawkish guidance is the tight labor market conditions.

Meanwhile, the Australian Dollar has got strength after the announcement of stimulus in China. State news agency Xinhua cited the Politburo - the top decision-making body of the ruling Communist Party - saying that China will step up economic policy adjustments, focusing on expanding domestic demand, boosting confidence, and preventing risks.

It is worth noting that Australia is the leading trading partner of China and stimulus support in China would strengthen the Australian Dollar.

Economists at Scotiabank analyze EUR/USD technical outlook.

There is little sign of the move lower reversing at this point

See: 

• EUR/USD: Sellers to target a return to 1.10 after dovish comments by council hawk Knot – SocGen

• Skepticism about the EUR in the long run – Commerzbank

USD/CAD trades little changed after another test of 1.3150. Economists at Scotiabank analyze the pair’s outlook.

Gains should remain capped around the 1.32 area

GBP/USD edges up from the 1.28 area. Economists at Scotiabank analyze the pair’s outlook.

Intraday patterns support the idea of stabilization around the 1.2800/20 zone

• The US Dollar stays strong against its major rivals early Tuesday.
• The US Dollar Index clings to modest daily gains near 101.50.
• US Consumer Confidence Index data will be watched closely by market participants.

The US Dollar gains traction on Tuesday, with the USD index –  which tracks the USD's valuation against a basket of six major currencies – touching its highest level since July 12 near 101.5 in the early European session. The uptick confirms a bullish start of the week for the Greenback, which posted a fifth straight day of gains on Monday after outperforming its major rivals also during the previous week.

The US economic docket will feature the Conference Board's consumer sentiment survey for July. In June, the Consumer Confidence Index improved to 109.7 from 102.5 in May. The Present Situation Index rose to 155.3 from 148.9 and the Consumer Expectations Index climbed to 79.3 from 71.5.

The US Federal Reserve's two-day policy meeting will start on Tuesday and the interest-rate decision will be announced on Wednesday.

Daily digest market movers: US Dollar builds on Monday's gains

• Wall Street's main indexes registered small gains on Monday. US stock index futures trade mixed in the European session on Tuesday. Google Alphabet and Microsoft will release second-quarter earnings after the closing bell.
• The benchmark 10-year US Treasury bond yield rose nearly 1% on Monday and continued to push higher toward 3.9% early Tuesday, helping the USD stay resilient against its rivals.
• US S&P Global Manufacturing PMI improved to 49.0 in July's flash estimate from 46.3 in June. Services PMI edged lower to 52.4 from 54.4 in the same period. Finally, Composite PMI declined to 52.0 from 53.2, pointing to an ongoing expansion in the private sector's business activity, albeit at a softening pace.
• Commenting on PMI surveys' findings, "July is seeing an unwelcome combination of slower economic growth, weaker job creation, gloomier business confidence and sticky inflation," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. "The overall rate of output growth, measured across manufacturing and services, is consistent with GDP expanding at an annualized quarterly rate of approximately 1.5% at the start of the third quarter," he added.
• According to the CME Group FedWatch Tool, a 25-basis-point Fed rate hike on Wednesday is fully priced in. The probability of the Fed hiking the policy rate one more time before the end of the year stands at 23%.
• Assessing the USD's short-term outlook, "positioning data suggests investors are running reasonably large short Dollar positions into this week's Fed, ECB and BoJ policy meetings," noted economists at ING. "We do like a weaker USD later this year, but the Dollar's recent corrective rally might endure this week if the Fed hangs onto its tightening bias."
• Following Monday's disappointing PMI surveys from Germany, the IFO Institute's monthly survey showed Tuesday that the Business Climate Index declined to 87.3 in July from 88.6 in June. This reading came in weaker than the market expectation of 88.0. 
• Assessing the survey's findings, the IFO surveys head, Klaus Wohlrabe, told Reuters that the German Gross Domestic Product (GDP) was likely to shrink in the third quarter, forcing the Euro to stay under pressure.
• German HOCB Composite PMI fell to 48.3 in Early July from 50.6 in June. Commenting on the data, “There is an increased probability that the economy will be in recession in the second half of the year," said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB).

Technical analysis: US Dollar Index rises toward key resistance 

The US Dollar Index (DXY) closes in on 101.70, where the 20-day Simple Moving Average (SMA) aligns as dynamic resistance. Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart advanced to 50, suggesting that DXY is about to turn bullish.

Once above 101.70, 102.00 (static level, former support) could act as strong resistance. A daily close above this level could bring in additional buyers and open the door for an extended uptrend toward 102.50-102.60 (50-day SMA, 100-day SMA).

Looking south, first support is located at 101.00 (former resistance, static level) before 100.50 (static level) and 100.00 (psychological level, static level).

IFO is not painting an encouraging picture for growth. Kit Juckes, Chief Global FX Strategist, analyzes EUR outlook.

China’s holding the Euro up – for now

Economists at Société Générale analyze EUR/USD outlook ahead of ECB and Fed meetings.

The swing back below the 200-WMA last week does not augur well

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the June’s inflation figures in Malaysia.

Key Takeaways

The British Pound has outperformed many other G10 currencies so far this year. Economists at HSBC analyze GBP outlook.

Downside risks to domestic growth could curb GBP gains

• USD/CHF is gathering strength to break above the immediate resistance of 0.8700 ahead of Fed policy.
• Jerome Powell is widely expected to elevate interest rates further to 5.25-5.50%.
• USD/CHF delivered a breakout of the inventory accumulation phase.

The USD/CHF pair is facing delicate resistance near the round-level barricade of 0.8700 in the European session. The Swiss Franc asset is struggling in extending recovery ahead of the interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday.

Fed Chair Jerome Powell is widely expected to elevate interest rates further to 5.25-5.50% as core inflation more than doubled the desired rate of 2%. However, investors will keenly watch interest rate guidance to know whether interest rates have peaked for now more steam left.

The US Dollar Index (DXY) has printed a fresh intraday high above the crucial resistance of 101.40 as the Fed’s policy divergence is set to widen further with global central banks. Apart from the Fed’s policy, investors will focus on preliminary second-quarter Gross Domestic Product (GDP) data, which will release on Thursday at 12:30 GMT.

USD/CHF delivered a breakout of the inventory accumulation phase on a two-hour scale in which inventory is transferred from retail participants to institutional investors. The Swiss Franc asset also delivered a breakout of the consolidation formed in a 0.8638-0.8685 range and now testing the strength for a fresh rally.

The 20-period Exponential Moving Average (EMA) at 0.8675 is providing a cushion to the US Dollar bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has jumped into the 60.00-80.00 range, which indicates that the bullish momentum has been triggered.

Going forward, a confident break above July 24 high at 0.8700 would drive the asset towards a 20-day EMA at 0.8750 followed by July 12 high around 0.8800.

In an alternate scenario, a breakdown below July 18 low at 0.8555 would expose the asset to a fresh eight-year low near round-level support at 0.8500. A slippage below the latter would further drag the asset toward Jun 2011 low at 0.8275.

USD/CHF two-hour chart

Following the release of the German IFO Business Survey, the institute’s Economist Klaus Wohlrabe said that the “German GDP likely to shrink in the 3rd quarter.”

Additional quotes

Market reaction

EUR/USD was last seen trading at 1.1053, down 0.08% on the day.

Senior Economist at UOB Group Alvin Liew assesses the lates inflation figures in Singapore.

Key Takeaways

Kit Juckes, Chief Global FX Strategist, analyzes JPY outlook ahead of the BoJ meeting.

All about yields as the BoJ sits on its hands

• Gold price trades sideways as investors await Fed policy announcement for further guidance.
• Fears of a recession in the US economy trim amid a tight labor market and softening inflation.
• The US Dollar Index’s upside looks restricted as investors have digested July’s interest-rate hike.

Gold price (XAU/USD) turns back and forth after a decent recovery as the upside in the US Dollar Index seems limited. The precious metal consolidates as market participants focus on the interest rate decision by the Federal Reserve (Fed) due Wednesday. An interest-rate hike of 25 basis points (bps) looks certain, but the catalyst that is haunting investors’ sentiment is the guidance about future rate hikes and discussions about rate cuts.

The US Dollar Index struggles to climb among the immediate resistance of 101.40 as recession fears have eased. In light of tight labor market conditions and easing inflationary pressures, the odds of a recession have faded to some extent. Declining inflation would offer relief to the Fed, which could opt to avoid raising interest rates further and even consider rate cuts sooner than expected. 

Daily Digest Market Movers: Gold oscillates around $1,960.00 ahead of key interest-rate decision

• Gold consolidates around $1,960.00 after a recovery move as investors turn anxious ahead of the Federal Reserve’s interest-rate decision.
• As per the CME Group Fedwatch tool, investors are certain that an interest-rate hike of 25 bps will be announced, which will push rates to the 5.25%-5.50% range.
• In spite of a bigger-than-expected decline in headline and core inflation in June, an interest-rate hike from the Fed looks almost certain in order to return inflation confidently to 2%.
• Investors expect that July’s interest-rate hike will be the last one in the current tightening cycle.
• Fed Chair Jerome Powell reiterated in his testimony that two more interest rate hikes are appropriate.
• The Fed isn’t likely to consider rate cuts this year as the major decline in inflation is the outcome and effects of lower global oil prices.
• The United States manufacturing sector failed to come out of the contraction territory. The preliminary Manufacturing PMI for July landed at 49.0, higher than expectations and the former release of 46.3. A figure below 50.0 signals a contraction in factory activity.
• The services PMI remained in the expansion area, but failed to match expectations. The index came in at 52.4, lower than the consensus of 54.0 and June’s figure of 54.4.
• S&P Global said on Monday that New US light vehicle sales volumes are set to rise again in July as easing supply-chain snags help automakers ramp up production to meet pent-up demand, Reuters informed.
• This week, the US economic calendar is full of economic events as the Fed policy will be followed by second-quarter Gross Domestic Product (GDP) data and June’s Durable Goods Orders.
• Preliminary GDP is expected to expand at a slower pace of 1.7% while the first-quarter GDP pace was recorded at 2.0%.
• Softening GDP projections indicate the consequences of aggressive policy tightening by the Fed.
• The upside in the US Dollar Index (DXY) seems restricted around 101.40 as a survey by the National Association for Business Economics survey (NABE) showed that 71% of respondents anticipated 50% or fewer chances of a recession in the US economy. In the prior survey, almost half of the respondents anticipated 50% or fewer chances of a recession.
• The reasoning behind a decline in recession fears is the strong labor market and softening inflation metrics.

Technical Analysis: Gold recovers to near $1,960.00

Gold price rebounded after digging buying interest near $1,954.00. The precious metal demonstrates a directionless performance after a recovery move as investors have sidelined ahead of the interest-rate decision by the Fed. Gold price found strength as the 20-day Exponential Moving Average (EMA) is confidently crossing the 50-day EMA, which strengthens the upside bias. Oscillators still lack momentum, signaling that the downside pressure has not entirely faded.

USD/CNH is expected to maintain the consolidation in place within the 7.1500-7.2500 range for the time being, according to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

• Euro fades the initial bullish move to 1.1090 against the US Dollar.
• Stocks in Europe start Tuesday’s session in a mixed bias.
• EUR/USD probes new lows near 1.1050 post-IFO.
• Germany’s Business Climate surprises to the downside in July.
• US Consumer Confidence will take centre stage later in the session.

The Euro (EUR) is experiencing fluctuating gains and losses against the US Dollar (USD) on what is known as turnaround Tuesday, causing EUR/USD to move around the 1.1060 region.

Earlier in the day, the pair reached daily highs in the range of 1.1085/90, but failed to maintain the momentum, leading to a corrective move towards new lows around 1.1050. This downward trend was aided by lower-than-expected prints from the Business Climate in Germany, as tracked by the IFO institute.

Looking ahead, we can expect a higher level of volatility in the currency pair as both the Federal Reserve and the European Central Bank (ECB) have important meetings scheduled for later in the week. Furthermore, both central banks are expected to raise interest rates by 25 bps, but there is a growing divergence in their short-term plans for future tightening.

On this, the Fed appears to be nearing the end of its hiking cycle, suggesting a potential pause or slowdown in future rate increases. In contrast, some officials from the ECB have recently expressed less hawkish views on the likelihood of further rate hikes beyond the summer.

In the euro docket, the IFO’s Business Climate for the month of July fell short of expectations, coming in at 87.3.

Meanwhile, in the US, the FHFA house price index for the month of May is due to be released, followed by the Conference Board’s Consumer Confidence index, which is always highly relevant.

Daily digest market movers: Euro remains unable to gather serious upside traction

• The EUR appears relegated to the lower end of the range against the USD.
• The USD Index seems to have met some initial hurdle around 101.40.
• Investors see the Fed and the ECB hiking rates this week.
• US, German yields rebound mildly in the European morning.
• The Fed starts its 2-day meeting later today.

Technical Analysis: Euro leaves the door open to further weakness

EUR/USD extends the decline to the 1.1050 zone so far on Tuesday.

Further downside in EUR/USD should meet immediate contention at the so far weekly low of 1.1052 (July 25) ahead of the psychological 1.1000 mark, all seconded by provisional support at the 55-day and 100-day SMAs at 1.0900 and 1.0890, respectively. The loss of this region could open the door to a potential visit to the July low of 1.0833 (July 6) ahead of the key 200-day SMA at 1.0699 and the May low of 1.0635 (May 31). South from here emerges the March low of 1.0516 (March 15) before the 2023 low of 1.0481 (January 6).

On the upside, the next hurdle appears at the 2023 high at 1.1275 (July 18). Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 recorded on February 10.

Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA.

EUR/HUF is bottoming out around 370. Economists at Société Générale analyze the pair’s technical outlook.

A short-term bounce can’t be ruled out

See – EUR/HUF: Hawkish NBH tone should be a boost for the Forint – ING

• USD/CAD oscillates in a narrow trading band through the early European session on Tuesday.
• A modest pullback in Oil prices undermines the Loonie and lends some support to the major.
• A positive risk tone prompts selling around the safe-haven USD and caps the upside for the pair.
• Traders now look to US macro data for some impetus, though the focus remains on the FOMC.

The USD/CAD pair struggles for a firm intraday direction and seesaws between tepid gains/minor losses through the early part of the European session on Tuesday. Spot prices currently trade just above mid-1.3100s, nearly unchanged for the day, though the fundamental backdrop favours bearish traders and suggests that the path of least resistance is to the upside.

A modest pullback in Crude Oil prices from over a three-month high touched on Monday undermines the commodity-linked Loonie and turns out to be a key factor acting as a tailwind for the USD/CAD pair. That said, hopes that additional stimulus measures from China will boost fuel demand, along with tighter global supplies, should continue to lend support to the black liquid. Apart from this, the emergence of some US Dollar (USD) selling might further contribute to limiting the upside for the major, at least for the time being.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, retreats from a two-week high and for now, seems to have stalled its recent recovery move from the lowest level since April 2022 touched last week. The markets seem convinced that the Federal Reserve (Fed) is nearing the end of its current policy tightening. This, along with a generally positive tone around the equity markets, prompts some profit-taking around the safe-haven buck ahead of the two-day FOMC policy meeting starting this Tuesday.

The Fed is scheduled to announce its decision on Wednesday and is widely expected to hike interest rates by 25 bps. Investors, meanwhile, remain sceptic if the US central bank will commit to a more dovish stance or stick to its forecast for a 50 bps lift-off by the end of this year. Hence, the focus will remain glued to the accompanying policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference, which will be scrutinized for cues about the future rate-hike path and drive the USD demand in the near term.

In the meantime, traders on Tuesday will look to the US macro data - the Conference Board's Consumer Confidence Index and Richmond Fed Manufacturing Index - for some impetus later during the early North American session. This, along with the broader risk sentiment, will influence the USD. Apart from this, Oil price dynamics should produce short-term trading opportunities around the USD/CAD pair.

Technical levels to watch

S&P 500 is correcting lower. Economists at Credit Suisse analyze the index outlook.

Move above 4,555/60 needed to ease thoughts of a correction lower

Here is what you need to know on Tuesday, July 25:

Risk flows dominated the financial markets during the Asian trading on hopes of Chinese economy picking up steam on additional stimulus measures. Investors seem to have turned slightly cautious in the European morning, with US stock index futures trading mixed. In the second half of the day, Conference Board's Consumer Confidence Index data will be featured in the US economic docket alongside May Housing Price Index.

Chinese news agency Xinhua reported earlier in the day that the Politburo - the top decision-making body of the ruling Communist Party - announced that they will step up economic policy adjustments, focusing on expanding domestic demand, boosting confidence. The Shanghai Composite Index gained more than 2% on Tuesday and Hong Kong's Hang Seng Index rose nearly 4%. 

The US Dollar Index (DXY) closed the fifth straight day in positive territory on Monday. In the European session, the DXY stays in a consolidation phase below 101.50. The benchmark 10-year US Treasury bond yield continues to edge higher toward 3.9% ahead of the Federal Reserve's critical monetary policy announcements on Wednesday.

Earlier in the day, the data from Germany revealed that the headline IFO Business Climate Index declined to 87.3 in July from 88.6 in June. This reading came in weaker than the market expectation of 88.0. The IFO Expectations Index – indicating firms’ projections for the next six months, fell to 83.5 in July from the previous month’s 83.8 reading. Following a recovery attempt toward 1.1100, EUR/USD lost its traction and declined to the 1.1050 area.

The upbeat market mood in the Asian session provided a boost to AUD/USD. The pair was last seen rising 0.5% on a daily basis slightly above 0.6770.

GBP/USD dropped below 1.2800 for the first time in two weeks on Monday. Early Tuesday, the pair stages a technical correction and trades in positive territory above 1.2850.

USD/JPY snapped a four-day winning streak and closed in the red on Monday. The pair continues to inch lower toward 141.00 in the European session. In a recently published report, the Japanese government said that inflation is seen staying around 0.7% in the longer term. “Wages are projected to increase by 2.5% in FY24, following a 2.6% jump in FY23,” the statement further read.

Pressured by rising US Treasury bond yields, gold price closed below $1,960 on Monday. XAU/USD clings to modest daily gains early Tuesday and trades at around $1,960.

Bitcoin broke below its 10-day-old trading range and touched its lowest level in a month at $28,850 on Monday. BTC/USD struggles to stage a rebound and trades slightly above $29,000. Ethereum lost 2% on the first trading day of the week before going into a consolidation phase at around $1,850.

• EUR/GBP drifts lower for the second straight day and drops to a nearly one-week low.
• Euro Zone’s economic woes undermine the Euro and continue to weigh on the cross.
• Bets for less aggressive BoE rate hikes could limit losses ahead of the ECB on Thursday.

The EUR./GBP cross remains under some selling pressure for the second successive day on Tuesday and retreats further from a nearly two-month high, levels just above the 0.8700 mark touched last week. The downward trajectory remains uninterrupted through the early part of the European session and drags spot prices to a nearly one-week low in the last hour, which bears now awaiting a break below the 0.8600 round figure before placing fresh bets.

Concerns about the worsening economic downturn in Euro Zone turn out to be a key factor behind the shared currency's relative underperformance, which, in turn, is seen exerting downward pressure on the EUR/GBP cross. The market worries resurfaced following the disappointing release of the Euro Zone PMI prints on Monday, which showed business activity shrank much more than expected in July and reignited recession fears.

The common currency is further undermined by Tuesday's weaker-than-expected release of the German IFO Business Climate Index, which declined to 87.3 in July as compared to consensus estimates for a fall to 88.0 from the previous month's 88.6. The incoming data eases pressure on the European Central Bank (ECB) to hike interest rates after the anticipated 25 bps lift-off later this week and favours the EUR/GBP bears.

That said, diminishing odds for a more aggressive policy tightening by the Bank of England (BoE), bolstered by last week's softer UK consumer inflation figures, might weigh on the British Pound (GBP) and help limit losses for the EUR/GBP cross. Traders might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the key central bank event risk - the crucial ECB monetary policy meeting on Thursday.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the EUR/GBP pair's recent goodish recovery move from its lowest level since August 2022 has run its course. That said, a sustained break and acceptance below the 0.8600 mark will be seen as a fresh trigger for bearish traders, paving the way for a further depreciating move.

Technical levels to watch

The Czech Koruna softened on Monday to its weakest level since the beginning of the year. Economists at ING analyze CZK outlook.

Weak Koruna may be a reason for the CNB to delay rate cuts this year

• Pound Sterling attracts buying interest amid a cautious market mood.
• The United Kingdom’s economic recovery falters as firms face the burden of higher interest rates.
• The BoE cannot pause the rate-hiking spell as UK inflation heavily diverges from the desired rate.

The Pound Sterling (GBP) rebounds after an exhaustion in the downside momentum as market participants have digested bleak economic prospects propelled by higher inflation and aggressive monetary policy by the Bank of England (BoE). The GBP/USD pair picks demand as the market mood has turned bullish amid hopes that interest rates by global central banks will peak sooner than expected.

United Kingdom’s preliminary factory activity faltered in July as firms postponed the demand for credit to avoid higher interest obligations. Apart from costly borrowing rates, demand for big-ticket items has slowed as many households are struggling to buy essentials. Meanwhile, housing demand is also facing increasing pressure as individuals are restricting themselves from borrowing money to avoid higher mortgage rates.

Daily Digest Market Movers: Pound Sterling picks demand amid cheerful market mood

• Pound Sterling picks significant bids around 1.2800 as investors ignore dampened economic outlook due to higher interest rates by the Bank of England.
• S&P Global reported on Monday that United Kingdom’s factory activity contracted to 45.0 in early July, missing the  46.1 expected and below the 46.5 seen in June, recording a 12th straight contraction in the manufacturing sector. A PMI figure below 50.0 suggests contraction.
• UK’s preliminary Services PMI dropped to 51.5 from the consensus and the prior release of 53.0 and 53.7, respectively.
• July preliminary PMIs were the weakest since January, adding to evidence of the pinch of high inflation and higher interest rates by the Bank of England.
• A sluggish economic outlook has reinforced expectations of a recession in the British economy.
• Uncertainty about UK inflation still persists as resilient consumer spending could offset the recent slowdown in inflation.
• Aggressive BoE’s policy-tightening is building pressure on first-time home buyers. UK homebuilders have cut down on purchasing land and construction activities, Reuters reported.
• To offer support to the middle class that pays high rents, UK Prime Minister Rishi Sunak promised to build one million homes by the next election.
• However, the pressure of higher mortgage rates is likely to stay for longer as the UK central bank is preparing for fresh rate hikes to tame sticky inflation.
• June’s softening price pressures might offer some time to BoE policymakers to reshape the roadmap of bringing inflation down, but a small interest-rate increase in August cannot be ruled out.
• The US Dollar Index (DXY) comes under pressure as investors are certain about an interest rate hike of 25 basis points (bps) by the Federal Reserve (Fed) on July 26 to the 5.25%-5.50% range.
• Investors focus on the interest-rate guidance from Fed Chair Jerome Powell as Fed officials have reiterated the need for one more interest-rate hike in addition to July’s increase.
• Contrary to Fed officials, investors expect that Fed’s 17-month policy tightening cycle will peak on July 26.
• United States preliminary July Manufacturing PMI outperformed expectations but remained below the 50.0 figure that separates contraction. Meanwhile, the Services PMI fell from June’s reading and came in below consensus.
• After the Fed policy meeting, investors will shift their focus toward the second quarter Gross Domestic Product (GDP) data and June’s Durable Goods Orders.

Technical Analysis: Pound Sterling builds base near 20-day EMA

Pound Sterling extends its recovery to near 1.2850 as market sentiment has turned bullish on hopes that the Federal Reserve’s (Fed) interest-rate hike in July will be the last nail in the coffin. The Cable is building a base after declining during more than a week below the 20-day Exponential Moving Average (EMA). More broadly, the asset maintains higher highs and higher lows, indicating strength in the upside bias.

The Japanese government is out with its outlook on the country’s inflation, noting that inflation is seen staying around 0.7% in the longer term.

“Wages are projected to increase by 2.5% in FY24, following a 2.6% jump in FY23,” the government said.

Market reaction

The above projections fail to move the needle around the USD/JPY pair, which was last seen trading at 141.40, almost unchanged on the day.  

In its quarterly survey of 158 big banks, the European Central Bank (ECB) highlighted that “firms' demand for credit dropped to lowest since the survey started in 2003.”

Additional takeaways

Market reaction

At the time of writing, EUR/USD is trading flat on the day at 1.1062, having extended its retreat from intraday highs of 1.1083.

The continuation of the recovery could motivate USD/JPY to challenge the 143.00 region in the next few weeks, suggest UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

• The index now faces some tepid selling pressure near 101.40.
• The Fed starts its 2-day meeting later on Tuesday.
• CB Consumer Confidence, housing data will be next on tap.

The greenback, in terms of the USD Index (DXY), faces some selling pressure after hitting new multi-session peaks in the 101.40/45 band on turnaround Tuesday.

USD Index focused on data, FOMC event

The index now surrenders part of its recent 5-day advance to the 101.40 region on the back of some improvement in the sentiment surrounding the risk complex as well as steady cautiousness prior to the FOMC event on Wednesday.

So far, while a 25 bps rate hike by the Federal Reserve is largely priced in, market participants are expected to closely follow any hint from the Committee regarding the potential next steps amidst growing speculation that the hiking campaign could be nearing its end.

In the US fixed income space, yields trade on the defensive in the short end and the belly of the curve vs. small gains in the long end.

In the meantime, the Conference Board will publish its Consumer Confidence gauge for the month of July, seconded by the release of the FHFA’s House Price Index.

What to look for around USD

The rally in the index seems to have met an initial hurdle around 101.40 amidst rising expectation ahead of the FOMC interest rate decision on Wednesday.

In the near term, there are no changes to the perception that the Fed would resume its tightening process later in the month despite persistent disinflationary pressures and the still tight labour market.

This view was further bolstered by comments from Fed Chief Powell at the June FOMC event, who referred to the July meeting as "live" and indicated that most of the Committee is prepared to resume the tightening campaign as early as next month.

Key events in the US this week: FHFA House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, New Home Sales, Fed Interest Rate Decision (Wednesday) – Durable Goods Orders, Advanced Q2 GDP Growth Rate, Initial Jobless Claims, Flash Goods Trade Balance, Pending Home Sales (Thursday) – PCE, Core PCE, Personal Income, Personal Spending, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 2023/early 2024. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is down 0.10% at 101.28 and faces immediate contention at 100.0 (psychological level) prior to 99.57 (2023 low July 13) and then 97.68 (weekly low March 30). On the flip side, the breakout of 101.42 (weekly high July 25) would open the door to 102.61 (55-dat SMA) snf finally 103.54 (weekly high June 30.

• German IFO Business Climate Index came in at 87.3 in July.
• IFO Current Economic Assessment fell to 91.3 this month.
• The July German IFO Expectations Index arrived at 83.5, a beat.

The headline German IFO Business Climate Index declined to 87.3 in July versus last month's 88.6 and the consensus forecast of 88.0.

Meanwhile, the Current Economic Assessment arrived at 91.3 points in the reported month, compared with June’s 93.7 and 93.0 anticipated.

The IFO Expectations Index – indicating firms’ projections for the next six months, fell to 83.5 in July from the previous month’s 83.8 reading. The data surpassed market expectations of 83.0.

Market reaction

EUR/USD is paring back gains on the mixed German IFO survey. At the time of writing, the pair is up 0.05% on the day, trading at 1.1065.

About German IFO

The headline IFO business climate index was rebased and recalibrated in April after the IFO research Institute changed series from the base year of 2000 to the base year of 2005 as of May 2011 and then changed series to include services as of April 2018. The survey now includes 9,000 monthly survey responses from firms in the manufacturing, service sector, trade and construction.

The National Bank of Hungary (NBH) is scheduled to meet today. Economists at ING analyze HUF outlook ahead of the meeting.

No change in NBH's policy easing pace

• AUD/USD gains strong positive traction in the wake of hopes for more stimulus from China.
• A positive risk tone prompts selling around the USD and benefits the risk-sensitive Aussie.
• Traders look to US macro data for some impetus ahead of the Australian CPI on Wednesday.
• The focus remains on the outcome of the highly-anticipated FOMC monetary policy meeting.

The AUD/USD pair attracts fresh buying in the vicinity of the 200-day Simple Moving Average (SMA) for the second straight day on Tuesday and builds on its steady intraday ascent through the early European session. Spot prices touched a fresh daily peak, around the 0.6775 region in the last hour and draw support from a combination of factors.

Investors cheered China's pledge to step up support for its fragile economy, which is evident from a positive risk tone around the equity markets and benefits the risk-sensitive Australian Dollar (AUD). In fact, state news agency Xinhua cited the Politburo - the top decision-making body of the ruling Communist Party - saying that China will step up economic policy adjustments, focusing on expanding domestic demand, boosting confidence and preventing risks. This comes after China’s top economic planner - the National Development and Reform Commission (NDRC) - unveiled measures on Monday to spur private investment in infrastructure and strengthen financing for private projects.

The optimism continues to boost investors’ confidence and prompts some selling around the safe-haven US Dollar (USD), which, in turn, is seen as another factor acting as a tailwind for the AUD/USD pair. The USD Index (DXY), which tracks the Greenback against a basket of currencies, corrects from a two-week high and for now, seems to have stalled a one-week-old recovery trend from its lowest level since April 2022. Any further USD downside, however, seems limited as traders might refrain from placing aggressive bets and prefer to wait for cues about the Federal Reserve's (Fed) future rate-hike path. Hence, the focus remains on the outcome of the highly-anticipated two-day FOMC policy meeting.

The US central bank is scheduled to announce its decision on Wednesday. The markets have been pricing out the possibility of any further rate hikes after the widely anticipated 25 bps lift-off in July. Investors, however, remain sceptic if the Fed will commit to a more dovish stance, suggesting that investors will closely scrutinize the accompanying policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference. The outlook will play a key role in influencing the near-term USD price dynamics. This makes it prudent to wait for some follow-through buying before confirming that the AUD/USD pair's rejection slide from the 0.6900 mark has run its course.

Market participants now look to the US macro data - the Conference Board's Consumer Confidence Index and Richmond Fed Manufacturing Index - for some impetus later during the early North American session. Apart from this, the broader risk sentiment might produce short-term trading opportunities around the AUD/USD pair ahead of the Australian Consumer inflation figures, due for release during the Asian session on Wednesday. This week's US economic docket also features the release of Advance US GDP print and the Core PCE Price Index (the Fed's preferred inflation gauge), which should further contribute to infusing volatility in the markets and drive spot prices.

Technical levels to watch

EUR/USD consolidates below 1.11. Economists at Société Générale analyze the pair’s outlook ahead of German IFO business survey.

Bond spreads are widening in favour of the Dollar

The Communist Party’s July Politburo meeting was held on Monday. Economists at Commerzbank analyze CNY outlook.

Absence of aggressive stimulus could prolong CNY's weakness

On Monday, EUR/USD broke below 1.1100. Economists at ING analyze the pair’s outlook.

Pro-growth China news may be the only factor holding EUR/USD above 1.1050 

• Silver price gains traction and holds above $24.55 on Tuesday.
• XAG/USD holds below the 50- and 100-hour EMAs with a downward slope.
• Immediate resistance is seen at the $24.60-$24.65 zone; $24.30 acts as an initial support level.

Silver Price (XAG/USD) recovers some lost ground and snaps three days of consecutive losses heading into the European session on Tuesday. XAG/USD currently trades around $24.55, up 0.88% for the day. Market players await the Federal Open Market Committee (FOMC) meeting and Fed Chairman Jerome Powell's press conference for further guidance for the entire year.

According to the one-hour chart, XAG/USD holds below the 50- and 100-hour Exponential Moving Averages (EMAs) with a downward slope, which means further downside for silver looks favorable.

Silver will meet the immediate resistance level of $24.60-$24.65 region, representing the 100-hour EMA and a low of July 21. The additional upside filter is located at $24.85 (Low of July 18) en route to $25.15 (High of July 18).

On the flip side, any meaningful follow-through selling could drag XAG/USD lower to $24.30 (Low of July 25), followed by $24.10 (Low of July 13). Further south, the next stop of the silver price is $23.60 (Low of June 13).

It’s worth noting that the Relative Strength Index (RSI) stands above 50. Additionally, the bullish MACD signals suggest that upside momentum has been activated.

Silver (XAG/USD) one-hour chart

• Gold Price rebounds from one-week low, snaps four-day losing streak amid risk-on mood.
• Headlines from China, concerns about policy pivot at major central banks favor sentiment and propel XAU/USD price.
• Anxiety ahead of key central bank events, $1,975 resistance confluence prod Gold buyers.
• Mid-tier United States data may entertain XAU/USD traders but Fed, ECB plays are crucial to watch for clear directions.

Gold Price (XAU/USD) reverses from the lowest level in two weeks, snapping a four-day downtrend, as headlines about China stimulus and central banks propel sentiment and the XAU/USD price. In doing so, the XAU/USD traders portray the market’s cautious optimism ahead of this week’s top-tier data/events.

That said, headlines fueling hopes of China stimulus and bank intervention from Beijing seem to bolster the optimism in the Asia-Pacific zone. However, mixed concerns about the previously released PMIs and central bank actions seem to prod the XAU/USD bulls.

Amid these plays, the S&P500 Futures remain sidelined near 4,580, struggling to extend the previous day’s recovery, whereas the US 10-year and two-year Treasury bond yields retreat from the highest levels in two weeks to 3.86% and 4.84% in that order. It should be noted that the US Dollar’s retreat from a fortnight high also portrays the market’s optimism and propel the Gold Price.

Looking forward, US CB Consumer Confidence for July, expected 112.10 versus 109.70 prior, will direct intraday moves of the Gold Price. However, major attention will be given to the monetary policy meeting of the Fed and the ECB, as well as clues for the same.

Also read: Gold Price Forecast: Will XAU/USD rebound seek acceptance above 100 DMA?

Gold Price: Key levels to watch

Our Technical Confluence indicator suggests the Gold Price inaction around the $1,964 support-turned-resistance comprising the 100-DMA and a convergence of the Fibonacci 61.8% on one-day and one-week.

The XAU/USD’s ability to cross the $1,964 hurdle joins the upbeat sentiment and the US Dollar’s retreat to keep the buyers hopeful of poking the $1,975 resistance confluence including Fibonacci 78.6% on one-week and Pivot Point one-month R1.

Following that, the previous monthly high and Pivot Point one-week R1 will act as the last defense of the XAU/USD bears near $1,985.

Meanwhile, a downside break of the $1,964 resistance-turned-support (stated above), can quickly fetch the Gold Price toward $1,960 comprising Fibonacci 38.2% on one-day and 10-DMA.

However, the XAU/USD weakness past $1,960 could convince the bears to attack the $1,950 support encompassing the lower band of the Bollinger on the four-hour, Fibonacci 61.8% on one-month and Pivot Point one-day S1.

Overall, the Gold Price regains upside momentum but bulls need validation from $1,975.

Here is how it looks on the tool

About Technical Confluences Detector

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

In quiet markets ahead of G3 central bank meetings, the FX market's focus has once again fallen on China. But economists at ING would wait for the policy meetings to set the true FX tone.

Short-term trends may well fizzle out

Open interest in natural gas futures shrank by around 8.7K contracts at the beginning of the week, extending the downtrend for the fourth session in a row according to preliminary readings from CME Group. In the same direction, volume dropped for the second consecutive day, now by around 34.2K contracts.

Natural Gas: Door open to further advance

Monday’s second daily pullback in prices of natural gas was on the back of diminishing open interest and volume, hinting at the probability that a near-term rebound could be in the offing. Against that, the next target for the commodity is expected at the June tops near the $2.90 mark per MMBtu (June 28).

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, highlights the fundamental problem of the common currency area.

No central bank has ever been able to conduct monetary policy against its people in the long run

In the opinion of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, further selling pressure could drag NZD/USD to the 0.6125 region in the next few weeks.

Key Quotes

• GBP/JPY clings to mild gains, reverses week-start retreat from the highest level in two weeks.
• China stimulus expectations join concerns about major central banks’ proximity to policy pivot to fuel market optimism.
• Benchmark US 10-year Treasury bond yields renew two-week high but two-year counterpart retreats.
• Risk catalysts will direct intraday moves but BoJ announcements are key for clear view.

GBP/JPY picks up bids to refresh intraday high near 181.75 heading into Tuesday’s London open as upbeat market sentiment recalls the buyers after a downbeat start of the week. In doing so, the cross-currency pair also traces upbeat US 10-year Treasury bond yields while struggling to justify the mixed concerns about the major central banks, including the Bank of Japan (BoJ).

It’s worth noting that headlines fueling hopes of China stimulus and bank intervention from Beijing seem to underpin the latest optimism in the market, which in turn favors the yields and equities in the Asia-Pacific zone, even if the US stock futures remain lackluster.

That said, monthly PMIs from Japan and the UK both appeared downbeat on Monday but the Japanese government’s closer ties with the BoJ may help them defend the easy-money policy, which in turn propels the GBP/JPY price. Furthermore, the distance from the Bank of England (BoE) Monetary policy meeting and UK PM Rishi Sunak’s announcements of multiple stimulus measures to defend the Tory government seems to put a floor under the British Pound (GBP).

On Monday, Reuters conveyed comments from an anonymous Japanese government spokesperson who expressed optimism about the ties between the Bank of Japan (BoJ) and the Japanese government. The policymaker showed readiness to do their utmost to ensure Japan achieves a positive wage and inflation cycle while also suggesting that consumer inflation move around 1.5% in fiscal 2024. Before that, Japan’s preliminary readings of Jibun Bank Manufacturing PMI and Services PMI for July appeared unimpressive as the former slid beneath 49.8 market forecasts and prior to 49.4 but the latter reprinted 52.1 figures for the said month.

On the other hand, the UK Preliminary figures of S&P Global/CIPS Manufacturing PMI for July dropped to the lowest level of 2023 with the 45.0 mark versus the market’s expectations of 46.1 and previous readings of 46.5. That said, the Services PMI also printed a six-month low by declining to 51.5 from 53.7 prior and 53.0 market forecasts. With this, the first readings of the Composite PMI edged lower to 50.7 compared to analysts’ estimations of 52.4 and 52.8 prior.

While portraying the mood, the S&P500 Futures remain sidelined near 4,580, struggling to extend the previous day’s recovery, whereas the US 10-year and two-year Treasury bond yields retreat from the highest levels in two weeks to 3.86% and 4.84% in that order.

Moving on, a light calendar at home and abroad may restrict immediate moves of the GBP/JPY pair. However, headlines affecting the sentiment will be critical to watch for clear directions.

Technical analysis

Although the 13-day-old previous resistance line restricts the immediate downside of the GBP/JPY pair near 180.60, buyers need validation from the 21-DMA hurdle of around 182.10 to gain market’s acceptance.

CME Group’s flash data for crude oil futures markets noted traders increased their open interest positions for the second session in a row on Monday, this time by around 13.7K contracts. In the same line, volume went up by around 98.5K contracts after three consecutive daily pullbacks.

WTI: On its way to $80.00

Prices of WTI rose to fresh highs past the $79.00 yardstick at the beginning of the week. The positive price action was accompanied by rising open interest and volume and exposes the probable continuation of the upside momentum in the very near term. Against that, the immediate hurdle still emerges at the key $80.00 mark per barrel.

• USD/JPY consolidates in a tight range above 141.45 on Tuesday. 
• Market anticipated that the Federal Reserve (Fed) would hike rates by 25 basis points (bps) to 5.25–5.50%.
• Japanese policymakers are expected to maintain a dovish policy stance.
• Market participants will keep an eye on the FOMC meeting and BoJ meeting later this week.

The USD/JPY pair oscillates in a narrow range between 141.20 and 141.60 heading into the European session on Tuesday. The major pair currently trades around 141.45, down 0.01% for the day. Market participants prefer to wait to be sidelined ahead of the Federal Reserve's (Fed) and the Bank of Japan's (BoJ) interest rate decisions later this week. 

On Monday, the preliminary S&P Global US Manufacturing PMI data came in higher than anticipated at 49, above market expectations of 46.4 and the previous reading of 46.3 in June, while the Services PMI declined to 52.4 from 54.4. The US S&P Global Composite PMI fell to 52 from 53.2 in June.

Apart from the mixed US PMI figure, the data released last week indicated that inflationary pressure is easing and the labor market is tight. These data have led some to speculate that the Fed is about to end its tightening monetary policy after the July meeting.

The FOMC meeting is widely expected to raise its benchmark rate by another quarter-point on Wednesday. It is widely anticipated that the Fed will increase interest rates by 25 basis points (bps) to 5.25–5.50%. However, Fed Chairman Jerome Powell's press conference on Wednesday will hint at some clues about the possibility of interest rate guidance for the entire year. A hawkish stance from the Fed could trigger the US Dollar against the Japanese Yen.

Across the pond, the Bank of Japan (BoJ) will announce its monetary policy on Friday. BoJ Governor Kazuo Ueda put an end to speculation of a Yield Control Curve policy change and said that there was still some way to go before reaching the 2% inflation target. Those comments indicate that Japanese policymakers are expected to maintain a dovish policy stance in order to keep inflation steady above 2%. Additionally, BoJ policymakers prefer looking at more data to ensure wages and inflation continue to rise before modifying policy. 

The monetary policy divergence between the BoJ and Fed might exert pressure on the Japanese Yen against its major rivals and could be a headwind for the USD/JPY pair. Market participants will monitor the FOMC and BoJ meetings scheduled for Wednesday and Friday, respectively. This key event could trigger volatility across financial markets.

Later in the day, US CB Consumer Confidence will be due in the North American session. The Japanese Tokyo Core CPI YoY, US Advance GDP QoQ, and the Fed’s preferred measure of inflation, the core Personal Consumption Expenditure (PCE) Price Index MoM, will be released later this week. Traders will take cues from the data and find opportunities around the USD/JPY pair.

Economists at Société Générale analyze USD/CNH technical outlook.

Pause within uptrend

Further weakness in GBP/USD emerges on a close below 1.2780, according to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

Considering advanced prints from CME Group for gold futures markets, open interest increased by around 7.8K contracts on Monday, reversing at the same time two consecutive daily drops. Volume followed suit and rose by around 90.3K contracts, keeping the erratic performance well in place for yet another session.

Gold faces initial support around $1945

Gold prices extended the multi-session weakness on Monday. The daily pullback was on the back of increasing open interest and volume and leaves the door open to the continuation of the downtrend in the very near term. In the meantime, the weekly low at $1945 (July 17) per troy ounce emerges as the immediate contention for the time being.

• USD/MXN struggles to find a decisive move as investors shift focus toward Fed’s policy.
• The trigger that could turn investors anxious is the interest rate guidance from Jerome Powell.
• Semi-annual inflationary pressures in Mexico increased at a higher momentum in July

The USD/MXN pair is demonstrating back-and-forth moves below the crucial resistance of 17.00 in the early European session. The asset struggles to find a direction despite the mega event of an interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday.

The reasoning behind the lackluster performance of the asset is the certainty among investors that the Fed will raise interest rates by 25 basis points (bps) to 5.25-5.50%. The trigger that could turn investors anxious is the interest rate guidance from Fed Chair Jerome Powell.

S&P500 futures remain choppy in Asia, portraying a quiet market mood. US equities found buying interest on Monday after S&P Global reported upbeat preliminary factory activity data for July. Manufacturing PMI landed at 49.0 significantly higher than the consensus of 46.4 and the former release of 46.3. Investors should note that despite recovery in factory activities a figure below 50.0 is considered a contraction. While Services PMI dropped to 52.4 vs. the estimates of 54.0 and the former release of 54.4.  

The US Dollar Index (DXY) has posted a marginal correction from its weekly high of 101.40. The asset is struggling to continue its five-day winning streak as July’s interest rate hike from the Fed is certain. Earlier, Jerome Powell conveyed that two more interest rate hikes are appropriate this year. Confirmation of one more interest rate hike in the Fed’s guidance might infuse strength in the USD Index.

On the Mexican Peso front, semi-annual inflationary pressures increase at a higher momentum in July. Headline Consumer Price Index (CPI) elevated at a pace of 0.29% vs. the estimates of 0.27% and the former release of 0.02%. Core inflation that excludes volatile oil and food prices grew at a pace of 0.27% against the estimates of 0.22%.

• NZD/USD defends the previous day’s corrective bounce off 12-day-low amid China-inspired risk-on mood.
• Sustained break of 200-EMA, upbeat RSI keeps Kiwi buyers hopeful.
• One-week-old descending trend line guards immediate upside ahead of 100-EMA, 50% Fibonacci retracement’s convergence.
• Multiple supports, pre-Fed positioning will challenge Kiwi pair sellers.

NZD/USD remains on the front foot for the second consecutive day but lacks upside momentum amid mixed catalysts. That said, the Kiwi pair prints mild gains around 0.6215 heading into Tuesday’s European session.

A clear run-up beyond the 200-Exponential Moving Average (EMA) joins the market’s risk-on mood to propel the Kiwi prices.

Also read: S&P500 Futures struggle to justify optimism in China, Hong Kong amid sluggish yields, pre-Fed anxiety

Adding strength to the NZD/USD upside momentum is the upbeat RSI (14) line, not overbought, as well as the market’s positioning for Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcements.

With this, the NZD/USD buyers are all set to cross a two-week-old descending resistance line, around 0.6225. However, a convergence of the 100-EMA and 50% Fibonacci retracement level, around 0.6230 by the press time, appears a tough nut to crack for the Kiwi bulls afterward.

In a case where the NZD/USD remains firmer past 0.6230, the odds of witnessing a run-up towards a fortnight-old horizontal resistance area surrounding 0.6300-6310 can’t be ruled out.

On the flip side, the 200-EMA level of around 0.6200 restricts the immediate downside of the Kiwi pair.

Following that, an ascending support line from July 06 and 78.6% Fibonacci retracement, respectively near 0.6160 and 0.6125 in that order, will test the NZD/USD bears.

NZD/USD: Four-hour chart

Trend: Further upside expected

FX option expiries for July 25 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1025 325m
• 1.1085 634m
• 1.1100 450m
• 1.1190 440m
• 1.1225 1.3b

- USD/JPY: USD amounts                     

• 139.25 501m
• 139.50 364m
• 140.00 626m
• 140.40 655m
• 141.00 659m
• 141.70 351m

- AUD/USD: AUD amounts

• 0.6720 430m
• 0.6780 453m
• 0.6800 1.2b

- USD/CAD: USD amounts       

• 1.3205 637m
• 1.3375 916m

UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang note EUR/USD’s upside momentum appears diminished.

Key Quotes

• EUR/USD struggles to defend the first daily gains in five at the lowest level in two weeks.
• China-inspired risk-on mood, mixed concerns about Fed prod US Dollar bulls at multi-day high.
• Euro bulls appear defensive as disappointing PMIs from Eurozone, Germany flag recession fears and push back ECB hawks.
• German IFO sentiment data, US CB Consumer Confidence can entertain EUR/USD traders but ECB vs. Fed drama is the key.

EUR/USD lacks upside momentum despite bouncing off a two-week low, mildly bid near 1.1075 heading into Tuesday’s European session. In doing so, the Euro pair benefits from the US Dollar’s retreat but hesitates in welcoming the pair buyers amid fears of a recession in the bloc.

US Dollar Index (DXY) retreats from a two-week high after cheering the comparatively better PMIs the previous day, down 0.08% intraday near 101.25 at the latest. With this, the greenback’s gauge versus the six major currencies bears the burden of China-inspired optimism, as well as doubt on the Federal Reserve’s (Fed) moves past July.

That said, headlines fueling hopes of China stimulus and bank intervention from Beijing seem to underpin the latest optimism. On the other hand, the US PMIs were better than their Western counterparts but weren’t impressive enough to keep the Fed on a rate hike trajectory after July’s widely anticipated 0.25% increase in the interest rates.

It should be observed that the first readings of the Eurozone and Germany slumped to the lowest levels since 2020 and reduced the room for the European Central Bank (ECB) to sound hawkish amid looming fears of witnessing a hard landing. As a result, the Euro bulls struggle to cheer the US Dollar’s retreat.

Against this backdrop, the S&P500 Futures remain sidelined near 4,580, struggling to extend the previous day’s recovery, whereas the US 10-year and two-year Treasury bond yields retreat from the highest levels in two weeks to 3.86% and 4.84% in that order.

Moving on, the ECB Bank Lending Survey and Germany’s IFO poll details will precede the US CB Consumer Confidence for July, expected 112.1 versus 109.70 prior, to direct intraday moves. However, major attention will be given to the monetary policy meeting of the Fed and the ECB, as well as clues for the same.

Technical analysis

Providing a sustained break of an ascending resistance line stretched from February, around 1.1150 by the press time, EUR/USD remains on the way to testing the previous monthly low of around 1.1015.

• Shanghai rallies as Chinese administration discusses more stimulus to propel economic recovery.
• Japanese stocks are showing caution as investors are mixed about the upcoming interest rate policy.
• Oil prices are approaching $80.00 as investors have priced in further interest rate hikes from global central banks.

Markets in the Asian domain have posted mixed sentiment on Tuesday as investors are preparing for the interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday. As an interest rate hike of 25 basis points (bps) by the Fed, which will push interest rates to 5.25-5.50% looks certain, the catalyst that could bring volatility in global markets is the interest rate guidance.

S&P500 futures seem choppy in Asia amid corporate earnings season and the upcoming Fed’s monetary policy. The overall market mood is still bullish as investors have priced in uncertain earnings and the United States central bank's hawkish policy.

At the press time, Nikkei 225 drops 0.27%, Shanghai soars 1.89%, Hang Sang rallies 3.42%, and Nifty50 eases nominally.

Japanese stocks are showing caution as investors are mixed about the upcoming interest rate policy by the Bank of Japan (BoJ), which will be announced on Friday. While BoJ Governor Kazuo Ueda has been consistently reiterating the need for more stimulus to maintain inflation steadily above 2%, Japan's top financial diplomat Masato Kanda forecasted a tweak in monetary policy.

Japan’s Kanda suggested the central bank may tweak its approach to monetary stimulus at its next policy meeting, due to "signs of changes" in corporate behavior on wage growth and price rises, Reuters informed.

Meanwhile, Chinese equities seem running on steroids amid headlines of more stimulus to trigger economic recovery. State news agency Xinhua cited the Politburo - the top decision-making body of the ruling Communist Party - saying that China will step up economic policy adjustments, focusing on expanding domestic demand, boosting confidence, and preventing risks.

On the oil front, oil prices are trading sideways around $79.00 but approaching the crucial resistance of $80.00 as investors have digested a fresh interest rate hike cycle from global central banks. Also, more stimulus support in China would elevate factory activities and henceforth the oil demand, It is worth noting that China is the largest importer of oil in the world, and economic recovery in China supports the oil price.

• Gold price trades with modest gains around the $1,960 mark ahead of the FOMC meeting.
• Market players anticipated that the Fed would raise interest rates by 25 basis points (bps) to 5.25–5.50%.
• The hope for China’s stimulus plan supports further upside in the gold price.

Gold price trades with modest gains during the Asian session on Tuesday. XAU/USD currently trades around the $1,960 mark, up 0.36% on the day. Investors await the Federal Open Market Committee (FOMC) meeting and Fed Chairman Jerome Powell's press conference for further guidance for the entire year.

The US S&P Global Composite PMI for July showed weaker-than-expected data. The figure fell to 52 from 53.2, versus 53.1 expected. Meanwhile, the S&P Global Manufacturing PMI improved to 49 from 46.3, and the Services PMI declined to 52.4 from 54.4. Apart from this, the downbeat US housing and inflation data reported last week underpin the US Dollar and hint that the Fed could be close to the end of their rate-hike cycles. It’s worth noting that gold is sensitive to rising interest rates as they raise the opportunity cost of holding non-yielding bullion.

The week's highlight will be the Federal Reserve's (Fed) interest rate decision on Wednesday. The Fed is widely anticipated to raise interest rates by a quarter percentage point to 5.25–5.50%. However, market participants speculate that the Fed is about to end its tightening monetary policy and will take cues from Fed Chairman Jerome Powell's press conference for further guidance. A hawkish stance from the Fed could trigger the US Dollar and act as a headwind for the gold price.

Additionally, China, the world's largest gold consumer, signaled additional support for the real estate sector and a series of measures to stimulate domestic consumption amid a sluggish post-COVID recovery. This, in turn, supports further upside in the gold price.

Looking ahead, market players are now closely watching the Fed's monetary policy meeting. This event could significantly impact the USD-denominated gold price. Also, US CB Consumer Confidence and Advance GDP QoQ will be due later this week. Investors will monitor this development and find opportunities around the gold price. 

• EUR/GBP remains sidelined after declining the most in two weeks the previous day.
• ECB hawks retreat as Eurozone, German PMIs slump to multi-month low.
• UK PMIs also appear disappointing but distance from BoE defends British Pound.
• German IFO Sentiment data for July eyed for intraday directions, ECB is the key.

EUR/GBP struggles for clear directions around 0.8630 heading into Tuesday’s European session, licking its wounds near the lowest levels in a week. In doing so, the cross-currency pair prods the bears after witnessing the biggest daily fall in a fortnight amid a cautious mood ahead of the German data.

That said, the quote slumped the previous day after downbeat activity data from Eurozone and Germany flagged fears of a recession in the bloc and pushed back the hawkish bias about the European Central Bank (ECB), even if the 0.25% rate hike is already priced in.

On Monday, the preliminary readings of the Eurozone HCOB Manufacturing PMI slumped to the lowest level since May 2020, to 42.7 for July from 43.4 prior and versus 43.5 market forecasts. That said, the Services PMI also eased to 51.1 for the said month from 52.0 prior and 52.5 expected while the Composite PMI slid to 48.9 from 49.9 previous readings and analysts’ estimations of 49.7. On the same line, German HCOB Manufacturing PMI also dropped to the 38-month low while Services and Composite PMIs declined below the market expectations and previous readings for July.

On the other hand, the preliminary readings of the UK S&P Global/CIPS Manufacturing PMI for July dropped to the lowest level of 2023 with the 45.0 mark versus the market’s expectations of 46.1 and previous readings of 46.5. That said, the Services PMI also printed a six-month low by declining to 51.5 from 53.7 prior and 53.0 market forecasts. With this, the first readings of the Composite PMI edged lower to 50.7 compared to analysts’ estimations of 52.4 and 52.8 prior.

It should be noted that the UK PMIs aren’t too good but the distance from the Bank of England (BoE) Monetary policy meeting and UK PM Rishi Sunak’s announcements of multiple stimulus measures to defend the Tory government seems to put a floor under the British Pound (GBP). Even so, the fears of the UK recession test the EUR/GBP bears.

Looking ahead, the ECB Bank Lending Survey and Germany’s IFO poll details will entertain EUR/GBP traders ahead of Thursday’s ECB Interest Rate Decision.

Technical analysis

A clear downside break of two-week-long rising support line, now immediate resistance around 0.8665, direct EUR/GBP bears toward the 50-DMA support of around 0.8600.

• WTI struggles to cheer China inspired risk-on mood amid overbought RSI.
• Five-week-old rising support line tests Oil buyers at multi-month high.
• Sustained break of 200-DMA, previous key resistance line keeps energy bulls hopeful.
• Rising wedge bearish chart formation teases WTI sellers but $76.40 appears the key to confirm downside.

WTI crude oil remains sidelined at the highest levels since late February, marked the previous day, as it fails to justify China-driven upbeat sentiment during early Tuesday. In doing so, the black gold seesaws around $78.90 by the press time amid overbought RSI (14) line.

Also read: S&P500 Futures struggle to justify optimism in China, Hong Kong amid sluggish yields, pre-Fed anxiety

Apart from the RSI conditions, the top line of a five-week-old rising wedge bearish chart pattern, around $79.50 by the press time, also challenges the Oil buyers.

However, a clear upside break of the 200-DMA and the previously important resistance line stretched from November 2022, respectively near $76.60 and $76.90, keeps the WTI bulls hopeful.

With this, the black gold is likely to edge higher and hence can cross the $79.50 hurdle, which in turn highlights the $80.00 psychological magnet for energy bulls to watch afterward.

In a case where the WTI remains firer past the $80.00 threshold despite overbought RSI, the 61.8% Fibonacci retracement of its November 2022 to May 2023 downside, near $82.15, and April’s peak of $83.40 will be crucial to watch.

Meanwhile, a downside break of the previous support line and the 200-DMA isn’t likely to convince the Oil sellers unless the commodity confirms the rising wedge bearish chart pattern with a daily closing below $76.40.

WTI crude oil: Daily chart

Trend: Pullback expected

• USD/CHF edges lower on Tuesday and is pressured by a modest USD downtick.
• A positive risk tone could undermine the safe-haven CHF and help limit losses.
• Traders might also prefer to wait for the crucial FOMC decision on Wednesday.

The USD/CHF pair faces rejection near the 0.8700 mark and retreats a few pips from a nearly two-week high touched during the Asian session earlier this Tuesday. Spot prices currently trade around the 0.8685 region, down 0.10% for the day, and the modest intraday downtick is sponsored by a mildly softer tone surrounding the US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, now seems to have stalled a one-week-old recovery trend from its lowest level since April 2022 touched last week. Traders, however, might refrain from placing aggressive USD bearish bets and prefer to wait for fresh cues about the Federal Reserve's (Fed) future rate-hike path. Apart from this, the prevalent risk-on mood could undermine the safe-haven Swiss Franc (CHF) and further contribute to limiting the downside for the USD/CHF pair, at least for the time being.

It is worth mentioning that the markets have been pricing out the possibility of any further rate hikes after the widely expected 25 bps lift-off at the end of a two-day FOMC policy meeting on Wednesday. Investors, however, remain sceptic if the US central bank will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike by the end of this year. Hence, the focus will be on the accompanying policy statement and Fed Chair Jerome Powell's remarks. The outlook, in turn, will play a key role in influencing the near-term USD price dynamics.

In the meantime, the latest optimism over additional stimulus measures from China remains supportive of the risk-on rally across the Asian equity markets. State news agency Xinhua cited the Politburo - the top decision-making body of the ruling Communist Party - saying that China will step up economic policy adjustments, focusing on expanding domestic demand, boosting confidence and preventing risks. This could drive flows away from traditional safe-haven currencies, including the CHF, and warrants caution before placing bearish bets around the USD/CHF pair.

Market participants now look to the US macro data - the Conference Board's Consumer Confidence Index and the Richmond Fed Manufacturing Index - for some impetus later during the early North American session. This week's rather packed US economic docket also features the Advance Q2 GDP print and the Core PCE Price Index (the Fed's preferred inflation gauge), which should help determine the next leg of a directional move for the USD/CHF pair. Hence, strong follow-through selling is needed to confirm that the recent bounce from a multi-year low has run out of steam.

Technical levels to watch

• GBP/USD struggles to gain and remains on the defensive around the 1.2840 mark on Tuesday.
• S&P Global Composite PMI showed that US business activity slowed to a five-month low in July.
• The preliminary UK PMI data revealed that economic activity in July was weaker than expected.
• Market participants will keep an eye on the Federal Open Market Committee (FOMC) meeting.

The GBP/USD pair remains under pressure and struggles to gain during the Asian session on Tuesday. The major pair currently trades around the 1.2840 area, gaining 0.1% on the day. Market mood turns cautious ahead of the Federal Open Market Committee's (FOMC) meeting scheduled on Wednesday.

US business activity slowed to a five-month low in July. The S&P Global Composite PMI declined to 52 from 53.2. The US S&P Global Manufacturing PMI increased from 46.3 to 49, above market expectations. While the Services PMI decreased from 54.4 to 52.4, below expectations of 54, and the Composite PMI index fell to 52 from 53.2 in June.

Recent economic data shows cooling inflation and a tight labor market, which has led some to speculate that the Fed is about to end its tightening monetary policy. The FOMC meeting is largely expected to raise its benchmark rate by another quarter-point on Wednesday. It is widely anticipated that the Fed will raise interest rates by a quarter percentage point to 5.25–5.50%. However, Fed Chairman Jerome Powell's press conference on Wednesday will hint at some clues about the possibility of interest rate guidance. A hawkish stance from the Fed could trigger the US Dollar.

On the other hand, the United Kingdom’s preliminary PMI data revealed that economic activity in July was weaker than estimated. The Manufacturing PMI for July fell to 45.0 from 46.5 observed in June, worse than expected at 46.1. This figure registered the 12th straight contraction in the manufacturing sector. Meanwhile, the preliminary Services PMI declined to 51.5 from 53.0 prior and 53.7 expected.

Market investors anticipate that the Bank of England (BoW) will raise the interest rate from 5% to 6% on August 3. However, the additional rate hike from the BoE exacerbates concerns about the Bank's most aggressive rate hikes in three decades and their impact on the UK’s economy.

In the absence of top-tier economic data released from the United Kingdom, the USD's valuation is likely to continue to influence the pair's movement. Market participants will keep an eye on the FOMC meeting and Fed Chairman Jerome Powell's press conference. Apart from this, traders will take cues from US CB Consumer Confidence, Advance GDP QoQ, and the Fed’s preferred measure of inflation, the core Personal Consumption Expenditure (PCE) Price Index MoM. These data could significantly impact the US Dollar's dynamic and give the GBP/USD pair a clear direction.

• USD/CAD trades with a mild negative bias for the second successive day on Tuesday.
• Bullish Crude Oil prices underpin the Loonie and exert pressure amid a softer USD.
• The downside seems limited as traders await the key FOMC decision on Wednesday.

The USD/CAD pair remains on the defensive for the second successive day on Tuesday and hits a three-day low, around the 1.3150 region during the Asian session.

Crude Oil prices consolidate the recent strong gains to over a three-month high touched on Monday and remain well supported by hopes that more stimulus from China - the world’s largest oil importer - will boost fuel demand. Apart from this, expectations for tighter global supply act as a tailwind for the black liquid, which, in turn, is seen underpinning the commodity-linked Loonie and acting as a headwind for the USD/CAD pair.

The US Dollar (USD), on the other hand, pulls back from a two-week high and for now, seems to have stalled the recent recovery move from the lowest level since April 2022, witnessed over the past week or so. This is seen as another factor exerting some pressure on the USD/CAD pair, though the lack of strong follow-through selling warrants some cation before placing aggressive bearish bets and positioning for further losses.

Traders might prefer to move to the sidelines and wait for fresh cues about the Federal Reserve's (Fed) future rate-hike path. It is worth recalling that the markets have been pricing out the possibility of any further interest rate hikes after the expected 25 bps lift-off at the end of a two-day FOMC meeting on Wednesday. Hence, the focus remains on the accompanying policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference.

The Fed's policy outlook will play a key role in driving the USD demand in the near term and provide a fresh directional impetus to the USD/CAD pair. In the meantime, traders on Tuesday will take cues from the release of the Conference Board's US Consumer Sentiment Index and Richmond Manufacturing Index. This week's US economic docket also features the Advance Q2 GDP print and the Core PCE Price Index - the Fed's preferred inflation gauge.

Apart from this, Oil price dynamics might further contribute to producing some meaningful trading opportunities around the USD/CAD pair. The aforementioned fundamental backdrop, meanwhile, makes it prudent to wait for strong follow-through selling and a sustained break/acceptance below the 1.3100 mark to support prospects for the resumption of the downward trajectory from the YTD peak touched in March.

Technical levels to watch

• A combination of factors assists AUD/USD to gain strong positive traction on Tuesday.
• The optimism over move stimulus measures from China benefits the China-proxy Aussie.
• A modest USD pullback from a two-week peak remains supportive of the positive move.

The AUD/USD pair attracts fresh buying following the Asian session dip back closer to a technically significant 200-day Simple Moving Average (SMA) and turns positive for the second successive day on Tuesday. Spot prices recover further from over a one-week low touched on Monday and currently trade around the 0.6765-0.6770 region, up just over 0.40% for the day.

The latest optimism over additional stimulus measures from China remains supportive of the risk-on rally across the Asian equity markets and benefits the risk-sensitive Australian Dollar (AUD). State news agency Xinhua cited the Politburo - the top decision-making body of the ruling Communist Party - saying that China will step up economic policy adjustments, focusing on expanding domestic demand, boosting confidence and preventing risks. This, along with a modest US Dollar (USD) downtick, is seen as another factor pushing the AUD/USD pair higher.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, pulls back from a two-week high and for now, seems to stalled a five-day-old recovery move from its lowest level since April 2022 touched last week. The USD downtick could be solely attributed to some profit-taking and is likely to remain limited as traders keenly await fresh cues on the Federal Reserve's (Fed) future rate-hike path. Hence, the focus remains on the outcome of the highly-anticipated two-day FOMC monetary policy meeting, due to be announced on Wednesday.

The Fed is widely expected to hike interest rates by 25 bps points. Market participants, however, remain sceptic if the US central bank will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike by the end of this year. This, in turn, suggests that investors will closely scrutinized the accompanying policy statement and Fed Chair Jerome Powell's remarks to judge the central bank's outlook. This will play a key role in influencing the near-term USD price dynamics and help in determining the next leg of a directional move for the AUD/USD pair.

In the meantime, Tuesday's release of the Conference Board's US Consumer Confidence Index and Richmond Manufacturing Index might provide some impetus later during the early North American session. The market attention will then turn to the quarterly Australian consumer inflation figures, due on Wednesday. This week's busy economic docket also highlights the Advance US Q2 GDP print and the Fed's preferred inflation gauge - the Core PCE Price Index. The crucial central bank event risks, along with the key macro data, should infuse some volatility around the AD/USD pair.

Technical levels to watch

• USD/INR takes offers to refresh multi-day low, prints three-day losing streak.
• China stimulus, PBoC moves join receding fears of restrictive monetary policies to underpin risk-on mood.
• US Dollar braces for Fed amid pullback in yields but US PMIs were comparatively firmer and hence prod greenback sellers.
• Mid-tier US data, risk catalysts eyed for clear directions

USD/INR stands on slippery grounds as it drops for the third consecutive day to test the lowest levels in nearly three months amid early Tuesday. In doing so, the Indian Rupee (INR) pair cheers the risk-on mood in Asia, as well as the US Dollar’s retreat, while declining to 81.73 by the press time.

Headlines fueling hopes of China stimulus and bank intervention from Beijing seem to underpin the latest optimism in the Asia-Pacific zone. While portraying the mood, stocks in China and Hong Kong rallied by nearly 3.0% on the day whereas the index of MSCI’s Asia-Pacific shares outside Japan also rise 1.50% intraday by the press time.

Apart from the China-inspired firmer sentiment, recently downbeat activity data from the major economies also propel the sentiment and weigh on the USD/INR pair amid concerns that the central banks are near the policy pivot.

That said, the US Dollar Index (DXY) retreats from a two-week high after cheering the comparatively better PMIs the previous day, down 0.12% intraday near 101.25 at the latest. It should be observed that the first readings of the US S&P Global Manufacturing PMI for July improved to 49.0 from 46.3 prior and 46.4 market forecasts while the Services PMI eased to 52.4 versus 54.0 expected and 54.4 previous readings. With this, the Composite PMI edged lower to 52.0 from 53.2 prior and 53.1 market forecasts. That said, Chicago Fed National Activity Index for June slid to -0.32 from -0.28 prior (revised) and 0.03 market forecasts.

Not only the US but downbeat PMIs from the rest of the major economies also allowed Wall Street to close on the positive side the previous day, as well as favored the US Treasury bond yields to refresh multi-day high. That said, the manufacturing activity data from Eurozone and Germany dropped to the lowest levels since 2020 while the PMIs from the UK, Australia and Japan were also suggesting fears of easy economic activities.

Against this backdrop, the S&P500 Futures remain sidelined near 4,580, struggling to extend the previous day’s recovery, whereas the US 10-year and two-year Treasury bond yields retreat from the highest levels in two weeks to 3.86% and 4.84% in that order.

To sum up, the upbeat risk profile propels the Indian Rupee (INR) but the US Dollar’s retreat appears elusive and hence today’s US CB Consumer Confidence for July, expected 112.1 versus 109.70 prior, and Wednesday’s Fed Chair Jerome Powell’s speech should be observed closely for clear directions.

Technical analysis

A clear downside break of the 3.5-month-old rising support line, now immediate resistance around 81.85, directs the USD/INR price towards a horizontal area comprising multiple levels marked since February around 81.50.

• USD/JPY takes offers to extend the previous day’s retreat from two-week high.
• Two-month-old horizontal support zone, key EMA confluence challenge bears.
• RSI’s retreat from overbought area, looming bear cross on MACD prod Yen pair buyers.
• Risk-on mood weighs on US Dollar ahead of Fed, BoJ announcements

USD/JPY remains on the back foot for the second consecutive day, down 0.15% intraday near 141.25 by the press time, as the risk-on mood in Asia weighs on the US Dollar of late. Even so, the key technical supports and cautious mood ahead of this week’s monetary policy meetings of the US Federal Reserve and the Bank of Japan (BoJ) prod the Yen pair sellers.

Also read: S&P500 Futures struggle to justify optimism in China, Hong Kong amid sluggish yields, pre-Fed anxiety

That said, the RSI (14) line’s retreat from the overbought territory joins the impending bear cross on the MACD indicator to also weigh on the USD/JPY price.

However, a two-month-old horizontal support area surrounding the 141.00 round figure restricts the immediate downside of the Yen pair.

Even if the quote drops back below the 141.00 support, a convergence of the 100 and 200 Exponential Moving Average (EMA), around 140.80 at the latest, appears a tough nut to crack for the USD/JPY bears to conquer.

It’s worth mentioning that a fortnight-long rising support line near 140.55 acts as the last defense of the USD/JPY bulls.

On the flip side, the latest peak of 141.95 and the 61.8% Fibonacci retracement of the pair’s June 30 to July 14 downside, near 142.05, can challenge the USD/JPY pair’s recovery moves.

Following that, the July 10 swing high of around 143.00 can test the Yen pair buyers before directing them to the monthly top of near 145.00.

USD/JPY: Four-hour chart

Trend: Limited downside expected

• EUR/USD attracts some buying during the Asian session on Tuesday, albeit lacks follow-through.
• A modest USD pullback lends support, though traders seem reluctant ahead of the Fed and the ECB.
• The mixed technical setup also warrants some caution before placing aggressive directional bets.

The EUR/USD pair edges higher during the Asian session on Tuesday and for now, seems to have snapped a five-day losing streak, stalling its corrective slide from the highest level since February 2022 touched earlier this week. Spot prices, however, lack bullish conviction and currently trade around the 1.1070-1.1075 region, up less than 0.10% for the day.

The US Dollar (USD) ticks down following the recent recovery from a 15-month low witnessed over the past five days and turns out to be a key factor lending some support to the EUR/USD pair. The upside potential, meanwhile, seems limited as traders might refrain from placing aggressive bets ahead of this week's key central bank event risk - the FOMC policy decision on Wednesday, followed by the European Central Bank (ECB) meeting on Thursday.

From a technical perspective, the EUR/USD pair manages to find some support near the 100-period Simple Moving Average (SMA) on the 4-hour chart. This is closely followed by the mid-1.1000s, representing the 50% Fibonacci retracement level of the rally from the monthly swing low, which if broken decisively should pave the way for further losses. Spot prices might then accelerate the slide towards the 1.1000 psychological mark, or the 61.8% Fibo. level.

Given that oscillators on the daily chart - though have been losing traction - as still holding in the positive territory - the latter should act as a strong base for the EUR/USD pair. That said, a convincing break below will be seen as a fresh trigger for bearish traders and set the stage for an extension of the corrective decline.

On the flip side, the immediate hurdle is pegged near the 1.1100 round figure or the 38.2% Fibo. level, ahead of the 1.1125-1.1130 congestion zone and the 23.6% Fibo. level, around the 1.1165-1.1170 region. A sustained strength beyond will shift the bias back in favour of bullish traders and lift the EUR/USD pair further beyond the 1.1200 mark, towards testing the next relevant barrier near the 1.1250-1.1255 region and the YTD peak, around the 1.1275 area.

EUR/USD 4-hour chart

Key levels to watch

• Market sentiment improves early Tuesday but optimists await key central bank decision to bolster the bids.
• China stimulus, defense of Yuan via open market operations underpin latest optimism.
• Stocks in China, Hong Kong rally and help Asian equities to remain firmer but S&P500 Futures stays indecisive.
• US Treasury bond yields retreat from two-week high amid light calendar.

Headlines from China allow markets to turn optimistic early Tuesday even as the pre-Fed anxiety challenges the US stock futures and bond yields. That said, the recently downbeat PMIs renew hopes of a sooner end to the restrictive monetary policies and add strength to the upbeat sentiment. However, the cautious mood ahead of Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcements and a light calendar in Asia restricts the market moves of late.

While portraying the mood, stocks in China and Hong Kong rallied by nearly 3.0% on the day whereas the index of MSCI’s Asia-Pacific shares outside Japan also rise 1.50% intraday by the press time. Though, the S&P500 Futures remain sidelined near 4,580, struggling to extend the previous day’s recovery, whereas the US 10-year and two-year Treasury bond yields retreat from the highest levels in two weeks to 3.86% and 4.84% in that order.

Be it the People’s Bank of China (PBoC) or the state bank, the financial institutions from China defend the domestic currency and help build the market sentiment in the Asia-Pacific zone. Adding strength to the market’s optimism could be details of the Communist Party's Politburo meeting, held on Monday, that said the policymakers pledged measures to step up support for the economy amid a flagging post-COVID recovery, reported Reuters.

Elsewhere, the first readings of the US S&P Global Manufacturing PMI for July improved to 49.0 from 46.3 prior and 46.4 market forecasts while the Services PMI eased to 52.4 versus 54.0 expected and 54.4 previous readings. With this, the Composite PMI edged lower to 52.0 from 53.2 prior and 53.1 market forecasts. That said, Chicago Fed National Activity Index for June slid to -0.32 from -0.28 prior (revised) and 0.03 market forecasts.

Not only the US but downbeat PMIs from the rest of the major economies also allowed Wall Street to close on the positive side the previous day, as well as favored the US Treasury bond yields to refresh multi-day high. That said, the manufacturing activity data from Eurozone and Germany dropped to the lowest levels since 2020 while the PMIs from the UK, Australia and Japan were also suggesting fears of easy economic activities.

Looking forward, China stimulus news and the PBoC efforts may keep favoring the risk-on mood and weigh on the US Dollar. Though, the US CB Consumer Confidence for July, expected 112.1 versus 109.70 prior, and Wednesday’s Fed Chair Jerome Powell’s speech will be crucial to watch for clear directions.

Also read: Forex Today: Fresh highs for the DXY ahead of the Fed

China's major state-owned banks seen selling dollars to buy yuan in both onshore and offshore spot markets in early Asian trades.

More to come

• AUD/JPY pushes back bearish bias after snapping two-day winning streak the previous day.
• Convergence of key EMA, two-week-old rising support line appears a tough nut to crack for sellers.
• China policymakers pledge more stimulus to defend the dragon nation, PBoC keeps Yuan afloat.

AUD/JPY clings to mild gains above 95.00 as it cheers China-linked risk-on mood during early Tuesday. In doing so, the cross-currency pair defends the previous day’s rebound from a convergence of the 50 and 100 Exponential Moving Average (EMA), as well as a two-week-long rising trend line.

Also read: USD/CNH slides to 7.1500 as PBoC defends Yuan, China stimulus loom

Apart from that, the upbeat RSI (14) line, not overbought, also underpins bullish bias about the AUD/JPY pair.

However, a downward-sloping resistance line from June 18, close to 95.70 at the latest, seems a strong hurdle for the bulls to cross for conviction.

Following that, the monthly high surrounding 96.85 and the yearly peak marked in June surrounding 97.70 will be in the spotlight.

In a case where the AUD/JPY remains firmer past 97.70, the previous yearly top of around 98.60 and the 100.00 psychological magnet could lure the bulls.

Meanwhile, a downside break of the 95.00 support confluence comprising the aforementioned key EMAs and the trend line could drag the quote toward the 50% Fibonacci retracement of the May-June upside, close to 93.95.

However, the monthly low and the 61.8% Fibonacci retracement, respectively near 93.30 and 93.10, adjacent to the 93.00 round figure, will test the AUD/JPY bears afterward.

AUD/JPY: Four-hour chart

Trend: Further upside expected

• NZD/USD attracts some buying for the second successive day amid amodeest USD downtick.
• Looming recession risks might keep a lid on any meaningful gains for the risk-sensitive Kiwi.
• Traders might also prefr to wait on the sidelines ahead of the key Fed decision on Wednesday.

The NZD/USD pair rebounds nearly 35 pips from the Asian session low and turns positive for the second straight day on Tuesday. Spot prices currently trade around the 0.6210-0.6215 region, up 0.15% for the day, and draw support from a modest US Dollar (USD) weakness.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, snaps a five-day winning streak to a nearly two-week top and for now, seems to have stalled the recent recovery from its lowest level since April 2022 touched last week. In the absence of any fundamental trigger, the USD downtick could be solely attributed to some profit-taking and is likely to remain limited as traders keenly await cues on the Federal Reserve's (Fed) future rate-hike path.

It is worth recalling that the markets have been pricing out the possibility of any further rate-hikes after the widely anticipated 25 bps lift-off at the end of a two-day FOMC policy meeting on Wednesday. Market participants, however, remain sceptic if the US central bank will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike by the end of this year. Hence, the focus will be on the accompanying policy statement and Fed Chair Jerome Powell's remarks.

The outlook will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the NZD/USD pair. In the meantime, worries about a global economic downturn, along with the worsening US-China relations and geopolitical risks, might continue to lend some support to the safe-haven Greenback and cap any meaningful upside for the risk-sensitive Kiwi. This, in turn, warrants some caution for aggressive bullish traders.

Heading into the key central bank event risk, Tuesday's release of the Conference Board's US Consumer Confidence Index and Richmond Manufacturing Index might provide some impetus to the NZD/USD pair later during the early North American session. This week's rather busy US economic docket also features the Advance Q2 GDP print and the Core PCE Price Index - the Fed's preferred inflation gauge, which should further contribute to infusing some volatility in the markets.

Technical levels to watch

• EUR/JPY oscillates in a narrow range above 156.40 on Tuesday; Market players await the key event.
• German, Eurozone HOCB Composite PMIs raise concern about the economic slowdown in the continent.
• Market participants speculate that the ECB will raise borrowing costs in July and September.
• Japanese policymakers are expected to maintain a dovish policy stance.

The EUR/JPY pair holds ground near 156.40 during the early Asian session on Tuesday. The cross consolidates its recent losses following the downbeat German and Eurozone PMI data, and investors await the interest rate decision from the European Central Bank (ECB) and Bank of Japan (BoJ).

On Monday, the Hamburg Commercial Bank (HCOB) reported that the German HOCB Composite PMI decreased to 48.3 in July from 50.6 in June. This figure might raise the possibility that the economy will enter a recession during the second half of the year. Meanwhile, the HCOB Composite PMI for the Eurozone decreased to 48.9 from 49.0 in the same period. The index hit its lowest point in eight months. Following the data, the Euro weakened against the Japanese Yen amid concern about the economic slowdown in the continent.

Later this week, the cross could turn volatile as the ECB schedules its policy meeting for Thursday. The central bank is expected to raise interest rates by 25 basis points (bps). Market participants speculate that the ECB will raise borrowing costs in July and September.

On the other hand, BoJ Governor Kazuo Ueda put an end to speculation of a Yield Control Curve policy change and said that there was still some way to go before reaching the 2% inflation target. Those comments indicate that Japanese policymakers are expected to maintain a dovish policy stance in order to keep inflation steady at approximately 2%. This, in turn, led to the weakening of the Japanese Yen against its rivals due to monetary policy divergences between the BoJ and ECB.

Looking ahead, market participants are now focusing on the ECB's interest rate decision on Thursday. Then, investors will focus on the BoJ interest rate decision on Friday. These events could significantly impact the EUR/JPY pair.

• USD/CNH drops to more than one-week low, stays pressured near intraday bottom of late.
• PBoC keeps defending Yuan with heavy OMOs, pours cold water on expectations of witnessing strong USD/CNY fix.
• Comparatively better US PMIs put  floor under US Dollar price but pre-Fed positioning allow offshore Chinese Yuan to remain firmer.
• US CB Consumer Confidence eyed ahead of Wednesday’s FOMC.

USD/CNH stands on the slippery ground as it drops to the lowest levels in seven days to around 7.1500 during early Tuesday, close to 7.1600 by the press time. In doing so, the offshore Chinese Yuan (CNH) justifies the People’s Bank of China’s (PBoC) efforts to defend the domestic currency, as well as cheer the talks about more stimulus from the dragon nation.

The PBoC marked another disappointment for the USD/CNY forecasters by fixing the reference rate at 7.1406 versus 7.1451 prior and 7.1860 market forecasts. It’s worth noting that the USD/CNY closed near 7.1882 the previous day. While defending the USD/CNY fix, the Chinese central bank announced a 3-month bills swap worth five billion Yuan while marking a net 29 billion Yuan injection by the Open Market Operations (OMOs).

Elsewhere, the Chinese media conveyed details of the Communist Party's Politburo meeting on Monday that cited new difficulties and challenges for the economy while also showing the policymakers’ readiness for prudent monetary and fiscal policies. It’s worth observing, however, that the policymakers pledged measures to step up support for the economy amid a flagging post-COVID recovery, reported Reuters.

On the same line, China state planner National Development and Reform Commission (NDRC) issued a notice to promote the high-quality development of private investment. That said, NDRC also pledged encouragement of participation in some projects of transport, water and clean energy, as well as in new infrastructure and modern agriculture.

Amid these plays, stocks in China rally but the US stock futures print mild losses while the Treasury bond yields dribble and trigger the US Dollar’s retreat.

That said, the US Dollar Index (DXY) refreshed a two-week high near 101.40 during a five-day uptrend, mildly bid near 101.45 by the press time, amid comparatively better PMI data and upbeat yields. That said, the first readings of the US S&P Global Manufacturing PMI for July improved to 49.0 from 46.3 prior and 46.4 market forecasts while the Services PMI eased to 52.4 versus 54.0 expected and 54.4 previous readings. With this, the Composite PMI edged lower to 52.0 from 53.2 prior and 53.1 market forecasts. However, Chicago Fed National Activity Index for June slid to -0.32 from -0.28 prior (revised) and 0.03 market forecasts.

Moving on, China stimulus news and the PBoC efforts may keep weighing on the USD/CNH price but the US CB Consumer Confidence for July, expected at 112.1 versus 109.70 prior, and Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcements are crucial to watch for clear directions.

Technical analysis

A convergence of the five-week-old ascending trend line joins the 50-DMA to restrict the immediate USD/CNH downside near 7.1600.

• Gold price attracts some buying on Tuesday and snaps a four-day losing streak to a one-week low.
• Looming recession risks lend support to the safe-haven metal amid a modest US Dollar downtick.
• The upside seems limited ahead of this week's key central bank event risks and important US data.

Gold price gains some positive traction during the Asian session on Tuesday and for now, seems to have snapped a four-day losing streak to over a one-week low touched the previous day. The XAU/USD currently trades around the $1,960 level, up 0.25% for the day, as traders keenly wait this week's key central bank event risks.

Combination of factors benefits safe-haven Gold price

Looming recession risks, the worsening relations between the United States (US) and China - the world's two largest economies - and geopolitical risks cap the recent optimism in the markets. Worries about a deeper global economic downturn reignited on Monday following the disappointing release of the Purchasing Managers' Index (PMI) prints for July. The survey showed broad-based decline in business activity across the manufacturing and services sector in the Euro Zone, the United Kingdom (UK) and the United States (US). This, in turn, is seen as a key factor lending some support to the safe-haven Gold price.

Modest US Dollar downtick also lends support to XAU/USD

Apart from this, a modest US Dollar (USD) pullback from over a two-week top turns out to be another factor underpinning the XAU/USD. The downside for the USD, meanwhile, seems limited ahead of the highly-anticipated Federal Open Market Committee (FOMC) policy meeting, starting this Tuesday. The Federal Reserve (Fed) will announce its decision on Wednesday and is widely anticipated to hike interest rates by 25 basis points (bps). Apart from this, the focus will be on the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference.

Focus remains on central banks and key US macro data

Investors will look for fresh cues on future rate-hike path, which, in turn, will play a key role in infuencing the USD price dynamics and provide a fresh directional impetus to the US Dolllar-denominated Gold price. In the meantime, skepticism if the Fed will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike by the end of this year should allow the USD to presreve the recent strong recovery gains from its lowest level since April 2022 touched last Tuesday. This might hold back traders from placing aggressive directional bets and cap any further gains for the XAU/USD.

Apart from the high-anticipated Fed decision, this week's rather busy week also features the release of important US macro data, including the Advance Q2 GDP report and the Core PCE Price Index (the Fed's preferred inflation gauge). Investors will also look to the European Central Bank (ECB) meeting on Thursday, followed by the Bank of Japan (BoJ) monetary policy update on Friday, which should further contribute in determining the near-term trajectory for the non-yielding Gold price. This makes it prudent to wait for some follow-thruogh buying before positioning for any further gains for the XAU/USD.

Gold price technical outlook

From a technical perspective, any subsequent strength beyond the 100-day Simple Moving Average (SMA), currently around the $1,.962 area, is likely to confront stiff resistance near the $1,977-$1,978 zone. This is followed by the monthly peak, around the $1,987-$1,988 region set last week, above which the Gold price could aim to reclaim the $2,000 psychological mark. The upward trajectory could get extended further towards the next relevant hurdle near the $2,010-$2,012 supply zone.

On the flip side, the weekly low, around the $1,953 area, now seems to protect the immediate downside ahead of the $1,946-$1,945 region. Some follow-through selling, however, will suggest that the recent upward trajectory witnessed since the beginning of the current month has run its course and pave the way for deeper losses. The Gold price could then accelerate the fall towards the $1,934 horizontal support en route to the $1,926-$1,925 region. The next relevant support is pegged near the $1,909 area, below which the XAU/USD could weaken below the $1,900 mark and retest the multi-month low, around the $1,893-$1,892 area touched in June.

Key levels to watch

• USD/MXN pares heavy losses above the key moving average support, mildly bid of late.
• Downside break of weekly support line favors intraday sellers of the Mexican Peso pair.
• Bulls need validation from three-day-old descending resistance line, key Fibonacci retracement levels.
• Further grinding toward the south can be expected amid mixed oscillators.

USD/MXN struggles to defend the previous corrective bounce off the 200-Hour Simple Moving Average (SMA) during early Tuesday morning in Asia, edges higher around 16.85 by the press time.

Although the 200-HMA restricts the immediate downside of the USD/MXN pair near 16.82, a clear downside break of the rising support line from July 20, now immediate resistance around 16.88, can prod the Mexican Peso (MXN) pair buyers.

It’s worth noting that the looming bull cross on the MACD defends the USD/MXN bulls amid a nearly oversold RSI (14) line.

That said, a successful break of the support-turned-resistance line, close to16.88 isn’t enough to convince the USD/MXN bulls as a downward-sloping resistance line from July 21, close to 16.98, quickly followed by the 17.00 round figure, can test the pair buyers.

Following that, a run-up toward the monthly high of around 17.40 can’t be ruled out.

On the flip side, a clear break of the 200-SMA support of near 16.82 becomes necessary to convince the USD/MXN sellers.

Even so, multiple levels marked since July 18 prod the pair bears around 16.78 before directing them to the late 2015 region tested the last week around 16.69.

USD/MXN: Hourly chart

Trend: Limited downside expected

People’s Bank of China (PBoC) set the USD/CNY central rate at 7.1406 on Tuesday, versus the previous fix of 7.1451 and market expectations of 7.1860. It's worth noting that the USD/CNY closed near 7.1882 the previous day.

Earlier in the day, Reuters came out with the news stating that the PBoC 3-month central bank bills swap worth 5 billion Yuan on Tuesday.

Apart from the USD/CNY fix, the PBoC also unveiled details of its Open Market Operations (OMO) while saying that the Chinese central bank injects 44 billion Yuan via 7-day reverse repos (RRs) at 1.90% vs prior 1.90%.

However, the 15 billion Yuan of RRs mature today, which in turn suggests a net 29 billion Yuan injection on the day in OMOs.

About PBOC fix

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

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

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

• WTI consolidates its recent gains around the $78.80 mark.
• Supply cuts from Saudi Arabia and Russia, hopes for Chinese stimulus measures lift WTI prices.
• Further rate hikes, the economic slowdown in the Eurozone might cap the upside for WTI.
• Oil traders will watch the Federal Open Market Committee (FOMC) meeting on Wednesday.

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around the $78.80 mark so far this Tuesday. WTI consolidates its recent gains after hitting the highest level since April 24, backed by signs of a tighter oil market, data, and the hope for China’s stimulus plan. 

Several factors have contributed to WTI's recent gains. WTI has edged higher for four consecutive weeks, with supplies projected to tighten due to curbs by the Organisation of Petroleum Exporting Countries (OPEC) and allies such as Russia, known as OPEC+.

About the data, Baker Hughes reported that the number of oil rigs in the United States fell by seven last week, the most since the beginning of June. The current number of active oil rigs in the United States fell to 530, the lowest since March 2022. The Baker Hughes rig count data exacerbates supply-side worries and contributes to crude oil price increases.

Additionally, China, the world’s second-largest oil consumer, signaled additional support for the real estate sector and a series of measures to stimulate domestic consumption amid a sluggish post-COVID recovery. This, in turn, supports further upside in the WTI price.

On the other hand, the upside for WTI might be limited as market participants await the Federal Reserve's (Fed) monetary policy decision on Wednesday. It is widely anticipated that the Fed will raise interest rates by a quarter percentage point to 5.25–5.50%. It’s worth noting that higher interest rates raise borrowing costs, which can slow the economy and diminish oil demand. 

On the Euro front, the Eurozone manufacturing sector's woes worsened in July. The Eurozone Manufacturing Purchasing Managers Index (PMI) decreased to 42.7, below market expectations of 43.5 and June's reading of 43.4. The index reached its lowest level in 38 months. The data dampens demand for WTI.

Oil traders will keep an eye on the Federal Open Market Committee (FOMC) meeting and Fed Chairman Jerome Powell's press conference. This event could significantly impact the USD-denominated WTI price. Apart from this, traders will take cues from US CB Consumer Confidence, Advance GDP QoQ, and the Fed’s preferred measure of inflation, the core Personal Consumption Expenditure (PCE) Price Index MoM later this week.

AUD/USD clings to mild losses around 0.6730 as it reverses the previous day’s corrective bounce off the two-week low amid the mid-Asian session on Tuesday. In doing so, the Aussie pair fades recovery from the 200-DMA support of around 0.6720 amid bearish signals from the options market.

That said, the one-month Risk Reversal (RR) of the AUD/USD pair, a measure of the spread between call and put prices, dropped for the fourth consecutive day to -0.033 by the end of Monday’s North American trading session.

With this, the Aussie RR extends the previous week’s bearish bias, as portrayed by the weekly RR of -0.195, the biggest in three months, amid the market’s cautious mood and the broadly firmer US Dollar.

Also read: AUD/USD ignores firmer US Dollar to recover from two-week low above 0.6700 amid risk-on mood

Technically, AUD/USD retreats from a one-week-old descending resistance line, around 0.6750 by the press time, as the MACD indicator prints the first daily negative in two weeks. Adding strength to the downside bias is the steady RSI (14) line.

However, a convergence of the 200-DMA and 21-DMA, around 0.6720 by the press time, restricts the immediate downside of the AUD/USD pair, a break of which can drag the quote towards a two-month-old rising support line, close to 0.6690 at the latest.

Overall, AUD/USD appears stuck between the key trend lines while the DMA confluence tests the bears.

AUD/USD: Daily chart

Trend: Limited downside expected

• Natural Gas Price extends rebound from 21-DMA to print mild gains above the key Fibonacci retracement support.
• Upbeat RSI adds strength to the bullish bias about XNG/USD but multiple hurdles prod further upside.
• Natural Gas sellers need validation from one-month-old previous resistance line to retake control.

Natural Gas Price (XNG/USD) remains on the front foot at around $2.73 during Tuesday’s Asia session, defending the previous day’s rebound from the 21-DMA support. In doing so, the energy instrument remains firmer past the 61.8% Fibonacci retracement level of its March-April downturn.

Apart from the sustained recovery from the 21-DMA, as well as the successful trading beyond the 61.8% Fibonacci retracement, also known as the golden ratio, the XNG/USD price also benefits from the firmer RSI (14) line, not overbought.

As a result, the commodity price is likely to challenge the monthly high of around $2.78 before targeting May’s peak surrounding $2.82.

However, an upward-sloping resistance line from mid-March and the previous monthly top, respectively near $2.87 and $2.93, will check the Natural Gas buyers afterward.

Even if the XNG/USD remains firmer past $2.93, the $3.00 psychological magnet and March’s peak of around $3.08 could test the bulls before giving them control.

Alternatively, the Natural Gas Price remains on the bull’s radar unless providing a daily closing beneath the 61.8% Fibonacci retracement level and the 21-DMA, close to $2.71 and $2.66 in that order.

In a case where the XNG/USD drops beneath $2.66, the 50% Fibonacci retracement level and the resistance-turned-support line stretched from late June, around $2.60 and $2.52 respectively, will test the commodity bears.

Natural Gas Price: Daily chart

Trend: Limited upside expected

• USD/JPY edges higher during the Asian session on Tuesday, albeit lacks follow-through.
• A positive risk tone undermines the safe-haven JPY and lends some support to the major.
• Traders now seem reluctant and prefer to wait for this week's key central bank event risks.

The USD/JPY pair builds on the overnight late rebound of around 70-75 pips from the 140.75 area and gains some positive traction during the Asian session on Tuesday. Spot prices currently trade just above mid-141.00s and remain well within the striking distance of a two-week high touched last Friday.

Despite growing worries about a global economic downturn, hopes for more stimulus continue to boost investors' confidence. In fact, China’s top economic planner - the National Development and Reform Commission (NDRC) - unveiled new measures on Monday that seek to promote, encourage and spur private investment in some infrastructure sectors. The NDRC added that it will strengthen financing support for private projects. This remains supportive of a generally positive tone around the equity markets, which is seen undermining the safe-haven Japanese Yen (JPY) and acting as a tailwind for the USD/JPY pair.

The JPY is further weighed down by expectations that the Bank of Japan (BoJ) will stick to its dovish stance at the end of a two-day meeting on Friday. In fact, a government spokesperson said on Monday that Japan's inflation will likely slow to around 1.5% next year when stripping away the effect of one-off factors. Japan's top currency diplomat Masato Kanda, however, said that the recent inflation and wage rises were overshooting expectations and the data available so far supports prospects for an upgrade in the BoJ's inflation forecasts. This holds back traders from placing aggressive directional bets around the USD/JPY pair.

The US Dollar (USD), on the other hand, consolidates its recent recovery gains from its lowest level since April 2022 touched last week and does little to provide any meaningful impetus to the major. Market participants also seem reluctant and prefer to wait on the sidelines ahead of this week's key central bank event risks. The Federal Reserve (Fed) is scheduled to announce its policy decision on Wednesday and is widely expected to hike rates by 25 bps. Investors, meanwhile, remain sceptic if the US central bank will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike by the end of this year.

Hence, the focus will remain glued to the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference. Investors will look for clues about the Fed's future rate-hike path, which, in turn, will play a key role in influencing the near-term USD price dynamics. The market attention will then shift to the BoJ monetary policy update on Friday. This, along with important US macro releases, including the Advance Q2 GDP report and the Core PCE Price Index (the FEd's preferred inflation gauge) will help determine the next leg of a direcitonal move for the USD/JPY pair.

Technical levels to watch

• USD/CAD picks up bids to consolidate the biggest daily loss in over a week.
• WTI crude oil bulls take a breather at three-month high as supply crunch fears recede, sentiment dwindles.
• US Dollar Index remains firmer at two-week high amid comparatively better PMI, upbeat yields.
• Second-tier US statistics may entertain traders ahead of Wednesday’s all-important FOMC decision.

USD/CAD licks its wounds near 1.3175-80 after marking the biggest daily loss in eight days. In doing so, the Loonie pair justifies the latest retreat in the WTI crude oil price, Canada’s key export item, as well as the firmer US Dollar, amid a sluggish Tuesday morning in Asia.

USD/CAD ignored the US Dollar bulls, as well as the Bank of Canada (BoC) survey, amid a rally in the WTI crude oil price to refresh the three-month high. However, the market’s reassessment of the oil fundamentals and cautious mood ahead of Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcements prod the Loonie pair sellers of late.

On Monday, Reuters reported the latest Bank of Canada (BoC) survey showing that most market participants expect the BoC to hold its policy rate at 5% until the end of 2023. The poll also mentioned that the median of the participants forecast the BoC to reduce the key interest rate to 3.50% in the fourth quarter of 2024.

On the other hand, the US Dollar Index (DXY) refreshed a two-week high near 101.40 during a five-day uptrend, mildly bid near 101.45 by the press time, amid comparatively better PMI data and upbeat yields. That said, the first readings of the US S&P Global Manufacturing PMI for July improved to 49.0 from 46.3 prior and 46.4 market forecasts while the Services PMI eased to 52.4 versus 54.0 expected and 54.4 previous readings. With this, the Composite PMI edged lower to 52.0 from 53.2 prior and 53.1 market forecasts. However, Chicago Fed National Activity Index for June slid to -0.32 from -0.28 prior (revised) and 0.03 market forecasts.

It should be noted that the overall weakness in the global PMIs bolstered market sentiment amid hopes of witnessing an end to the tightening cycle at the major central banks, which in turn allowed the WTI crude oil to remain firmer amid supply crunch fears. Also favoring the oil buyers were hopes of more stimulus from China and concerns that the US will buy more oil to refill its Strategic Petroleum Reserves (SPR). On the same line are chatters that the energy markets will remain tighter in late 2023. Amid these plays, the WTI crude oil jumped the most in six weeks to refresh the highest levels in three months to around $79.25, down 0.11% intraday near $78.75 by the press time.

Looking ahead, the US CB Consumer Confidence for July, expected at 112.1 versus 109.70 prior, will entertain the USD/CAD traders but major attention will be given to the Oil price and the market’s Fed bets for clear directions.

Technical analysis

USD/CAD recovery remains elusive unless providing a daily closing beyond the 21-DMA hurdle of around 1.3220. The downward trajectory, however, should conquer the one-week-old rising support line, close to 1.3140 at the latest, to recall the Loonie pair sellers.

• USD/CHF gains momentum and reclaims the 0.8700 area on Tuesday.
• US S&P Global PMI data revealed that Manufacturing activity for July increased from 46.3 to 49.
• The Federal Reserve (Fed) will announce the outcome of its monetary policy meeting on Wednesday. 

The USD/CHF pair gains traction on Tuesday. The pair is trading at 0.8700, up 0.03% after hitting a low of 0.8637. Investors will focus on the Federal Open Market Committee (FOMC) meeting on Wednesday. Meanwhile, the US Dollar Index (DXY), a measure of the value of the Greenback against six other major currencies, gains momentum and holds above the 101.30 mark on Tuesday. This, in turn, acts as a tailwind for the USD/CHF pair.

US S&P Global PMI data revealed that Manufacturing activity for July increased from 46.3 to 49, above market expectations. The reading for July marked the sixth consecutive month of expansion but was restrained by weakening service sector conditions. Meanwhile, the Services PMI decreased from 54.4 to 52.4, below expectations of 54. The Composite PMI index fell to 52 from 53.2 in June.

On Wednesday, the Federal Reserve (Fed) will announce the outcome of its monetary policy meeting. It is widely anticipated that the Fed will raise interest rates by a quarter percentage point to 5.25–5.50%. Market players believe this event could be the last rate hike of the current hike cycle. However, Fed Chairman Jerome Powell's press conference on Wednesday will hint at some clues about the possibility of future Fed tightening policy.

The data released last week on the Swiss franc front revealed that the Swiss Trade Balance increased by 4,823 million from 5,442 million previously and was lower than expected by 5,442 million. Exports jumped to 24,917M from 23,879M in May, while imports rose to 20,093M from 18,438 M.

Looking ahead, the Swiss Credit Suisse Economic Expectations, ZEW Survey Expectations, and KOF Leading Indicator for July could offer clues about the Swiss Franc movement. On the US docket, US CB Consumer Confidence and Advance Gross Domestic Product (GDP) QoQ will be due later this week. However, this week's key events will be the FOMC meeting and Fed Chairman Jerome Powell's press conference. Market participants will closely watch this development and find opportunities around the USD/CHF pair.

• Silver Price stays depressed at two-week low after three-day losing streak.
• Oversold RSI conditions test XAG/USD bears at multi-day low.
• Bearish MACD signals join fortnight-long support break to favor Silver sellers.
• 200-SMA, one-month-old rising trend line challenge further downside of XAG/USD.

Silver Price (XAG/USD) remains on the back foot at the lowest levels in two weeks despite making rounds to $24.30 amid Tuesday’s Asian session. In doing so, the XAG/USD justifies the oversold RSI (14) line as bears take a breather after the commodities decline in the last three consecutive days.

Although the RSI conditions test the Silver sellers, a clear downside break of the 13-day-old ascending trend line and the bearish MACD signals suggest further downside of the precious metal. The same highlights 50% Fibonacci retracement of the quote’s May-June downside, near $24.10.

However, a convergence of the 200-SMA and 38.2% Fibonacci retracement, at $23.65 by the press time, appears a tough nut to crack for the XAG/USD bears afterward.

In a case where the Silver Price remains bearish past $23.65, an upward-sloping support line from June 23, close to $23.30 at the latest, will act as the final defense of the XAG/USD buyers.

On the flip side, XAG/USD recovery needs validation from the previous support line and the 61.8% Fibonacci retracement, respectively around $24.45 and $24.60, to convince buyers.

Even so, the $25.00 round figure and the latest peak of around $25.30 could check the upside momentum before fueling the Silver Price toward the double tops marked in April and May around $26.15.

Silver Price: Four-hour chart

Trend: Further downside expected