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• Natural Gas Price recovers after posting the biggest daily loss in two weeks.
• Federal Reserve’s rate hike, readiness for September lift weigh on XNG/USD even as US Dollar remains depressed.
• Russian gas output drops 14.9% during January-June period.
• Risk catalysts, US GDP eyed for clear directions of the Natural Gas Price.

Natural Gas Price (XNG/USD) takes clues from Russia to pare the biggest daily loss in a fortnight around $2.70 during early Thursday morning in Asia. In doing so, the XNG/USD also reverses the Federal Reserve (Fed) inflicted losses as the US Dollar lacks upside momentum while market sentiment improves.

As per the latest Russia Natural Gas output data from the Rosstat statistics office, per Reuters, the natural gas output reached 267 billion cubic meters (bcm), down 14.9% from the same period in 2022. The energy update also states that Russia produced 34.6 bcm of natural gas in June, down 11.9% from the same month last year.

On Wednesday, Federal Reserve (Fed) matched the widely forecasted increase of 25 basis points (bps) to the benchmark Fed rates toward the multi-year high in the range of 5.25%-5.50%. Following the rate decision, Fed Chairman Jerome Powell tried to placate the hawks by showing readiness for a September rate hike as he said, that the June inflation Consumer Price Index was welcomed but “was only one month's report.”

It should be noted that the rejection of recession fears was also an effort to please the US Dollar buyers but failed. However, the commodities failed to cheer the USD’s weakness and rather slumped amid disappointment that the end of the global rate hike trajectory isn’t near.

Apart from the US Dollar weakness and Russia-inspired move, the market’s optimism ahead of the advance readings of the US Q2 GDP Annualized, expected to ease to 1.8% from 2.0%, as well as the Durable Goods Orders for June, likely easing to 1.0% from 1.8% prior (revised), also favor the XNG/USD bulls.

Additionally, a likely easing in the US Energy Information Administration’s (EIA) Natural Gas Storage Change for the week ended on July 21, from 41B to 23B, also underpins the XNG/USD rebound.

Technical analysis

Repeated failures to cross the three-week-old horizontal resistance area surrounding $2.78-79 directs the Natural Gas price towards the 21-DMA support of around $2.66.

• GBP/USD edges higher after positing two-day winning streak.
• Sustained break of 50-SMA, upbeat oscillators favor Pound Sterling buyers.
• Two-week-old horizontal resistance, convergence of important trend lines prod Cable buyers.
• US GDP, Durable Goods Orders test Pound Sterling bulls despite upbeat oscillators.

GBP/USD bulls take a breather after a two-day uptrend, making rounds to the weekly top surrounding 1.2960 amid the early hours of Thursday’s Asian session. In doing so, the Cable pair portrays the market’s cautious mood ahead of the top-tier data/events, as well as portrays consolidation ahead of the key upside hurdles.

It’s worth noting, however, that the bullish MACD signals and the upbeat RSI (14) line, now overbought, join the GBP/USD pair’s upside break of the 50-SMA to favor the pair buyers.

However, a two-week-old horizontal resistance area surrounding 1.2960-70 guards the immediate upside of the Pound Sterling.

Following that, a convergence of the previous support line stretched from late June and a fortnight-long descending trend line, close to 1.3010 at the latest, will act as the final defense of the GBP/USD pair sellers, a break of which won’t hesitate to challenge the yearly top around 1.3145.

On the flip side, a clear break of the 50-SMA level of around 1.2910 can direct the GBP/USD price toward the 50% Fibonacci retracement of its late June to early July upside, near 1.2865.

Even so, the 200-SMA and 61.8% Fibonacci retracement together could challenge the Cable pair bears around 1.2810-2800.

Overall, GBP/USD stays on the bull’s radar but the road towards the north is long and bumpy.

Elsewhere, the cautious mood ahead of the first readings of the US Gross Domestic Product (GDP) for the second quarter (Q2) and the European Central Bank’s (ECB) monetary policy meeting, as well as US Durable Goods Orders for June, prods the GBP/USD bulls.

Also read: GBP/USD shoots higher as Fed chair sticks to the data dependent script

GBP/USD: Four-hour chart

Trend: limited upside expected

• NZD/USD remains flat near the 0.6200 area after the Fed's decision and statement.
• As expected, the Federal Reserve (Fed) raises rates by 25 basis points (bps) to 5.25%–5.5%.
• Investors will shift their focus to US Q2 GDP, weekly Jobless Claims and Durable Goods Orders.

The NZD/USD pair remains steady around the 0.6200 mark in the early Asian session after hitting multi-day highs at 0.6235 and pulling back. The US dollar Index (DXY), a measure of the value of the Greenback against six other major currencies, weakened across the board following the Fed's decision and statement. The DXY dropped to 100.85 and rebounded above the 101.00 area. The US 10-year Treasury yield traded at around 3.87%, and the 2-year at 4.85%.

As widely expected, the Federal Reserve (Fed) raised interest rates by 25 basis points (bps) to 5.25%–5.5% on Wednesday. The rate was last seen just before the housing market collapse in 2007, and marked the highest level in more than 22 years.

During a news conference, Fed Chairman Jerome Powell stated that inflation has moderated somewhat since the middle of last year but that the Fed's 2% target "has a long way to go." Even so, he left room for the Fed to keep rates unchanged at its September meeting. He added that the Fed will consider the incoming data for additional rate hikes if needed.

On the other hand, the Reserve Bank of New Zealand (RBNZ) maintained the official cash rate (OCR) unchanged at 5.50% in the July meeting, which triggered further downside on the Kiwi. However, the downside potential for the NZD/USD pair appears limited as the market expects a more hawkish stance from the RBNZ. 

In the absence of economic data released from New Zealand, the USD's valuation is likely to continue to influence the pair's movement. Market participants will shift their focus to the US Advance GDP QoQ. Also, the weekly Jobless Claims and Durable Goods Orders are due later in the day.

• AUD/USD fades post-Fed recovery after snapping two-day winning streak.
• Disappointment from Australia inflation, China woes supersedes unimpressive FOMC, Powell’s speech to keep Aussie bears hopeful.
• More clues of Aussie inflation eyed for immediate directions, highlighting Q2 Export-Import Price Index.
• Advance readings of US Q2 GDP, Durable Goods Orders will be crucial for clear directions.

AUD/USD fails to cheer the Federal Reserve’s (Fed) inability to please the US Dollar bulls for long, despite an initial 50 pips jump to 0.6783, as it retreats to 0.6760 amid early Thursday morning in Asia. In doing so, the Aussie pair traders seem to convey their dovish bias about the Reserve Bank of Australia (RBA) after the previous day’s downbeat inflation data. Also weighing on the risk-barometer pair could be the market’s cautious mood ahead of the top-tier US data and mixed headlines about China.

Federal Reserve (Fed) matched the widely forecasted increase of 25 basis points (bps) to the benchmark Fed rates toward the multi-year high in the range of 5.25%-5.50%. Following the rate decision, Fed Chairman Jerome Powell tried to placate the hawks by showing readiness for a September rate hike as he said, that the June inflation Consumer Price Index was welcomed but “was only one month's report.” It should be noted that the rejection of recession fears was also an effort to please the US Dollar buyers but failed.

On the other hand, Australia’s headline Consumer Price Index (CPI) for the second quarter (Q2) of 2023 drops to 0.8% QoQ versus 1.0% expected and 1.4% prior while the Reserve Bank of Australia (RBA) Trimmed Mean CPI came in as 1.0% compared to 1.1% market forecasts and 1.2% prior for the said period. Further, the Monthly CPI matches 5.4% analysts’ expectations for June versus 5.6% prior.

Following the downbeat Aussie inflation data, Australian Treasurer Jim Chalmers praised the direction but also added that there is a long way to go to beat inflation.”

Elsewhere, fresh challenges to the US-China ties, due to Washington’s push for a law to keep China investments from US companies in check, also seem to tease the AUD/USD bears of late.

Amid these plays, Wall Street benchmarks edged lower while the US 10-year Treasury bond yields marked the first daily loss in three by closing around 3.87%. That said, the US Dollar Index (DXY) also declined and marked a two-day losing streak before posting lackluster moves of late.

Looking ahead, the second-quarter (Q2) Export Price Index and Import Price Index from Australia will be closely examined for more clues about inflation and the next RBA move. Following that, the advance readings of the US Q2 GDP Annualized, expected to ease to 1.8% from 2.0%, as well as the Durable Goods Orders for June, likely easing to 1.0% from 1.8% prior (revised), will be eyed for clear directions. It should be noted that the European Central Bank (ECB) monetary policy meeting will also affect the US Dollar and hence should be watched for a clear guide.

Technical analysis

A clear U-turn from a fortnight-old resistance line, near 0.6785 by the press time, directs AUD/USD toward a three-week-old rising trend line, close to 0.6740 at the latest.

• Gold Price struggles to defend latest gains while fading upside momentum below key resistance.
• XAU/USD retreats as US Dollar licks Federal Reserve-inflicted losses.
• Fed announced 0.25% rate hike and Chairman Jerome Powell’s marked hawkish play but failed to inspire US Dollar, favoring Gold price.
• ECB needs to justify policy pivot concerns to weigh on XAU/USD, via softer Euro, US GDP eyed too.

Gold Price (XAU/USD) retreats from the weekly top, probing a two-day uptrend around $1,972 amid early hours of Thursday’s Asian session, as markets await more clues to defend the post-Federal Reserve (Fed) gains of the yellow metal. Also likely to have weighed on the XAU/USD could be the cautious mood ahead of the first readings of the US Gross Domestic Product (GDP) for the second quarter (Q2) and the European Central Bank’s (ECB) monetary policy meeting. Above all, the Federal Reserve and Chairman Jerome Powell’s inability to guide the market by meeting the 0.25% rate hike and leaving the door open for the September rate increase favored the Gold buyers before the pre-data anxiety prods the metal.

Gold Price edges higher as Federal Reserve, Powell fail to please US Dollar bulls

Gold Price refreshed weekly top after the US Federal Reserve (Fed) Interest Rate Decision, which matched the widely forecasted increase of 25 basis points (bps) to fuel the rate toward the multi-year high in the range of 5.25%-5. 50%. Following the rate decision, Fed Chairman Jerome Powell tried to placate the hawks by showing readiness for a September rate hike as he said, that the June inflation Consumer Price Index was welcomed but “was only one month's report.” It should be noted that the rejection of recession fears was also an effort to please the US Dollar buyers but failed.

Following the Fed event, the US Treasury bond yields and the US Dollar dropped, which in turn helped the Gold Price to remain firmer and refresh the weekly top around $1,978, before retreating amid cautious mood ahead of the top-tier data/events.

Mixed China headlines, United States data also favor XAU/USD bulls

Apart from the Fed-inspired run-up, the Gold Price also remains firmer as the biggest XAU/USD customer, namely China, shows readiness for further stimulus. It’s worth noting, however, that the fresh challenges to the US-China ties, due to Washington’s push for a law to keep China investments from the US companies in check, seem to prod the XAU/USD bulls of late.

Elsewhere, the Conference Board’s (CB) Consumer Confidence Index for July has been positive but the housing numbers for June are mixed. That said, the previously released inflation and employment clues haven’t been impressive. Even so, the International Monetary Fund (IMF) raised the US economic growth forecast for 2023 to 1.8% from 1.6% forecast in April.

ECB, US Q2 GDP eyed for Gold Price directions

Although the Gold Price is all set to register a fourth consecutive weekly gain, the ability of the European Central Bank (ECB) and the US Gross Domestic Product (GDP) for the second quarter (Q2) to renew the US Dollar upside and weigh on the XAU/USD can’t be ruled out. The same requires a close watch on these data/events. That said, US Durable Goods Orders for June and weekly Initial Jobless Claims also become important to watch for clear directions.

That said, the ECB is expected to follow the Fed while announcing a 0.25% increase in the benchmark interest rates. However, President Christine Lagarde’s ability to defend the hawks will be crucial to allow the Euro in staying firmer.

On the other hand, the advance reading of the US Q2 GDP Annualized is expected to ease to 1.8% from 2.0% while the Durable Goods Orders for June may also ease to 1.0% from 1.8% prior (revised). Both these data suggest challenges for the US Dollar and favor to the Gold Price and hence solid reaction to the positive surprise can’t be ruled out.

Gold Price Technical Analysis

Gold Price lures sellers as it fades the early-week rebound from the convergence of a 100-Exponential Moving Average (EMA) and a one-month-old rising support line, around $1,955 by the press time.

Also favoring the downside bias about the XAU/USD price could be the receding bullish power of the Moving Average Convergence and Divergence (MACD) indicator, as well as a retreat of the Relative Strength Index (RSI) line, placed at 14.

It’s worth noting, however, that a clear downside break of the $1,954 support confluence becomes necessary to convince the Gold sellers. Following that, a downward trajectory toward a two-month-old horizontal support zone near $1,930 and then to the previous monthly low of around $1,893 can’t be ruled out.

On the contrary, multiple tops marked since May 19 restrict short-term Gold Price upside near $1,985.

In a case where the Gold Price remains firmer past $1,985, the $2,000 round figure and March’s peak of around $2,010 will act as the final defense of the XAU/USD sellers.

Gold Price: Four-hour chart

Trend: Further downside expected

• USD/MXN bears are still in control as US Dollar weakness. 
• A risk factor for the Peso remains developments in the US.

Currencies of most Latin American countries extended gains on Wednesday after a widely expected interest rate hike from the US Federal Reserve, with the Mexican Peso continuing its decline within the long-term bearish trend in USD/MXN.

Latam currencies have benefited from attractive yields this year given surging interest rates in the region. An important risk factor for the Mexican Peso remains developments in the US.

''If the US economy cools down more than expected, this would also weigh on the Mexican outlook. This would likely limit upside risks to inflation and could imply a sharper cut in Mexican interest rates and a correspondingly less attractive real interest rate outlook, which would weigh on the peso,'' analysts at Commerzbank explained. 

''In our baseline scenario, however, we expect solid domestic demand and Banxico's vigilance to continue to support the peso in the face of a still uncertain inflation outlook.''

USD/MXN charts

The weekly chart shows the price in decline below the fresh key structure.

On the daily chart, the correction could be running out of steam and reversion to the downside could be the cards. Bears eye a break of support for the forthcoming days. 

Market participants will continue to digest the FOMC meeting during the Asian session. Economic data due On Thursday includes the Export and Import Price Index in Australia. Later in the day, the ECB is expected to raise interest rates by 25 basis points. Additionally, key economic data from the US is due, including the preliminary Q2 GDP growth.

Here is what you need to know on Thursday, July 27:

The Federal Reserve (Fed) raised its key interest rates by 25 basis points to 5.25%-5.5%, as expected. The rate reached levels not seen in more than 11 years. The decision and the statement offered no surprises. Chair Powell mentioned that the June inflation Consumer Price Index was welcomed but “was only one month's report.” He added that if data suggests more hikes are needed, “that is the judgment we'll make.”

After the Fed and Powell delivered, the US dollar weakened but only modestly, and US yields pulled back moderately. The DXY dropped 0.25%, ending around 101.00. The US 10-year Treasury yield settled around 3.87%, and the 2-year at 4.85%. The focus will turn to economic data, starting on Thursday with the preliminary Q2 GDP data. The growth report will also include inflation indicators. At the same time, the weekly Jobless Claims and Durable Goods Orders are due.

EUR/USD rose after falling during six consecutive days, supported by a weaker US Dollar. The pair held above the 20-day Simple Moving Average (SMA), but found resistance at 1.1100. On Thursday, the European Central Bank (ECB) will announce its decision on monetary policy. A rate hike is expected, and the focus will be on the language.

ECB Preview: Forecasts from 12 major banks, the final 25 bps?

GBP/USD rose for the second day in a row, holding firm above 1.2900, while EUR/GBP remains subdued, hovering around 0.8560. USD/CHF lost ground for the second day, reaching weekly lows under 0.8600.

AUD/USD finished lower but remained above the 20-day SMA and above 0.6730. The upside faces resistance below 0.6800. The Aussie weakened during the Asian session following softer-than-expected inflation data from Australia. On Friday, the Producer Price Index is due.

NZD/USD remained flat around 0.6215 as it continues to move sideways. The pair hit multi-day highs at 0.6235 and then pulled back. USD/CAD remains in a range below the 20-day SMA at 1.3230 and 1.3150.

Crude oil pulled back from monthly highs, falling less than 1%, with the WTI ending around $79.00. Gold rose after the FOMC meeting but failed to consolidate above $1,975. Silver also climbed but pulled back after testing levels above $25.00.
 

• The Fed hiked rates by 25 bps as expected to 5.25-5.50%, its highest in 22 years.
• All eyes are now on ECB’s decision on Thursday, expected to deliver a 25 bps hike.

The EUR/USD is trading positive after 6 consecutive days of losses, precisely at 1.1090 and 0.37% gains during the session.

As expected, the Federal Reserve (Fed) hiked rates by 25 basis points and is positioned in the 5.25%-5.50% target. However, during the press conference, Chair Powell did not commit to a hike in September as ongoing decisions will depend on incoming data.
Regarding the economic assessment, Powell noted that economic activity and the labour market remain robust but that inflation remains too high.

That said, the DXY index fell to 101.030, showing a decrease of 0.26% on the day. Additionally, the US treasury yields on 2, 5 and 10-year are in negative territory at 4.85%, 4.11% and 3.87%, respectively, and applied further pressure on the USD.

Regarding Thursday's European Central Bank (ECB) decision, markets have largely priced in a 25 bps hike, and investors will look for clues regarding forward guidance. As for now, the odds of a hike according to the World Interest Rate Possibilities (WIRP) in Septmeber fell below 50%, but in October and December are largely priced in, so messaging will be key.

EUR/USD Levels to watch

According to the daily chart, the technical outlook for the EUR/USD has improved as indicators are starting to gain strength but still, the bears are holding their ground.  The Relative Strength Index (RSI) with a slightly upward slope to the north, while the Moving Average Convergence Divergence (MACD) is still in negative territory, printing red bars. That being said, the bulls managed to defend the 20-day Simple Moving Average (SMA) so outlook for the EUR/USD is bright on the bigger picture.

Resistance levels: 1.1100, 1.1150,1.1190. 
Support levels: 1.1050 (20-day SMA), 1.1030, 1.1000.

EUR/USD Daily chart

• USD/CAD has popped towards resistance and a bullish bias on the charts is eyed going forward. 
• A break of last week's lows opens risk for a downside continuation. 

USD/CAD is sidelined on the front side of the bearish trend and has not been rattled by what was a rather benign outcome form the Federal Reserve meeting. The Fed, raised its interest rate decision by a 25 bps rate hike to 5.25-5.50%, as expected.

Federal Reserve statement, and key notes

• Fed says FOMC vote was unanimous.
• CBO revises 2023 us real Gross Domestic Product growth forecast to 0.9% from 0.1% forecast in Feb due to H1 labour market strength.
• Fed: Will consider extent of additional firming to curb inflation.
• Fed: We will continue to reduce our bond holdings as described in previously announced plans.
• Fed: Tighter credit conditions are likely to weigh on economic activity, hiring and inflation, extent to which remains uncertain.
• Fed: Recent indicators suggest economic activity has been expanding at a moderate pace vs a modest pace in June statement.
• Fed: We will continue to assess additional information and its implications for policy.
• Fed: Banking system is sound and resilient.

As a result of the statement:

• Interest rate futures put chance of Fed hike at 18% in September, 36.5% in November post-FOMC.
• Probability of Fed hike was 18.9% in Sept, 37.3% in nov pre-FOMC.

Analysts said the FOMC meeting was as expected, with Chair Jerome Powell "playing it close to straight down the middle" between hawkish and dovish on the rates outlook going forward.

Nevertheless, the US Dollar was nudged lower, as seen by the DXY index, a measure of the Greenback against six major peers. It fell 0.345% at 1.1093. 

USD/CAD daily chart

Consequently, USD/CAD popped towards trendline support and follow-through will see the price eyeing up overhead resistance as illustrated above. Should this hold, then there will be a focus on current support again. Overall, however, the price will be on the backside of the old bearish trendline and that leaves a bullish bias on the charts going forward. A break of last week's and this week's lows, however, opens risk for a downside continuation. 

• XAG/USD jumped towards $24.90, its highest in six days.
• The Fed delivered a 25 bps hike as expected, but Chair Powell didn’t commit to further hikes.
• USD weakness and falling US yields allowed the metal to gain ground

In the middle of the week, the XAG/USD pair is trading strong, showing 0.88% of gains so far this day. As the market expected, the Federal Reserve (Fed) effectively raised the interest rate by 25 basis points. Fed's Chair Jerom Powell emphasized that “a rate hike in September is possible, but also stated that it is possible not to raise rates”. Powell also highlighted the importance of 'meeting by meeting' as the following decisions will be based on the data that comes out. 

Following this, US treasury yields on 2, 5 and 10-year bonds which could be seen as the opportunity cost of holding precious metals, are trading lower at 4.82%, 4.09% and 3.85%, respectively. Additionally, the DXY index is losing ground at 0.30% below 101.00. 

XAG/USD Levels to watch

According to the daily chart, there is a strong bullish momentum. The Relative Strength Index (RSI) with a slightly upward slope to the north, while the Moving Average Convergence Divergence  (MACD) index prints smooth green bars indicating a favourable momentum for the bulls in the market. On the bigger picture, the metal is trading above the  20,100 and 200-day Simple Moving Averages (SMA)suggesting that bulls are in command.

Resistance levels: 25.00, 25.30, 25.50
Support levels: 24.50, 23.98 (20-day SMA), 23.84 (100-day SMA).
 

XAG/USD Daily chart

FOMC Chairman Jerome Powell comments on the policy outlook and responds to questions from the press after the Federal Reserve's decision to raise the policy rate by 25 basis points to 5.25-5.5% following the July policy meeting.

Key quotes

"The economy is weathering the banking turmoil well."

"We want wage growth at a rate consistent with 2% inflation over time."

"We don't think that wages were an important cause of inflation early but are an important part of bringing inflation down now."

"There's a range of views on the Committee at this meeting and the next meeting, that will be reflected in the minutes."

"Could be cutting rates while continuing QT, the two are independent things, the active tool for policy is rates."

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell comments on the policy outlook and responds to questions from the press after the Federal Reserve's decision to raise the policy rate by 25 basis points to 5.25-5.5% following the July policy meeting.

Key quotes

"Even with a soft landing, you would still have some softening in labor conditions."

"We've seen softening not through higher unemployment but through fewer openings and quits."

"We hope it continues."

"Hiking until we get to 2% is a formula for going past target."

"If we see inflation coming down credibly, we can move down to a neutral level and then below neutral at some point."

"Not going to make a numerical assessment of when and where that would be."

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell comments on the policy outlook and responds to questions from the press after the Federal Reserve's decision to raise the policy rate by 25 basis points to 5.25-5.5% following the July policy meeting.

Key quotes

"There is a lot of uncertainty around the length of policy lags."

"No one should doubt that we will use tools to bring inflation to target."

"I would say policy is restrictive, more so after today's decision."

"We have come a long way, we are resolutely committed to returning inflation to target."

"Inflation has proven more resilient than expected."

"Policy is working about as we expected."

"I don't think we're targeting wage inflation."

"Seeing a cooling in private sector in job market in latest report."

"Lot of uncertainty about outlook to next meeting let alone next year."

"I don't think there will be cuts this year."

About Jerome Powell (via Federalreserve.gov)

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

• NZD/USD rose above 0.6200 and jumped to positive territory.
• Fed hiked rates by 0.25% as expected to 5.25-5.50%.
• Powell opened the door to “not hike rates” in September.

The NZD/USD cleared daily losses and jumped to positive territory towards the 0.6220 area.

The Federal Reserve (Fed) hiked rates by 25 basis points (bps) to the 5.25-5.50% target. In the presser, Jerome Powell didn’t commit to further hikes noting that ongoing decisions will depend fully on incoming data.

Regarding his economic assessment, he noted that economic activity remains robust, the labour tight, and inflation elevated. In addition, he stated that the Fed expect some “softening” of the labour market and some below-the-trend growth.

During the presser, the US Treasury yields fell sharply, which applied pressure on the USD. The 2-year yield fell to 4.86%, while the 5 and 10-year rates fell to 4.10% and 3.86%, all three with more than 0.50% losses.

NZD/USD Levels to watch

 According to the daily chart, the outlook is neutral to bearish. The Relative Strength Index (RSI) Index is in positive territory, slightly above the middle line. At the same time, the Moving Average Convergence Divergence (MACD) index prints soft red bars suggesting that the bears are holding their ground. On the bigger picture, the pair holds above the 20,100 and 200-day Simple Moving Averages (SMA), which suggests that the buyers are in command.

Support levels:0.6223 (20-day SMA), 0.62139 (100-day SMA), 0.61978 (200-day SMA).
Resistance levels: 0.6240, 0.6300,0.6350
 

NZD/USD Daily chart

• GBP/USD bulls have moved in for the kill on the Fed and Fed chair Powell. 
• GBP/USD rides daily support and looks to extend the bullish trend. 

GBP/USD has spiked to break the prior highs of the day and stays the course with regards to the technical bullish correction that is illustrated below. Meanwhile, GBP/USD is trading between 1.2875 and 1.2958 on the day but around the Fed, 1.2895 and 1.2985 have been the range so far. 

The Federal Reserve, Fed, raised its interest rate decision by a 25 bps rate hike to 5.25-5.50%, as expected.

Federal Reserve statement, and key notes

• Fed says FOMC vote was unanimous.
• CBO revises 2023 us real Gross Domestic Product growth forecast to 0.9% from 0.1% forecast in Feb due to H1 labour market strength.
• Fed: Will consider extent of additional firming to curb inflation.
• Fed: We will continue to reduce our bond holdings as described in previously announced plans.
• Fed: Tighter credit conditions are likely to weigh on economic activity, hiring and inflation, extent to which remains uncertain.
• Fed: Recent indicators suggest economic activity has been expanding at a moderate pace vs a modest pace in June statement.
• Fed: We will continue to assess additional information and its implications for policy.
• Fed: Banking system is sound and resilient.

As a result of the statement:

• Interest rate futures put chance of Fed hike at 18% in September, 36.5% in November post-FOMC.
• Probability of Fed hike was 18.9% in Sept, 37.3% in nov pre-FOMC.

Fed chair Powell key comments

Federal Reserve Chairman Jerome Powell comments on the policy outlook and responds to questions from the press following the US Federal Reserve (Fed) decision to hike the policy rate:

Powell speech: Labor demand still substantially exceeds supply

Powell speech: We believe monetary policy is restrictive

Powell speech: Will be looking to see if signal from June CPI is replicated

Fed overview

Jerome Powell explains decision to hike interest rate by 25 bps in July, comments on policy

GBP/USD technical analysis

GBP/USD hourly chart shows the bulls are moving in. 

The daily chart shows the price heading higher again, riding trendline support, following the recent daily correction. 

FOMC Chairman Jerome Powell comments on the policy outlook and responds to questions from the press after the Federal Reserve's decision to raise the policy rate by 25 basis points to 5.25-5.5% following the July policy meeting.

Key quotes

"It is a good thing headline inflation has come down so much."

"It will strengthen public perception of inflation coming down."

"How do you balance the risks of doing too much and too little, and we're coming to a place where there is risks on both sides."

"We need to see inflation durably down, want to see core inflation coming down."

"Core inflation is still pretty elevated."

"We're going to need to hold policy at restrictive levels for some time."

"Unemployment rate at same level as lift off is real blessing."

"Some softening in labor conditions is still the likely outcome."

"Worst outcome would be to not deal with inflation."

"I do not believe policy has been restrictive enough for long enough to bring inflation to target."

"Still a long way to go."

"If incoming data tells us we need to do more, then we will do more."

"A more gradual pace does not automatically go to every other meeting."

"It makes all the sense in the world to slow down."

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell comments on the policy outlook and responds to questions from the press after the Federal Reserve's decision to raise the policy rate by 25 basis points to 5.25-5.5% following the July policy meeting.

Key quotes

"Overall resilience of the economy, fact we've achieved disinflation so far without harm to economy, is a good thing."

"Stronger growth over time could add to inflation and may require a policy response."

"We're going to be careful about taking too much signal from a single reading on inflation."

"Will be looking to see if signal from June CPI is replicated."

"The totality of the data is important with particular focus on progress on inflation."

"September decision could be another hike or remaining where we are."

"It's really depending on the data and we don't have it yet."

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell comments on the policy outlook and responds to questions from the press after the Federal Reserve's decision to raise the policy rate by 25 basis points to 5.25-5.5% following the July policy meeting.

Key quotes

"We haven't made a decision to go every other meeting."

"We haven't made any decisions about any future meetings."

"The inter-meeting data came in broadly in line with expectations."

"June CPI was welcome but was only one month's report."

"Will be looking at the whole broader picture, looking for moderate growth."

"If data suggests more hikes are needed, that is the judgment we'll make."

"We believe monetary policy is restrictive."

"We have 8 weeks to September and looking at all the data until then."

About Jerome Powell (via Federalreserve.gov)

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

FOMC Chairman Jerome Powell comments on the policy outlook and responds to questions from the press after the Federal Reserve's decision to raise the policy rate by 25 basis points to 5.25-5.5% following the July policy meeting.

Key quotes

"Growth in consumer spending has slowed from earlier in the year."

"Still a strong pace of job growth."

"Continuing signs of labor supply and demand coming into better balance."

"Labor demand still substantially exceeds supply."

"Inflation has moderated somewhat."

"Getting back to 2% has a long way to go."

"Inflation expectations remain well anchored."

"We're highly attentive to risks inflation poses to both sides of mandate."

"We have been seeing effects of increases on demand in most rate-senstive sectors."

"Will take time for full effects to be realized."

"Will make decisions meeting by meeting."

"Remain committed to bringing inflation back to 2% goal."

About Jerome Powell (via Federalreserve.gov)

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

• Fed hikes rates by 25bps as expected.
• Gold price whipsawed in Fed volatility as the market awaits Fed's chair, Powell.
• Gold price leans towards trendline support, $1,963 and $1,975 are the breakout levels. 

The Gold price has been whipsawed after the Federal Reserve, Fed, raised its interest rate decision by a 25 bps rate hike to 5.25-5.50%, as expected. At the time of writing, Gold is volatile between $1,973 and $1,965 so far as the market digests the statement and key points as follows:

Federal Reserve statement, and key notes

• Fed says FOMC vote was unanimous.
• CBO revises 2023 us real Gross Domestic Product growth forecast to 0.9% from 0.1% forecast in Feb due to H1 labour market strength.
• Fed: Will consider extent of additional firming to curb inflation.
• Fed: We will continue to reduce our bond holdings as described in previously announced plans.
• Fed: Tighter credit conditions are likely to weigh on economic activity, hiring and inflation, extent to which remains uncertain.
• Fed: Recent indicators suggest economic activity has been expanding at a moderate pace vs a modest pace in June statement.
• Fed: We will continue to assess additional information and its implications for policy.
• Fed: Banking system is sound and resilient.

As a result of the statement:

• Interest rate futures put chance of Fed hike at 18% in September, 36.5% in November post-FOMC.
• Probability of Fed hike was 18.9% in Sept, 37.3% in nov pre-FOMC.

Watch Fed's chair Powell live

Traders now await to hear from the Chairman, Jerome Powell who will be speaking to the press at the top of the hour. 

The hawkish outcome could be that:

''Chair Powell emphasizes that actions taken since March have prevented credit conditions from tightening significantly. Meanwhile, labour market conditions and consumer spending remain too strong. Powell signals that more interest rate increases are likely needed,'' analysts at TD Securities said.

The base case, the analysts said:

''We expect Chair Powell to reiterate that the Fed remains data dependent and that economic data since the June FOMC meeting is yet to show convincing signs of slowing (despite nascent evidence of cooling inflation). Powell will also underscore that September is a “live” meeting.''

Dovish scenario, the analysts said:

''Powell mentions that the best course is to be patient given the totality of policy tightening and the ongoing reduction of credit supply. The chair plays up the recent deceleration in inflation as a positive sign and suggests that a soft landing is becoming more likely.''

Gold price technical analysis

Ahead of the Fed, daily and 15 min chart:

Gold price update, after Fed statement and interest rate decision: 

So far, the price holds in bullish territory while on the front side of the trendline and above yesterday's highs and the day's low. $1,963 and $1,975 are the breakout levels. 

• USD/JPY holds to daily losses at the 140.40 area.
• Fed hiked rates by 25 bps as expected to 5.25% and left the door open for further hikes.
• Eyes on BoJ's decision on Friday, expected to hold their dovish stance steady.

Following the Federal Reserve (Fed) decision, the USD DXY index continues to trade weak, near 101.19, and the USD/JPY stands with losses at 140.40. 

The Federal Reserve (Fed) announced that it hiked rates by 25 basis points (bps) to the 5.25%-5.50% target, as expected, its highest in 22 years. The statement noted that economic activity and the labour market remain robust and that inflation is elevated. In addition, the Federal Open Market Committee (FOMC) opened the door to further hikes as they will consider monetary policy lags and its implications on economic activity in the next decision.

Following the decision, the US Treasury yields traded mixed. The 2-year yield stands neutral at 4.89%, while the 5- and 10-year rates jumped to 4.16% and 3.90%, both slightly unchanged.

Liver Coverage of Chair Powell's Press Conference 

USD/JPY Daily chart

According to the daily chart, the technical outlook is neutral to bearish. On the positive side, according to the Moving Average Convergence Divergence (MACD), bears are losing ground as it is printing subtle red bars. On the other hand, the Relative Strength Index (RSI) fell below its midline and points south. On the bigger picture, the pair trading above the 100 and 200-day Simple Moving Average (SMA) indicated that the bulls are in command.

Support levels: 139.90, 138.70, 137.30(100-day SMA).
Resistance levels: 141.38 (20-day SMA), 142.00,143.00.

• The Federal Reserve raised rates as expected by 25 basis points.
• The US dollar dropped modestly across the board after the FOMC decision.
• EUR/USD held within an intraday range above 1.1050.

The EUR/USD rose modestly from 1.1050 to 1.1079 after the Federal Reserve announced a 25 basis point rate hike. The US Dollar dropped modestly after the decision as US yields moved sideways. 

Fed delivers as expected

The Fed raised its key interest rate to 5.25%-5.5%, the highest level in 22 years. The statement contained little changes compared to the previous meeting, and the vote in favor of the rate hike was unanimous. Now attention turns to Chair Powell's press conference. He is unlikely to declare an end to the hiking cycle and will reiterate that the Fed's policy is on a data-dependent path.

On Thursday, the European Central Bank (ECB) will hold its Governing Council meeting. A 25 basis point rate hike is currently priced in, but the focus will be on any signs about the future path of monetary policy. Following the ECB decision, important US economic data will be released, including the first reading of Q2 GDP growth and the weekly jobless claims report.

EUR/USD levels to watch 

The EUR/USD remains within an intraday range, with support at the 1.1050 area and limited around 1.1080. A decline below 1.1050 should add bearish pressure, initially exposing the daily low at 1.1037 and then the weekly low at 1.1020. On the upside, the Euro faces resistance around 1.1090. If it breaks above, more gains above 1.1100 seem likely, with the next resistance seen at 1.1115.

Technical levels 

FOMC meeting statement comparison

June 14July 26, 2023

Recent indicators suggest that economic activity has continued to expandbeen expanding at a modestmoderate pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.

The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintainraise the target range for the federal funds rate at 5 to 5-1/4 to 5-1/2 percent. Holding the target range steady at this meeting allows theThe Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.

Follow Fed meeting – Live coverage

• WTI found support at a daily low of $78.66 and then recovered above $79.00 still holding daily losses.
• FOMC decision will be the session’s highlight – expected to deliver a 25 bps hike.
• EIA Crude Oil stocks fell in the third week of July by 0.6M, lower than expected.

The West Texas Intermediate (WTI) barrel trades soft on Wednesday as markets await the Federal Reserve (Fed) decision. In addition, the Energy Information Administration (EIA) reported a lower-than-expected decline in inventories in the week ending on July 21 and seem to be weighing on Oil prices.

On the other hand, the USD as per the DXY Index is declining, and US Treasury yields are decreasing ahead of the Federal Reserve's (Fed) announcement later in the session. Markets have already priced in a 25 basis point (bps) increase but are placing bets on a low likelihood of a similar increase in September (20%) and November (45%), respectively. Investors will need to model their expectations for the upcoming meetings based on the messaging regarding forward guidance since there won't be an updated macro forecast or dot plot. Its worth noticing that higher rates tend to cool down economic activity so the bets as to what the Federal Reserve will do following the decision may affect the WTI price dynamics.

On a positive note, the announcement on Tuesday that the Chinese government is to step up economic stimulus to bolster economic activity could provide support to the WTI as China is the largest Oil importer in the world, so a stronger economic activity would imply a greater Oil demand.

WTI Levels to watch

The daily chart of the WTI suggest a neutral to bullish outlook for the short term as buyers seem to be losing steam.  The Relative Strength Index (RSI) has a neutral slope near the overbought threshold, while the Moving Average Convergence Divergence (MACD) printed a lower green, implying that the bulls are losing steam.

Resistance levels: $80.00,$81.00,$82.60.
Support levels: $76.70 (200-day SMA), $74.59 (20-day SMA),$73.50 (100-day SMA).

WTI Daily chart

• XAG/USD gained ground and rose $24.90, showing 1% gains.
• The USD DXY trades soft near 101.10, while US Treasury yields are falling.
• Markets await a 25 bps hike by the Fed; messaging will be critical.

On Wednesday, the XAG/USD Silver spot price capitalised on the USD softness and falling US yields and jumped near the $25.00 area.

Ahead of the Federal Reserve (Fed) decision, the USD is trading soft, with the DXY index setting a consecutive day of losses after five straight days of gains. In addition, the 2-year American bond yield stands neutral at 4.88% and the 5 and 10-year rates fell to 4.14% and 3.87%, respectively, allowing the XAG/USD to gain traction. 

Regarding the decision, markets have already priced in a 25 basis point (bps) hike, and the focus is on the Fed’s posture regarding forward guidance. Chair Powell commented in June that the considered “prudent” additional hikes but that monetary policy decisions will remain data dependent. As for now, according to the World Interest Rate Possibility (WIRP) tool, markets discount 20% odds of a hike in September and then 45% probabilities in November.

XAG/USD Levels to watch

The daily chart shows that the XAG/USD's technical outlook is neutral for the short term as indicators have turned somewhat flat, awaiting a catalyst. The Relative Strength Index (RSI) has a slight positive slope, while the Moving Average Convergence Divergence (MACD) prints fading green bars. However, the 20 and 100-day Simple Moving Averages (SMA) have already performed a bullish cross which could offer critical support to the grey metal. Traders should pay attention to these movements.

Support levels: $24.30, $24.00, $23.90 (20-day SMA).

Resistance levels: $25.00, $25.30, $25.50.

XAG/USD Daily chart

The European Central Bank (ECB) is set to announce its Monetary Policy Decision on Thursday, July 27 at 12:15 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 12 major banks.

At the June meeting, the ECB raised its key interest rates by a quarter of a percentage point. The ECB is expected to raise rates by 25 basis points. The focus is on what the ECB will do after July.

Rabobank

Deutsche Bank

Credit Suisse

TDS

SocGen

Nordea

Nomura

ING

Citi

Wells Fargo

Danske Bank

Standard Chartered

• USD/JPY tallies a third consecutive day of losses towards the 140.40 area.
• US Treasury yields are falling ahead of the Fed decision.
• JPY strength suggests that markets are concerned with a possible surprise by the BoJ on Friday.

On Wednesday, the JPY gained ground agains most of its rivals, and the USD/JPY pair declined towards 140.40. The USD trades soft ahead of the Federal Reserve (Fed) decision later in the session, while the Yen strengthened on the back of a possible surprise of the Bank of Japan (BoJ) on Friday.

Ahead of the Federal Reserve (Fed) decision later in the session, the USD is falling, and US Treasury yields are backing down. Markets have already priced in a 25 basis point (bps) hike and are betting on 20% odds of a similar hike in September and then on 45% probabilities in November. As there won’t be any updated macro forecast or dot plot, messaging regarding forward guidance will be key for investors modelling their expectations for the next meetings.

On the other hand, markets have been receiving mixed signals regarding the next BoJ decision in the last sessions. Masato Kanda, a top currency Japanese diplomat, suggested that a Yield Control Curve (YCC) is highly possible. At the same time, BoJ’s Governor Kazuo Ueda was quoted as saying that the bank will maintain its accommodative approach. While the BoJ has a history of surprising markets, the broad consensus is that it will hold its policy unchanged, but markets seem to be pricing in a possibility of a pivot.

USD/JPY Levels to watch

The USD/JPY technical outlook, according to the daily chart suggests a neutral to bullish outlook for the short term. On the one hand, indicators give mixed signals, with the Relative Strength Index (RSI) falling below it midline while the Moving Average Convergence Divergence (MACD) prints fading red bars. On the other, the pair trades above the 100 and 200-day Simple Moving Average (SMA), which suggests that the buyers are overall in command, but the Fed’s decision will dictate the short-term trajectory.

Support levels: 140.00,139.10,138.70.
Resistance levels: 141.58 (20-day SMA), 142.00, 143.00.

USD/JPY Daily chart

Economists at Société Générale analyze EUR/JPY outlook and of ECB and BoJ meetings.

ECB to raise rates by 25 bps, BoJ will probably leave rates on hold

If policy rates were everything, the Australian Dollar would be cheaper, economists at Société Générale report. 

Longer-term rates suggest more range-trading

See: AUD/USD is well-supported on dips to the 0.65 zone but gains remain blocked above 0.68 – Scotiabank

Economists at Credit Suisse analyze USD/JPY outlook ahead of the BoJ meeting.

The FX market is pricing in a significant probability of a hawkish development

Economists at Scotiabank maintain a bullish GBP view.

Supportive yield differentials lift GBP

See: GBP/USD may find it hard to go much beyond the 1.30 level – HSBC

• The Q2 GDP is the first top-tier US economic report released after the FOMC meeting.
• With the Fed likely indicating it will remain "data-dependent," growth and inflation numbers from the GDP report could be critical.
• US Dollar Index could receive additional support from positive data.

The US Bureau of Economic Analysis (BEA) is scheduled to release its first estimate of the second-quarter Gross Domestic Product (GDP) on Thursday, July 27th at 12:30 GMT. According to market forecasts, the US economy is expected to expand at an annualized rate of 1.8% in Q2, following the 2% growth rate recorded in the first quarter.

This release will be the first major economic report following the Federal Reserve meeting, and the central bank is expected to continue its 'data-dependent' approach to monetary policy. As a result, the Q2 GDP figures will be closely watched by investors and analysts. It's worth noting that the first release of Q2 GDP typically has a greater potential to influence the markets than subsequent revisions.

US GDP: What else to look for in the Q2 preliminary report 

In addition to the overall growth rate of close to 2.0% in the second quarter, the BEA report will include other figures that will be observed carefully. One of these figures is the Core Personal Consumption Expenditures (PCE) Index, a key inflation measure used by the Federal Reserve. According to market consensus, the Core PCE Index is expected to decline to 4% in Q2 from 4.9% in Q1, which would be the lowest level since the first quarter of 2021. Another inflation indicator that will be scrutinized is the GDP Price Deflator, also known as the GDP Product Price Index. This is expected to decline to 3% in Q2 from 4.1% in Q1, marking its lowest level since the fourth quarter of 2020.

At the same time (12:30 GMT), the US Durable Goods Orders and the weekly Jobless Claims reports are also due to be released. A few minutes later, European Central Bank (ECB) President Christine Lagarde is scheduled to deliver her post-meeting press conference. With the markets still digesting the outcome of the FOMC meeting held on Wednesday, volatility is likely to prevail. 

How could the GDP release affect the US Dollar 

The International Monetary Fund (IMF) has raised its US GDP growth estimate for 2023 from 1.6% in April to 1.8%, and its global growth estimate from 2.8% to 3.0%. However, the IMF has warned that global growth risks remain tilted to the downside. US growth expectations are higher than most European countries, struggling to avoid a recession. The growth divergence between the US and Europe could limit the decline of the US Dollar or the rally of EUR/USD. If the difference narrows, the situation could change.

If the Q2 GDP report shows higher-than-expected growth figures combined with hotter inflation numbers, the US Dollar could be poised for a significant rally against other currencies. Such a scenario would make markets consider it more likely that the Federal Reserve will raise interest rates again, and it would also demonstrate that the US economy remains strong and resilient despite monetary policy tightening.

A number in line with expectations, with an annualized growth rate of around 2%, and decreases in inflation indicators – such as the Core PCE Index from 4.9% to 4% or the GDP Price Deflator from 4.1% to 3%– have the potential to weigh on the US Dollar by pushing down US Treasury yields. Such figures would support the scenario of no further rate hikes from the Fed.

The worst scenario for the US economy – higher inflation and lower growth –  is not necessarily the worst scenario for the US Dollar. The most negative potential outcome for the Greenback would be a negative surprise in growth numbers and inflation slowing down more than expected. Fears of a recession, combined with inflation falling toward the target too quickly, would likely trigger expectations of rate cuts, probably in the fourth quarter or the first quarter of next year.

• EUR/USD manages to bounce off recent lows around 1.1020.
• A test of 1.1000 still appears in the pipeline in the near term.

EUR/USD stages a decent rebound after bottoming out around 1.1020 in the previous session on Wednesday.

Considering the recent price action, extra weakness should not be discarded 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 1.0901 and 1.0895, respectively.

Looking at the longer run, the positive view remains unchanged while above the 200-day SMA, today at 1.0706.

EUR/USD daily chart

FX market’s reaction to today’s Fed meeting will not depend very much on the expected 25 bps rate hike but on everything else surrounding the meeting, Esther Reichelt, FX Analyst at Commerzbank, reports.

Expectations of rate cuts are likely to be pushed back further into the future

See – Fed Preview: Banks see a 25 bps hike as “a done deal”, focus on forward guidance

The Mexican Peso’s (MXN) bull run has extended to push the USD back to levels last seen in 2015. 

Banxico’s aggressive tightening policy is poised to reverse later this year

• DXY extend the knee-jerk to the proximity of 101.00.
• Further recovery targets the 102.60 zone.

DXY remains on the defensive and adds to Tuesday’s pullback ahead of the FOMC event on Wednesday.

Ideally, the index should clear the 102.60 zone, where the provisional 55-day sits, 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 103.89.

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

DXY daily chart

• NZD/USD feels selling pressure around 0.6230 as investors await Fed policy for further guidance.
• The USD Index has found some support near 101.10 as investors are hoping that Fed Powell will deliver hawkish guidance.
• NZD/USD is trading inside the Ascending Triangle chart pattern, which indicates a sheer contraction in volatility.

The NZD/USD pair senses selling pressure while attempting to climb above the immediate resistance of 0.6230 in the early New York session. The Kiwi asset has faced pressure as the US Dollar Index (DXY) has attempted a recovery ahead of the interest rate decision by the Federal Reserve (Fed).

Analysts at Danske Bank expect the Fed to hike interest rates for the final time by 25 bps and then go on hold. While economic activity has still held up well, easing underlying inflation and declining inflation expectations limit the need for further rate hikes. They further expect the immediate market reaction to be muted, with risks skewed towards a hawkish reaction, if Powell still maintains the door open for another hike.

The USD Index has found some support near 101.10 as investors are hoping that Fed Powell will deliver hawkish guidance. S&P500 is expected to open on a negative note, following weak cues from overnight futures.

NZD/USD is trading inside the Ascending Triangle chart pattern on a daily scale, which indicates a sheer contraction in volatility. The horizontal resistance of the aforementioned chart pattern is plotted from May 10 high at 0.6382 while the upward-sloping trendline is placed from May 31 low at 0.5985.

The Kiwi asset is facing resistance near the 200-period Exponential Moving Average (EMA) around 0.6226, which indicates that the long-term trend is bearish.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range, portraying a lackluster performance.

A decisive breakdown below the round-level support of 0.6200 would drag the asset toward July 26 low at 0.6156. A slippage below the latter would further drag the asset toward June 29 high around 0.6100.

Alternatively, a confident move above July 19 low at 0.6225 would send the major toward July 20 high marginally above 0.6300 followed by July 18 high at 0.6343.

NZD/USD daily chart

Measured from July 12, the only G10 currencies to have outperformed the USD are the CHF, SEK and NOK. Economists at Rabobank expect the Greenback to continue gaining some ground.

USD will remain well supported into year-end

• Australian Dollar weakens after inflation data comes out below expectations, suggesting the RBA may take a less hawkish stance going forward. 
• A fall in the price of WTI Crude Oil, a major export for Australia, after API data shows a rise in inventories further weighs on the pair.
• The FOMC meeting later on Wednesday could impact the US Dollar and cause volatility for AUD/USD.  

The Australian Dollar (AUD) weakens against the US Dollar (USD) on Wednesday, after Aussie inflation data surprises to the downside, suggesting a less hawkish stance from the Reserve Bank of Australia (RBA) going forward. Traders now await the Federal Reserve’s (Fed) July meeting to conclude later on Wednesday and the publication of their statement of monetary policy for further directional cues. 

The AUD/USD pair trades in the 0.67s as the US session gets underway.  

Australian Dollar news and market movers 

• The Australian Dollar reverses lower against the US Dollar after the release of Australian Consumer Price Index (CPI) data for Q2 shows a steeper-than-expected slowdown in inflation. This suggests the RBA will take a less hawkish stance going forward, with interest rates perhaps coming down sooner than expected. Lower interest rates are negative for currencies as they are not as attractive to foreign investors looking for a place to park their capital. 
• Australian CPI inflation came out at 6.0% in Q2 YoY when 6.2% had been forecast versus the 7.0% in Q1. 
• On a QoQ basis, CPI registered a 0.8% rise versus the 1.0% forecast by economists and 1.4% previous. 
• The Reserve Bank of Australia’s (RBA) preferred gauge, RBA Trimmed Mean CPI, measured quarterly, increased by 5.8% YoY in Q2 versus the 6.0% rise estimated and the 6.6% of Q1.
• QoQ RBA Trimmed Mean CPI rose 1.0% versus the estimated 1.1% rise, but below the 1.3% rise in Q1. 
• Inventory data from the American Petroleum Institute (API) showed a rise in stockpiles suggesting lower demand and weighing on Oil, one of Australia’s key exports. This acts as a headwind for the Aussie. 
• The Federal Reserve’s (Fed) interest rate decision at 18:00 GMT on Wednesday could impact the AUD/USD pair by way of influencing the US Dollar. 
• The Fed is already expected to raise interest rates by 0.25%, however, the wording of its accompanying statement may impact the US Dollar. 
• A more hawkish commentary will come as a surprise as the market is not pricing in further rate hikes from the Fed. As such, it would strengthen the US Dollar and weigh on the AUD/USD pair. 
• The opposite is true if the Fed indicates it may have reached peak rate or even talks about possibly bringing rates down in 2024. 
• There exists a high risk that the RBA will have to cut rates from their current 4.1% level in 2024 because the Australian house market is dominated by variable-rate mortgages so it is more sensitive to changes in interest rates, and homeowners have recently been adversely affected by higher mortgage interest repayments, according to Bloomberg Intelligence, as quoted by Financial Review. 
• The RBA’s Cash Rate is 4.1%, which is below the Fed’s 5.25% (likely to be 5.50% after Wednesday) – overall favoring capital flows to the Greenback versus the Aussie. 
• China’s pledge to increase support for the economy has helped the Australian Dollar since it is Australia’s largest trading neighbor. 

Australian Dollar technical analysis 

AUD/USD is in a sideways trend on both the long and medium-term charts. The February 2023 high at 0.7158 is a key hurdle on the weekly chart, which if vaulted, will alter the outlook to one that is more bullish longer term. 

Likewise, the 0.6458 low established in June is a key level for bears, which if breached decisively, would give the chart a more bearish overtone from a longer-term perspective. 

Australian Dollar vs US Dollar: Weekly Chart

A confluence of support made up of all the major daily simple moving averages (50, 100 and 200) exists in the upper 0.66s and early 0.67s. This is expected to provide a rigid cordon of support, acting as a barrier to further losses.

The exchange rate has already bounced off the 200-day Simple Moving Average (SMA) at 0.6725 and completed a pivot higher. If Wednesday continues the bullish price action, that will add confirmation of a reversal of the downmove.  

Australian Dollar vs US Dollar: Daily Chart

Despite the decline witnessed so far on Wednesday, there is potential for a recovery, given the underpinning support from the major MAs. 

A decisive break above the June 16 high at 0.6900 would provide stronger confirmation of a more bullish outlook. 

Likewise, a decisive break below the 50 and 100-day Simple Moving Averages (SMA) would confirm a continuation of the recent bear move lower to a speculative target at the June and July lows in the mid-0.64s. 

A decisive break consists of a long daily candlestick, which pierces cleanly above or below the critical level in question and then closes near to the high or low of the day. It can also mean three up or down days in a row that break cleanly above or below the level, with the final day closing near its high or low and a decent distance away from the level. 

• Federal Reserve is widely expected to raise its policy rate by 25 bps to 5.25-5.50%.
• Fed has been struggling to convince markets that they will raise rates at least twice more this year.
• US Dollar valuation could be significantly impacted by Chairman Powell’s comments.

The Federal Reserve (Fed) is expected to raise its policy rate by 25 basis points (bps) to the range of 5.25%-5.5% on Wednesday, July 26 at 18:00 GMT. 

Following the release of the monetary policy statement, FOMC Chairman Jerome Powell will comment on the policy decisions and respond to questions in the post-meeting press conference, starting at 18:30 GMT.

The market positioning suggests that a 25 bps July hike is fully priced. Investors, however, are not so certain whether the US central bank will raise the policy rate again before the end of the year, even though the latest Summary of Projections (SEP) revealed that a majority of policymakers saw it appropriate to do so.  

Analysts at ANZ think that the terminal rate could be reached with a 25 bps hike in July:

“We expect the FOMC to raise interest rates by 25bps when it meets next week taking the fed funds target range to 5.25-5.50%. That would leave the policy rate in line with our terminal rate forecast.”

“There are signs core inflation is moderating. However, the extent is not clear making it difficult to assess whether it will sustainably track back to 2%. Financial conditions have eased, and uncertainty overhangs the lags with which Fed tightening works.”

Federal Reserve interest rate decision: What to know in markets on Wednesday, July 26

• The US Dollar Index, which tracks the USD’s performance against a basket of six major currencies,consolidates its recvent gains, holds above 101.00. 
• The benchmark 10-year US Treasury bond yield started the Fed week on a firm footing and climbed to 3.9% before stabilizing slightly below that level on Wednesday.
• Wall Street’s main indexes closed in positive territory on Tuesday. US stock index futures trade modestly lower ahead of the Fed’s policy announcements, reflecting a cautious market stance.
• On Thursday, the US Bureau of Economic Analysis will release the first estimate of the second-quarter Gross Domestic Product (GDP) growth. The US economy is forecast to expand at an annual rate of 1.8% in Q2, following the 2% growth recorded in the first quarter. 
• The European Central Bank (ECB) is expected to hike its key rates by 25 bps on Thursday.

FOMC speech tracker: Hawkish bias still in place

Federal Reserve officials had a relative hawkish bias in their speeches between their June and July meetings. After having paused interest rate hikes during June, Fed officials helped shape strong expectations of a return to hiking in July with their hawkish vocabulary, with some also hinting at the need for more than one rate hike. Fed Chair Jerome Powell was active with four appearances in this time, two in his semi-annual testimony in the US Congress, and then a couple more overseas in the ECB Forum and on the Bank of Spain in Madrid, mixing balanced with somewhat hawkish remarks. It will be interesting to see if the FOMC board members keep this tone after their meeting on Wednesday.

*Voting members in 2023.

FOMC speech counter

This content has been partially generated by an AI model trained on a diverse range of data.

When is the Fed meeting and how could it affect EUR/USD?

The Federal Reserve is scheduled to announce its interest rate decision and release the monetary policy statement this Wednesday, July 26, at 18:00 GMT. This will be followed by the post-meeting FOMC press conference at 18:30 GMT. Investors expect the Fed to lift the policy rate by 25 bps but remain skeptical about additional rate increases later in the year.

Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3% on a yearly basis in June from 4% in May, the US Bureau of Labor Statistics (BLS) reported earlier in the month. The Core CPI inflation, which excludes volatile food and energy prices, dropped to 4.8% from 5.3% in the same period. On a monthly basis, the CPI and the Core CPI both rose 0.2% but these figures fell short of analysts' estimates. 

Following softer-than-expected CPI figures, markets scaled back on hawkish Fed bets and the probability of two more rate increases this year, according to the CME Group FedWatch Tool, dropped to 20% from nearly 40% ahead of the June inflation report.  

The US Dollar Index (DXY), which tracks the USD’s performance against a basket of six major currencies, came under heavy bearish pressure and lost nearly 3% in the first two weeks of July. Supported by upbeat Initial Jobless Claims and PMI surveys, DXY managed to stage a rebound ahead of the FOMC policy meeting.

Since a 25 bps hike is already priced in, any hints regarding future rate decisions could drive the USD’s valuation. In case the policy statement reiterates policymakers willingness to raise rates again before the end of the year, the USD could gather further strength. On the flip side, an acknowledgment of softening inflation and worsening growth outlook could be seen as a dovish tone and have the opposite effect on the currency.  

Previewing the possible market reaction to the Fed decisions, “falling inflation and worries about global growth leave a narrow probability of Powell signaling the bar is now high for further increases,” says FXStreet Analyst Yohay Elam and continues:
“He would remain data dependent but with the burden of proof on moving to the hawks. In such a scenario, the US Dollar would decline sharply, while Gold and stocks would party. Any hangover would have to wait.”  

Eren Sengezer, European Session Lead Analyst at FXStreet, shares his outlook for EUR/USD heading into the all-important Fed meeting:

“A confirmation of one more 25 bps hike after July rate increase could force EUR/USD to stay on the back foot. Especially after the data from Germany and the Eurozone highlighted the loss of momentum in the European economy, reviving concerns over a recession, which could put the European Central Bank (ECB) in a tough spot with regard to further policy tightening. A neutral/dovish Fed tone could hurt the USD and help EUR/USD edge higher but an extended uptrend could be hard to come by before investors see what the ECB has to say on Thursday.”

Eren also outlines the near-term technical developments for the pair:

“EUR/USD faces interim support at 1.1000 (psychological level) before 1.0950 (ascending trend line coming from early June). In case the pair makes a daily close below the latter, 1.0900 (50-day Simple Moving Average (SMA), 100-day SMA) could be tested next.”

“On the upside, 1.1100 (static level, psychological level) aligns as first resistance before 1.1200 (psychological level) and 1.1275 (multi-year high set on July 18). It’s also worth mentioning that the Relative Strength Index (RSI) indicator on the daily chart declined to 50, suggesting that the pair completed the downward correction before deciding on the next directional movement.”

• EUR/JPY extends the weekly corrective decline to the 155.00 region.
• Next on the downside emerges the monthly lows near 153.30.

EUR/JPY is down for the third session in a row to multi-day lows near the 155.00 region on Wednesday.

Further correction now appears in store and the cross could now challenge the July lows near 153.30 (July12) prior to the interim 55-day SMA, today at 153.08.

So far, the longer term positive outlook for the cross appears favoured while above the 200-day SMA, today at 146.36.

EUR/JPY daily chart

Economists at Scotiabank expect the EUR/USD pair to advance nicely over the coming months.

EUR underpinned by spreads, technicals

• GBP/JPY is expected to deliver more downside below 181.00 as the BoJ could tweak its ultra-dovish interest rate policy.
• The IMF said on Tuesday that the BoJ should look for moving away from supportive monetary policy.
• A survey from Reuters showed that interest rates in the UK economy would peak around 5.75%.

The GBP/JPY pair is expected to face more sell-off and will continue its downside move below the immediate support of 181.00 in the European session. The cross is facing pressure as market participants have turned mixed about the Bank of Japan’s (BoJ) monetary policy, which will be announced on July 28.

Wages in Japan are rising after a change in corporate behavior, which has also changed the situation of stubborn deflation. Higher disposable income in households has improved the overall demand and support to keep inflation steadily above 2%. Therefore, investors are hoping that the BoJ could tweak its ultra-dovish interest rate policy this time.

The International Monetary Fund (IMF) said on Tuesday that the BoJ should look for moving away from supportive monetary policy.

Apart from the BoJ policy, guidance about inflation will also be in focus. Meanwhile, 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 Pound Sterling is failing to find support despite expectations of a hawkish interest rate decision by the Bank of England (BoE), which will be announced on August 03. Inflation in the United Kingdom economy is highest in comparison with G7 economies, which assures that more interest rate hikes from the BoE are in the pipeline.

A survey from Reuters showed that interest rates in the UK economy would peak around 5.75%, which indicates that three more small interest rate hikes are still favored. It would be worth watching whether UK PM Rishi Sunak would fulfill his promise of halving inflation to 5%.

USD eases back as markets await the Fed decision and messaging on the outlook. Shaun Osborne, Chief FX Strategist at Scotiabank, analyzes Greenback’s outlook.

USD is susceptible to market focus on the peak in tightening cycle

• AUD/USD has fallen back as soft Australian inflation grabs the spotlight.
• The USD Index remains under pressure as investors have digested expected hawkish Fed policy.
• Australian inflation has softened despite the tight labor market, which has compressed fears of recession.

The AUD/USD pair has sensed selling pressure after a fragile recovery of around 0.6780 in the European session. The Aussie asset is expected to remain under pressure as Australian inflation softened in June and has offered some relief to Reserve Bank of Australia (RBA) policymakers to maintain interest rates steady consecutively in August.

S&P500 futures have posted nominal losses in London, portraying caution among market participants ahead of the interest rate decision by the Federal Reserve (Fed). The US Dollar Index (DXY) dropped sharply to near 101.15 but has attempted a recovery move as investors seem uncertain about guidance to be delivered by Fed Chair Jerome Powell.

As per the CME FedWatch tool, almost all bets are in favor of a 25 basis point (bp) interest rate hike, which will push interest rates to 5.25-5.50%. The context that is making investors anxious is the guidance from the Fed about September’s monetary policy.

Inflation in the United States economy is consistently declining despite tight labor market conditions and a rise in consumer spending but is still far from the desired rate of 2% due to rising cost of prices. Also, consumer inflation expectations could rebound as global oil prices have recovered this month. Therefore, Jerome Powell could reiterate the need of one more interest rate by the year-end.

On the Australian Dollar front, inflation in the second quarter grew at a pace of 0.8% vs. expectations of 1.0% and the prior quarter’s reading of 1.4%. Annualized Consumer Price Index (CPI) softened to 6.0% against the consensus of 6.2% and the prior figure of 7.0%. Meanwhile, monthly CPI matched the consensus of 5.4%.

Australian inflation has softened despite the tight labor market, which has compressed fears of recession. A decline in inflationary pressures would allow the Reserve Bank of Australia (RBA) to skip the policy-tightening spell straight for the second time.

USD/CAD is firmer on the day. Shaun Osborne, Chief FX Strategist at Scotiabank, analyzes the pair’s outlook.

Support aligns at 1.3160

EUR/USD is tracking a slightly firmer profile after basing in the low 1.10 zone on Tuesday. Economists at Scotiabank analyze the pair’s outlook.

Support aligns at 1.1025

Cable has made a little more progress after regaining 1.29 in late trade on Tuesday, a cent off of Monday’s low. Economists at Scotiabank analyze GBP/USD outlook.

Technicals are bullish

The US Dollar has staged a modest rebound ahead of the FOMC meeting. Whether the USD rebound will extend further in the near-term will depend upon today’s Fed policy update, economists at MUFG Bank report.

Will Fed policy update prove pivotal for USD performance?

See – Fed Preview: Banks see a 25 bps hike as “a done deal”, focus on forward guidance

Economists at Credit Suisse stay constructive BRL and MXN and would not look for reversals in either before the bottom of respective USD target ranges are tested, at 4.58 and 16.50 respectively.

Carry remains a key and unique point of attraction for BRL and MXN

• The US Dollar weakens against its major rivals on Wednesday.
• The US Dollar Index declined toward 101.00 after closing in the red on Tuesday.
• US Federal Reserve will announce the interest-rate decision and publish the policy statement.

The US Dollar struggles to stay resilient on Wednesday as investors move to the sidelines ahead of the US Federal Reserve's (Fed) highly-anticipated monetary policy decisions. The USD index – which tracks the USD's valuation against a basket of six major currencies – edges lower toward 101.00 after snapping a five-day winning streak on Tuesday. 

The Fed is widely anticipated to lift the policy rate by 25 basis points (bps) to the range of 5.25%-5.5%. The policy statement and Chairman Jerome Powell's comments will be scrutinized by investors, who try to figure out whether the US central bank will raise rates again later in the year despite growing signs of easing price pressures.

Daily digest market movers: US Dollar eyes Fed decision

• Previewing the Fed event, "I want to stress that a 25 bps hike is fully priced in, and will not have an impact on markets," said FXStreet Analyst Yohay Elam. "Investors are laser-focused on hints about the next moves. The Fed does not publish new forecasts at this meeting, letting the statement talk first. Then, Fed Chair Powell will take the stage, answering questions and triggering the lion's share of volatility."
• 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 slightly above 30%.
• 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 showed that the Present Situation Index climbed to 160.0 from 155.3 and the Consumer Expectations Index advanced to 88.3 from 80. 
• 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 a 0.2% rise.
• Wall Street's main indexes closed in the positive territory on Tuesday. The technology-heavy Nasdaq Composite gained nearly 1% following the bearish start to the week.
• The benchmark 10-year US Treasury bond yield holds steady at around 3.9% early Wednesday. 
• 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.
• 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."

Technical analysis: US Dollar Index loses recovery momentum

The US Dollar Index (DXY) touched the 20-day Simple Moving Average (SMA) on Tuesday but closed the day below that level. Additionally, the Relative Strength Index (RSI) edged lower toward 40 after failing to stabilize near 50, reflecting buyers' hesitancy.

On the downside, DXY faces immediate support at 101.00 (former resistance, static level) before 100.50 (static level) and 100.00 (psychological level, static level).

Looking north, a daily close above 101.50 (20-day SMA) attract bulls and opens the door for a leg higher toward 102.00 (static level, former support) and 102.50-102.60 (50-day SMA, 100-day SMA).

The Euro remained under pressure on Tuesday. Economists at Commerzbank analyze the common currency outlook ahead of the ECB meeting on Thursday.

ECB facing a bigger communication challenge

The Canadian Dollar (CAD) has strengthened modestly since the start of June, rising some 2% against the generally weaker USD. Economists at Scotiabank analyze USD/CAD outlook.

An overshoot to the 1.28 area is not to be excluded as a risk in Q3

Economist at UOB Group Ho Woei Chen reviews the latest release of the advanced GDP figures in South Korea during the April-June period.

Key Takeaways

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

Soft ECI and PCE reports this week could reinforce the bearish USD disinflation theme

See – Fed Preview: Banks see a 25 bps hike as “a done deal”, focus on forward guidance

Wider yield spreads versus much of the rest of the world have left the Yen as the weakest major currency this year (down 5.5% versus the USD). Economists at Scotiabank analyze USD/JPY outlook.

Important technical reversal is perhaps developing around June peak at 145

• USD/CAD is showing topsy-turvy moves amid caution ahead of Fed policy.
• The Canadian Dollar is expected to pick strength amid upbeat oil prices.
• USD/CAD is auctioning in a Symmetrical Triangle, which indicates a volatility contraction.

The USD/CAD pair struggles to find direction as investors are awaiting the interest rate decision by the Federal Reserve (Fed) for further guidance. The Loonie asset is demonstrating wild moves in a limited territory as investors are uncertain about guidance for September monetary policy while an interest rate hike of 25 basis points (bps) for the July meet cannot be ruled out.

S&P500 futures look choppy in Europe amid caution ahead of Fed policy. In addition to that, corporate earnings will keep a stock-specific action active. The US Dollar Index (DXY) has corrected sharply to near 101.10 amid a cheerful market mood.

Meanwhile, the Canadian Dollar is expected to pick strength amid upbeat oil prices. Strong discussions about fresh stimulus in China have improved the demand for oil. It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices support the Canadian Dollar.

USD/CAD is auctioning in a Symmetrical Triangle on an hourly scale, which indicates a volatility contraction. Upward-sloping trendline of the aforementioned chart pattern is plotted from July 20 low at 1.3120 while the downward-sloping trendline is placed from July 18 high at 1.3243.

The 20-period Exponential Moving Average (EMA) at 1.3185 is sticky to the asset, portraying a directionless performance.

Meanwhile, the Relative Strength Index (RSI) (14) is trading in the 40.00-60.00 range, which indicates that investors await a potential trigger for further move.

A solid extension move above July 24 high at 1.3230 would drive the asset toward July 3 high at 1.3273 followed by July 10 high at 1.3304.

On the contrary, a downside move below July 25 low at 1.3147 would expose the asset to July 20 low at 1.3120 and July 14 low at 1.3093.

USD/CAD hourly chart

US Dollar Index consolidates above 101.00 following Tuesday's pullback. Economists at Société Générale analyze DXY's technical outlook.

Failure to establish above 102/102.50 could result in a pullback towards 100.35

• Pound Sterling extends recovery as the market mood turns cheerful.
• More interest rates by the Bank of England will elevate pressure on United Kingdom’s economic growth.
• UK first-time home buyers postpone demand as the housing sector faces headwinds from higher borrowing rates.

The Pound Sterling (GBP) printed a fresh four-day high on Wednesday as market participants shrug off risk associated with weak economic prospects. The GBP/USD pair recovers sharply as strength in Pound Sterling is uncovered ahead of the interest rate decision by the Bank of England (BoE), which will be announced on August 3.

No doubt, higher interest rates by the United Kingdom’s central bank have already dampened economic growth. The BoE cannot avoid raising rates further as inflation is almost four times the required rate of 2%. An interest rate hike at the August policy meeting would be the 14th straight raise to build pressure on stubborn inflation. The UK central bank is expected to raise interest rates by 25 basis points (bps) to 5.25%.

Daily Digest Market Movers: Pound Sterling jumps amid cheerful market mood

• Pound Sterling finds resistance near the round-level resistance of 1.2900 after a sharp recovery as investors turn cautious ahead of key interest rate policy.
• Market sentiment for Pound Sterling turns upbeat as investors ignore the United Kingdom’s weak economic prospects.
• UK households are facing pressure from stubborn inflation and higher interest rates by the Bank of England as demand for big-ticket items hit hard.
• The housing sector faces the headwinds of higher borrowing costs as first-time buyers postpone home purchases.
• Britain’s economic recovery is under stress as a one-time decline in inflation is insufficient to increase confidence among individuals.
• More interest-rate hikes from the BoE are in the pipeline as the journey toward achieving price stability is still out of sight.
• Meanwhile, the BoE is preparing for its 14th consecutive interest-rate hike, which will be announced on August 3.
• Investors hope that interest rates by the UK central bank will peak around 5.75%, according to a Reuters poll.
• BoE policymakers need to do a lot more so that UK PM Rishi Sunak can meet his promise of halving inflation to 5% by year-end.
• The Confederation of British Industry reported on Monday that British factory orders declined in July at the weakest rate this year, a positive sign, while expectations for increases in selling prices cooled further, according to Reuters.
• Meanwhile, the US Dollar Index (DXY) has extended its correction below 101.20 as investors are clear that the Federal Reserve (Fed) will raise interest rates to 5.25-5.50%.
• Investors are uncertain whether the Fed will consider a further interest rate hike in September or will skip the tightening regime as it did at June’s meeting.
• The context of easing inflation in the United States while keeping the Unemployment Rate at record lows has put the Fed in a more comfortable situation.
• Also, resilience in the US economy due to tight labor market conditions and decent consumer spending eased fears of recession.

Technical Analysis: Pound Sterling shifts auction place above 1.2900

Pound Sterling discovers buying interest after an intense sell-off to near the round-level cushion of 1.2800. The Cable finds support after successfully testing the 20-day Exponential Moving Average (EMA) around 1.2866. The asset prints a four-day high marginally above 1.2900 and is expected to continue its upside momentum. The Cable trades above short-to-long-term EMAs, indicating firm upside bias.

EUR/USD has fallen 1.3% so far this week. Economists at ING analyze the pair’s outlook.

EUR/USD will continue to trade on the soggy side through the session

• USD/CHF drifts lower for the second straight day and is pressured by modest USD weakness.
• The risk-on mood could undermine the safe-haven CHF and help limit any further downside.
• Traders might also refrain from placing aggressive bets ahead of the crucial FOMC decision.

The USD/CHF pair attracts fresh selling following an intraday uptick to the 0.8655 region and drifts into negative territory for the second successive day on Wednesday. Spot prices drop to a fresh weekly low during the early European session and currently trade around the 0.8620 area, down nearly 0.20% for the day.

The US Dollar (USD) extends the overnight modest pullback from a two-week high and continues losing ground for the second straight day, which turns out to be a key factor exerting some downward pressure on the USD/CHF pair. The USD downtick could be attributed to some repositioning trade ahead of the crucial FOMC decision, though is likely to remain limited as traders await fresh cues about the near-term policy outlook.

It is worth mentioning that the markets have been pricing out the possibility of any further rate hikes this year after the widely expected 25 bps later this Wednesday. Investors, however, remain sceptic if the Federal Reserve (Fed) will commit to a more dovish stance on the back of an extremely resilient US economy. In fact, Tuesday's upbeat US Consumer Confidence Index raised optimism that the economy could skip a recession this year.

Hence, the accompanying monetary policy statement and Fed Chair Jerome Powell's comments during the post-meeting press conference will be scrutinized closely for hints about the future rate-hike path. This, in turn, will influence the USD dynamics and provide a fresh directional impetus to the USD/CHF pair. In the meantime, a positive risk tone might undermine the safe-haven Swiss Franc (CHF) and lend support to spot prices.

Investors continue to cheer China's pledge to step up support for its fragile economy, which remains supportive of the bullish sentiment across the global equity markets. It is worth recalling that 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.

The aforementioned fundamental backdrop supports prospects for the emergence of some dip-buying at lower levels and warrants some caution for aggressive bearish traders. That said, it will be prudent to wait for a sustained move beyond the overnight swing low, around the 0.8700 mark, before confirming that the USD/CHF pair has bottomed out near the 0.8560 region, or the lowest level since January 2015 touched earlier this month.

Technical levels to watch

The AUD has gained a little ground on the weaker USD through mid-year but it remains something of a laggard among the G10 currencies. Economists at Scotiabank analyze AUD/USD outlook.

AUD faces headwinds 

Further decline could drag USD/CNH to the 7.1240 level in the short term, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

• NZD/USD attracts dip-buying on Wednesday and draws support from modest USD weakness.
• Hopes for more stimulus from China also benefit antipodean currencies, including the Kiwi.
• The fundamental backdrop favours bulls, though traders might wait for the FOMC decision.

The NZD/USD pair recovers a major part of its modest intraday losses to the 0.6180 area and climbs back closer to the top end of its daily range during the early European session. Spot prices currently trade around the 0.6220-0.6225 region and look to build on the recent gains registered over the past two days, from the 0.6155 region, or a two-week low touched on Monday.

The US Dollar (USD) drifts lower for the second successive day and retreats further from a two-week high set the previous day, which, in turn, assists the NZD/USD pair to attract some dip-buying at lower levels. Furthermore, the latest optimism led by expectations that the Chinese government will roll out more measures to support the economy remains supportive of the prevalent risk-on environment. This is seen as another factor acting as a tailwind for the risk-sensitive Kiwi, though the upside seems limited as traders seem reluctant to place aggressive bets ahead of the highly-anticipated FOMC monetary policy decision.

The US central bank is widely expected to raise borrowing costs by 25 bps. Investors, meanwhile, remain sceptic if the Federal Reserve (Fed) will commit to a more dovish stance in the wake of an extremely resilient US economy. The markets, however, have been pricing out the possibility of any further interest rate hikes this year. Hence, the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference will be scrutinized for cues about the future rate-hike path. This, in turn, will drive the USD demand and provide a fresh directional impetus to the NZD/USD pair.

Heading into the key central bank event risk, traders on Wednesday will confront the release of New Home Sales data from the US. The data, however, might do little to provide any meaningful impetus to the buck. The downside for the NZD/USD pair, meanwhile, seems cushioned in the wake of expectations for a more hawkish Reserve Bank of New Zealand (RBNZ), bolstered by stronger domestic consumer inflation figures released last week. This, in turn, suggests that the path of least resistance for spot prices is to the upside and the recent corrective slide from a multi-month peak might have already run its course.

Technical levels to watch

The softer Euro has seen EUR/CHF dip to 0.9550. Economists at ING analyze the pair’s outlook.

The SNB does seem to like complete control over the EUR/CHF pair

Considering advanced prints from CME Group for natural gas futures markets, open interest shrank for the 5^th consecutive session on Tuesday, now by around 9.5K contracts. On the other hand, volume left behind two consecutive daily pullbacks and rose by around 68.7K contracts.

Natural Gas: Immediately to the upside comes $2.80

Tuesday’s uptick in prices of natural gas was on the back of shrinking open interest, which hints at the idea of a corrective move in the very near term. Looking at the broader picture, prices of natural gas seem to have embarked on a gradual recovery since early April. Against that, the next target now emerges at the weekly high near $2.80 per MMBtu seen on July 20.

Further gains to the 143.00 region in USD/JPY now seems to have lost some momentum, according to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

• The index loses further momentum and approaches 101.00.
• The Fed is anticipated to hike rates by 25 bps later on Wednesday.
• Markets’ attention remains on Powell’s upcoming comments.

The greenback, in terms of the USD Index (DXY), remains offered and trades close to the 101.00 region on Wednesday.

USD Index focused on the Fed

The index appears offered and initially adds to Tuesday’s pullback from tops in the 101.60/65 band amidst alternating risk appetite trends and the absence of clear direction in US yields across the curve.

In the meantime, market participants remain cautious ahead of the imminent FOMC gathering, where a 25 bps interest rate hike is widely anticipated. However, investors are expected to closely follow Chief Powell’s press conference as well as any hint regarding the potential next steps by the Fed when it comes to the continuation (or not) of its tightening campaign.

Other than the FOMC event, the US calendar will show the usual weekly MBA Mortgage Applications and New Home Sales for the month of June.

What to look for around USD

The rally in the index seems to have met an initial hurdle around 101.60 (July 25) amidst rising expectations prior to the FOMC interest rate decision later in Wednesday’s session.

So far, the Fed is largely predicted to raise the Fed Funds Target Range (FFTR) by another 25 bps later in the session, in line with the Committee’s views observed at the June’s meeting as well as comments from the Fed’s rate setters in past weeks.

However, the persistent disinflationary pressures seen in recent months, in addition to some cooling in the labour market, might open the door to the likelihood that the July rate raise could be the last one of the current hiking cycle.

Key events in the US this week: 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 or hard landing for the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 2023 or early 2024. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is down 0.10% at 101.21 and faces immediate contention at 100.00 (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 101.64 (weekly high July 25) would open the door to 102.60 (55-dat SMA) and finally 103.54 (weekly high June 30.

Fed day has arrived. Economists at ING expect Dollar to hold gains.

Dollar to stay supported into the Fed

See – Fed Preview: Banks see a 25 bps hike as “a done deal”, focus on forward guidance

• USD/JPY turns lower for the third straight day and is pressured by modest USD weakness.
• The fundamental backdrop warrants some caution before positioning for additional losses.
• Traders might also refrain from placing aggressive bets ahead of the FOMC policy decision.

The USD/JPY pair attracts fresh selling following an intraday uptick to the 141.15-141.20 region and turns lower for the third successive day on Wednesday. Spot prices remain on the defensive through the early European session and currently trade around the 140.70 area, just a few pips above the weekly low touched in the last hour.

The US Dollar (USD) extends the overnight modest pullback from a two-week low and drifts lower for the second straight day, which, in turn, is seen as a key factor exerting some pressure on the USD/JPY pair. The Japanese Yen (JPY), on the other hand, gets a minor lift after the Cabinet Office, in the monthly report, raised its view on business sentiment in July for the first time in seven months. Adding to this, Japan retained its assessment of the economy as recovering at a moderate pace.

The International Monetary Fund (IMF), meanwhile, warned of higher inflation from Japan and urged the Bank of Japan (BoJ) to exit its easy-money policy. The BoJ Governor Kazuo Ueda, however, reiterated on Wednesday that the central bank will stick to its accommodative monetary stance and added that the long-term yield rate remains stable under the yield curve control (YCC) policy. This, along with the risk-on mood, should cap the safe-haven JPY and lend support to the USD/JPY pair.

Traders might also refrain from placing aggressive bets and prefer to wait for the outcome of the crucial FOMC policy meeting, scheduled to be announced later this Wednesday. The Federal Reserve (Fed) is expected to hike interest rates by 25 bps, though investors remain sceptic if the US central bank will pivot to a more dovish stance in the wake of an extremely resilient economy. Hence, the focus will remain on the accompanying policy statement and Fed Chair Jerome Powell's presser.

Investors will look for cues about the future rate-hike path, which, in turn, will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the USD/JPY pair. The market attention will then shift to the two-day BoJ monetary policy meeting starting on Thursday. Nevertheless, the aforementioned fundamental backdrop warrants some caution before confirming that the recent goodish rebound from a nearly two-month low has run out of steam.

Technical levels to watch

Having traded as high as 0.87 last week on the back of the softer UK CPI data, EUR/GBP is now back at 0.8570. Economists at ING analyze the pair’s outlook.

Sterling enjoys the travails of the Euro

• AUD/USD recovers some losses and holds above 0.6765.
• The key resistance level is located at 0.6800; the strong support level is seen at 0.6700.
• The Relative Strength Index (RSI) hovers around 50, indicating the non-directional movement of the pair.

The AUD/USD pair recovers its recent loss and edges higher beyond the 0.6770 mark heading into the early European session on Wednesday. At the time of writing, the pair is trading at 0.6771, losing 0.30% for the day.

On Wednesday, the Australian Bureau of Statistics (ABS) reported that the country's Consumer Price Index (CPI) rose 0.8% in the second quarter of 2023, compared to a 1.4% increase in the first quarter and the market consensus of 1.0% growth. The pair accelerates declines towards 0.6700 following the data and then recovers some losses as Australian Treasurer Jim Chalmers said there is still a long way to go to combat inflation. Still, it is heading in the right direction.

However, 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.

From a technical perspective, if AUD/USD extends its gains past 0.6775 (the lower limit of the Bollinger Band) on the one-hour chart, the next resistance level would be 0.6800. The mentioned level represents the confluence of a psychological round mark, the upper boundary of the Bollinger Band, and a high of July 25. A break above the latter would expose to 0.6820 (Low of July 20), en route to 0.6845 (High of July 20), and finally to 0.6860 (Low of July 14).

On the flip side, any extended weakness below the July 25 low of 0.6750 will challenge the next contention at 0.6700 (High of July 7, a psychological round figure). Further south, the next stop of the AUD/USD is located at 0.6650 (Low of July 11).

It’s worth noting that the pair's momentum seems to be directionless for the time being as the Relative Strength Index (RSI) hovers around 50.

AUD/USD one-hour chart

• Gold price runs north swiftly as investors seem clear that a small interest-rate hike from the Fed cannot be ruled out.
• The US Dollar Index is under pressure as Fed’s July rate hike could be the last one in the current tightening spell.
• US GDP numbers are due Thursday, keeping FX in action.

Gold price (XAU/USD) attempts to come out of the woods as investors digest the fact that the Federal Reserve (Fed) will raise interest rates by 25 basis points (bps) to the 5.25%5-5.50% range. The precious metal picks strength as market participants hope July’s rate hike will be the last one this year, prompting the Fed to pause the rate-hiking spell for a longer period.

Easing fears of a global recession, the United States upbeat Consumer Confidence, and expectations of the Fed announcing an interest rate peak have built pressure on the US Dollar Index (DXY). The index retreats as investors are anticipating that Fed Chair Jerome Powell won’t be much formidable about sticky inflation. After the Fed’s policy decision on Wednesday, US GDP numbers for the second quarter are in the pipeline on Thursday, keeping investors on edge.

Daily Digest Market Movers: Gold price rises ahead of Fed policy decision

• Gold price comes out of an oscillation made around $1,960.00 ahead of the Federal Reserve’s monetary policy decision.
• Practically, an interest-rate hike of 25 basis points (bps) is highly expected, pushing rates to 5.25%-5.50%, but easing inflationary pressures are casting doubts over guidance about September’s interest rate policy.
• If market participants go with Jerome Powell’s last commentary, one more interest rate hike is appropriate after July’s monetary policy.
• As per the CME Group Fedwatch tool, interest rates will peak around 5.25%-5.50% and will remain steady by year-end.
• The Fed is not expected to discuss rate cuts for this year as its foremost priority is to bring down inflation to 2% steadily.
• Headline Consumer Price Index has decelerated to 3.0% and core inflation has dropped below 4.8% in spite of a still tight labor market, which conveys resilience in the United States economy.
• Fears of a recovery in US inflation persist as firms are consistently employing fresh talent and offering higher wages to offset labor shortages.
• Consumer spending is also consistently rising due to higher disposable income, keeping core inflation stubbornly elevated.
• In addition to the economy’s resilience, US Consumer Confidence came in at 117.0 in July, the highest level in two years, amid upbeat labor market conditions and easing price pressures.
• The US Dollar Index has come under pressure as the International Monetary Fund (IMF) has increased global growth forecasts for 2023 to 3.0%, up 20 basis points from its last forecast in April.
• The upwardly revised forecast has trimmed fears of a global recession and is weighing on safe-haven assets.
• For the United States, a survey by the National Association for Business Economics survey (NABE) showed that 71% of respondents anticipated 50% or fewer chances of a recession.
• After the Fed’s interest rate decision, investors are likely to shift their focus toward second-quarter Gross Domestic Product (GDP) data and Durable Goods Orders for June, which will be released on Thursday at 12:30 GMT.
• The US economy is expected to have expanded at an annualized rate of 1.8% in Q2, n less than the 2.0% growth seen in Q1. Durable Goods Orders are seen expanding at a slower pace of 1.0% compared with 1.8% a month earlier.

Technical Analysis: Gold price attempts a consolidation breakout above $1,970

Gold price gathers strength for a break above the immediate resistance of $1,970.00 as investors have digested a hawkish interest-rate policy from the Fed. The precious metal is consistently trading back and forth in a wide range between $1,953 and$1,968 for the past three trading sessions amid obscurity about the Fed’s guidance for the remainder of the year.

A bullish crossover, represented by 20-day and 50-day Exponential Moving Averages (EMAs) at $1,951.00, indicates further strength in the bullish bias.

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

Financial markets stay relatively calm early Wednesday as investors move to the sidelines while waiting for the US Federal Reserve (Fed) to conclude its two-day policy meeting. Following the announcement of the rate decision and the release of the policy statement at 1800 GMT, FOMC Chairman Jerome Powell will comment on the policy outlook and respond to questions at a press conference starting at 1830 GMT. The US economic docket will also feature New Home Sales for June.

The positive shift seen in risk sentiment made it difficult for the US Dollar (USD) to preserve its strength during the American trading hours on Tuesday. The US Dollar Index (DXY), which touched a two-week-high above 101.60 earlier in the day, reversed its direction and closed in negative territory, snapping a five-day winning streak. Early Wednesday, DXY fluctuates in a tight range above 101.00. Meanwhile, the benchmark 10-year US Treasury bond yield continues to move up and down between 3.8% and 3.9%.

Previewing the Fed event, "I want to stress that a 25 bps hike is fully priced in, and will not have an impact on markets," said FXStreet Analyst Yohay Elam. "Investors are laser-focused on hints about the next moves. The Fed does not publish new forecasts at this meeting, letting the statement talk first. Then, Fed Chair Powell will take the stage, answering questions and triggering the lion's share of volatility."

Federal Reserve Preview: Powell can play three distinct cards, each with a different US Dollar move.

EUR/USD fell to 1.1020 in the European session on Tuesday but erased a large portion of its losses in the second half of the day. At the time of press, EUR/USD was trading modestly higher on the day above 1.1050.

The data from Australia showed that the Consumer Price Index rose 0.8% on a quarterly basis in the second quarter. This reading followed the 1.4% increase recorded in the first quarter and came in below the market expectation of 1%. On a yearly basis, the CPI rose 5.4% in June as expected. AUD/USD fell sharply with the immediate reaction to inflation data and touched a daily low of 0.6734 before recovering back above 0.6750.

GBP/USD benefited from risk flows and registered strong daily gains on Tuesday. The pair stays in a consolidation phase at around 1.2900.

USD/JPY closed the second straight day in the red on Tuesday. Ahead of Friday's policy announcements, “Japan's long-term yield rate remains stable under the yield curve control (YCC) policy,” BoJ Governor Kazuo Ueda reportedly told a Japanese government official. 

Gold edged higher during the American trading hours on Tuesday and continued to stretch higher toward $1,970 early Wednesday.

Following Monday's sharp decline, Bitcoin continues to move in a very tight channel above $29,000. Ethereum registered small gains on Tuesday but lost its recovery momentum before testing $1,900. Early Wednesday, ETH/USD holds steady at around $1,860.

• USD/CAD reverses from intraday high on softer US Dollar ahead of Federal Reserve Interest Rate Decision.
• Oil price prints the first daily loss in five amid mixed sentiment, receding optimism about China stimulus.
• Cautious markets, light calendar will restrict Loonie pair’s immediate moves ahead of FOMC.
• Fed Chair Powell’s speech will be crucial as 0.25% rate hike is priced in.

USD/CAD pares intraday gains around 1.3175 heading into Wednesday’s European session as the US Dollar stays pressured ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcements. In doing so, the Loonie pair ignores the recent weakness in the WTI crude oil price, Canada’s main export earner, amid a sluggish market.

US Dollar Index (DXY) remains depressed around the intraday low of 101.14, down for the second consecutive day after reversing from a two-week high the previous day, as market players fear the end of the Federal Reserve’s (Fed) monetary policy tightening. The reason could be linked to the early-week releases of PMIs, as well as the previously released inflation and employment clues. However, Tuesday’s US Conference Board (CB) Consumer Confidence and housing numbers have been promising and prod the dovish expectations from the US central bank.

On the other hand, WTI crude oil snaps a four-day winning streak while retreating from a three-month high, mildly offered near $79.15 by the press time, as China-inspired optimism fades. That said, 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).  Apart from the US-China clues, Tuesday’s surprise build of the Oil inventories, per the American Petroleum Institute’s (API) weekly Crude Oil Stock Change data, also weighs on the black gold price.

It should be noted that the market sentiment dwindles amid a cautious mood ahead of the top-tier central bank monetary policy meetings and mixed concerns about the Sino-American ties, as well as receding optimism about Beijing’s push for more stimulus.

Amid these plays, S&P500 Futures seesaws around the one-week high marked the previous day, mildly bid near 4,600 by the press time. However, the US 10-year and two-year Treasury bond yields retreat from a two-week high registered Tuesday, close to 3.88% and 4.87% in that order at the latest.

Looking ahead, an absence of major data/events could restrict the USD/CAD pair’s moves ahead of the Fed’s verdict. Given the widely expected 0.25% rate hike, already priced in as well, the Loonie pair may need hawkish statements from Fed Chair Jerome Powell and a slump in the Oil price to convince buyers.

Technical analysis

USD/CAD grinds within the one-week-old symmetrical triangle, currently between 1.3210 and 1.3150, but the bears seem running out of fuel of late.

In the view of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, the likelihood of further weakness in AUD/USD seems to be losing momentum.

Key Quotes

The Australian inflation figures fell slightly more than expected. Economists at Commerzbank analyze AUD reaction.

Is the decline in inflation already enough?

Bank of Japan (BoJ) Governor Kazuo Ueda said on Wednesday, “Japan's long-term yield rate remains stable under the yield curve control (YCC) policy,” as cited by a Japanese government official.

Additional quotes

“Market sentiment continues to improve.”

“Yen rate against dollar slightly volatile partly due to interest rate differentials.”

“BoJ to maintain accommodative monetary environment for firms.”

Market reaction

USD/JPY is recovering slightly from intraday lows of 140.60 on the above comments. The pair was last seen trading at 140.72, down 0.13% so far.

Open interest in crude oil futures markets increased for the third session in a row on Tuesday, this time by nearly 30K contracts according to preliminary readings from CME Group. Volume, instead, dropped by around 18.2K contracts, partially reversing the previous daily build.

WTI remains focused on $80.00

WTI prices extended their upside against the backdrop of rising open interest on Tuesday. That said, there still seems to be chances for the commodity to reach the key $80.00 mark per barrel in the short-term horizon.

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group note GBP/USD is now likely to trade within the 1.2800-1.3100 range in the next few weeks.

Key Quotes

CME Group’s flash data for gold futures markets noted traders scaled back their open interest positions by around 10.5K contracts on Tuesday, reversing the previous daily build. Volume followed suit and went down by nearly 2K contracts.

Gold: Upside appears capped by $1990

Tuesday’s uptick in gold prices was accompanied by shrinking open interest and volume, which removes strength from further bullish attempts in the very near term. In the meantime, the July high around $1987 per troy ounce (July 20) continues to cap the upside for the time being.

The US Federal Reserve will announce its Interest Rate Decision on Wednesday, July 26 at 18:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 14 major banks. 

The FOMC is widely expected to raise rates by 25 basis points after pausing in June. But then what? Forward guidance will be key.

ANZ

Danske Bank

TDS

Westpac

Credit Suisse

ING

Rabobank

Deutsche Bank

RBC Economics

NBF

SocGen

CIBC

Citi

Wells Fargo

• GBP/USD remains confined in a narrow range near the 1.2900 area heading into the European session.
• Economists anticipate a rate hike by the Bank of England (BoE) to 5.25% in the next meeting.
• Investors will watch the Federal Open Market Committee's (FOMC) meeting and the press conference.

The GBP/USD pair oscillates around the 1.2875–1.2905 region in a narrow trading band heading into the European trading hours. The major pair struggles to gain as traders prefer to wait on the sidelines ahead of the Federal Open Market Committee's (FOMC) meeting scheduled later in the day. GBP/USD currently trades at 1.2901, down 0.01% for the day.

The data released earlier this week showed that economic activity in the United Kingdom 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.

In June, the Bank of England (BoE) unexpectedly raised its Bank Rate by 50 basis points (bps) to 5.00%, prompting markets to rapidly price in a terminal rate of 6.50%. 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, which exert pressure on the Pound Sterling.

However, the latest Reuters poll showed that 42 out of 62 economists anticipate that the Bank Rate will be raised by 25 bps to 5.25% in the upcoming BoE meeting scheduled for August 3, while only 20 predicted a half-point hike.

On the US dollar Front, the Federal Reserve (Fed) is scheduled to announce its monetary decision later in the North American session. The Fed is widely anticipated to raise interest rates by 25 bps to 5.25–5.50%. Market participants will also be paying close attention to Fed Chairman Jerome Powell's press conference as it might reveal some clues about the direction of monetary policy going forward. A more dovish stance from the Fed might cap the upside for the Greenback and act as a tailwind for the GBP/USD pair.

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 the US Advance GDP QoQ and the core Personal Consumption Expenditure (PCE) Price Index MoM later this week. These data could significantly impact the US Dollar's dynamic and give the GBP/USD pair a clear direction.

• GBP/JPY struggles to defend the previous day’s gains amid sluggish session.
• Treasury bond yields remain sidelined amid mixed concerns about Japan economic forecasts, Bank of Japan.
• Intact UK growth forecasts, hawkish BoE concerns put a floor under cross-currency pair.
• Risk catalysts eyed for clear directions amid light calendar.

GBP/JPY treads water around 181.90-80 heading into Wednesday’s London open, struggling to extend the previous day’s recovery by the press time. In doing so, the cross-currency pair fails to cheer headlines from Japan, as well as comparatively better UK fundamentals, amid the sluggish markets ahead of this week’s top-tier events, namely monetary policy meetings of the Federal Reserve (Fed), European Central Bank (ECB) and the Bank of Japan (BoJ).

Recently, Japanese Cabinet Office published its monthly economic assessment portraying an upbeat picture of the business sentiment. On Tuesday, the Japanese government released its inflation outlook while stating that the inflation is seen staying around 0.7% in the longer term. The government also added, “Wages are projected to increase by 2.5% in FY24, following a 2.6% jump in FY23.” (FY=Fiscal Year)

However, the International Monetary Fund (IMF) warned of higher inflation from Japan and urged the Bank of Japan (BoJ) to exit its easy-money policy, which in turn prods the GBP/JPY bulls. Further, mixed prints of Japan's Coincident Index and Leading Economic Index for May, to 114.3 and 109.2 versus 113.8 and 109.5, also challenge the pair's latest moves.

On the contrary, 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/JPY bulls.

Though, the market’s preparations for the BoJ’s status quo appear to restrict the pair’s immediate upside.

Against this backdrop, S&P500 Futures grinds near the one-week high marked the previous day whereas the US 10-year and two-year Treasury bond yield print mild gains around a two-week high registered Tuesday, close to 3.89% and 4.88% in that order by the press time.

Moving on, a light calendar may restrict GBP/JPY moves but performance of the bond markets and the reaction to the Fed meeting, as well as the risk catalysts surrounding China, may entertain the pair traders.

Technical analysis

Repeated failures to cross a three-week-old descending resistance line, around 182.15, lures GBP/JPY bears amid a sluggish start to the key day comprising Federal Reserve (Fed) monetary policy meeting announcements.

Further downside could force EUR/USD to revisit the 1.1010 level in the near term, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

• WTI prints the first daily loss in five, reversing from three-month high.
• Bearish chart formation, impending bear cross on MACD and overbought RSI lures Oil sellers.
• Downside break of immediate support triggers commodity’s weakness towards mid-July top.
• 50-EMA adds strength to wedge’s support line, highlights $76.70 as the key level for energy bears.

WTI crude oil takes offers to refresh intraday low around $79.00 heading into Wednesday’s European session as the black gold reverses from the highest level since April 19 while printing the first daily loss in five. In doing so, the energy benchmark retreats from the top line of a five-week-long rising wedge bearish chart formation amid overbought RSI conditions.

That said, the latest downside break of an upward-sloping support line from Monday, now immediate resistance near $79.20, joins the looming bear cross on the MACD indicator to favor the WTI sellers.

With this, the Oil bears are well set to prod the mid-July peak of around $77.20. However, the commodity’s further downside needs validation from a convergence of the stated wedge’s bottom line and the 50-Exponential Moving Average (EMA), close to $76.70.

Following that, the 200-EMA level of around $73.80 and the previous monthly low surrounding $67.00 will be in the spotlight. That said, the $70.00 round figure may act as an intermediate halt.

It’s worth noting that the rising wedge’s theoretical target is the $64.00 threshold.

On the flip side, an upside break of the immediate support-turned-resistance line of around $79.20 could again aim for successful trading beyond the $80.00 psychological magnet.

In that case, March’s high of $81.00 and April’s peak of around $83.40 will lure the WTI bulls.

WTI crude oil: Four-hour chart

Trend: Further downside expected

Ahead of Friday’s Bank of Japan (BoJ) policy announcements and updated economic projections, the Japanese Cabinet Office published its monthly economic assessment this Wednesday.

Key takeaways

Market reaction

At the time of writing, USD/JPY is trading up 0.07% on the day at 141.00.

• Most Asian stock markets trade in negative territory as markets turn cautious ahead of key events.
• The headlines of more Chinese stimulus plans fail to impress Chinese equities.
• Investors are preparing for the Bank of Japan's (BoJ) rate decision scheduled for Friday.

Most Asian stock markets trade in negative territory on Wednesday as market participants await the highly anticipated Federal Reserve (Fed) meeting later in the day. At press time, the Nikkei down 0.07%, Shanghai drops 0.37%, Hang Sang fell 0.85%, and the Kospi Index down 1.78%. While, the Nifty50 rises 0.58%.

The headlines of more Chinese stimulus plans fail to impress Chinese equities on Wednesday. The news agency Xinhua reported on Tuesday that policymakers would take up economic policy adjustments, strengthening confidence and mitigating risks after the world's second-largest economy expanded at a sluggish rate in the second quarter as demand fell.

In the meantime, Japanese stocks post modest gains. Investors are preparing for Friday's upcoming interest rate decision by the Bank of Japan (BoJ). 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 and are expected to keep their monetary policy unchanged on Friday.

Additionally, the Cabinet Office said that Japan’s 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 oil price currently trades around $79.00 a barrel after retreating from $79.90 a barrel, the highest since April 19. The headlines surrounding additional Chinese stimulus plans will be in focus as China is the world's largest oil importer, and its economic recovery supports the oil price.

Market participants will focus on the Fed, European Central Bank (ECB), and BoJ rate decisions later this week. Also, the developments surrounding Sino-US relations will remain in focus.

• Gold Price fades bounce off one-week low amid market’s pre-Fed anxiety, China concerns.
• China-inspired optimism also dims as fears of Sino-US tussle reignite.
• Mixed data underpins dovish bias for US central bank but FOMC has always been a fighter.
• Fed Chair Powell’s speech can fuel Gold price on confirming policy pivot chatters.

Gold Price (XAU/USD) clings to mild losses as it fails to defend the previous day’s corrective bounce off the lowest level in a week amid a cautious mood on the Federal Reserve (Fed) monetary policy day announcement day. Apart from the pre-Fed caution, headlines suggesting fresh tensions between the US and China, mainly due to the looming trade and technology restrictions from Washington, also seem to exert downside pressure on the XAU/USD price.

It’s worth noting that the latest US data has been comparatively better and hence prods the Gold buyers even if expectations of China stimulus and concerns about witnessing a sooner end to the higher rates at top-tier central banks put a floor under the XAU/USD price. Elsewhere, lackluster US Treasury bond yields and receding optimism of the equity buyers also challenge the Gold Price upside of late.

Moving on, Gold traders should pay attention to the Federal Open Market Committee (FOMC) monetary policy meeting announcements for clear directions. More importantly, comments from Fed Chair Jerome Powell will be crucial to watch as the policymaker isn’t known to favor the dovish moves while the markets have already priced in 25 basis points (bps) of rate hike.

Also read: Gold Price Forecast: XAU/USD reclaims 100 DMA, further upside hinges on Fed Chair Powell

Gold Price: Key levels to watch

As per our Technical Confluence indicator, Gold Price prods the $1,962 support comprising the 100-DMA and a convergence of the Fibonacci 61.8% on one-week and 23.6% on one-day.

It’s worth noting that a clear break of the $1,962 support can quickly fetch the quote towards 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.

However, the Fibonacci 161.8% on one-day joins the convergence of the Pivot Point one-day S1 and one-week S3 to highlight $1,944 as the additional downside filter for the Gold Price after $1,950.

On the contrary, the $1,973 resistance confluence including Fibonacci 38.2% on one-week and Pivot Point one-month R1 will challenge the Gold buyers during the fresh run-up.

Following that, the previous monthly high and a joint of the Pivot Point one-day R3 and one-week R1 will challenge the XAU/USD bulls before directing them to the $2,000 psychological magnet.

Overall, the Gold Price remains on the bear’s radar unless staying below $1,985.

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.

FX option expiries for July 26 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.1000 961m
• 1.1025 1.5m
• 1.1070-75 2.4b
• 1.1100 424m
• 1.1130 395m
• 1.1195 1.1b
• 1.1250 2.8b

- USD/JPY: USD amounts                     

• 140.00 886m
• 141.00 416m
• 142.00 1.3b

- AUD/USD: AUD amounts

• 0.6695 430m
• 0.6725 453m
• 0.6800 330m
• 0.6900 719m

- EUR/GBP: EUR amounts        

• 0.8675 350m
• 0.9000 1.4b

• EUR/GBP remains sideways below 0.8600 ahead of ECB’s policy decision.
• The uncertainty about ECB’s guidance for September’s monetary policy is building pressure on the Euro.
• Investors are interested to know whether UK PM Rishi Sunak would meet his promise of easing inflation to 5% by the year-end.

The EUR/GBP pair is demonstrating directionless performance in the Asian session around 0.8570. The cross is expected to extend its declining spell despite concrete expectations of an interest rate hike from the European Central Bank (ECB), which will be announced on Thursday.

To tame stubborn inflation in Eurozone propelled by rising wages and cost of services, ECB President Christine Lagarde is expected to deliver a hawkish interest rate decision. An interest rate hike of 25 basis points (bps) is expected, which will push interest rates to 4.25%. While the trigger that is building pressure on the Euro is the uncertainty about guidance for September’s monetary policy.

Eurozone inflation is consistently declining and the economy is facing pressure due to higher interest rates. Therefore, the ECB could consider a skip in the policy tightening spell in September but that should not be mixed with a pause for now. However, the guidance from ECB Lagarde would remain hawkish, which will provide some cushion to the Euro.

Meanwhile, the Pound Sterling is performing better against the Euro despite a bleak economic outlook. Higher interest rates by the Bank of England (BoE) are building pressure on the United Kingdom’s economic prospects as firms have postponed tapping credit to avoid bulky interest obligations.

UK’s June inflation remained surprisingly lower for the first time in the past five months. The event provided some relief to BoE policymakers. However, investors are interested to know whether UK PM Rishi Sunak would meet his promise of easing inflation to 5% by the year-end.

• USD/CHF gains some positive traction on Wednesday, albeit lacks follow-through.
• Traders now seem reluctant and prefer to wait for the crucial FOMC policy decision.
• The mixed technical setup also warrants some caution before placing directional bets.

The USD/CHF pair attracts some buying near the 0.8630 area, or a multi-day low touched during the Asian session on Wednesday and for now, seems to have stalled the previous day's rejection slide from the 0.8700 mark, or a nearly two-week high. Spot prices, however, struggle to capitalize on the modest intraday uptick and currently trade just below mid-0.8600s, up less than 0.10% for the day.

From a technical perspective, last week's sustained break and acceptance above the 200-hour Simple Moving Average (SMA) was seen as a fresh trigger for bullish traders. That said, oscillators on the hourly chart are yet to confirm a positive bias and are holding deep in the bearish territory on the daily chart. The mixed setup makes it prudent to wait for strong follow-through buying before confirming that the USD/CHF pair has formed a bottom near the 0.8555 region, or a multi-year low touched earlier this month, and positioning for any further appreciating move.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the key central bank event risk - the outcome of the highly-anticipated two-day FOMC monetary policy meeting. The Federal Reserve (Fed) is due to announce its decision later this Wednesday and is expected to hike interest rates by 25 bps. The focus, meanwhile, remains on the accompanying policy statement and Fed Chair Jerome Powell's remarks at the post-meeting presser, which will be scrutinized for cues about the future rate-hike path and drive the US Dollar (USD).

In the meantime, any subsequent positive move is more likely to confront stiff resistance and remain capped near the 0.8700 mark. The said handle should act as a pivotal point, which if cleared decisively might trigger a short-covering rally and lift the USD/CHF pair towards the 0.8800 round figure. This is followed by resistance near the 0.8830-0.8835 region. A sustained strength beyond the latter might shift the bias in favour of bullish traders and pave the way for additional near-term gains towards the 0.8900 strong horizontal support breakpoint, now turned resistance.

On the flip side, the 0.8635-0.8630 region now seems to have emerged as an immediate support. This is followed by the 0.8600 round figure, below which the USD/CHF pair is likely to challenge the multi-year low, around the 0.8555 zone. Some follow-through selling will be seen as a fresh trigger for bearish traders, making spot prices vulnerable to accelerate the downtrend witnessed since the beginning of this month and dropping to the 0.8500 psychological mark.

USD/CHF 1-hour chart

Key levels to watch

• EUR/USD remains sidelined at two-week low, prods six-day downtrend.
• Downbeat Eurozone, German statistics challenge ECB hawks and favor Euro sellers amid welcome United States data.
• Concerns about Federal Reserve’s priced-in 0.25% rate hike, inability to fuel interest rates further prod pair bears.
• Risk catalysts, Treasury bond yields eyed for clear directions ahead of Fed showdown.

EUR/USD aptly portrays the market’s cautious mood ahead of the all-important Federal Reserve (Fed) monetary policy meeting, making rounds to 1.1050 heading into Wednesday’s European session. In doing so, the Euro pair also justifies the market’s mixed bias about the Fed and the European Central Bank (ECB) due to the recently unimpressive data from the bloc, as well as from the US, amid fresh challenges to sentiment.

That said, the US Dollar’s pause to the previous pullback from a two-week high, backed by upbeat yields and a cautious mood, appears challenging the EUR/USD pair’s rebound from the multi-day low. However, the greenback’s inability to rise, due to the fears of no more space for the Fed to lift interest rates, seems to put a floor under the Euro pair.

It should be noted that the downbeat Eurozone and German statistics have been the major cause for the EUR/USD pair’s weakness in the last six days as the same challenges the ECB hawks even if they show readiness to increase the rates to battle the inflation woes.

On a different page, news suggesting the fresh US-China tensions joined the pre-Fed consolidation to weigh on the EUR/USD price. Though, the International Monetary Fund’s (IMF) upward revision to the global growth forecasts join the previously released downbeat data from top-tier economies, which in turn flagged concerns of a sooner end to rate hike cycle, defend optimists and test the Euro bears.

On Tuesday, Germany’s IFO Business Climate Index dropped to 87.3 for July versus 88.0 expected and 88.6 prior while the Current Economic Assessment came in as 91.3 for the said month, compared with June’s 93.7 and 93.0 expected. Further, the IFO Expectations Index, a gauge conveying the firms’ projections for the next six months, fell to 83.5 for July versus 83.8 prior and 83.0 market forecasts. Following the mostly downbeat German data, the IFO Economist Klaus Wohlrabe said that the “German GDP likely to shrink in the 3rd quarter.” IFO’s Wohlrabe also added that the weak phase of the German economy is going to be extended. Elsewhere, the European Central Bank’s (ECB) quarterly survey of 158 big banks revealed that firms' demand for credit dropped to the lowest since the survey started in 2003.

Talking about the US data, 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.

Against this backdrop, S&P500 Futures grinds near the one-week high marked the previous day whereas the US 10-year and two-year Treasury bond yield print mild gains around a two-week high registered Tuesday, close to 3.89% and 4.88% in that order by the press time.

Looking forward, a light calendar in Eurozone will join the pre-Fed inaction to restrict the EUR/USD moves. However, the risk catalysts and second-tier US data may entertain the traders. That said, the Euro pair fades downside bias but the pair’s recovery hinges on how well Fed Chair Jerome Powell manages to defend hawks.

Also read: Federal Reserve Preview: Powell can play three distinct cards, each with a different US Dollar move

Technical analysis

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.

• USD/CAD struggles to gain momentum beyond the 1.3200 area on Wednesday.
• The pair holds below the 50- and 100-hour EMAs with a downward slope.
• The immediate resistance level is seen at 1.3200; the initial support level is located at 1.3145.

The USD/CAD pair attracts some follow-through buying but struggles to gain momentum beyond the 1.3200 area during the Asian session on Wednesday. Traders await the closely-watched Federal Open Market Committee (FOMC) meeting scheduled later in the North American session. The major pair is trading at 1.3185, gaining 0.09% for the day.

The Conference Board survey revealed that US consumer confidence reached a two-year high in July. The figure rose to 117.0 from 110.1 (revised from 109.7) in June, the highest reading since July 2021. The data bolstered optimism that the economy could avoid a recession this year. This, in turn, could support the greenback and cap the upside in the commodity-linked Loonie.

According to the four-hour chart, the path of least resistance for the USD/CAD is to the downside as the major pair holds below the 50- and 100-hour Exponential Moving Averages (EMAs) with a downward slope. Meanwhile, the Relative Strength Index (RSI) stands slightly above 50, highlighting the non-directional movement of the pair.

That said, the immediate resistance level is seen at 1.3200, representing the confluence of a psychological round mark and the 100-hour EMA. Any meaningful follow-through buying above the latter will see a rally to the next barrier at 1.3230 (High of July 17). Following that, the June 15 swing high of 1.3355 will be in focus. The 1.3390–1.3400 zone appears to be a tough nut to crack for USD/CAD.

Looking at the downside, any extended weakness below 1.3145 (Low of July 25) will challenge the next downside filter at 1.3120 (Low of July 20) and 1.3090 (Low of July 14).

USD/CAD four-hour chart

• AUD/USD drops back closer to the overnight swing low, albeit lacks follow-through.
• The softer Australian CPI weighs heavily on the Aussie amid a modest USD strength.
• The risk-on mood helps limit the downside ahead of the crucial FOMC policy decision.

The AUD/USD pair comes under heavy selling pressure following the release of softer Australian consumer inflation figures on Wednesday, albeit manages to find support near the overnight swing low, around the 0.6730-0.6725 area. Spot prices recover nearly 35 pips from the daily trough and currently trade around the 0.6760-0.6765 region, down over 0.40% for the day.

The Australian Dollar (AUD) weakens across the board after the Australian Bureau of Statistics reported that the headline CPI rose 0.8% in the second quarter, lower than the 1% estimated and well below the 1.4% previous. Furthermore, the yearly rate also missed market expectations and decelerated from 7.0% to 6.2% during the reported period. Adding to this, the Reserve Bank of Australia's (RBA) preferred measure of trimmed-mean CPI grew by a 5.9% YoY rate in the June quarter, down from 6.6% the previous quarter. The data strengthens the case for the RBA to pause future rate hikes and weigh on the domestic currency, which, along with a modest US Dollar (USD) uptick, prompt aggressive selling around the AUD/USD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, inches back closer to a two-week high touched on Tuesday and draws support from Tuesday's upbeat US macro data, which pointed to an extremely resilient economy. It is worth recalling that the survey from the Conference Board showed that US consumer confidence jumped to a two-year high in July in the wake of a persistently tight labour market and receding inflationary pressures. This raises optimism that the economy could skip a recession this year and lends some support to the Greenback. The USD bulls, however, refrain from placing fresh bets and prefer to wait for fresh cues about the Federal Reserve's (Fed) policy outlook.

The markets have been pricing out the possibility of any further interest rate hikes after the widely anticipated 25 bps lift-off at the end of a two-day FOMC monetary policy meeting this Wednesday. Investors, however, seem sceptic if the Fed will commit to a more dovish stance. 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, which will be scrutinized for the future rate-hike path. This, in turn, will influence the USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.

In the meantime, the latest optimism led by hopes for more stimulus measures from China remains supportive of the underlying bullish sentiment around the global equity markets. This is seen as another factor capping gains for the safe-haven buck and lending some support to the risk-sensitive Aussie, making it prudent to wait for strong follow-through selling before placing fresh bearish bets around the AUD/USD pair.

Technical levels to watch

Australian Treasurer Jim Chalmers said on Wednesday, “there is a long way to go to beat inflation.”

“Inflation is moving in the right direction,” he added.

Market reaction

Chalmers' comments helped recover some losses in the AUD/USD pair, as it currently trades at 0.6762, still down 0.38% on the day. He spoke after Australia reported softer-than-expected inflation data.

• Silver edges higher during the Asian session, though the downside remains cushioned.
• Traders now seem reluctant to place aggressive bets ahead of the key FOMC decision.
• The mixed technical setup further warrants some caution before placing directional bets.

Silver struggles to capitalize on the previous day's goodish rebound from the $24.30-$24.25 area, or a one-and-half-week low and trades with a mild negative bias through the Asian session on Wednesday. The white metal, however, lacks follow-through selling and currently trades around the $24.65 region, down less than 0.15% for the day.

From a technical perspective, the recent break and acceptance below the 50-period Simple Moving Average (SMA) favours bearish traders and suggests that the path of least resistance for the XAG/USD is to the downside. That said, oscillators on hourly/daily charts are holding in the positive territory and warrant some caution before positioning for any further depreciating move. Traders also seem reluctant from placing aggressive directional bets and prefer to wait for the highly-anticipated FOMC monetary policy decision, due later this Wednesday.

In the meanwhile, the 50-period SMA on the 4-hour chart, currently pegged around the $24.85 region, is likely to act as an immediate hurdle ahead of the $25.00 psychological mark. Any subsequent move up, however, is more likely to remain capped near last week's swing high, around the $25.25 region. The latter should act as a pivotal point, above which the XAG/USD could surpass the $25.50-$25.55 intermediate hurdle and climb further towards reclaiming the $26.00 round figure en route to the YTD peak, around the $26.10-$26.15 area touched in May,

On the flip side, the weekly low, around the $24.30 area, is likely to protect the immediate downside, below which the XAG/USD could slide to the $24.00 mark. Some follow-through selling should pave the way for deeper losses towards the $23.65-$23.60 support before the XAG/USD drops to the $23.20-$23.15 region. Some follow-through selling below the $23.00 mark, nearing the very important 200-day SMA, will shift the bias in favour of bearish traders and make the XAG/USD vulnerable to challenge the multi-month low, around the $22.15-$22.10 area.

Silver 4-hour chart

Key levels to watch

• USD/INR struggles to defend the bounce off 14-week low, indecisive of late.
• Bearish MACD signals, sustained trading below key DMAs, trend line favor Indian Rupee buyers.
• Convergence of 100, 200 DMA challenge pair buyers, 81.50 appears a tough nut to crack for bears.

USD/INR lacks clear directions as it seesaws near 81.90 amid early Wednesday. In doing so, the Indian Rupee (INR) pair fails to extend the previous day’s recovery from an 11-week low, as well as an upward-sloping support line from mid-April.

While justifying the pair’s latest inaction, the MACD indicator flashes bearish signals and the RSI (14) line is also steady. That said, the quote’s sustained trading below the key moving averages, as well as a three-week-old descending trend line, adds strength to the downside bias about the USD/INR pair.

However, a clear break of the 14-week-long support line, close to 81.80 at the latest, becomes necessary for the USD/INR bears to retake control.

Following that, the 61.8% Fibonacci retracement of its January-February run-up, around 81.70, may check the Indian Rupee buyers before directing them to the key support zone comprising multiple levels marked since early February, close to 81.50.

Meanwhile, a convergence of the 10-DMA and a downward-sloping trend line from early July together restricts the immediate USD/INR upside near the 82.00 round figure.

Even if the quote remains firmer past 82.00, a convergence of the 100 and 200 DMAs, around 82.15-20 at the latest, will be a tough nut to crack for the USD/INR bulls.

Apart from the technical pattern challenging the momentum traders, the market’s cautious mood ahead of the Federal Reserve’s (Fed) monetary policy moves also restrict the USD/INR moves of late.

USD/INR: Daily chart

Trend: Limited recovery expected

• EUR/JPY remains sidelined during the first profit-making day in three.
• Yields benefit from sour sentiment ahead of key central bank announcement, China news.
• Disappointing Euro data, IMF’s suggestion to BoJ prod pair buyers.
• Risk catalysts eyed for clear directions ahead of ECB, BoJ monetary policy decisions.

EUR/JPY clings to mild gains around 155.85 as market sentiment dwindles during early Wednesday. In doing so, the cross-currency pair prints the first daily gains in three while justifying the firmer US Treasury bond yields, as well as the Yen’s ignorance of the broad push for the Bank of Japan’s (BoJ) restrictive monetary policy.

Recently, the International Monetary Fund (IMF) warned of higher inflation from Japan and urged the Bank of Japan (BoJ) to exit its easy-money policy. On Tuesday, the Japanese government released its inflation outlook while stating that the inflation is seen staying around 0.7% in the longer term. The government also added, “Wages are projected to increase by 2.5% in FY24, following a 2.6% jump in FY23.” (FY=Fiscal Year)

On the other hand, Germany’s IFO Business Climate Index dropped to 87.3 for July versus 88.0 expected and 88.6 prior while the Current Economic Assessment came in as 91.3 for the said month, compared with June’s 93.7 and 93.0 expected. Further, the IFO Expectations Index, a gauge conveying the firms’ projections for the next six months, fell to 83.5 for July versus 83.8 prior and 83.0 market forecasts. Following the mostly downbeat German data, the IFO Economist Klaus Wohlrabe said that the “German GDP likely to shrink in the 3rd quarter.” IFO’s Wohlrabe also added that the weak phase of the German economy is going to be extended. Elsewhere, the European Central Bank’s (ECB) quarterly survey of 158 big banks revealed that firms' demand for credit dropped to the lowest since the survey started in 2003.

Talking about the risks, fresh challenges to the US-China ties via the US Senate’s efforts to control investment in China's tech sector joins the cautious mood ahead of the monetary policy meetings of the Federal Reserve (Fed), European Central Bank (ECB) and the BoJ to prod the sentiment. While portraying the mood, S&P500 Futures print the first daily loss in three around 4,595 by retreating from the one-week high marked the previous day. On the same line, the US 10-year and two-year Treasury bond yield print mild gains around a two-week high registered Tuesday, close to 3.90% and 4.89% in that order by the press time.

Looking forward, a light calendar and the market’s consolidation ahead of the top-tier central bank events may allow the EUR/JPY pair to defend the latest gains. However, downbeat EU data and talks of the hawkish BoJ may disappoint the bulls after monetary policy meetings of the ECB and the BoJ, scheduled for Thursday and Friday respectively.

Technical analysis

EUR/JPY bounces off the 21-day Exponential Moving Average (EMA) surrounding 155.75 but the recovery remains elusive unless crossing the double tops marked around 158.00.

• Gold price attracts some selling during the Asian session, though lacks follow-through/
• The US Dollar holds steady near a two-week high and is weighing on the XAU/USD.
• Looming recession risks help limit losses as traders keenly await the FOMC decision.

Gold price edges lower during the Asian session on Wednesday and erodes a part of the overnight goodish recovery gains from the $1,951-$1,952 area, or over a one-week low. The XAU/USD currently trades just above the $1,960 level, down 0.10% for the day, as traders keenly await the outcome of the highly-anticipated Federal Open Market Committee (FOMC) meeting before placing fresh directional bets.

Focus remains glued to FOMC decision

The Federal Reserve (Fed) is scheduled to announce its decision later this Wednesday and is widely expected to hike interest rates by 25 basis points (bps). Furthermore, the markets have been anticipating a potential end to the Fed's current monetary tightening cycle, though investors remain sceptic if the central bank will commit to a more dovish stance. Hence, the focus will be on the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference, which will be closely scrutinized for cues about the future rate-hike path. The outlook, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and help determine the near-term trajectory for the non-yielding Gold price.

Modest US Dollar uptick weighs on Gold price

In the meantime, the upbeat macro data from the United States (USD) released on Tuesday, which pointed to signs of an extremely resilient economy, assists the USD to attract some buying and hold steady just below a two-week high. The survey from the Conference Board showed that US consumer confidence jumped to a two-year high in July in the wake of a persistently tight labour market and receding inflationary pressures. This, in turn, raises optimism that the economy could skip a recession this year and acts as a tailwind for the Greenback. Apart from this, hopes for more stimulus from China, along with the prevalent risk-on mood, exerts some downward pressure on the safe-haven Gold price and contributes to the modest intraday downtick.

A combination of factors limits losses for XAU/USD

That said, looming recession risks, the worsening US-China relations - the world's two largest economies - and geopolitical risks should help limit losses for the precious metal. 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 a 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). Traders might also refrain from placing aggressive bearish bets around the Gold price heading into the key central bank event risk, warranting caution before positioning for the resumption of the recent pullback from over a two-month high.

Gold price technical outlook

From a technical perspective, the overnight swing low, around the $1,952-$1,951 region, could protect the immediate downside ahead of the $1,946-$1,945 zone. 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 slide to 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.

On the flip side, the $1,977-$1,978 area is likely to act as an immediate barrier. 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.

Key levels to watch

• USD/JPY clings to mild gains, snaps two-day losing streak.
• Convergence of 50-DMA, one-week-old rising support line favors Yen pair buyers.
• Upbeat US data prods dovish Fed bias, IMF signals challenges for BoJ hawks but markets don’t believe.
• 21-DMA guards immediate upside, MACD signals favor USD/JPY bulls.

USD/JPY picks up bids to print the first daily gains of the week as markets brace for the monetary policy announcements from the Federal Reserve (Fed) and the Bank of Japan (BoJ) with mixed feelings. That said, the Yen pair prints mild gains around 141.10 by the press time.

In doing so, the USD/JPY pair rebounds from a convergence of the 50-DMA and a one-week-old rising support line. Adding strength to the upside bias is the looming bull cross on the MACD.

Fundamentally, the recently upbeat US data and the fresh challenges to the sentiment allow the US Dollar to recover. On the hand, the Japanese Yen (JPY) seems to fail in justifying the hawkish comments from the International Monetary Fund (IMF) as the BoJ officials defend easy-money policies. It should be noted that the latest recovery in the US Treasury bond yields also underpins the Yen price recovery.

Looking forward, the USD/JPY is likely to extend the latest run-up towards the 21-DMA hurdle of around 141.60 before challenging the previous weekly high of near the 142.00 threshold.

In a case where the USD/JPY pair remains firmer past 142.00, the odds of witnessing a run-up towards 144.00 and then to the yearly high marked in June around 145.00 can’t be ruled out.

Meanwhile, a downside break of the 140.90 support confluence, comprising the 50-DMA and a short-term support line mentioned above, could quickly fetch the quote toward the 140.00 round figure before the mid-July swing high surrounding 139.40.

If at all the USD/JPY remains bearish past 139.40, the monthly low of 137.24 will be in the spotlight.

USD/JPY: Daily chart

Trend: Limited upside expected

• EUR/USD extends its downside near 1.1040 region on Wednesday.
• The Euro remains under pressure as the EU economy has slowed and the fear of recession has arisen.
• Investors are simultaneously preparing for the interest rate decision from the Federal Reserve (Fed) and the European Central Bank (ECB).

The EUR/USD pair extends its downside and edges lower to the 1.1040 mark in the early Asian session. The major pair trades on a negative note for six consecutive days on Wednesday as concerns about an economic slowdown in the Eurozone emerged.

The Euro remains under pressure following the downbeat economic data released. On Tuesday, the IFO Institute's monthly survey reported that July's German Business Climate Index decreased from 88.6 to 87.3. This result fell short of the market's estimate of 88.0. Klaus Wohlrabe, head of IFO surveys, told Reuters that the German Gross Domestic Product (GDP) was likely to contract in the third quarter, which exerts pressure on the Euro.

Earlier this week, the Eurozone manufacturing sector's woes worsened in July, with the Manufacturing PMI decreasing 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 ECB is anticipated to raise rates by 25 basis points (bps) on Thursday. Still, the possibility of a rate hike in September has decreased as the EU economy has slowed and the fear of recession has arisen.

Across the pond, the Conference Board's Consumer Confidence Index rose to 117 in July from 110.1 (revised from 109) in June. On the same line, the House Price Index for May YoY came in at 2.8%, above expectations of 2.6% but below the prior month's data. The Richmond Fed Manufacturing Index declined from -8 in June to -9 in July.

The Federal Reserve (Fed) will announce its monetary policy decision on Wednesday. The Fed is widely anticipated to raise interest rates by 25 basis points (bps) to 5.25–5.50%. Market participants will watch Fed Chairman Jerome Powell's press conference for hints about the forward path of monetary policy. This key event could trigger volatility across financial markets.

Looking ahead, market participants are simultaneously preparing for the release of the US Federal Reserve (Fed) and the European Central Bank (ECB) monetary policy decisions on Wednesday and Thursday, respectively. Also, the FOMC Press Conference and the ECB Press Conference will be closely watched. Apart from this, the US Advanced Gross Domestic Product (GDP) QoQ and the core Personal Consumption Expenditure (PCE) Price Index MoM will be due later this week.

• GBP/USD meets with some supply on Wednesday and erodes a part of the overnight gains.
• The USD holds steady near a two-week top and exerts some pressure ahead of the FOMC.
• Diminishing odds for more aggressive BoE rate hikes contributes to the modest downfall.

The GBP/USD pair struggles to capitalize on the previous day's goodish recovery move from the vicinity of over a two-week low and attracts some sellers near the 1.2900 mark during the Asian session on Wednesday. Spot prices currently trade around the 1.2880-1.2875 region, down nearly 0.20% for the day, though the downside seems cushioned as traders keenly await the outcome of the highly-anticipated two-day FOMC policy meeting.

The Federal Reserve (Fed) is scheduled to announce its decision later this Wednesday and is widely anticipated to hike interest rates by 25 bps. Investors, however, remain sceptic if the US central bank will commit to a more dovish stance or stick to its forecast for a 50 bps rate hike by the end of this year. This, along with Tuesday's upbeat Conference Board's Consumer Confidence Index, assists the US Dollar (USD) to hold steady just below a two-week high. Apart from this, reduced bets for more aggressive policy tightening by the Bank of England (BoE) continue to undermine the British Pound (GBP) and exert some pressure on the GBP/USD pair.

From a technical perspective, spot prices earlier this week managed to defend an ascending trend-line extending from May's swing low and stalled the recent sharp corrective decline from the highest level since April 2022 touched earlier this month. The said support, currently pegged around the 1.2800 mark, should act as a pivotal point for short-term traders. A convincing break below might shift the bias in favour of bearish traders and drag the GBP/USD pair to the 1.2755-1.2750 intermediate support en route to the 1.2700 level.

The latter is closely followed by the 50-day Simple Moving Average (SMA), currently around the 1.2675 region. Some follow-through selling could expose the 1.2600 mark before spot prices eventually drop to test the next relevant support near the 1.2530-1.2525 region.

On the flip side, movement above the 1.2900 round figure is likely to confront stiff resistance near the 1.2930 area, representing 38.2% Fibo. level. That said, a sustained strength beyond will suggest that the recent downtrend witnessed over the past two weeks or so has run its course. The GBP/USD pair might then aim to reclaim the 1.3000 psychological mark, also representing the 23.6% Fibo. level. The subsequent move-up has the potential to lift spot prices beyond the 1.3040 area, towards the 1.3100 round-figure mark.

GBP/USD daily chart

Key levels to watch

• Market sentiment portrays pre-Fed anxiety amid added fears from China.
• S&P500 Futures snap two-day uptrend while easing from one-week high, mildly offered of late.
• US Treasury bond yields remain firmer amid fears about Fed policy pivot, US-China tension, Asian stocks edge lower.
• Light calendar adds barriers to market’s momentum ahead of the FOMC, Powell’s speech will be crucial for clear directions.

The risk appetite fades the   previous optimism amid a typical pre-Fed positioning on early Wednesday. Adding strength to the market’s consolidation could be the recent risk-negative headlines surrounding China.

While portraying the mood, S&P500 Futures print the first daily loss in three around 4,595 by retreating from the one-week high marked the previous day. On the same line, the US 10-year and two-year Treasury bond yield print mild gains around a two-week high registered Tuesday, close to 3.90% and 4.89% in that order by the press time.

It’s worth noting that stocks in the Asia-Pacific zone grind lower led by the downbeat performance of shares in China, Hong Kong and Shanghai. Furthermore, the US Dollar Index (DXY) regains upside momentum after reversing from a two-week high while commodities pare recent gains with mild losses by the press time.

Talking about the main catalysts, the recently firmer US data pushed back dovish concerns about the Federal Reserve (Fed) and prod the optimists whereas the headlines from the US Senate suggest fresh challenges to the US-China ties. It should be noted that Microsoft’s quarterly results, published after the US market’s close, weren’t impressive and hence exert additional downside pressure on the risks.

That said, 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), which in turn spoils the market sentiment and challenges the previous optimism backed by hopes of more stimulus from China.

Elsewhere, 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.

It should be noted, however, that the previously released activity data from major economies and China’s readiness for heavy stimulus keep the bulls hopeful amid expectations that the Fed won’t be able to announce more rate hikes past July.

Also read: Forex Today: Upbeat markets and a weaker Dollar ahead of Fed

Commenting on the Bank of Japan’s (BoJ) monetary policy outlook, the International Monetary Fund's chief economist Pierre-Olivier Gourinchas said late Tuesday, the Japanese central bank must start preparing for future monetary tightening by moving away from its yield curve control (YCC) policy.

Key quotes

"Right now, the risk is probably on the upside, that maybe inflation pressures will continue to remain above the target,"

"Our advice for Japanese authorities there is that right now, monetary policy can remain accommodative, but it needs to prepare itself for the need to maybe start hiking.”

“The IMF was encouraging Japan to "be a bit more flexible and maybe move away from the yield-curve control that it has now.”

Market reaction

USD/JPY was last seen trading at 141.15, up 0.19% on the day.

• AUD/NZD takes offers to refresh intraday low after downbeat Australia inflation.
• Australia’s headline CPI, RBA Trimmed Mean CPI and Monthly CPI all print softer figures in the latest readings.
• 200-SMA, one-week-old rising support line test sellers despite bearish MACD signals.
• Bulls need clear break of 1.0945 to retake control.

AUD/NZD portrays the market’s disappointment with Australian inflation data while declining to 1.0880 early Wednesday. In doing so, the exotic pair extends reversal from a one-month-old horizontal resistance while poking the 200-SMA of late.

That said, Australia’s Consumer Price Index (CPI) for the second quarter (Q2) of 2023 drops to 0.8% QoQ versus 1.0% expected and 1.4% prior while the Reserve Bank of Australia (RBA) Trimmed Mean CPI came in as 1.0% compared to 1.1% market forecasts and 1.2% prior for the said period. Further, the Monthly CPI matches 5.4% analysts’ expectations for June versus 5.6% prior.

Also read: AUD/USD slumps 40 pips towards 0.6700 on downbeat Australia inflation, Fed Chair Powell’s speech eyed

With this, the RBA’s latest pause in the rate hike trajectory gets validation and suggests further hardships for the Australian Dollar (AUD) bulls, especially amid the shift in the sentiment ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcements.

Technically, the AUD/NZD pair’s inability to cross the multiple hurdles marked since late June around 1.0925 joins the bearish MACD signals to keep the sellers hopeful.

However, the 200-SMA and a one-week-old rising support line, respectively near 1.0875 and 1.0870, prod the AUD/NZD bears. Following that, a quick fall towards the 1.0800 round figure can’t be ruled out.

Meanwhile, an upside break of the aforementioned horizontal resistance line, near 1.0930, isn’t an open ticket for the AUD/NZD buyers as the 61.8% Fibonacci retracement of June-July fall and June 22 swing high, close to 1.0935 and 1.0945 in that order, could challenge the bulls afterward.

AUD/NZD: Four-hour chart

Trend: Further downside expected

• AUD/USD meets with heavy supply in reaction to softer Australian consumer inflation figures.
• The data pushes back against market bets for another RBA rate hike and weighs on the Aussie.
• The risk-on envirornment undermines the JPY and helps limit losses ahead of the BoJ meeting.

The AUD/JPY cross comes under intense selling pressure during the Asian session on Wednesday and moves further away from a nearly three-week high, around the 95.85 region touched the previous day. The downward trajectory picks up pace following the release of softer-than-expected Australian consumer inflation figures and drags spot prices below the 95.00 psychological mark, or a fresh daily low in the last hour.

The Australian Bureau of Statistics reported that the headline CPI rose 0.8% in the second quarter, missing estimates for a reading of 1% and well below the 1.4% previous. Over the past twelve months to June, the rise in consumer prices slowed to 5.4% from 5.6% in May. Furthermore, the Reserve Bank of Australia's (RBA) Trimmed Mean CPI slowed to 1% during the April-June period and the yearly rate decelerated from 6.6% to 5.9%, falling short of market expectations. The data pushes back against bets for another RBA rate hike in August and weighs heavily on the Australian Dollar (AUD), which, in turn, is seen as a key factor dragging the AUD/JPY cross sharply lower.

That said, the latest optimism led by expectations for more stimulus measures from China lends some support to the China-proxy Aussie. Meanwhile, growing acceptance that the Bank of Japan (BoJ) will stick to its dovish stance, along with the underlying bullish sentiment around the equity markets, undermines the safe-haven Japanese Yen (JPY). This, in turn, should help limit any meaningful downside for the AUD/JPY cross. Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the highly-anticipated two-day BoJ monetary policy meeting starting on Thursday. This, in turn, warrants some caution before positioning for further losses.

Technical levels to watch

• AUD/USD nosedives after downbeat prints of Australia inflation.
• Aussie Monthly CPI matches 5.4% YoY forecasts for June but quarterly CPI, RBA Trimmed Mean CPI for Q2 disappoint.
• Challenges to sentiment prod Aussie pair buyers after a two-day uptrend.
• With Fed’s 0.25% rate hike priced in, Powell’s speech will be crucial for clear directions.

AUD/USD stands on slippery grounds while marking a quick 45-pip fall after the Aussie inflation data marked disappointment on early Wednesday. Adding strength to the bearish bias could be the shift in the market sentiment ahead of the Federal Reserve (Fed) monetary policy meeting, as well as recently downbeat headlines from China.

Talking about the Aussie inflation numbers, the headline Consumer Price Index (CPI) for the second quarter (Q2) of 2023 drops to 0.8% QoQ versus 1.0% expected and 1.4% prior while the Reserve Bank of Australia (RBA) Trimmed Mean CPI came in as 1.0% compared to 1.1% market forecasts and 1.2% prior for the said period. Further, the Monthly CPI matches 5.4% analysts’ expectations for June versus 5.6% prior.

Also read: Breaking: Australia’s CPI inflation declined to 0.8% in Q2 vs. 1.0% expected

Earlier in the day, news suggesting the fresh US-China tensions joined the pre-Fed consolidation to weigh on the AUD/USD price. That said, 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).

It’s worth observing that the Aussie pair rallied the most in two weeks the previous day after the upbeat statements from China Communist Party's Politburo meeting and China state planner National Development and Reform Commission (NDRC) signaled more stimulus from Beijing and bolstered the sentiment.

Also previously adding strength to the AUD/USD upside, as well as favoring the risk-on mood, could be the 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 favored the risk-on mood and the pair prices. Furthermore, Reuters’ news stating China state banks’ defense of the Yuan (CNY), by selling the US Dollar, also seemed to have fuelled the pair prices.

On the other hand, most US data came in positive but failed to impress the DXY bulls. That said, 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.

Against this backdrop, S&P500 Futures print mild losses even as Wall Street benchmarks closed on the positive side for the second consecutive day. That said, the US 10-year Treasury bond yields rose to the highest levels in three weeks before ending Tuesday’s trading near 3.89%.

Having witnessed the initial market reaction to Australian inflation, the AUD/USD pair traders may keep their eyes on the risk catalysts for clear directions. However, the cautious mood ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcements may restrict the Aussie pair’s momentum. It should be noted that the talks of the US central bank’s 0.25% rate hike are loud and clear and hence comments from Fed Chairman Jerome Powell will be crucial to watch for clear directions.

Also read: Federal Reserve Preview: Powell can play three distinct cards, each with a different US Dollar move

Technical analysis

AUD/USD pair’s repeated failures to provide a daily closing beyond a one-week-old descending resistance line, around 0.6800 by the press time, as well as the double tops near the 0.6900 round figures, keep the bears hopeful amid sluggish MACD and RSI signals.

However, a convergence of the 21-DMA and 200-DMA puts a floor under the Aussie price around 0.6730-25.

According to the latest data published by the Australian Bureau of Statistics (ABS) on Wednesday, the country’s Consumer Price Index (CPI) rose 0.8% in the second quarter of 2023, compared with the 1.4% increase seen in the first quarter. The market consensus was for a growth of 1.0% in the reported period.

Annually, Australia’s CPI inflation softened to 6.0% in Q1 2023 as against the expected 6.2% increase and the previous print of 7.0%.

The RBA Trimmed Mean CPI for Q2 advanced 1.0% and 5.9% on a quarterly and annual basis respectively. Markets predicted an increase of 1.1% QoQ and 5.9% YoY in the quarter to June.

The monthly Consumer Price Index inflation dropped to 5.4% YoY in June vs. 5.4% expected and May’s increase of 5.6%.

Market reaction

In a knee-jerk reaction to the Australian inflation data, AUD/USD fell sharply toward 0.6700. At the time of writing, AUD/USD is losing 0.72% on the day to trade at 0.6739.

AUD/USD: 15-minutes chart

Why Australian inflation data matters to traders?

The quarterly Consumer Price Index (CPI) published by the Australian Bureau of Statistics (ABS) has a significant impact on the market and the AUD valuation. The gauge is closely watched by the Reserve Bank of Australia (RBA), in order to achieve its inflation mandate, which has major monetary policy implications. Rising consumer prices tend to be AUD bullish, as the RBA could hike interest rates to maintain its inflation target. The data is released nearly 25 days after the quarter ends.

• USD/CHF recovers some ground around 0.8655, gaining 0.20% on the day. 
• The headlines surrounding the US-China trade war tensions, the Chinese stimulus plan remain in focus.
• Investors might prefer to wait on the sidelines ahead of the FOMC meeting. 

The USD/CHF pair recovers some lost ground and edges higher to the 0.8655 region during the early Asian session on Wednesday. The pair retreats from a weekly high of 0.8700, triggered by a mildly softer tone surrounding the Greenback. Meanwhile, the US Dollar Index (DXY), a measure of the value of the Greenback against six other major currencies, post modest gains near the 101.35 mark on Wednesday.

The data released on Tuesday revealed that the US Conference Board's Consumer Confidence Index rose to 117.0 from 110.1 (revised from 109.7) in June. Further details of the publication showed that the Present Situation Index climbed to 160.0 from 155.3, and the Consumer Expectations Index climbed from 80 to 88.3. Finally, the one-year consumer inflation expectation dropped to 5.7%.

It’s worth noting that the Federal Reserve (Fed) will announce the monetary policy decision. The Fed is widely anticipated to raise interest rates by 25 basis points (bps) 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 the Fed tightening policy for the entire year. This key event could trigger volatility across financial markets.

That said, Chinese news agency Xinhua reported on Tuesday that Chinese policymakers would take up economic policy adjustments, strengthening confidence and mitigating risks. The hope for more stimulus to shore up the post-COVID recovery in the world's second-largest economy might support the risk-on mood in the market and cap the upside for the Swiss Francs, traditional safe-haven currencies.

On Wednesday, the US Senate voted overwhelmingly in favor of legislation requiring US corporations to report their investments in Chinese technologies like semiconductors and Artificial Intelligence (AI) to federal agencies, said Reuters. The headline surrounding the US-China trade war tensions remains in focus, and it might limit the downside of the Swiss Franc and act as a headwind for the USD/CHF pair.

Moving on, market players are now closely watching the Fed's monetary policy meeting on Wednesday. Investors might prefer to wait to be sidelined ahead of the key event and will take cues from the messaging in the monetary policy statement. A hawkish stance from the Fed could trigger the US Dollar against the CHF. Also, the Swiss Credit Suisse Economic Expectations, ZEW Survey Expectations, and KOF Leading Indicator for July could offer clues about the Swiss Franc movement. Investors will monitor this development and find opportunities around the USD/CHF pair.

People’s Bank of China (PBoC) set the USD/CNY central rate at 7.1295  on Wednesday, versus the previous fix of 7.1406 and market expectations of 7.1341. It's worth noting that the USD/CNY closed near 7.1387 the previous day.

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 104 billion Yuan via 7-day reverse repos (RRs) at 1.90% vs prior 1.90%.

However, the 25 billion Yuan of RRs mature today, which in turn suggests a net 79 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.

• NZD/USD meets with some supply on Tuesday and snaps a two-day winning streak.
• The USD holds steady just below a two-week high and acts as a headwind for the pair.
• The downside seems cushioned as traders keenly await the key FOMC policy decision.

The NZD/USD pair struggles to capitalize on its gains registered over the past two days, from the 0.6115 area or a two-week low, and edges lower during the Asian session on Wednesday. Spot prices, however, manage to hold above the 0.6200 round figure as traders keenly await 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 rate hikes after the widely expected 25 bps lift-off at the end of a two-day FOMC policy meeting later this Wednesday. Investors, however, remain sceptic if the US central bank will commit to a more dovish stance. Hence, the focus will remain glued to the accompanying monetary policy statement and Fed Chair Jerome Powell's comments during the post-meeting press conference. This will play a key role in influencing the near-term US Dollar (USD) price dynamics and determining the next leg of a directional move for the NZD/USD pair.

In the meantime, signs of an extremely resilient US economy assist the USD Index (DXY), which tracks the Greenback against a basket of currencies, to hold steady just below the two-week high touched on Tuesday. This, along with the worsening US-China trade ties and geopolitical risks, exerts some downward pressure on the NZD/USD pair. Traders, however, seem reluctant to place aggressive bets and might prefer to wait on the sidelines heading into the key central bank event risk. This warrants caution before positioning for the resumption of the recent pullback from a multi-month peak - levels just above the 0.6400 mark.

From a technical perspective, the NZD/USD pair earlier this week managed to defend and rebound from a support marked by the 61.8% Fibonacci retracement level of the June-July rally. The subsequent move and acceptance above a confluence, comprising the 100-day Simple Moving Average (SMA) and the 50% Fibo. level, supports prospects for the emergence of some dip-buying. That said, it will still be prudent to wait for a sustained move beyond the 38.2% Fibo. resistance near mid-0.6200s before placing fresh bullish bets in the absence of a fresh fundamental catalyst and market-moving macro data from New Zealand.

Technical levels to watch

• Natural Gas Price remains on the front foot after refreshing three-week high.
• Bullish chart pattern, sustained trading above the key moving averages keep XNG/USD buyers hopeful.
• Nearly overbought RSI, five-week-old horizontal resistance zone also restrict Natural Gas price.

Natural Gas Price (XNG/USD) remains firmer around $2.75, up 0.30% intraday during early Wednesday after rising to the fresh high in three weeks the previous day, as markets await the Federal Open Market Committee (FOMC) monetary policy meeting announcements.

It’s worth noting that the XNG/USD portrays an inverse head and shoulders (H&S) bullish chart formation on the four-hour play. Adding strength to the upside bias for the Natural Gas Price is the upbeat RSI (14) not overbought, as well as the commodity’s ability to stay beyond the key Simple Moving Averages (SMAs).

However, a five-week-old horizontal resistance area adds strength to the $2.78-79 zone and offers hardships to the XNG/USD bulls.

Also, the RSI (14) is above 50 and hence a sharp run-up in the Natural Gas Price may fuel the oscillator to the overbought territory, which in turn may prod the XNG/USD bulls.

That said, tops marked in June and March, respectively near $2.93 and $3.07, may act as additional upside filters to watch past $2.79, apart from the theoretical target of the inverse H&S confirmation, around $3.04.

Alternatively, a convergence of the 200-SMA and the 100-SMA, around $2.64 by the press time, appears a tough nut to crack for the XNG/USD bears to retake control.

Following that, the odds of witnessing the Natural Gas Price’s downturn towards the monthly low of nearly $2.52 can’t be ruled out.

Natural Gas Price: Four-hour chart

Trend: Further upside expected

• USD/CAD regains positive traction during the Asian session on Wednesday.
• The USD holds steady just below a two-week high and lends some support.
• Bullish Crude Oil prices could underpins the Loonie and cap further gains.
• Traders might also prefer to wait ahead of the crucial FOMC policy decision.

The USD/CAD pair attracts fresh buying following the previous day's good two-way price swings and steadily climbs back closer to the 1.3200 mark during the Asian session on Wednesday. Spot prices, however, remain confined in a familiar trading band held over the past week or so as traders keenly await the outcome of the highly-anticipated two-day FOMC monetary policy meeting, scheduled to be announced later today.

The Federal Reserve (Fed) is widely expected to hike intrest rates by 25 bps. Furthermore, market participants remain scpetic if the US central bank will commit to a more dovish stance or stick to its forecast for 50 bps lift-off by the end of this year. This, in turn, remains supportive of the recent rise in the US Treasury bond yields. Apart from this, signs of an extremely resilient US economy assist the US Dollar (USD) to hold steady just below a two-week high touched on Tuesday and acts as a tailwind for the USD/CAD pair.

In fact, the survey from the Conference Board showed that US consumer confidence increased to a two-year high in July amid a persistently tight labor market and receding inflation. The data raised optimism that the economy could skip a recession this year and acts as a tailwind for the Greenback. That said, the prevalent risk-on environment is holding back traders from placing fresh bullish bets around the safe-haven buck. Furthermore, bullish Crude Oil prices underpins the commodity-linked Loonie and caps the USD/CAD pair.

Investors also seem reluctant and prefer to wait on the sidelines heading into the key central bank event risk. Moreover, the recent range-bound price action points to indecision among traders over the near-term trajectory for the USD/CAD pair. This further makes it prudent to wait for strong follow-through buying before positioning for any further intraday appreciating move.

Technical levels to watch

Overview

Australia’s quarterly release of the Consumer Price Index (CPI) for the second quarter (Q2) of 2023, scheduled for publishing on early Wednesday around 01:30 GMT, appears the crucial data for the AUD/USD pair traders to watch. Also increasing the importance of the time could be the quarterly release of the Reserve Bank of Australia’s (RBA) Trimmed Mean CPI and the Monthly CPI for June.

The reason could be linked to the RBA’s pause in the interest rate hikes after consecutive two hawkish surprises.

It’s worth noting that markets expect CPI to ease to 1.0% QoQ from 1.4% prior while the RBA Trimmed Mean CPI is likely to edge lower to 1.1% versus 1.2% previous readings. That said, the Monthly CPI is expected to drop to 5.4% YoY for June compared to 5.6% marked in May.

Given the downbeat forecasts, as well as the pre-Fed anxiety the AUD/USD bears flex muscles of late.

Ahead of the release, Analysts at ANZ state:

On the same line, FXStreet’s Valeria Bednarik notes,

How could AUD/USD react to the news?

AUD/USD takes offers to refresh intraday low near 0.6780, printing mild losses after rising in the last two consecutive days, the risk-negative headlines about China and cautious mood ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcements. Also challenging the Aussie pair buyers could be the downbeat forecasts for the Australian inflation data, which in turn flag fears of the dovish RBA move.

That said, the market players’ downbeat expectations contrast with the previously positive signals for Aussie inflation and keep the AUD/USD traders on a dicey floor. Hence, surprisingly upbeat Aussie inflation data won’t hesitate to bolster the hawkish RBA bets and propel the AUD/USD price. However, the run-up will also depend upon how well Fed Chair Jerome Powell manages to convince markets that the rate hike in July isn’t the last one.

As a result, upbeat data may only provide a knee-jerk reaction to the AUD/USD prices while defending the overall bearish trend unless marking a heavy positive surprise, which is less expected.

Technically, the AUD/USD pair’s repeated failures to provide a daily closing beyond a one-week-old descending resistance line, around 0.6800, as well as the double tops near the 0.6900 round figures, keep the bears hopeful amid sluggish MACD and RSI signals.

Key notes

Australian Inflation Preview: Consumer Price Index to ease just modestly 

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

About Aussie Consumer Price Index

The quarterly Consumer Price Index (CPI) published by the Australian Bureau of Statistics (ABS) has a significant impact on the market and the AUD valuation. The gauge is closely watched by the Reserve Bank of Australia (RBA), in order to achieve its inflation mandate, which has major monetary policy implications. Rising consumer prices tend to be AUD bullish, as the RBA could hike interest rates to maintain its inflation target. The data is released nearly 25 days after the quarter ends.

• Gold Price edges higher following the first daily gain in five.
• Mixed United States data, risk-on mood lure XAU/USD buyers.
• China stimulus hopes, open market operations join unimpressive US statistics to prod US Dollar bulls.
• Federal Reserve Chairman Jerome Powell’s speech will be crucial for Gold buyers as 0.25% rate hike priced in.

Gold Price (XAU/USD) steadies around $1,965 as bulls and bears jostle during the early hours of the key data comprising the Federal Open Market Committee (FOMC) monetary policy meeting announcements. Also challenging the XAU/USD price could be the latest headlines testing the previous optimism about China. Furthermore, mixed data from the United States and the pre-Fed anxiety, as well as a light calendar in Asia, appear as extra carriers for the Gold price of late. Even so, the yellow metal defends the previous day’s corrective bounce off the lowest levels in a week by the press time.

Gold Price edges higher on cautious optimism ahead of Fed

Gold Price remains on a firmer footing despite the latest inaction as markets keep expecting a sooner end to the rate hike trajectory at the major central banks. Also favoring the sentiment, as well as the XAU/USD, could be 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.

Furthermore, the International Monetary Fund’s (IMF) upward revision to the global growth forecasts also favored the risk-on mood and the Gold Price.

On the other hand, the US Dollar’s failure to cheer mostly upbeat data on Tuesday, due to the downbeat PMIs and previously disappointing inflation and employment signals, also provides tailwinds to the Gold Price.

On Tuesday, 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.

Following the data, the US Dollar Index (DXY) regained upside momentum and rose to a fresh high in a fortnight, before positing the first daily loss in six. It should be noted that the upbeat prints of US S&P Global Manufacturing PMI for July favored the US Dollar to refresh a two-week high on Monday even as the Chine-inspired optimism weighed on the greenback during early Tuesday. Apart from the US data, 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 and propelled the Gold Price.

It’s worth noting that the latest headlines suggest fresh US-China tension, due to the US Senate’s passage of an amendment requiring US companies to report investment in China technologies like semiconductors and artificial intelligence (AI).

Furthermore, the US Federal Reserve (Fed) isn’t known for its bearish view and hence fears that Fed Chair Jerome Powell will do whatever it takes to sound hawkish also prod the sentiment and the Gold price.

Against this backdrop, S&P500 Futures print mild losses even as Wall Street benchmarks closed on the positive side for the second consecutive day. That said, the US 10-year Treasury bond yields rose to the highest levels in three weeks before ending Tuesday’s trading near 3.89%.

Looking ahead, the talks of the US central bank’s 0.25% rate hike are loud and clear and hence the same won’t affect the US Dollar Index much. As a result, comments from Fed Chairman Jerome Powell will be crucial to watch for clear directions.

Also read: Gold Price Forecast: XAU/USD quietly awaits crucial news around $1,960

Gold Price Technical Analysis

Gold Price recovers from a convergence of the 50 and 21 Exponential Moving Averages (EMAs) on the daily formation, around $1,950 by the press time.

Adding strength to the XAU/USD recovery are the bullish signals from the Moving Average Convergence and Divergence (MACD) indicator, as well as upbeat prints of the Relative Strength Index (RSI) line placed at 14.

With this, the Gold Price is likely to stretch the latest rebound towards the early June swing high of around $1,973. However, a slew of tops marked since mid-May, around $1,983-86, appears a tough nut to crack for the XAU/USD bulls.

Following that, the 61.8% Fibonacci retracement of the May-June downside, near $2,010, may test the Gold buyers past $1,986.

Meanwhile, a daily closing beneath the $1,950 support confluence needs validation from a one-month-old rising support line, close to $1,943 at the latest.

In a case where the Gold Price remains bearish past $1,943, multiple supports near $1,910 and $1,900 may test the XAU/USD bears before directing them to the previous monthly low of around $1,893.

Overall, Gold price is likely to witness further recovery but the upside room appears limited.

Gold Price: Daily chart

Trend: Further recovery expected

• WTI hovers around $79.20 a barrel, retreating from a three-month high of $79.90.
• The hope of a further Chinese stimulus plan, signs of a tighter oil market boost the WTI price.
• Further rate hikes, the fear of an economic slowdown in the Eurozone might cap the upside for WTI.
• Oil traders will closely watch the Federal Open Market Committee (FOMC) meeting.

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around the $79.20 mark so far this Wednesday after retreating from $79.90 a barrel, the highest since April 19. The hope of further stimulus plans in China and signs of a tighter oil market bolsters the momentum of WTI. However, the market could turn cautious on Wednesday while investors await the Federal Open Market Committee (FOMC) meeting. 

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+. The agreement by OPEC+ to limit supply through 2024 was announced in April and brings the total announced output reductions to over five million barrels per day (bpd), or approximately 5% of global oil production.

Furthermore, positive sentiment prevails ahead of the key events, bolstered by the hope of a further stimulus plan in China. On Tuesday, Chinese news agency Xinhua reported that Chinese policymakers would take up economic policy adjustments, strengthening confidence and mitigating risks. This, in turn, supports further upside in the WTI price.

On the other hand, the upside for WTI might be limited. The Federal Reserve (Fed) will announce its monetary policy decision on Wednesday. The Fed is widely anticipated to 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. 

Apart from this, the IFO Institute's monthly survey showed on Tuesday that the German Business Climate Index in July decreased from 88.6 to 87.3. This result fell short of the market's estimate of 88.0. Additionally, the Eurozone manufacturing sector's woes worsened in July, with the Manufacturing PMI decreasing 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 downbeat data dampens demand for WTI as investors fear the economic slowdown in the region.

Oil traders will keep an eye on the Federal Open Market Committee (FOMC) meeting and Fed Chairman Jerome Powell's press conference for fresh impetus. This key event could significantly impact the USD-denominated WTI price. Also, the EIA Crude Oil Stocks Change, US Advance GDP QoQ, and the core Personal Consumption Expenditure (PCE) Price Index MoM will be due later this week.

• US Dollar Index picks up bids to reverse the previous day’s retreat from two-week high.
• Pre-Fed consolidation allows DXY to reverse the latest pullback amid mixed concerns.
• Fresh challenges to market sentiment from China put a floor under US Dollar.
• Fed Chair Powell needs to defend hawkish moves, suggest more rate hikes to keep US Dollar firmer.

US Dollar Index (DXY) regains upside momentum after snapping a five-day winning streak near a fortnight high the previous day. In doing so, the DXY picks up bids to 101.32 by the press time.

That said, fresh challenges to the sentiment, mainly surrounding China, as well as due to the cautious mood ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcements, seem to underpin the DXY recovery. However, a light calendar in Asia and the likely absence of the traders’ action, due to the cautious mood ahead of the Fed and mixed catalysts, seem to prod the US Dollar Index (DXY) traders.

Recently, 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 same renews the US-China tension and prods the sentiment, especially amid the pre-Fed anxiety.

Previously, the upbeat statements from China Communist Party's Politburo meeting and China state planner National Development and Reform Commission (NDRC), signaled more stimulus from Beijing and bolstered the sentiment, which in turn weighed on the US Dollar. 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, International Monetary Fund’s (IMF) upward revision to the global growth forecasts also favored the risk-on mood and prods the DXY 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.

It should be observed that most US data came in positive but failed to impress the DXY bulls. That said, 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, S&P500 Futures print mild losses even as Wall Street benchmarks closed on the positive side for the second consecutive day. That said, the US 10-year Treasury bond yields rose to the highest levels in three weeks before ending Tuesday’s trading near 3.89%.

To sum up, the mixed sentiment and the pre-Fed consolidation prods the DXY prices and hence the risk catalysts will be crucial to watch for clear directions ahead of the Fed’s verdict. That said, the talks of the US central bank’s 0.25% rate hike are loud and clear and hence the same won’t affect the US Dollar Index much. As a result, comments from Fed Chairman Jerome Powell will be crucial to watch for clear directions.

Technical analysis

Despite the latest defense of the 101.00 psychological magnet, the US Dollar Index (DXY) bulls need validation from the 21-DMA and the previous support line stretched from April, respectively near 101.65 and 101.95.