Daily Market Analysis by ForexMart

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Hot forecast for GBP/USD on 10/04/2023

There is nothing surprising about the fact that the market stood still on Friday despite the release of the US Department of Labor report, as both Europe and North America were observing Good Friday. However, the contents of the report were quite interesting. It was not about the unemployment rate, which remained unchanged as expected, but about the number of new non-farm jobs created, which was only 236,000. It was expected to be 250,000, while in the previous month 326,000 new jobs were created. In other words, the US labor market is clearly losing momentum, which of course increases the chances of a gradual easing of the monetary policy of the Federal Reserve. And it will naturally put pressure on the dollar. The only thing is to wait for the market's reaction after the opening of the US trading session, since Europe is still observing a holiday.

Number of new non-farm jobs created (United States):

The GBPUSD pair is in the stage of a pullback from the resistance level of 1.2500. As a result, the pound has lost about 0.8%, which is approximately 110 pips. Despite the ongoing pullback, the uptrend persists, as shown by the recent update of the local high of the medium-term.

On the four-hour chart, the RSI downwardly crossed the 50 middle line, during the pullback. In the intraday period, the signal points to the growth in the volume of short positions.

The Alligator's MAs are intertwined in the 4-hour time frame, signaling a slowing bull cycle. In the daily chart, the Alligator's MA's are still heading upward, reflecting a bullish cycle.

Outlook

We can assume that the pullback serves as a time of regrouping trading forces, during which a new wave of growth is possible. However, in order to make this a reality, a number of technical conditions must be met. First and foremost, the current pullback should end. The 1.2380/1.2400 area may serve as a support. A subsequent signal in favor of growth is when the price trades within the level of 1.2500, and as a result, the volume of long positions may increase.

As for the bearish scenario, traders consider it as a full-size correction, where the current pullback will remain towards the level of 1.2300.

The complex indicator analysis unveiled that in the intraday and short-term periods, technical indicators are pointing to the pullback. Meanwhile, in the medium-term periods, the indicators are reflecting an upward cycle.

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EUR/USD. The inflation report has bumped the dollar. Welcome to the 1.10th figure?

The EUR/USD pair approached the limits of the 10th figure, impulsively rising to 1.0990. The greenback fell across the market, reacting to the US inflation report, and the dollar index updated its weekly low. However, despite the upward momentum, bulls have not yet been able to test the 10th figure, let alone consolidate above the 1.1000 mark. The fact is that the inflation report is somewhat contradictory: while the Consumer Price Index continues to fall, the core index showed an upward dynamic. Therefore, the 1.1000 level holds steady, although the positions of the dollar bulls have noticeably shaken.

In the language of dry numbers:

The CPI fell quite sharply in March - by 1% compared to the February value. With a forecasted decline to 5.6% (according to other estimates - to 5.2%), the indicator came out at 5.0% in annual terms (in February, the index was at 6.0% y/y). This is the weakest growth rate since May 2021. In monthly terms, the index was also in the "red", reaching 0.1% (with a forecasted growth of 0.3%).

At the same time, the core CPI, excluding food and energy prices, came out at the forecasted level: in annual terms, the indicator rose to 5.6%. Notably, for the last 5 months, the core index consistently declined from 6.6% (in September 2022) to 5.5% (in February 2023). For the first time in the last six months, the growth rate of the core CPI accelerated.

The report indicates that energy prices in March fell by 6.4% after February's growth of 5.2% (in particular, gasoline prices dropped by 17.4%). Food prices in March rose by 8.5% after an increase of 9.5% in February. Used cars became cheaper by 11.6% (in February, a decline of 13.6% was recorded). Overall, most price categories showed easing price pressure - even rent. This segment is important because high rental prices have prevented underlying inflationary pressure from easing. However, according to some experts' estimates, in the mid-term (in the coming months), a further decline in rental inflation can be expected.

Market reaction

Markets reacted quite significantly to the sharp drop in inflation. The US dollar index fell within a few hours from 101.85 to the current low of 101.16. If the current rates persist, the index will test the hundredth figure – for the first time since early February. Treasury yields also fell: in particular, the yield on 10-year government bonds has currently dropped by 5 basis points (i.e., to 3.378%), while the yield on 2-year notes has fallen by 7.9 basis points, to 3.945%.

On the other hand, gold is showing an uptrend: June gold contracts on the New York Comex exchange have impulsively risen by almost 1% to $2,037 per troy ounce.

The dollar is also getting weaker amid growing hawkish expectations. According to data from the CME FedWatch Tool, the probability of a 25 basis point rate hike in May is currently over 70% (72.2%). On Tuesday, the chances of this scenario being realized were estimated at 60% (and accordingly, the probability of maintaining the status quo was 40%).

Conclusions

Despite the growth of hawkish expectations, the dollar remains under significant pressure, even in the EUR/USD pair. In my opinion, this is due to the assumption that the anticipated 25-point rate hike at the May meeting will be the last in the current cycle of monetary tightening. The recent "banking crisis" did not go unnoticed – including for the Federal Reserve, which significantly softened its position after the March shocks in the banking sector. It is unclear how these events will affect lending and, consequently, economic activity in the United States in the mid- and long-term. Therefore, in addition to the expected completion of the current tightening cycle, the Fed also has the option to lower rates in the second half of this year. Whether the Fed will use this option or not is an open and debatable question, but the mere fact of such a discussion will put pressure on the greenback. By the way, according to Fed Chairman Jerome Powell, such a scenario "is not a base case" (meaning it is not completely ruled out). At the same time, the European Central Bank shows a more hawkish stance, allowing, in particular, a 50-point rate hike in May.

Thus, the fundamental background for the pair continues to favor the growth of EUR/USD. The report weakened the dollar across the market and triggered a bullish momentum for the pair, and so bulls approached the limits of the 10th-figure closely. A slight "blemish" in the report, in the form of a rise in core CPI, did not allow traders to impulsively overcome the support level of 1.1000, but the bullish sentiment prevails.

The technical picture indicates that on the daily chart, the pair is between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator (including above the Kumo cloud). This combination suggests that we go for long positions. The resistance level (the target of the bullish movement) is located at 1.1030 – this is the upper line of the Bollinger Bands indicator on the same chart.

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EUR/USD. "Red hue" of US inflation, dovish rhetoric from Williams, and the high of the year

On Thursday, the EUR/USD pair overcame the resistance level of 1.1030, which corresponds to the upper line of the Bollinger Bands indicator on the daily chart. The price has updated the annual high (1.1034), which was set in early February. The pair is moving towards the 1.11th figure as a result of the previous momentum, when the dollar fell across the market on Wednesday, reacting to the Consumer Price Index. Another inflation report was published in the US, which provided more support to the bulls. This is the Producer Price Index, which came out in the "red", reflecting the slowdown of US inflation.

The "red hue" of the PPI

So, the PPI disappointed the dollar bulls again. The index came out at 2.7% in annual terms, versus an estimate of a 3.0% decline. This is the weakest growth rate since January 2021. The indicator has been consistently declining for nine straight months. The core PPI, excluding food and energy prices, also fell significantly, reaching 3.4% (the weakest growth rate since March 2021). This component of the report has been declining since April last year.

It is noteworthy that, following the two inflation reports, the probability of a rate hike at the May meeting has only increased, despite the significant drop in the CPI and PPI. According to data from the CME Group FedWatch Tool, there's a 66% chance of a quarter point rate hike in May. This is because core inflation has accelerated. The core CPI, excluding food and energy prices, rose to 5.6% in annual terms. Meanwhile, the core index had been consistently declining for the last five months. This fact has led to the assumption that the Federal Reserve will be forced to raise the rate once again, possibly at the next meeting. As a reminder, the Fed's updated median forecast also assumes one more rate hike in 2023.

But all these hawkish circumstances, as they say, light up but do not fuel the dollar bulls. Despite the growth of hawkish expectations, the dollar continues to plunge across the market.

Is the Fed ready to take a step back?

In my opinion, this situation is related to the growing dovish expectations in the long term. Rumors that the Fed will lower the rate closer to the end of the current year are being circulated more and more recently. And after the recent statement by the New York Fed Chief John Williams (who has a permanent voting right in the Committee and is considered one of the most influential Fed officials), these rumors have gained practical significance.

In an interview with Reuters, Williams said that if inflation decreases, then "the Federal Reserve will have to lower rates." At the same time, he acknowledged that the central bank is likely to raise the rate again in May, as the Bank "needs to see a decrease in core inflation." However, the market focused its attention on the dovish aspects of his speech. In fact, Williams admitted the realization of such a scenario within the current year.

I would like to remind you that after the March meeting, Fed Chairman Jerome Powell also did not deny such a development of events. He diplomatically noted that this scenario "is not the base case."

Conclusions

The US dollar index continues to plunge, reacting to the decline in inflation indicators. Following the CPI, the PPI also came out in the red. Prior to this, the core PCE index also demonstrated a downtrend.

Inflation in the US is slowing down, and this is putting pressure on the greenback, even despite a slight acceleration in the core CPI index. Overall, in my opinion, the market has come to several conclusions: 1) in May, the Fed will likely go for another quarter point rate hike ; 2) this will be the last in this cycle of monetary tightening; 3) if the current pace of declining inflation indicators persists, the Fed will, in a few months, update the discussion on lowering the rate (Williams brought this up the other day, admitting the realization of a dovish scenario).

All these conclusions are on the side of the EUR/USD bulls.

The technical picture for the pair shows similar signals. On all higher charts (from H4 and above), the pair is either at the top or between the middle and top lines of the Bollinger Bands indicator. In addition, on the daily chart, the Ichimoku indicator has formed one of its strongest bullish signals - the "Parade of Lines". Therefore, it would be wise to use any corrective pullbacks to open long positions – with the first, and for now, the main price target of 1.1100.

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Euro locks in profit

When American exceptionalism turns into doom, the US dollar has nothing left to do but flee the battlefield. In Forex, there is a growing opinion that only the US will face a recession in 2023, while the eurozone will manage to avoid an economic downturn, and China will be vigorously recovering. This is in stark contrast to last year's events when, due to the armed conflict in Ukraine and the energy crisis, the currency bloc was on the verge of collapse, and EURUSD fell below parity for the first time in 20 years. Today, the market has different realities.

The release of US retail sales data only heightened investors' concerns about a significant slowdown in GDP. The indicator shrank for the second consecutive time, significantly stronger, at 1% MoM, than Bloomberg experts estimated. If consumer spending collapses following the crisis in the real estate and banking sectors, a recession will become inevitable. The Federal Reserve will have to make a dovish pivot in 2023, no matter what the central bank says otherwise. This will weaken the US dollar.

Dynamics of retail sales in the US

Markets are currently set for a 25 basis point increase in the federal funds rate in May, followed by a 75 basis point decrease in the second half of the year. Such a balance of power became possible after consumer prices slowed from 6% to 5% and the first slump in producer prices in two years on a monthly basis. US inflation is clearly slowing down, allowing investors to argue that the Fed has done its job and the monetary tightening cycle is nearing its end.

In Europe, the picture is different. There, European Central Bank officials are very aggressive amid record core inflation levels. It needs to be broken, and the short-term market predicts a further 75 basis point increase in the deposit rate, to 3.75%. At the same time, derivatives believe that at the next Governing Council meeting in May, the cost of borrowing will increase by 31 basis points. So the chances of +50 basis points still remain, which contributes to the rise in EURUSD quotes. In terms of the interest rate swap market, the euro is still undervalued compared to the USD.

Dynamics of EURUSD and interest rate swap differentials

In my opinion, the decline in the main currency pair in response to the disappointing US retail sales data is the result of speculators taking profits on long positions after a sharp EURUSD rally throughout the week leading up to April 14. When everyone is buying, there is an excellent opportunity to sell, so there is no need to be surprised by the seemingly unexpected strengthening of the US dollar. It's just the peculiarities of trading.

Technically, on the daily chart, EURUSD bounced off the upper limit of the fair value range at 1.0675-1.0975. No asset can grow indefinitely, and the correction seems like a necessary breather. At the same time, the uptrend persists, and a bounce off support levels at 1.097 and 1.09 should be used to establish long positions.

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Pension funds and hedge funds opt for gold

Despite hopes for lower inflation, the world's pension funds are still not taking risks. They are increasing their interest in gold, expanding their positions. According to the latest risk management report by Ortec Finance, published on Thursday, the company's analysts stated that they are 90% confident in a decline in inflation. Worldwide, more than half of the managers of government pension funds with a total of over $3 trillion in assets under management assume that inflation will be 3.3% or even lower this year. This assumption is already much lower than last year's survey, which predicted inflation at around 6.4%. The survey also showed that only 10% of global asset managers believe inflation will exceed 6%.

A week after the U.S. Department of Labor published data on the Consumer Price Index, which grew less than expected over the last 12 months to 5%, the survey results appeared. However, despite the optimism of fund managers that inflation will continue to decline, they are still not taking risks, increasing their positions in gold and other commodities.

According to the study, about 70% of the surveyed fund managers said their plans include increasing their participation in commodities. Specifically, 40% decided to increase their investments in gold; 42% said they increased their bond holdings.

Analysts believe that hedge funds' interest in gold should continue to support the precious metal and push prices to historical highs. Nevertheless, analysts noted that their bullish positions in gold are currently low compared to last year.

According to the latest data from the Commodity Futures Trading Commission, asset managers have long positions in gold of 104,000 contracts, about 27% of the peak in 2022 when prices exceeded $2,000 an ounce. Also, holdings in gold-backed exchange-traded products show there are fewer investors compared to the previous period. In March, gold-backed ETFs received a net inflow for the first time in 10 months.

Now, the world's largest gold ETF, SPDR Gold Shares (NYSE: GLD), contains 926.57 tons of gold. This is less than in March 2022, when it contained 1,100 tons.

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Slowing global inflation called into question. RBA raises rates, possible revision of RBNZ rate forecast. Review of USD, NZD, AUD

The US Manufacturing ISM report showed an increase in positivity, with the index rising from 46.3 to 47.1. However, at the same time as the sector's recovery, we should take note that a number of sub-indices favor higher inflation – prices jumped from 49.2 to 53.2, employment increased by 3.3 points, to 50.2, and new orders are still in contraction territory.

After a pause, which optimists declared the end of the banking crisis, another bank went bankrupt - First Republic Bank. After the purchase of FRB, JPMorgan shares rose more than 2%, as JPMorgan acquired $30 billion in assets, while losses were shared with FDIC, i.e., the state. The rescue of another bank has led to the fact that FDIC has virtually exhausted all reserves, a number of small regional banks are in line for rescue, and as the crisis escalates, it will be increasingly difficult.

US Treasury Secretary Yellen warned Congress that, by optimistic estimates, the government will not be able to fulfill its financial obligations by June 1 if Congress does not raise the debt ceiling by then. Republicans have already prepared a bill providing for a $1.5 trillion increase in the debt ceiling, with a simultaneous reduction in spending of more than $4.5 trillion.

Markets will trade with low volatility until the outcome of the Federal Reserve meeting is announced. The main intrigue lies in whether the Fed will maintain the prospect of another rate hike, as there are clear signs that inflation is ready to resume growth after a pause. Q1 PCE data clearly confirms this.

Against this backdrop, oil prices have fallen again, as have commodity currencies, as the trend towards a slowdown in global inflation is called into question.

NZDUSD

The focus is on the Q1 labor market report overnight on Wednesday, with expectations moderately positive. In February, the Reserve Bank of New Zealand forecasted an increase in the unemployment rate from 3.5% in Q1 to 4.8% by the end of the year, but at the same time, a sharp increase in wages. The RBNZ expects annual growth from 4.3% at the end of 2022 to 4.9% in Q2, which will strengthen inflation expectations.

There is also another unexpected news - from June 1, the RBNZ plans to ease lending conditions. Such a decision may require a higher rate to curb inflation growth, but so far, the market has not reacted, expectations for the RBNZ's May meeting remain stable, the bank will raise the rate by 0.25%, this outcome is already priced in and will not have a significant impact on the Kiwi rate.

The net long position in NZD decreased by $43 million for the reporting week to -$200 million, with a slight bearish bias. The calculated price goes down, signaling a strengthening of bearish sentiment.

NZDUSD did not reach the support level of 0.6079, but the upward retracement is unlikely to be strong. The nearest resistance is at 0.6240/50, where we expect the growth to end and the downward reversal to follow. The next support is the mid-channel area, coinciding with the local low of 0.6105, followed by 0.6020.

AUDUSD

The Reserve Bank of Australia surprised the markets considerably, not only did it raise the rate by a quarter point to 3.85%, but it also significantly changed the tone of the accompanying statement compared to that of April's. The statement reiterates the thesis that "some further tightening of monetary policy may be required," but emphasizes that the RBA wants to achieve this in "a reasonable timeframe," this thesis is repeated twice, unlike the previous forecast of inflation normalization in 2025. It paid more attention to wage growth.

The results of the RBA meeting are undoubtedly a bullish factor for the Aussie. Futures reacted with an increase in the probability of another 25 bps hike, and the Australian dollar became the leader in daily growth, pulling the NZD along with it.

Apparently, the RBA sees a threat of higher inflation or at least a more prolonged one, and the threat is real.

The net short position in AUD decreased by $234 million to -$2.615 billion, with bearish positioning. The calculated price lost momentum and shows signs of turning south, the forecast is neutral.

AUDUSD continues to trade in a horizontal channel, the decline expected a week ago turned out to be slightly deeper, but the subsequent bullish momentum on the background of the unexpected RBA decision quickly lost momentum. We suppose that till the end of the Fed meeting, trading will be in a narrow range, and further direction will be chosen based on the presence or absence of hawkish wording in the final statement of the Fed. By the end of the week, I expect the pair to fall to the border of the range at 0.6565.

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Markets cautious ahead of the US inflation report. Overview of USD, EUR, GBP

Markets were cautious on Wednesday morning as they await the results of talks between Biden and House Speaker McCarthy on the US debt ceiling. Both sides are not willing to consider short-term solutions that would allow raising the borrowing ceiling and are not ready for compromises. A quick solution should not be expected, and perhaps there will be a threat of a technical default while a solution is being worked out.

The US labor market report for April contained rather contradictory data. Overall, the data was stronger than forecasts - 253,000 new jobs were created (forecasted 179,000), however, the data for the past 2 months was revised downward by 185,000, which offset all the positive news. The average hourly income was 0.5% against the forecast of 0.3%, which completely nullifies expectations of a rapid decline in inflation.

The US NFIB Small Business Optimism Index fell to its lowest level since 2013, at 89 points.

The key event of Wednesday is the US Consumer Price Index. Forecasts do not imply changes - monthly inflation growth rates are expected at 0.4%, annual rates at 6%, and any deviation from the forecasts may cause a strong market reaction.

EUR/USD

The European Central Bank raised its rate by 25 basis points, which was lower than the expected 50 basis points, and decided to stop the reinvestment of the APP program from July 1, which matched the forecasts.

Inflation estimates have not changed overall, and the reasons why the ECB refrained from raising the rate by 50 basis points can be sought in recent events in the banking sector. Perhaps banks perceive the threat of a large-scale banking crisis more seriously than it seemed; the latest survey showed that lending rates have fallen sharply, and lending conditions have tightened.

Comments on the ECB's unexpected decision were numerous and often contradictory. In general, their tone boils down to the statement that "the battle with inflation is far from being won," and the slowdown in rate hikes will allow keeping rates high on a longer trajectory. Indeed, a decline in overall inflation due to falling energy prices is evident, but core inflation has a completely different trajectory.

ECB President Lagarde mentioned several times at the press conference that the tightening of credit conditions has begun to spread to the real economy. Overall, Lagarde tried to appear hawkish, but markets reacted neutrally to the ECB meeting's outcome.

The net long position in the euro increased by 0.6 billion during the reporting week, reaching 23.8 billion, with speculative positioning remaining confidently bullish. The calculated price, however, has decreased slightly, suggesting the development of a corrective bearish movement.

A week earlier, we assumed that EUR/USD would begin to decline towards support at 1.0910. There is no reason to abandon this scenario yet; support has not been reached, but the chances of a further decline remain high. In case of a confident breakthrough at 1.0910, we assume further movement towards support at 1.0875.

GBP/USD

The Bank of England will hold another monetary policy meeting on Thursday. Market expectations suggest an interest rate hike of 25 basis points to 4.5% and a cumulative increase of 50-75 basis points by the third quarter. Forecasts for inflation, the labor market, and GDP will also be published.

The UK is experiencing more robust inflationary pressure than the US or the Eurozone, with overall inflation above 10% YoY and core inflation consistently above 6% without signs of slowing down.

According to the CFTC report, the net long position in the pound decreased during the reporting week from 0.5 billion to 0.1 billion, with positioning being neutral. The calculated price, however, continues to stay above the long-term average, so chances for continued growth remain. Overall, the pound looks stronger than the euro at present.

The pound updated its local high, getting to 1.2668 the medium-term target of 1.2750 has not been reached, but it is still valid. Support at 1.2575, if GBP/USD stays above this level, restoring growth and updating the high is possible. In case the corrective decline develops, a decline to the support area 1.2430/50 is possible, where there will be an attempt to create a basis for renewal of growth. There are no grounds for stronger decrease yet.

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Hot forecast for EURUSD on 12/05/2023

Yesterday, everything revolved exclusively around the Bank of England meeting. And its results were the reason why the euro got significantly weaker. More precisely, the pound was falling, and through the dollar index, it pulled other currencies with it. And it's not so much about the BoE hiking interest rates by 25 bps, but rather about the following comments. Despite another increase in inflation, the British central bank signaled that it may pause rate hikes. It turns out that the BoE is not so much engaged in the fight against rising consumer prices, but rather follows in the wake of the larger central banks. Even though this is not in line with the emerging economic situation in the UK itself. Which has spooked investors.

So the euro's fall was not only impressive, but it also had nothing to do with the economic dynamics directly in the eurozone itself. Moreover, the single currency has gone beyond the range in which it has been for almost a whole month. Based on this, we can assume that today we will see a kind of rebound, and a return to the usual limits from 1.0950 to 1.1050.

During an intensive downward movement, the EUR/USD pair reached the 1.0900 level, which points to a change in the volume of short positions. As a result, a slowdown-pullback occurred relative to this level.

On the four-hour chart, the RSI indicator is moving in the lower area of 30/50, which corresponds to the downward cycle, as well as the touch of the 1.0900 level.

On the daily chart, two out of three of the Alligator's MAs intertwined, which could be an initial sign of a slowdown in the medium-term trend. On the 4-hour chart, it reflects a bear cycle, which corresponds to the current movement.

Outlook

In this situation, traders are considering an option of forming a pullback, which will eventually return the euro to its previous price ranges. However, if the pullback turns out to be false and the quote remains below the 1.0900 level in the daily period, then in this case, a technical signal about forming a full-scale correction through an uptrend may emerge.

The comprehensive indicator analysis in the short-term points to a pullback. In the intraday period, the bearish sentiment is still in force.

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Hot forecast for GBP/USD on 15/05/2023

The first estimate of the UK's GDP for the first quarter was supposed to show the danger of an approaching recession, as the economic growth rate could slow from 0.6% to 0.3%. But in fact, it dropped to 0.2%. So, the recession is getting closer. And naturally, this had a negative impact on the pound. Another thing is that a noticeable reaction only started at the opening of the US trading session. And the fall of the pound, and along with it the euro, largely coincided with rumors about a new package of sanctions against Russia.

Change in GDP (United Kingdom):

The discussion is about the possibility of introducing a complete ban on pipeline gas supplies. That is, a ban on gas supplies to Europe. It seems like the West has already abandoned energy supplies from Russia, when in fact, supplies are still being transported. And they are carried out precisely through pipelines. If such a ban is introduced, Europe will face an even greater energy deficit. It may well cope with this problem, as happened last year, but the cost of energy will become even higher, which will have an even more serious impact on European industry. This means that Europe will be the main victim. This is exactly what caused the fall of European currencies. Today's eurozone industrial production report, the growth rate of which is expected to slow from 2.0% to 1.1%, could confirm these fears. So, following the euro, the pound may fall even further.

The GBP/USD pair has lost about 200 points in value over the past week. This momentum has led to a full-scale correction, which is shown by the medium-term uptrend.

On the four-hour chart, the RSI indicator has fallen into the oversold zone during a sharp price change, which indicates an abundance of short positions in the English currency.

On the same time frame, the Alligator's MAs are headed downwards, which corresponds to the direction of the correctional movement.

Outlook

In this situation, a technical signal shows that the pair is oversold in the intraday period. This may indicate a slowdown and as a result, the end of the correction. However, we are dealing with a momentum and trend, in which speculators may simply ignore that technical signal. In this case, keeping the price below the value of 1.2440 may push the pair to fall towards the 1.2350 level.

The complex indicator analysis points to a downward cycle in the short-term and intraday periods. In the medium-term, the indicator is still providing a bullish signal.

[KostiaFM]

Gold stumbles due to Fed rate hike expectations

Gold exhibited mixed performance this week, rising strongly and then pulling back from recent peaks. Analysts believe that gold's rally is currently on hiatus, and that the precious metal is ready to move in a different direction. Uncertainty surrounding the Federal Reserve's interest rate trajector is contributing to gold's slowed momentum.

At the start of the week, gold marginally increased, but gave up part of its gains and slipped by 0.80%. This was due to ambiguous macroeconomic data from the US, which nonetheless showed signs of resilience. US retail sales were also notably robust. According to current data, industrial production in America bounced back in April, while the manufacturing sector is facing difficulties.

Retail sales excluding autos went up by 0.4% m/m, which matched forecasts. Year-over-year, sales rose by 1.6%, below last month's 2.4%. Experts believe it indicates that the US economy is slowing down.

US industrial production grew by 0.5% m/m in April. Year-on-year, it rose to 0.2% from 0.1% in the previous months. According to the latest data, manufacturing production increased by 1% m/m. Furthermore, an uptick in automobile production was observed, bolstering the US dollar and dampening gold's upside prospects.

Macroeconomic factors and higher US government bond yields have weighted down on the precious metal. Consequently, gold has slightly declined. Its downward movement has accelerated by week's end. The precious metal has now bounced downwards from the key level of $2,000 per ounce. On Thursday morning, 18 May, XAU/USD was trading at $1,977, trying to recoup losses, but with limited success.

As the precious metal slides down, investors are now focused on new US data, which is set to be published later today. The next batch of data will help investors assess the state of the US economy and predict the Fed's next interest rate move. In addition, the US Department of Labor will release the initial unemployment claims report. Preliminary forecasts indicate that jobless claims fell by 10,000 in the first week of May after rising by 22,000 earlier, reaching its highest level since October 2021.

Uncertainty regarding the US debt ceiling is another important factor for gold. Continuing discussions on the issue has yet to find a solution. Earlier, US President Joe Biden met with Congress representatives to address the issue. Analysts estimate the current situation has pushed up the precious metal, which benefits from anxiety in the market. Gold is universally considered to be a traditional safe-haven asset that can protect the holder's capital.

Higher industrial production in the US has boosted the market. As a result, traders and investors are pricing in the possibility of another interest rate hike in mid-June. Analysts suggest that the change in market expectations has triggered another dollar movement, weighing down on gold.

Gold's noticeable decline has been attributed not only to the mixed US macroeconomic data, but also to the Federal Reserve's current decisions on interest rates. As a result, the precious metal is approaching its April lows. Analysts believe that due to increased expectations of another key rate hike, the gold correction will continue.

At the moment, Fed representatives maintain a hawkish stance, believing that this approach would make it easier to bring inflation under control and return it to the target of 2% in the future. This also affects possible upcoming rate moves. According to Fed officials, the rate has not yet reached a level that would allow a rollback of policy tightening.

In this situation, the precious metal is stalling, but some analysts are confident that it could increase. Currency strategists at Credit Suisse believe that gold will eventually reach new highs and rise above the $2,070-$2,075 levels achieved in 2020 and 2022.

According to Credit Suisse, the gold market will soar to new highs following the completion of the current range phase, facilitated by a decrease in real yields in the US. In this situation, exceeding $2,075 would indicate a bullish breakout, opening the way to a new target range of $2,330-$2,360.

Technical analysis indicates that gold is approaching the 50-day moving average. Experts say that stabilizing above this level solidified the gold rally at the end of 2022 and confirmed it in March 2023. At the same time, the 61.8% retracement level, which moved from March lows to early May highs, is located at $1,977 per ounce.

Experts estimate that gold should avoid a sharp drop below $1,980. Such a scenario would be an important signal of market sentiment change, pushing gold down to a critical level of $1,950 per ounce.

If gold stabilizes near current levels, then the next growth impulse will help it refresh historical highs. In this situation, the technical target for gold bulls will be $2,250, which was reached during the last two-month rally. The long-term target will be the ambitious level of $2,640, which may be reached within 12 months.

Experts believe the correction of the precious metal will continue if the likelihood of another Fed rate hike increases in June. The regulator's next meeting is scheduled for June 13-14. Most analysts (72%) expect the key rate to remain at 5%-5.25%, while some anticipate another increase by 25 basis points.

[KostiaFM]

EUR/USD. Steep plunge: The pair has hit multi-week price lows

The EUR/USD pair is plunging across all pairs, developing a downtrend. The EUR/USD bears managed to overcome the support level of 1.0770 (the upper limit of the Kumo cloud on the daily chart) – this is a multi-week price low (since March 27). The next barrier is at the 1.0650 mark (Kijun-sen line on the weekly chart). The key fundamental factor, thanks to which the greenback is gaining momentum, is still in force, so the downtrend is unlikely to weaken by the end of the current week. This refers to the threat of default in the U.S. The threat is not diminishing, but on the contrary, it's becoming stronger and more tangible with each day.

The situation is contradictory. On the one hand, everyone understands that the parties will eventually come to an agreement, as has been the case year after year. On the other hand, the world press continues to escalate the situation, modeling catastrophic scenarios if the US were to default on the national debt for the first time in history. And although there is a low probability of this scenario, it cannot be completely ruled out. Therefore, the conditional probability of "0.0 (...) 1%" is taken quite seriously by the market, with all the ensuing consequences.

Threat of Default or Groundless Panic?

The dollar is a beneficiary of the current situation. Due to the rising panic in the markets, the greenback is in high demand, including in the EUR/USD pair. Recent events suggest that in the coming days, American politicians are unlikely to find common ground on the issue of raising the debt limit. At least because the main "negotiator" - Joe Biden - is currently at the G7 summit in Japan. And although the US president cut his schedule, canceling a visit to Australia, he won't return to the US until Saturday. Therefore, at least until the end of this week, the situation will remain in a state of limbo, allowing the dollar bulls to feel confident in all currency pairs. The EUR/USD pair will not be an exception here.

Before heading to Japan, Biden declared he is confident, saying talks with congressional Republicans have been productive. According to him, he will maintain close contact with them during the trip and will hold face-to-face negotiations upon arrival. The White House head also reassured journalists that the U.S. would not default on the national debt.

Judging by the dynamics of the greenback, market participants reacted skeptically to Biden's optimistic statements, partly because he voiced similar rhetoric last weekend, ahead of another failed negotiation round. The seriousness of the situation is also indicated by the fact that Biden unexpectedly canceled planned trips to Australia and Papua New Guinea.

Therefore, traders' skepticism, in my opinion, is quite justified, as the parties only declare their intentions to make a deal, but it is assumed that the corresponding conditions put forward will be met.

As we know, the Republicans claim that an increase in the spending limit can only take place on the condition of significant spending cuts. In particular, they propose cutting tax credits for the purchase of electric cars and the installation of solar panels, as well as reducing government spending on education loan repayment. Democrats, on the other hand, reject such proposals and insist on raising the debt limit without any preliminary conditions.

To date, the sides have not been able to find a compromise, and this fact is supporting the safe dollar.

Growth of Hawkish Expectations

It should be emphasized that the dollar is strengthening its positions not only due to growing risk-off sentiments. The recent statements by Fed officials, which had a "hawkish hue", also lent support to the greenback. Despite the slowdown in US inflation, many members of the Fed do not rule out further steps to tighten monetary policy. For instance, Dallas Fed's head Lorie Logan stated that the incoming data "supports a rate hike at the next meeting."

This position, in one interpretation or another, was voiced by other representatives of the US central bank – specifically, Loretta Mester, Thomas Barkin, Raphael Bostic, and John Williams.

The market reacted to the tightening of rhetoric accordingly: according to the CME FedWatch Tool, the probability of a 25-point rate hike at the June meeting is currently 32%. For comparison, it should be noted that at the beginning of May, the chances of realizing a 25-point scenario were estimated at 5-8%.

Conclusions

The US dollar continues to enjoy high demand – firstly, amid risk aversion, and secondly – due to the growth of hawkish expectations regarding the future actions of the Fed. Such fundamental conditions contribute to the development of a bearish trend. If the Republicans and Democrats do not surprise the markets with an unexpected compromise, then the EUR/USD pair will likely keep heading towards the base of the 7th figure, and further to the support level of 1.0650 (the Kijun-sen line on the weekly chart).

[KostiaFM]

EUR/USD. Week Preview. Buckle up, price turbulence expected

The EUR/USD pair failed to consolidate within the 7th figure by the end of the past week: at the end of Friday, EUR/USD bulls organized a small but swift counter-attack, which led the price to rise to the level of 1.0804. The corrective pullback was due to a weakening of the US currency, which came under pressure against the backdrop of Federal Reserve Chairman Jerome Powell's cautious rhetoric.

Powell suggested that the May rate hike could be the last in the current monetary tightening cycle. This unexpected plot twist surprised dollar bulls, afterwards the greenback fell across the market. Under other circumstances, this fundamental factor would have had a strong impact on the dollar for a quite long time. But under current conditions, Powell's dovish comments may take a back seat. The focus is on the political confrontation between Republicans and Democrats, as its failure to reach an agreement could lead to a default on the US national debt.

There is no doubt that this topic will be the "number 1 issue" for all dollar pairs. All other fundamental factors will take a back seat - including Powell.

Biden raises the stakes

Exactly one week ago - May 14 - the President of the United States announced that negotiations with Congress on raising the debt limit are "progressing," and more about their progress will be known literally "in the next two days". At the same time, he emphasized that he is optimistic about the prospects of reaching a compromise. In anticipation of the next round of negotiations, assistants to the US president and the Speaker of the lower house of Congress, Kevin McCarthy, began to form a "road map" to curb federal spending in order to resume negotiations on raising the debt limit.

The negotiations did take place - but ended in failure. The parties just "agreed to agree", but no more. Now the situation is up in the air. Another round of negotiations should take place after Biden completes his visit to Japan, where the G7 summit is being held. At the same time, he canceled his planned visit to Australia, which speaks volumes on the seriousness of the situation.

Important point: if the US president was initially optimistic about the negotiation process, today he has changed the tone of his rhetoric. For example, he stated that declaring a default is "personally out of the question" for him, but at the same time, he cannot guarantee that Republicans will not push the country into default by "doing something outrageous" (originally by Reuters agency - "Biden said he still believed he could reach a deal with Republicans, but could not guarantee that Republicans would not force a default by "doing something outrageous").

In this context, Biden called on Congress to work on the issue of raising the debt limit. He also emphasized that he would not agree to a bipartisan debt ceiling deal "exclusively on the terms of the Republicans". The US president expressed readiness to cut spending, but stated that he does not intend to fulfill all the demands of Republican congressmen.

The terrifying word: "default"

Judging by the escalation of the situation, a default no longer seems unthinkable. One can assume that Biden has decided to raise the stakes with his rhetoric before decisive negotiations, shifting the responsibility for possible default consequences onto the Republican party. However, in the context of forex traders' reaction, it doesn't really matter - whether it's a bluff or a real threat. Such statements from the US president are capable of significantly shaking the markets. Considering that the aforementioned comments were made during the weekend, dollar pair traders should prepare for a significant gap (in the case of the EUR/USD pair - a downward gap).

Overall, the upcoming week is packed with events. For example, on Monday, three representatives of the Federal Reserve (Bullard, Barkin, Bostic) will speak; on Tuesday, PMI indices will be published in Europe, and data on the volume of new home sales will be released in the US; on Wednesday, the minutes of the Fed's May meeting will be published along with a speech by European Central Bank President Christine Lagarde; on Thursday, data on the volume of pending home sales will be disclosed in America; and finally, on Friday, the most important inflation indicator - the core personal consumption expenditures index - will be published in the US.

But all these reports, as well as the speeches of Fed and ECB representatives, will remain in the shadow of the key topic of the upcoming week. The fate of the US national debt is the number 1 issue for dollar pair traders, so everyone will focus on its corresponding negotiations. Especially since there is not much time left until the "X hour": as the US Treasury previously warned, on June 1, the country's government may declare a debt default if Congress cannot raise the debt limit.

Conclusions

Under such fundamental circumstances, it is extremely difficult to predict the possible trajectory of EUR/USD. We can only assume that at the start of the new trading week, risk-off sentiments in the markets will rise again, and this fact will provide significant support to the dollar. In this case, the pair will return to the area of the 7th figure with a target at 1.0700. But everything will depend on the negotiation between Republicans and Democrats. If they do find common ground and announce an increase in the debt limit, the spring will unwind in the opposite direction - against the dollar (especially in light of Powell's recent statements). If the negotiation saga drags on until next weekend, the dollar will continue to gain momentum, acting as a beneficiary of panic sentiments.

Considering the previous statements of Republicans, Democrats, and Biden himself, the negotiations will be very challenging - therefore, dollar pairs may once again find themselves in the area of price turbulence.

[KostiaFM]

Hot forecast for GBP/USD on 23/05/2023

Throughout Monday, the pound was mostly stagnant, and this won't last for long, so the market will definitely come alive today. Especially since preliminary PMIs are scheduled for release. However, the forecasts for the UK are not optimistic. In particular, the services PMI is expected to fall from 55.9 to 55.3. However, the manufacturing PMI is likely to remain unchanged. Due to the services sector, the composite PMI is expected to fall from 54.9 to 54.7.

However, this will not lead to a significant decline in the pound. The situation in the United States is quite similar. Although the manufacturing PMI may increase from 50.2 to 50.3, the services PMI is likely to fall from 53.6 to 53.0. Therefore, the composite PMI will fall from 53.4 to 53.0. Considering the overbought condition of the dollar, weak US data will ultimately lead to an increase in the pound. Even If the UK releases weak reports.

The GBP/USD pair failed to enter a full-fledged recovery phase. The volume of long positions fell around the 1.2480 level, leading to a reversal.

On the four-hour chart, the RSI is moving in the lower area of the indicator, which may indicate a persistent bearish sentiment.

On the same time frame, the Alligator's MAs are headed downwards, confirming the corrective movement.

Outlook

The corrective cycle from the peak of the medium-term trend persists, as the downward cycle continues after a recent retracement. The volume of short positions will increase once the price stays below the 1.2390 level. Until then, the bearish sentiment may be replaced by a consolidation within the scope of the recent retracement.

The comprehensive indicator analysis in the short-term and intraday periods points to the downward cycle.

[KostiaFM]

Gold's rally pauses, with new surge on horizon

Gold's upward momentum has paused after this week's mixed performance. However, analysts remain optimistic and believe that gold will surge to new highs. Despite the current setback, unfavorable external factors continue to drive capital inflows into gold, bolstering its future ascent.

This week, gold had a mixed performance, regaining ground after a two-day decline.The anticipation of the Federal Reserve's May meeting minutes fueled the precious metal's growth. On May 24, June futures on the New York Comex exchange edged up by 0.27% to reach $1,979 per ounce.

The Fed meeting minutes revealed that most policymakers believe further interest rate hikes are unwarranted. Additionally, the FOMC economic outlook projected the economic climate will worsen, as well as tighter lending conditions. Although officials foresee a moderate recession, they expressed concern over persistently high inflation, which currently is well above the 2% target. If inflation's decline remains sluggish, additional monetary policy tightening may be necessary.

These developments, combined with a stronger US dollar, sent gold into a retreat. On the evening of May 24, June futures on the New York Comex exchange slid by 0.45% to settle at $1,965 per ounce.

Gold currently faces considerable pressure from the surging USD, which has created headwinds for the precious metal. This week, gold stepped back from its key multi-year highs of $2,063-$2,075. However, Credit Suisse analysts believe that gold will eventually break through to new record highs.

Several factors, including concerns surrounding the US debt ceiling, have hindered gold's ascent for the time being. It has temporarily retreated from its key resistance level of $2,063-$2,075, the highs it hit in 2020 and 2022. Nonetheless, this appears to be a temporary setback. According to Credit Suisse, the next support level for gold stands at $1,949. A breakout below this level could push XAU/USD down to $1892 per ounce.

However, after this correction, analysts at the bank anticipate a resurgence in gold prices, driven by declining real yields in the United States. This drop is expected to intensify by the end of 2023. In a bullish scenario, gold could rally to $2,075, signifying a breakthrough for the precious metal. This would open the way towards new highs, particularly the range between $2,330 and $2,360, as highlighted by Credit Suisse.

Currently, gold's rally has taken a breather, settling at modest levels. On May 25, the price of gold stood at $1,963, ready to surge higher. The recent decline can be attributed to the US dollar's advance. The US currency gained strength against other major currenices ahead of the release of US economic data.

Investors are closely monitoring the US GDP data, which are set to release on Thursday, May 25th. Early forecasts suggest that the US economy has grown by 1.1% in the first quarter of 2023, in line with an earlier outlook by the US Commerce Department.

The greenback upsurge has also influenced the precious metal significantly. It is worth noting that gold is sensitive to signals emanating from the Federal Reserve. The current monetary policies of the regulator, coupled with the performance of USD, have a tangible impact on the precious metal's price. Hawkish signals from the Fed lend support to the dollar, making gold more expensive for foreign buyers. Conversely, dovish comments from FOMC policymakers weigh down on the American currency, driving gold higher.

Currency strategists at Commerzbank remain convinced that gold will move higher, as mounting default risks in the US make the precious metal more attractive for investors. In the event of a default, gold would come to the forefront, emerging as the most popular safe-haven asset. The bank underscores that the Federal Reserve will have ample opportunities to reduce interest rates, offering gold a competitive edge over other safe-haven assets such as the US dollar, the Swiss franc, and the Japanese yen.

UBS and Bank of America are particularly bullish on gold, expecting it to rise up to $2,200 per ounce. UBS currency strategists believe that gold will hit that level by March 2024, whereas analysts at Bank of America expects that level to be reached by the end of 2023. A key driver behind gold's assured growth lies in its sustained high demand from central banks.

Experts argue that the rise in gold prices requires the dollar to slide down gradually. UBS forecasts suggest that over the next 6-12 months, the greenback will experience a modest decline as the Federal Reserve prepares to conclude its monetary tightening cycle. This view is shared by the Bank of America, which expects the Fed's rate hike cycle to end, as well as substantial gold purchases by central banks.

Another factor favoring a gold rally is the mounting risk of a recession in the United States. Further key interest rate hikes and a deteriorating economic situation in the world's leading economy are making an economic downturn in the US more likely.

[KostiaFM]

No progress in the negotiations on the U.S. debt ceiling. Markets are getting more nervous. Overview of USD, CAD, JPY

U.S. stock markets are down for the second straight day without any sign of an agreement on the debt ceiling, and the clock is ticking louder in anticipation of the "day of decision", which, according to current calculations, is set for June 1st, as confirmed by Treasury Secretary Yellen.

FOMC minutes reflect a somewhat contradictory nature of most comments. "Some" officials felt that additional tightening was probably warranted, while "some" concluded that it might be time to end the hikes. That's it, and understand it however you want.

Nevertheless, the futures market shows a weak momentum in favor of a more prolonged tightening. The probability of another rate hike on June 14th has reached 30%, and in July, it is already 44%, while expectations of the first cut have shifted to December.

Expectations for interest rates, albeit weak, are in favor of the US dollar, which continues to strengthen across the entire currency market.

On Thursday morning, Germany's GDP data for Q1 was published, which turned out to be noticeably worse than expected, causing EUR/USD to decline. This is another factor in favor of the dollar.

The main focus remains on discussions about the debt limit, and any specific details can sharply increase volatility.

USD/CAD

Bank of Canada Governor Tiff Macklem expressed concerns about inflation risks at the end of last week. Core inflation remains stable and shows no signs of decline, and the housing market is growing confidently, largely due to the highest migration rates to Canada among all developed economies.

The probability of the Bank of Canada reconsidering its decision to pause rate hikes, which was made in January, currently appears high. Scotiabank analysts expect that the rate could be raised as early as the next meeting in June. If these expectations are confirmed, the Canadian dollar will receive a strong driver for growth.

Speculative positioning on CAD remains consistently bearish, with a net short position of -3.2 billion at the end of the reporting week. The calculated price is below the long-term average, but there is no direction.

Trading continues near the mid-range values of the sideways range, without a clear direction, and there are currently no obvious reasons capable of causing a strong movement in either direction. A bit more likely is a movement towards the upper limit of the technical pattern at 1.3770/90.

USD/JPY

Bank of Japan Governor Kazuo Ueda delivered his first speech as the head of the central bank. He expressed a strongly dovish approach, giving no hints of any need for immediate action.

Regarding monetary policy, Ueda stated, "BoJ will patiently sustain the easy monetary policy." It appears that no adjustments to yield curve control are expected at the upcoming meeting on June 15-16, and expectations of possible changes are shifted to the next meeting on July 27-28.

It is also worth noting that the BOJ was the only major central bank that refrained from changing its monetary policy while others hastily raised rates to combat inflation. These efforts paid off as global inflation began to decline, and Japan experienced a decrease in external inflationary pressure without taking any action of its own. This reduces the need for the BOJ to take measures to change its policy.

The net short position on JPY increased by 0.3 billion during the reporting week to -5.9 billion, and the calculated price sharply increased, indicating the strength of the bullish momentum.

USD/JPY managed to update the previous local high at 137.92, and the yen reached resistance at 139.60 (50% retracement of the sharp decline from November to January), with the next resistance at the channel limit of 140.80/141.00. The main reason for the yen's weakness is that expectations regarding the BOJ's monetary policy change after the new leadership took office did not materialize, and now a downward reversal is possible only in the event of a sharp increase in demand for safe-haven assets or after a clear signal from the BoJ, which the markets do not expect before July.

[KostiaFM]

Positive news contributes to an increase in risk demand, and the dollar braces to strengthen. USD, EUR, GBP overview.

The main news of the weekend was the agreement on the US debt limit, which may serve as a basis for increased risk demand at the beginning of the week. The House of Representatives is expected to vote on Wednesday.

It was reported that the debt ceiling will be approved until the 2024 presidential elections. Non-defense spending will remain at current levels in 2024 and will increase by only 1% in 2025. This is a compromise between Republican demands for sharp spending cuts and Democratic intentions to raise taxes.

The aggregate short position in the US dollar decreased by 3.3 billion to -12.1 billion during the reporting week. Overall, sentiment towards the dollar remains negative, but the trend may have changed.

Long positions on gold have noticeably decreased by 4 billion to -31.7 billion, which is also a factor in favor of the US dollar.

The core PCE deflator increased by 0.4% MoM, which is slightly higher than the consensus forecast of 0.3%. Despite the faster-than-expected price growth, real consumer spending rose by 0.5% MoM, surpassing the expected 0.3%. The rise in the PCE deflator shows that the fight against inflation is far from over, with the 3-month annualized core PCE deflator at 4.3%, the same amount as a year ago in April 2022.

The combination of higher spending and faster price growth is expected to lead to the Federal Reserve raising rates in June. Cleveland Fed President Loretta Mester, commenting on the released data, stated that "the data that came out this morning suggests that we still have work to do."

The CME futures market estimates a 63% probability of a Fed rate hike in June, compared to 18% the previous week, making the strengthening of the dollar in the changed conditions more than likely.

Monday is a banking holiday in the US, so by the end of the day, volatility will decrease, and we do not expect strong movements.

EUR/USD

The European Central Bank maintains a firm stance on continuing rate hikes as part of its fight against inflation. Preliminary inflation data for the eurozone will be published on June 1st, and the forecast suggests a slowdown in core inflation from 5.6% to 5.5%. If the data aligns with expectations, it will lower the ECB rate forecasts and put more pressure on the euro.

The net long position on the euro decreased by 2.013 billion to 23.389 billion during the reporting week, marking the first significant decline in the past 10 weeks. The calculated price is moving further south, indicating a high probability of further euro weakening.

EUR/USD has declined to 1.0730, where support has held firm, but we expect another attempt to test its strength, which will likely be more successful. Within a short-term correction, the euro may rise to resistance at 1.0735 or 1.0830, but the upward movement is likely to be short-lived and followed by another downward wave. Our long-term target is seen in the support zone of 1.0480/0520.

GBP/USD

The decline in UK inflation is once again being called into question. The core Consumer Price Index rose from 6.2% YoY to 6.8% in April, with yields sharply increasing. The retail sales report for April, published on Friday, showed that the slowdown in consumer demand remains more of a goal than reality itself.

Retail sales excluding fuel increased by 0.8% MoM, significantly higher than the forecast of 0.3%. If it weren't for the sharp decline in energy demand, both the monthly and annual retail growth would have been noticeably higher than expected.

Monday is a banking holiday in the UK, and there are no macro data this week that could influence Bank of England rate forecasts. Therefore, the pound will be traded more in consideration of global rather than domestic factors. We do not expect high volatility or significant movements.

The net long position on the pound slightly decreased by 84 million to 899 million during the reporting week. The bullish bias is small, and the positioning is more neutral than bullish. The calculated price is below the long-term average and is downward-oriented.

The pound has moved towards the support zone at 1.2340/50, but the decline has slowed down at this level. We expect the pound to fall, with the nearest targets being the technical levels at 1.2240 and 1.2134. There is currently insufficient basis for reviving growth.

[KostiaFM]

Hot forecast for GBP/USD on 02/05/2023

Yesterday, the pound showed impressive growth. Similarly, the euro also showed significant gains. Considering that there was no macro data from the UK, unlike the eurozone, it is more accurate to say that the pound followed the euro. However, this growth contradicted all the macro data. After all, eurozone inflation slowed down significantly more than expected, while employment in the United States increased substantially more than anticipated. So, the dollar should have extended its growth. But the market went in a different direction, and the formal reason for this was the minutes of the European Central Bank's governing council meeting, which mentioned the possibility of more interest rate hikes.

However, the meeting itself took place before there were even rough forecasts for the current inflation. Just a couple of days ago, several ECB officials explicitly stated that the cycle of interest rate hikes may have come to an end. So, the rise of the euro and, along with it, the pound, goes against common sense. Unless we consider the excessive overbought condition of the dollar, which became the main reason why European currencies increased.

However, there is a high probability that today everything will return to the values at the start of yesterday's trading. Employment data clearly suggests that the content of the US Department of Labor report will be slightly better than expected. In particular, unemployment, which was expected to increase from 3.4% to 3.5%, may well remain unchanged. But if unemployment does increase, the dollar may continue to lose its positions, primarily due to the persistent overbought condition.

During the intense upward movement, the GBP/USD pair jumped above the 1.2500 level. This served as the primary signal of the pound's recovery process relative to the recent corrective move.

Due to the sharp price change, on the four-hour chart, the RSI reached the overbought zone, which indicates that long positions are overheated in the intraday period.

On the four-hour period, the Alligator's MAs are headed upwards. This indicates a shift in trading interests.

Outlook

In this situation, the sharp price change from the day before is a signal of the pound's overbought conditions in the intraday and short-term periods. The target level is set at 1.2550, around which the upward cycle slowed down, which reduced the volume of long positions and resulted in a stagnation. We can assume that the process of the pound's recovery will be temporarily interrupted by a pullback. However, if the price remains stable above 1.2550, speculators may ignore the technical signal of overbought conditions. In this case, the pair can rise towards the peak of the medium-term trend.

The complex indicator analysis in the short-term and intraday periods points to the pound' recovery process.

[KostiaFM]

Hot forecast for EUR/USD on June 9, 2023

It seems that the market is simply tired of the excessive overbought condition of the dollar, and investors initiated a sell-off, even despite fairly good US data. The number of initial unemployment claims increased by 28,000, which is quite significant. However, the number of continued claims fell by 37,000. And they have much greater significance than initial claims. And logically, the dollar should have been rising. But the dollar's overbought condition has persisted for quite some time. In fact, it's still overbought. Yesterday's growth only managed to relieve a bit of the tension. But if the corrective movement started without any reason, it is likely to persist today.

The EUR/USD is ending the trading week with a sharp rise, during which the local June high was updated. The price approached the level of 1.0800, which acts as resistance for buyers.

On the four-hour chart, the RSI almost reached the overbought territory during the overnight sharp rise, but it did not cross the signal level. Take note that the indicator's convergence with the overbought territory coincides with the price approaching the resistance level of 1.0800. Thus, the combination of technical signals may indicate a decline in the volume of long positions on the euro.

On the four-hour chart, the Alligator's MAs have changed direction and it currently points to growth.

Outlook

The decline in the volume of long positions on the euro has led to a slowdown in the upward cycle, where the 1.0800 level plays a special role in the distribution of trading forces. In this case, in order to continue the upward movement, the price needs to stay above the control level, at least in the four-hour period. Otherwise, a full-scale price rebound may occur.

The complex indicator analysis unveiled that in the short-term and intraday periods, indicators are providing an upward signal.

[KostiaFM]

The Fed and the ECB will provide new guidance to the markets. Overview of USD, EUR, GBP

This week, several of the largest central banks will start monetary policy deliberations following the recent hawkish surprises from the Reserve Bank of Australia and the Bank of Canada. The Federal Reserve, European Central Bank, Bank of Japan, and the People's Bank of China could trigger significant movements in the currency market.

The Fed will be the first to announce its decision, which will take place on Wednesday evening. It is expected that the FOMC will pause and hold rates steady but maintain the suspense in favor of another rate hike in July, while expectations for the start of a rate-cutting cycle confidently shift towards the end of the year. Overall, the expectations favor the dollar.

Bearish sentiment towards the US dollar has been declining for the third consecutive week. The aggregate short position has decreased by $3.5 billion to -$8.26 billion, marking the largest single change in favor of the dollar since the beginning of the year.

Take note that all major currencies have adjusted in favor of the dollar without exception. At the same time, the net position in gold has increased by $1.313 billion to $34.487 billion, which indirectly indicates both persistent inflationary expectations and the fact that risks for the global economy sliding into a global recession are still high.

Oil prices are declining, despite overall positive risk sentiment. It appears that Saudi Arabia's decision to reduce production by 1 million barrels per day did not help sustain oil prices at high levels, perhaps markets are now more focused on the ongoing sale of oil reserves.

Simultaneously, concerns about a slowdown in economic growth in China are growing, which could further pressure global demand. Goldman Sachs has revised its oil price forecasts downwards for the third time in six months.

EUR/USD
The ECB will hike its key interest rate by 25 basis points on June 15 (Thursday), which is already fully priced in by the markets. In addition, an announcement will be made regarding the end of reinvestments within the APP program from July. The meeting will also include new staff forecasts and commentary on monetary policy going forward.

As markets are now focused mainly on signs of lower inflation, there could be a strong reaction to a possible dovish signal from the ECB, which would lead to a sell-off in the euro, but a hawkish sounding central bank could be ignored.

At present, the rate forecast implies another 25 bps hike in July, meaning the final rate is expected to be 50 basis points higher than the current level of 3.25%.

The net long position in EUR has decreased by $1.063 billion to $21.175 billion over the reporting week. The bullish bias is still high, but a reduction has been observed for the third consecutive week, with the calculated price moving further downward.

A week ago, we saw a high probability of further decline in EUR/USD. This forecast remains valid, and the recent local high at 1.0797 is considered a correction. We expect that bulls will encounter resistance near the technical level of 1.0810. If the ECB confirms its hawkish stance on Thursday, the corrective rally may generate another upward trajectory towards the resistance at 1.0865. However, take note that the long-term trend is bearish, and once bullish attempts have ended, a reversal to the downside is expected. The long-term target is still seen in the support zone of 1.0480/0520.

GBP/USD
The Bank of England will hold its next meeting next week, and the upcoming macroeconomic data in the following days can be crucial for its position.

The labor market report was just released, and despite the decline in the unemployment rate, the growth in average wages continues, at a higher pace than expected. The growth in average wages for the three months up to April reached 7.2% compared to the previous month's 6.8% (forecast 6.9%). The growth including bonuses also accelerated from 6.1% to 6.5%.

The report strengthens inflation expectations and increases the chances of a hawkish sounding BoE, which may be reflected in the Bank's inflation forecast to be published on Friday. Comments from BoE officials appear hawkish - Haskell supports further rate hikes, and Mann notes the persistent upward pressure on inflation. These comments have increased the yield of British bonds and reinforced expectations of further rate hikes. The futures market now sees the peak of the BoE's rate at 5.50% by the end of the year.

Thus, in the short-term perspective, the pound has the potential to strengthen slightly. However, investors are not rushing to make bets on the pound in the long run. The net long position in GBP has slightly decreased by £57 million to £969 million over the reporting week. The positioning is bullish, but the excess is insignificant. The calculated price is below the long-term average and is downward-directed.

Based on this, we continue to prioritize the bearish momentum, despite the pound's attempts to correct higher. We expect that the corrective rally will end below the local high of 1.2678, and any attempt to test it will be unsuccessful, leading to a reversal of GBP/USD to the downside. The nearest target is 1.2305, followed by 1.2240 and 1.2134.

[KostiaFM]

USD gains momentum following FOMC meeting

The US dollar has rallied robustly following the Federal Reserve's latest FOMC meeting, outpacing its European counterpart. USD found its wings, soaring on the back of the FOMC meeting outcomes which signaled another rate hike in 2023.

Following the June FOMC meeting, the committee maintained the federal funds rate within the range of 5.00%-5.25%, after a series of ten consecutive increases, meeting market expectations. The regulator hasn't ruled out another rate hike before the end of this year.

At the same time, Fed Chairman Jerome Powell unveiled an updated forecast, indicating that FOMC members anticipate an additional 0.50% increase in the federal funds rate in 2023.

According to experts, the Fed has now implemented the most aggressive series of rate hikes since the 1980s. This measure was necessary to combat inflation, which has decreased from its peak (9.1%) in June 2022 to the current 4%.

In the light of these developments, US government bond yields showed steady growth, bolstering the greenback. Consequently, the US dollar significantly appreciated against other major currencies, especially the euro.

Analysts assert that high rates impact the cost of US debt placement. According to the US Treasury Department's estimates, as of the end of April 2023, interest payments on the national debt stood at $460 billion, accounting for 12.5% of the total US budget.

After raising the debt ceiling, US authorities intend to issue new debt obligations that could exceed $1-$1.5 trillion. Therefore, the Fed has paused the rate hikes to avoid increasing the cost of placement and creating additional strain on the budget.

Experts underscore that if the interest rate is raised this year, we can expect a strengthening of the dollar. Against this backdrop, the EUR/USD pair confidently crossed the 1.0800 threshold and moved higher. The euro found balance while the greenback gained momentum for further growth. On Thursday morning, June 15, EUR/USD was trading at 1.0806, striving to reach new highs and establish a foothold at these levels.

Post FOMC meeting, the Fed's chief, Jerome Powell, held a press conference and commented on the monetary policy outlook. He emphasized the Fed's decision to maintain the federal funds rate at 5%-5.25%, stating that "rate cuts this year would be imprudent." However, the situation may change at the next meeting which will take place on July 25-26.

The FOMC statement underscored that US inflation remains high, but monetary authorities are aiming to bring it down to the target of 2%. According to the Fed Chairman, getting inflation back to 2% "is a long journey ahead." Meanwhile, the FOMC members remain very vigilant about inflationary risks.

Almost all FOMC members deem it appropriate to continue increasing rates in 2023. Special attention from the regulators is directed towards creating conditions for a "soft landing" of the US economy. The FOMC believes that this is facilitated by a strong US labor market, which is "gradually cooling down."

In addition, the Federal Reserve has published updated economic forecasts, which have been revised since the March meeting. The forecasts for US GDP growth in 2023 were raised, while they were slightly lowered for 2024-2025. As for the inflation forecast for this year, it has also been slightly worsened. However, the improvement in core inflation plans in the US provided a silver lining.

As for the median forecast for the key rate at the end of 2023, the situation is also positive: it was raised by 0.5% to a level of 5.6%. It's worth noting that this forecast anticipates two more rate hikes of 25 basis points each. As for the key rate forecast at the end of 2024, it was improved by 0.3% to the level of 4.6%, and at the end of 2025, also by 0.3% to 3.4%.

According to Jerome Powell's statement, rate increases should occur not abruptly but at a "moderate pace". The Fed chief believes that it will go hand in hand with a decrease in inflation. However, the latter will require US economic growth and "some easing of labor market conditions". Currently, markets are pricing in the probability of a 25 basis point rate hike at the next regulatory meeting scheduled for July 25-26. It is expected that this will once again help the dollar reach new highs.

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Is the FOMC being overly cautious? Powell's speeches

The dollar is going through difficult times, and it is pretty clear to everyone. However, there's a good chance of improving its situation in the near future. In this article, we will try to understand why. First and foremost, I would like to mention that both instruments are currently in positions from which downward waves can start forming. Wave analysis is currently quite objective and unambiguous. There's a possibility of further growth, but there's still a higher probability of a decline. Another important fact to mention is the prolonged decline of the USD. This is only a speculative assumption as trends can take on a very prolonged form, especially when supported by the news background. And the current news background allows for the dollar's growth.

To answer the question "why?" We need to try to look at the big picture. If the euro and the pound have been rising for almost a whole year, it is clear that the market has been responding to some news background. This could be the interest rate hikes by the Bank of England and the European Central Bank. For example, last year, when the Federal Reserve was raising rates faster and stronger, the dollar was getting stronger. Sooner or later, there will come a moment when the ECB and the BoE will finish tightening their monetary policies. In my opinion, this moment is approaching.

Fed Chairman Jerome Powell may announce in Congress this week that the interest rate will increase one more time if the situation requires it. However, the dollar is not particularly affected by this announcement, as it has been declining for almost a whole year. One rate hike will not lead to a significant appreciation of the dollar. The FOMC is steadily moving towards its goal. Inflation has already decreased to 4%. At this level, the ECB or the BoE could relax and let inflation return to the target level on its own. But not the Fed. The goal is to bring inflation back to 2% as soon as possible. Therefore, it is possible that the Fed is being overly cautious in case the decline in the consumer price index is interrupted. However, this fact does not mean much for the dollar.

Based on everything mentioned above, I believe that at the moment, it is highly probable that the tightening cycles in the UK and the EU will come to an end, as well as the wave analysis, which is currently providing very good sell signals for both instruments.

Based on the analysis conducted, I conclude that a new downtrend is currently being built. The instrument has enough room to fall. I believe that targets around 1.0500-1.0600 are quite realistic. I advise selling the instrument using these targets. I believe that there is a high probability of completing the formation of wave b, and the MACD indicator has formed a "downward" signal. You can sell with a stop loss placed above the current peak of the presumed wave b.

The wave pattern of the GBP/USD instrument has changed and now it suggests the formation of an upward wave that can end at any moment. Currently, it would be advisable to recommend buying the instrument only if there is a successful attempt to break above the 1.2842 level. You can also sell since the first attempt to break through this level was unsuccessful, and a stop loss can be set above it. However, be cautious on Thursday since there's a chance that the market's reaction to the BoE meeting may provoke sharp movements.

[KostiaFM]

Pressure on the dollar may intensify. USD, CAD, JPY overview

The highly anticipated speech of Fed Chair Powell in the House of Representatives did not bring any new information. Powell justified the decision not to raise rates in June by saying that the speed of interest-rate increases is "not very important," now and outlined the criteria for sustainable inflation reduction. The dollar had a minimal reaction to Powell's speech, with slight selling pressure that resulted in a shallow correction.

The main cause of high inflation in the United States is considered to be the high level of consumption, as demand does not allow prices to start a sustainable decline. However, adjusting the overall accumulated household wealth for inflation shows that the "excess wealth" created by pandemic stimulus measures has already been eroded.

The decrease in consumption is inevitable, which will lead to a recession by the end of the year. As a result, in order to manage inflation expectations, the Federal Reserve will be forced to change its rhetoric to a more dovish stance, which will intensify pressure on the dollar.

The Bank of England held its regular monetary policy meeting on Thursday, and after its unexpected inflation report for May, there are no doubts that the Bank of Canada will raise rates. This increase has already been priced in by the markets and is unlikely to cause a rise in GBP on its own. However, the probability of another rate hike has increased, and if the meeting minutes are sufficiently aggressive, the pound may have grounds for another upward trajectory.

USD/CAD
The Canadian dollar strengthened after the release of the minutes from the Bank of Canada's latest meeting on June 7, as the markets received confirmation that the Bank of Canada is ready to consider further rate hikes and that the June hike was not a one-time action.

It was noted that GDP growth in the first quarter exceeded forecasts (3.1% versus 2.3%), with consumption growth being very strong at 5.8%, not only in the services sector but also in interest rate-sensitive goods. Consumption growth in Canada was stronger than expected, even considering population growth, and business investment and exports were stronger and more widespread than anticipated. There is clearly excess demand in the economy, and the measures implemented so far are not sufficiently restrictive.

The Bank of Canada expected inflation to decrease to 3% in the summer, but an unexpected increase from 4.3% to 4.4% was recorded in April. Trends in core inflation data raised doubts about the strength and longevity of the ongoing disinflation and heightened concerns that inflation could remain significantly above the 2% target.

Therefore, by raising rates on June 7, the Bank of Canada has left the door open for at least one more rate hike. If the inflation data for May (to be released on June 27) do not show a significant decrease, which is quite likely, the chances of another rate hike will increase. Accordingly, the Canadian dollar has grounds for further strengthening.

The net short position on CAD decreased by 106 million during the reporting week, reaching -2.753 billion. The positioning remains confidently bearish, and the estimated price has turned downward again.

A week earlier, we speculated that the USD/CAD could extend its decline if it receives a good reason. Now it has such grounds, and the main scenario is that the pair will continue to fall, with the nearest target being the lower band of the 1.3050/70 channel. A corrective upward retracement may stop near the resistance at 1.3225, followed by a downward reversal and a build-up of the downward momentum.

USD/JPY
The Bank of Japan left its current monetary policy unchanged, but the markets were more interested in whether there would be any explicit hints of a readiness to tighten in the future. From this perspective, the comments from BoJ Governor Kazuo Ueda appear ambiguous.

Ueda directly linked the possibility of policy change to two factors. The first factor is the deterioration in the functioning of the money market, which was the reason for expanding the yield curve control in December of last year. The second factor is the trend of inflation growth. There is no reason to intervene in policy due to the first factor, as the market is much more stable after the yield control policy change. The second factor is too uncertain, and there are no clear signs of inflation strengthening. Accordingly, there are no grounds to expect changes from this perspective.

Another factor that could influence the BOJ's stance is the sustained growth in average wages. The position here is that wage growth should not exceed 2% plus productivity growth, but since it is difficult to calculate productivity growth and it is quite volatile, we can conclude that the BOJ does not intend to take unexpected actions even in the case of higher wage growth.

Therefore, the market currently sees low chances of monetary tightening, which suggests that we shouldn't expect the BOJ to take significant actions to strengthen the yen in the near future.

The net short position on JPY slightly adjusted by 114 million during the reporting week, reaching -9.269 billion. The bearish bias is unquestionable. The estimated price is above the long-term average, indicating a bullish trend.

USD/JPY, as expected, continued its rise and stopped a few points away from the technical resistance at 142.50. Considering that the estimated price has slowed down its growth, the chances of a corrective decline have increased, with the nearest support at 140.90. In the event of hawkish hints from the BOJ, a decline towards the middle of the 138.50/90 channel is possible. However, the long-term trend remains confidently bullish, so a deep correction is not expected. The nearest goal is to consolidate above 142.50, followed by a transition into a sideways range, as there are also few grounds for a strong continuation of the upward movement.

[KostiaFM]

EUR/USD and GBP/USD: Trading plan for beginners on July 10, 2023

Details of the economic calendar on July 7
U.S. labor market continues to show strength. Statistical data on the U.S. labor market indicates that the number of non-farm payrolls increased by 209,000 in June, slightly below the expected growth of 225,000. The unemployment rate also decreased to 3.6%, in line with expectations. These indicators indicate the ongoing strengthening of the American labor market.

Analysis of trading charts from July 7
The EUR/USD currency pair has nearly fully recovered its value after a recent correction. However, a resistance level around 1.1000 still stands in the way of buyers.

The GBP/USD pair has reached a local high in the process of inertial movement within a medium-term upward trend. As a result, there has been a reduction in long positions, leading to a price pullback.

Economic calendar for July 10
Monday is traditionally accompanied by an empty macroeconomic calendar. No important statistical data is expected to be published in the European Union, the United Kingdom, and the United States.

Therefore, investors and traders intend to rely on the incoming flow of information and news.

EUR/USD trading plan for July 10
Due to the technical overbought signal of the euro in the short-term and intraday periods, a price pullback is possible. To continue the current upward cycle, market participants need to overcome the resistance level around 1.1000. If the price remains consistently above this level, it may stimulate an increase in long positions.

GBP/USD trading plan for July 10
In this situation, the return of the price to the local high indicates a prevailing bullish sentiment among market participants. The pullback we are observing can serve as a stage for regrouping trading forces before further growth. To confirm the continuation of the upward trend, it is necessary to keep the price above the level of 1.2850, which may trigger a technical signal for further growth.

What's on the charts
The candlestick chart type is white and black graphic rectangles with lines above and below. With a detailed analysis of each individual candle, you can see its characteristics relative to a particular time frame: opening price, closing price, intraday high and low.

Horizontal levels are price coordinates, relative to which a price may stop or reverse its trajectory. In the market, these levels are called support and resistance.

Circles and rectangles are highlighted examples where the price reversed in history. This color highlighting indicates horizontal lines that may put pressure on the asset's price in the future.

The up/down arrows are landmarks of the possible price direction in the future.

[KostiaFM]

The dollar train has already left

The Federal Reserve has clearly won the fight against inflation. Victory is not inevitable, and its timing is not determined, but no one is talking about stagflation or hyperinflation at the moment. The markets responded favorably to the June consumer price index, fueling the dollar sell-off. EUR/USD surged to 15-month highs, and this is far from the limit. Economists at Deutsche Bank expect EUR/USD to rise to 1.15 by Q4 2023, while Eurizon SLJ Capital suggests the 1.2 level.

When the divergence in monetary policy between the European Central Bank and the Federal Reserve is accompanied by heightened global risk appetite and the decline of American exceptionalism, the US dollar is forced to raise the white flag. Currently, the gap between consumer and producer prices is at a record high. When such situations have occurred in the past, stock markets have risen. This has happened either in the very late stages of a recession or in the early stages of an upturn.

Dynamics of final demand and finished goods prices in the US
It is quite possible that the United States will be able to avoid the recession that has been talked about for so long. The markets are envisioning a Goldilocks scenario—a combination of slowing inflation and steady GDP growth just below trend. It's no wonder that the S&P 500 reached a 15-month peak. It is difficult for the US dollar, as a safe-haven asset, to withstand such a significant improvement in global risk appetite.

The Fed's aggressive policies will eventually start to slow down the economy. Meanwhile, China is likely to accelerate the recovery of its GDP, which will have a favorable impact on the export-oriented eurozone. As a result, the bullish factor of American exceptionalism for the US dollar will become a thing of the past.

The hawkish comments from FOMC officials don't help the EUR/USD bears either. Christopher Waller still expects a federal funds rate hike to 5.75% and claims that making decisions based on a single inflation report is reckless. We can't sit and wait for the economy to cool down. It's like waiting on the platform for a train that has already left.

At the same time, the euro is supported by the minutes of the June ECB meeting and a speech by Isabel Schnabel. The ECB official said that despite the slowdown in inflation, markets are sending different signals. They reflect investors' concerns about whether the central bank has done enough to tackle high prices. In the latest Governing Council meeting, one official voted for an immediate 50 bps rate hike.

It seems that the ECB is not planning to stop, while the Fed may force a significant inflation slowdown. Along with heightened global risk appetite and the loss of American exceptionalism, this allows us to expect that the euro will continue to rally against the US dollar.

Technically, on the EUR/USD daily chart, reaching targets at 127.2% and 224% based on the AB=CD pattern increases the risk of a pullback. For this to happen, the pair would need to drop below the pivot level of 1.1215. Any decline should be used to form long positions.

[KostiaFM]

Stock rally may resume over fresh US data

Market balance returned, as indicated by the slight weakening in dollar and consolidation of Treasury yields, as well as the attempts of stock markets to resume a rally following the release of data indicating a sharp decrease in consumer inflation in the US.

It seems that investors realized that the Fed could just be using verbal interventions, and that further rate hikes may not happen anymore since inflation continues to decline. Accordingly, expectations that the US economy will plunge into a deep recession dropped noticeably, while the economy's current precarious balance shows real possibilities for recovery.

The release of important economic data today, namely the data on retail sales and their volumes in the US, could serve as an additional positive signal for the markets. Forecasts say the core index will sharply rise from the May value of 0.1% to 0.3% in June, while the volume of retail sales will increase 0.5% m/m, from 0.3% a month before.

In addition to these data, the volume of industrial production in the US will also attract attention. In monthly terms, the indicator may demonstrate zero dynamics, in contrast to the 0.2% decrease in May. However, in annual terms, a sharp increase to 1.10% may be seen, from 0.25% in the previous period.

If these important indicators do not disappoint, they may stimulate a new wave of demand for risk assets, accompanied by a weakening of dollar and increase in commodity assets. After all, positive news from the US indicates the gradual recovery of the local economy and move away from the edge of recession.

In such a situation, major players will start to respond unequivocally by purchasing previously undervalued assets in anticipation of their prospective growth.

Forecasts for today:

XAU/USD

Gold rose in price as dollar demand weakened amid decline in expectations for further interest rate hikes in the US. Continued positive market sentiment may provoke a breakdown of 1963.20, which will lead to a rise towards 1981.20.

USD/CAD

Further growth may occur if inflation data in Canada shows a decrease, since such a situation may mean that the Bank of Canada will pause its interest rate hikes at the next meeting. If that happens, the pair will rise above 1.3230 and head towards 1.3375.

[KostiaFM]

Intriguing trends in the US stock market: Dow Jones confidently grows by 0.47%, but what awaits other indices?

Shares of Johnson & Johnson became the real stars of the day, gaining 6.07%, closing at 168.38. Significant growth was also noted in the shares of Goldman Sachs Group Inc, rising by 3.03% and closing at 350.86, while Boeing Co showed a price increase of 2.40%, settling at 213.61.

Meanwhile, some sectors, such as technology, consumer goods, and consumer services, experienced negative dynamics. It's surprising, as the market is such that today some sectors may experience a decline, while tomorrow becoming the leaders of growth.

It is interesting to note that the markets evaluate ambiguous macro-statistics, and this affects the overall picture. The number of initial jobless claims in the US for the week surprised experts by decreasing by 9 thousand to 228 thousand, while the forecast suggested an increase to 242 thousand. However, the number of home sales transactions in the secondary market in the US decreased by 3.3% in June compared to May, reaching 4.16 million transactions, against the forecast of 4.2 million.

The New York Stock Exchange also didn't stay away from the market's diverse movements. The Dow Jones index demonstrated a slight increase of 0.47%, reaching a 52-week high. Meanwhile, the S&P 500 index slightly fell by 0.68%, and the NASDAQ Composite index decreased by 2.05%.

Days like these, full of volatility and opportunities, always keep investors on their toes. It's precisely during such moments that unique chances and advantageous opportunities arise for true adventurers in the financial markets.

At the top of the growth were the shares of Johnson & Johnson (NYSE: JNJ), showing unwavering strength, with a gain of 6.07%, equivalent to 9.64 points, and closing at 168.38. In second place were the quotes of Goldman Sachs Group Inc (NYSE: GS), which, like sprinters, rose by 3.03% or 10.31 points, finishing the session at 350.86. We cannot overlook Boeing Co (NYSE: BA), which added 2.40% or 5.01 points to the price of its shares, closing at 213.61.

While growth characterized the leaders, there were also those who faced challenges and dropped from the top. Among the declining stocks, Intel Corporation (NASDAQ: INTC) drew attention, losing 3.16% or 1.09 points, closing the session at 33.37. However, the shares of Salesforce Inc (NYSE: CRM) demonstrated strength and growth of 2.65% or 6.21 points, closing at 228.16. Microsoft Corporation (NASDAQ: MSFT) encountered some difficulties, losing 2.31% or 8.21 points but still holding at 346.87.

Impressive growth is also characteristic for some components of the S&P 500 index. For example, the shares of Zions Bancorporation (NASDAQ: ZION) rose by a significant 9.98%, reaching the mark of 37.90. And, of course, our growth leader of the day is Johnson & Johnson (NYSE: JNJ), showing remarkable growth of 6.07% and closing at 168.38. Finally, let's not overlook the shares of Allstate Corp (NYSE: ALL), which rose by 5.85% and closed at 111.98.

On the other hand, the leaders of decline were the shares of Discover Financial Services (NYSE: DFS), which decreased in price by 15.92%, closing at 102.45. Tesla's shares (TSLA.O) fell by 9.74%, marking the largest one-day percentage decline since April 20, after the electric vehicle manufacturer reported a drop in second-quarter gross profit to a four-year low, and CEO Elon Musk hinted at further price cuts. The quotes of Equifax Inc (NYSE: EFX) also dropped by 8.89% to 216.37.

Among the components of the NASDAQ Composite index, the growth leaders in today's trading were the shares of Guardforce AI Co Ltd (NASDAQ: GFAI), which increased by 57.46% to 6.44, Evelo Biosciences Inc (NASDAQ: EVLO), gaining 52.40% and closing at 9.86, and Sirius XM Holding Inc (NASDAQ: SIRI), rising by 42.26% and finishing the session at 7.81.

Despite the mixed trends, some stocks stand out with their extraordinary dynamics.

Shares of Discover Financial Services (NYSE: DFS) faced challenges this time around and fell a hefty 15.92% to close at 102.45.

Similarly, the shares of Tesla (TSLA.O) also attracted attention with a loss of 9.74%. This marked the largest one-day percentage decline since April 20. The drop was attributed to the announcement of a decline in gross profit in the second quarter to a four-year low, as well as hints from CEO Elon Musk about possible price reductions.

Meanwhile, the shares of Equifax Inc (NYSE: EFX) also experienced a decline, dropping by 8.89% to 216.37.

However, not only the decline is noteworthy in the market. Among the components of the NASDAQ Composite index, some stocks stand out as strong growth leaders. For example, the shares of Guardforce AI Co Ltd (NASDAQ: GFAI) astonished with a surge of 57.46%, reaching 6.44. They were followed by the shares of Evelo Biosciences Inc (NASDAQ: EVLO), which rose by 52.40% and closed at 9.86, and the shares of Sirius XM Holding Inc (NASDAQ: SIRI), showing growth of 42.26% and finishing the session at 7.81.

On the other hand, the shares of Vir Biotechnology Inc (NASDAQ: VIR) drew attention with a significant price drop of 44.90%, closing at 12.70. The shares of Netcapital Inc (NASDAQ: NCPL) also experienced a decline of 41.88%, ending the session at 0.68. Additionally, the quotes of Durect Corporation (NASDAQ: DRRX) also suffered a decrease of 33.13%, reaching 3.29.

It is interesting to note that Netflix (NFLX.O) shares faced a major challenge, falling 8.41%.

This marked the largest one-day percentage decline since December 15, and it happened after the company's quarterly revenue in the streaming video sector did not meet market expectations.

Despite the decline in the Nasdaq index, the Dow (.DJI) continues to delight investors with its steady performance. It registered its ninth consecutive session of growth, making it the longest winning streak since September 2017.

The situation on the New York Stock Exchange also left its mark. The number of declining stocks (1710) exceeded the number of those closing in the positive (1240), and 80 stocks remained virtually unchanged. The Nasdaq stock exchange also experienced fluctuations: shares of 2246 companies declined, 1286 rose, and 131 remained at the same level as the previous closing.

The stock market is showing an increase in volatility, reflecting the instability and fluctuations in the market. The CBOE Volatility Index, which is based on S&P 500 options trading, rose by 1.67% and reached a level of 13.99. This indicates that investors are expecting increased uncertainty and more unpredictable movements in the near future.

Currently, there are mixed trends in the commodity market. August gold futures lost 0.45% or $9.00, closing at $1,000 per troy ounce. Meanwhile, September WTI crude oil futures rose by 0.61% or $0.46, reaching $75.75 per barrel. September Brent crude oil futures also showed an increase of 0.29% or $0.23, reaching $79.69 per barrel.

In the currency market, the EUR/USD pair is experiencing a decline of 0.61%, leading to a drop to 1.11. At the same time, USD/JPY quotes rose by 0.29% and reached 140.07. USD index futures also demonstrated growth by 0.56%, settling at 100.54. This indicates a strong position of the US dollar in the market and investors' interest in this currency.

Thus, the current data in the market speaks of unpredictability and warns investors to be more attentive and cautious when making decisions. In such a situation, it is especially important to keep track of global events and economic news to make informed decisions in the market.

[KostiaFM]

The Bank of England will raise interest rates in September

The week ended quite predictably for both instruments, but the wave analysis suggests that it is quite challenging to predict what lies ahead. Both uptrends cannot be impulsive, but they can be five-wave corrective patterns of the a-b-c-d-e kind. Consequently, quotes can rise within the wave e. The recent downward waves have taken a three-wave corrective pattern at the moment, which corresponds to a corrective status but not an impulsive one. However, after three waves, two more waves can be built. Based on the above, both instruments, from current levels, have an equal probability of either starting a new upward movement or extending the decline.

In this situation, I recommend focusing on the nearest Fibonacci levels. For the euro, the wave analysis is somewhat more complicated, while for the pound, we see a clear three-wave downward movement. A successful attempt to break the 161.8% Fibonacci level may indicate the end of the downward wave, which would be the fourth wave within an uptrend. The euro may also construct a similar wave formation.

The question of further interest rate hikes by the Bank of England is also crucial for the market right now. Many analysts (including myself) believe that the tightening cycle will end this year, with only three meetings remaining until the end of the year. The next meeting is likely to result in a 100% rate hike, as BoE Governor Andrew Bailey has not signaled any pause, and inflation remains high. Bailey has also given an approximate inflation target for autumn 2023. If inflation decreases to 5%, the BoE will take a less aggressive approach to interest rates.

In November, the probability of a rate hike is 50/50. Consequently, by December, the likelihood of a rate increase approaches zero. This implies that, at best, there may be two more rate hikes. Meanwhile, the FOMC may raise rates one more time, resulting in almost complete parity between the two central banks. In my view, this scenario suggests a horizontal movement or continuation of the downward trend, but not a new upward wave for both instruments. After all, the ECB is also starting to talk about a possible pause in September in recent weeks.

Therefore, I believe that there's a high probability that both instruments will fall, and the nearest Fibonacci levels should help determine the resumption of the downward movement. I also want to draw attention to the similarity in the movements of the euro and the pound. Hence, a signal for one instrument can be used for the other as well.

Based on the conducted analysis, I conclude that the formation of the upward wave set is complete. I still consider targets around 1.0500-1.0600 quite realistic, and with these targets in mind, I recommend selling the instrument. The a-b-c structure looks complete and convincing, and closing below the 1.1172 mark indirectly confirms the formation of the downtrend segment. Therefore, I insist on selling the instrument with targets around 1.0836 and below. I believe that the formation of the downtrend segment will continue.

The wave pattern of the GBP/USD instrument suggests a decline. As the attempt to break the 1.3084 mark (from top to bottom) was successful, my readers were able to open short positions, as I mentioned in my recent reviews. The target was set at 1.2618 and the pair managed to reach this mark. There is a risk of completing the current downward wave if it is the 4th wave. In this case, a new upward movement will start from the current levels as part of the 5th wave. In my opinion, this is not the most likely scenario, and a successful attempt to break 1.2618 (or an unsuccessful attempt at 1.2840) will indicate the market's readiness to continue building the downward wave and trend segment.

[KostiaFM]

EUR/USD: euro holds ground despite stronger dollar

The US dollar started the day on a positive note, attempting once again to overtake its European counterpart. However, the euro is not giving up so easily and continues to fight for leadership in the EUR/USD pair. At the beginning of this week, the greenback retreated slightly, but quickly made up for its early losses.

According to analysts, the dollar's recent failures were temporary and were not able to drag the currency into negative territory. Neither the recent downgrade of the US credit rating nor the unstable macroeconomic data published by the US Department of Labor managed to undermine the greenback's position. In July, the US job market added 187,000 new jobs, following the 185,000 previously recorded. Although these figures fell short of the anticipated 205,000, experts assessed the overall macroeconomic outlook as positive.

Analysts often say that the Nonfarm Payroll (NFP) is one of the most unpredictable indicators. This is why any dramatic shifts in the market or any reviews of the Fed's current decision were highly unlikely. According to Austan D. Goolsbee, head of the Chicago Fed, the American job market should "find its balance" soon. The official had previously remarked that while the US labor market is cooling down, it's "still exceptionally hot."

According to estimates, overall employment growth in the US was slightly below expectations. However, the increase in wages and the decrease in unemployment rates might provide reasons for the Fed to consider another rate hike. The return of the unemployment rate to 3.5% is particularly noteworthy. Analysts believe this rate is now at cyclical lows, which continues to exert inflationary pressure. In this context, the Federal Reserve may find it hard to soften its stance, experts believe.

In addition to this, hourly wages grew more than expected (by 0.4% MoM) over the reporting period, maintaining an annual rate of 4.4% set earlier this year. With such wage growth, rates and employment figures, inflation is unlikely to ease. In the current scenario, the Fed might further tighten its monetary policy.

This sentiment is shared by Atlanta Fed President Raphael Bostic. Last Friday, August 4, he told Bloomberg that the central bank would maintain its restrictive monetary policy until 2024. This is crucial to achieve a target rate of 2%, the official reiterated.

Against this backdrop, the dollar has noticeably appreciated against other major currencies, primarily the yen and the euro. The greenback's strengthening was driven by the latest import and export reports from China. Official data indicates that from January to July, exports from China decreased by 5%, while imports fell by 7.6% year-on-year. Additionally, last month both indicators plunged by 14.5% and 12.4% respectively.

At the start of the week, the greenback managed to stabilize after a moment of weakness. On Tuesday morning, August 8, the EUR/USD pair was trading near 1.0997 before rising quickly to 1.1000 and breaking through it. EUR/USD is expected to hit new record highs and its next target is believed to be the 1.1100 mark.

Today, the market's focus is on significant macroeconomic data from the United States, with analysts expecting a noticeable decrease in inflation in the short term. On Thursday, August 10, the country's Department of Labor will publish these reports. According to preliminary forecasts, consumer prices in America surged by 3.3% year-over-year in July.

The data on US consumer prices will help investors assess the results of the Federal Reserve's prolonged cycle of monetary policy tightening. In addition, inflation is projected to have accelerated over the past month.

Current macro statistics will help forecast the Federal Reserve's next step and partly predict its actions at the September meeting. Meanwhile, the majority of analysts (86.5%) believe that the regulator will maintain the key rate at the current level of 5.25%-5.5%. Other experts assume there might be a slight increase.

Last week, tensions escalated in the global stock market after the deterioration of the American credit rating. Against this backdrop, market participants were seriously afraid of widespread sell-offs, but this did not happen. Moreover, the market managed to avoid the correction that many feared after a 7-month period of growth. As a result, the market found relative stability as traders and investors did not rush to lock in profits and sell securities in their portfolios.

Fitch's recent decision has not negatively affected the US currency rate. According to analysts' observations, the US dollar index (DXY) closed last week with gains, showing a short-term dip. Earlier, in August 2011, S&P Global Ratings downgraded the US credit rating amid problems with the debt ceiling. However, these actions also barely affected the national currency. Moreover, the dollar index closed 2021 with a 7% growth, and during that time, it added over 30%.

According to analysts, in the medium and long-term planning horizons, the greenback will maintain stability. A more positive scenario implies a sustained upward trend of the US dollar against the euro. According to Jane Foley, Head of Currency Market at Rabobank, the dollar is still considered a safe-haven currency "thanks to its massive share in international payments." The currency strategist at Rabobank acknowledges that the greenback may lose its dominant positions over time "but it is unlikely to happen in the next 20, 30, or 40 years."

Many specialists assume that the trajectory of the American currency will largely depend on the Federal Reserve's monetary policy. Besides, USD will continue to gain support thanks to the confident growth of the US economy.

[KostiaFM]

The global economy is slowing down, risk appetite is decreasing, and the USS is experiencing increased demand. Overview of USD, CAD, JPY

Activity in the currency market remains subdued in the absence of significant economic reports, with the main focus on the US inflation report on Thursday, which could lead to more pronounced movements.

Risk assets are still under pressure due to weak data from China, indicating a decline in global demand. Following Tuesday's disappointing external trade data, it was revealed that China's economy has slipped into deflation, with inflation turning negative at -0.3% YoY in July. Consumer prices rarely decrease in China, and given that other countries continue to grapple with high inflation, this is a worrying sign for the global economy as a whole.

The US dollar remains the leader in the currency market, playing the role of the primary safe-haven currency in the current conditions.

USD/CAD
The Canadian dollar has received several sensitive blows and lost its positive momentum against the USD. The labor market report for July showed a decrease in the number of new jobs (-6.4K), while an increase of 21.1K was forecasted, which is particularly noticeable against the backdrop of strong growth in June (+59.9K).

The unemployment rate rose from 5.4% to 5.5%, and more importantly, the average wage growth increased from 3.9% YoY to 5% YoY. Wage growth is usually a bullish factor as it fuels high inflation, but with simultaneous economic slowdown, this factor begins to work against it.

The Ivey Purchasing Managers Index (PMI) for July dipped into contraction territory, hitting a multi-month low of 48.6 points. This indicates an economic slowdown. However, the price sub-index rose to a 5-month high, increasing from 60.6 points to 65.1 points.

The Canadian economy has suddenly lost the advantage that allowed for expectations of sustainable CAD growth. Inflation remains strong, and to contain it, it is logical to anticipate further actions by the Bank of Canada. These expectations are in favor of CAD strengthening. However, simultaneously, a slowdown in activity with further tightening of monetary policy could lead Canada's economy into a recession. This, on the contrary, limits the resolve of the Bank of Canada.

The unstable equilibrium deprives the Canadian currency of its advantage, weakening the bullish momentum.

The net long position on CAD has increased slightly over the reporting week, with positioning being neutral. However, the calculated price after the release of the disappointing employment report turned upwards and moved above the long-term average.

The sharp upward turn in the calculated price reduces the chances of a confident resumption of USD/CAD decline. Currently, the pair is trading near the middle of a corrective bearish channel. If no additional arguments arise from the Canadian side, the likelihood of further growth will remain high. The long-term target is the upper band of the channel at 1.3690/3720, with support at 1.3350/70.

USD/JPY
The key question that will determine the fate of the Japanese yen remains how resolutely the Bank of Japan is prepared to act in order to reduce domestic inflation. Alternatively, the Bank might continue adopting a wait-and-see position, resorting to adjustments to the current monetary policy.

Possible hawkish steps by the BOJ involve two potential actions - either a complete abandonment of the yield curve control (YCC) policy or a withdrawal from negative interest rates. Any actions in this direction will be interpreted by the market as a hawkish signal, leading to yen strengthening. Conversely, maintaining the current policy will inevitably contribute to further yen weakening.

The recent comments from BOJ officials after the July 28 meeting are cautious and do not provide grounds to expect any decisive steps. For example, BOJ Deputy Chief Uchida Shinichi stated at a press conference that the Bank is "considering an exit from monetary easing but does not see reasons for any actions in the foreseeable future," and that the decision is still "far off."

In other words, the "wait and see" policy remains in place. The yen can start to strengthen under current conditions only if negative trends in the global economy intensify, leading to a noticeable increase in demand for safe-haven assets. As long as there is no reason for such a scenario, there is no reason for yen strengthening.

The net short position on the yen has slightly increased over the reporting week and solidified just above -7 billion, speculative positioning is confidently bearish. The calculated price is above the long-term average and aimed at continuation of growth.

The development of the upward movement for USD/JPY is still the main scenario, despite attempts at consolidation near the 143 level. A week ago, we identified the local high at 145.06 as the target for bullish momentum development and the upper band of the channel at 147.30/70 as the long-term target. These targets remain relevant and can only be adjusted in case of truly significant changes from the BOJ in its monetary policy. As long as changes are cosmetic, the dollar is objectively stronger in this pair.

[KostiaFM]

EUR/USD. Weekly preview. US retail sales, Fed minutes, ZEW indices

Over the course of the first two weeks of August, the EUR/USD pair has failed to establish a clear direction. Despite prevailing bearish sentiments, sellers have been unable to solidify their position at the base of the 9th figure, let alone breach the support level at 1.0870. All of this indicates that the bears are hesitant, who are eager to lock in profits as soon as the price dips below the 1.0950 level (the middle line of the Bollinger Bands indicator on the weekly chart). The significant events of the previous week, like China's foreign trade data, the downgrade of American banks' ratings by Moody's, and the US inflation reports, led to a certain level of volatility. However, once again, the price remained within the confines of the 9th figure, with a brief impulsive surge to 1.1062. The pair completed a circle and returned to it's previous positions.

The economic calendar for the upcoming trading week is relatively modest, although not entirely devoid of events. Let's review the main highlights of the next five days.

Monday - Tuesday
At the start of the trading week, the pair is likely to trade with the momentum of Friday. Monday's economic calendar is almost empty, with perhaps the German Wholesale Price Index being of interest. This indicator is expected to show a positive trend, but will still remain in the negative territory, both on a yearly basis (-2.6%) and on a monthly basis (-0.1%).

The main release on Tuesday is the US Retail Sales report. Positive dynamics are anticipated here. According to forecasts, retail sales volume in the US is expected to increase by 0.4% in July, following a 0.2% growth in June. Excluding auto sales, the indicator is also projected to rise by 0.4%. Additionally, the Empire State Manufacturing Index, which is based on a survey of manufacturers in the New York Federal Reserve District, will be released on Tuesday. Here, on the contrary, negative dynamics are expected, with the indicator predicted to decline to -0.3.

Furthermore, on Tuesday, Neel Kashkari, the President of the Federal Reserve Bank of Minneapolis, will be speaking. He could potentially generate increased volatility among the dollar pairs. Firstly, he holds voting rights in the Committee this year. Secondly, Kashkari has already commented on recent inflation releases, and his tone was rather positive. According to him, the US central bank has made "good progress" in combating inflation. If he voices similar rhetoric next week, the dollar might come under pressure again.

During the European session on Tuesday, traders should pay attention to the German ZEW Economic Sentiment indices. In particular, the business sentiment index for Germany in August is expected to remain at the July level of -12 points. The business expectations index is expected to deteriorate to -15 points (the worst reading since December 2022). The current situation index is also projected to worsen to -63 points (the lowest reading since November of the previous year).

Wednesday
On Wednesday, EUR/USD traders will focus on the minutes of the July Federal Reserve meeting. Recall that the outcomes of the July meeting did not favor the US dollar. Among all the possible scenarios, the Fed implemented perhaps the most dovish one. The US central bank tied the fate of the interest rate to the dynamics of key macroeconomic indicators. The central bank retained the key formulations of the accompanying statement in their previous form, and Fed Chairman Jerome Powell, during the final press conference, indicated that the September Fed meeting could end with either another rate hike or keeping it unchanged. He emphasized that the central bank in the fall will evaluate the entire set of macroeconomic data "with special emphasis on progress in the field of inflation." The Fed's indecisive stance was interpreted against the US dollar.

A hawkish tone in the minutes of the July meeting could provide support to the US dollar, especially since this meeting took place before the release of US inflation data for July. However, in my opinion, the document will likely reflect the Fed members' hesitant stance, considering the corresponding formulations in the final communique.

In addition, on Wednesday, the report on the volume of building permits issued in the US will be released (expected growth of 1.1%), as well as the industrial production report (also expected to grow by 0.3%, following two months of negative dynamics).

Thursday
On Thursday, traders should focus on the Philadelphia Federal Reserve's Manufacturing Index. The indicator has been in the negative zone since September 2022. According to forecasts, in August, the index will also remain below the "waterline" but will demonstrate positive dynamics, rising to the level of -9.8 points.

Furthermore, on Thursday, traders could also pay attention to the Initial Jobless Claims data in the US. Over the past two weeks, this indicator has been rising, and according to forecasts, this trend will continue: next week, the number of claims is expected to increase by 250,000 (last week - 248,000, the week before last - 227,000).

Friday
The economic calendar for the final trading day of the week is not packed with events for the EUR/USD pair. The only thing of interest is the eurozone inflation data for July. We will learn the final assessment of July's Consumer Price Index (CPI), which, according to forecasts, should match the initial assessment (a decrease in the Consumer Price Index and an increase to 5.5% in the core CPI).

Conclusions
The EUR/USD pair is in a hanging state. In order to develop a downtrend, sellers need more than just to establish themselves at the base of the 9th figure – they need to overcome the support level of 1.0870 – at this price point, the lower line of the Bollinger Bands indicator on the daily chart coincides with the upper and lower bands of the Kumo cloud. If the bears break through this price barrier, the Ichimoku indicator will form a bearish "Parade of Lines" signal, indicating the strength of the downward movement. This is not an easy task, considering the fact that over the last two weeks, the downward momentum has faded at the base of the 9th figure.

The bulls don't have an easy task either: they need to establish themselves above the 1.1050 mark – this is the upper line of the Bollinger Bands, coinciding with the Kijun-sen line on the same timeframe. In that case, the pair can move towards the 11th figure. However, throughout August, buyers only impulsively tested the 1.1050 target, afterwards they retreated, locking in profits. Given the relatively uneventful economic calendar for the upcoming week, we can assume that the pair will continue to trade within the range of 1.0950 – 1.1050, with periodic attempts to establish themselves at the base of the 9th figure.

[KostiaFM]

Growth in yields and stable inflation suggest further rate hikes. USD, EUR, GBP Review

The net short position in USD grew by $490 million to -$16.272 billion over the reporting week after a strong correction a week earlier. The decline is largely related to long positions on the euro, and in terms of other major currencies, the notable trend is selling across all significant commodity currencies (Canadian, Australian, New Zealand dollars, and also the Mexican peso). The yen and franc are slightly doing better, i.e., there is demand for safe-haven currencies and a sell-off in commodity currencies. Since long positions in gold have decreased by $4.5 billion, we can expect increasing demand for the US dollar.

PMIs for the eurozone, the UK, and the US will be published on Wednesday, which can significantly influence the rate forecasts of the European Central Bank, the Bank of England, and the Federal Reserve. Last week, we witnessed a clear uptrend in bond yields, suggesting increased demand for risk amid more upbeat economic reports. At the same time, we see a sharp deterioration in China's economy, which, on the contrary, points to slowing demand. This dilemma may be resolved after the release of the PMIs, so we can expect increased volatility.

EUR/USD
The final estimate confirmed that the euro area annual inflation rate was 5.3% in July 2023, with core inflation unchanged at 5.5%. Since there are no seasonal factors that could explain the price increase at the moment, it would be best to assume the most obvious explanation - price growth is supported by broad price pressures in the growing services sector.

Stubborn inflation supports market expectations that the ECB will raise rates in September, and this increase is already reflected in current prices. The strong labor market is also in favor of a rate hike.

After a sharp decrease a week earlier, the net long position in the euro grew by $1.275 billion, putting the bearish trend into question. The settlement price is below the long-term average, giving grounds to expect a continuation of the euro's decline, but the momentum has noticeably weakened.

A week earlier, we assumed that the bearish trend would continue. Indeed, the euro consistently passed two support levels, but did not reach the 1.0830 level. The resistance at 1.0960, which the euro can reach if a correction develops, is still considered in the long term. We assume that the trend remains bearish, and the 1.0830 level will be tested in the short term.

GBP/USD
Inflation in July fell from 7.9% to 6.8%. This is mostly due to the fall in the marginal price of OFGEM (Office of Gas and Electricity Markets) from 2500 pounds to 2074. Without this decline, inflation would have still fallen, but much less - to 7.3%.

Despite the sharp decline, inflation remains at a very high level, and further falls in the marginal price of energy carriers are unlikely. The NIESR Institute suggests that, among the possible scenarios for future inflation behavior, we should choose between "very high", assuming an average annual inflation of around 5% over 12 months, and "high persistence", which is equivalent to an annual level of 7.4%. Needless to say, both scenarios imply inflation higher than in the US, so the likelihood of a higher BoE rate remains, leading to a yield spread in favor of the pound.

These considerations do not allow the pound to fall and support it against the dollar, while against most major currencies, the dollar continues to grow.

After three weeks of decline, the long position in GBP grew by $302 million to $4.049 billion. Positioning is bullish, the price is still below the long-term average, but, as in the case of the euro, an upward reversal is emerging.

In the previous review, we assumed that the pound would continue to decline, but UK inflation pressure remains stubborn, which changed the rate forecast and supported the pound. A correction may develop, and the nearest resistance level is 1.2813. If the pound goes higher, the long-term forecast will be revised. At the same time, we still consider the bearish trend, and the chances of restoring growth are high, with the nearest target being the support area of 1.2590/2620.

[PapiaKhatunAsha]

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[KostiaFM]

The most interesting events this week

The previous trading week was filled with important events and reports. When looking at the range and movements of both instruments, one might wonder: why was it so subdued? It was reasonable to expect stronger movements and market reactions. To briefly recap, key reports from the United States turned out weaker than market expectations. Even the stronger ones left a peculiar impression. GDP grew by 2.1% in the second quarter, not the expected 2.4%. The ADP report showed fewer new jobs than expected. Nonfarm Payrolls reported more jobs, but the previous month's figure was revised downward. The ISM Manufacturing Index increased but remained below the 50.0 mark. The unemployment rate rose to 3.8%, which few had anticipated.

Based on all these reports, one might have assumed that it was time to build a corrective upward wave, but on Thursday and Friday, the market raised demand for the US dollar, so both instruments ended the week near their recent lows. So what can we expect this week?

On Monday, the most interesting event will be European Central Bank President Christine Lagarde's speech.

On Tuesday, another speech by Lagarde, as well as Services PMIs of the European Union, Germany, and the United Kingdom. We can also expect speeches by other members of the ECB Governing Council. I advise you to monitor the information related to Lagarde's speeches. If she softens her stance, it can have a negative impact on the euro's positions.

Wednesday will begin with a report on retail trade in the EU and end with the US ISM Services PMI. We can consider the ISM report as the main item of the week, although the ISM Manufacturing PMI that was released on Friday did not stir much market reaction. It is likely that the index will remain above the 52.7 mark, which is unlikely to trigger a market reaction.

On Thursday, you should pay attention to the final estimate of GDP in the second quarter for the European Union. If it comes in below 0.3% quarter-on-quarter, the market may reduce demand for the euro. The US will release its weekly report on initial jobless claims. On Friday, Germany will publish its inflation report for August, and that's about it. There are hardly any important events and reports this week.

Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still believe that targets in the 1.0500-1.0600 range are feasible, and I recommend selling the instrument with these targets in mind. I will continue to sell the instrument with targets located near the levels of 1.0637 and 1.0483. A successful attempt to break through the 1.0788 level will indicate the market's readiness to sell further, and then we can expect the aforementioned targets, which I have been talking about for several weeks and months.

[KostiaFM]

Trading Signal for GOLD (XAU/USD) on September 12-13, 2023: buy above $1,919 (3/8 Murray - 21 SMA)

Early in the European session, gold (XAU/USD) is trading around 1,923.19, above the 3/8 Murray, and above the 21 SMA. On the 4-hour chart, we see that gold is consolidating within a bullish trend channel formed since August 6.

If theinstrument remains above 1,919 in the next few hours, we could expect it to continue rising and the price could reach the top of this channel around 1,930.

According to the 4-hour chart, the bears are gaining strength in the short term, but overall, XAU/USD remains consolidated around 1,920 - 1,930. XAU/USD is above the daily pivot point which gives it a positive outlook. The key level is 1,923, above which gold is expected to continue rising to 1,930 and up to 1,953 (5/8 Murray).

In case gold trades below 1,919, a bearish acceleration is expected to occur, but for this, we should wait for confirmation below 1,915, which could be seen as a signal to sell with the first target of 2/8 Murray at 1,906. The price could even reach the psychological level of 1,900.

Meanwhile, gold might produce a positive signal if it manages to settle above 1,920. Then, there will be an opportunity to buy with targets at 1,930, 1,937, and 1,953.

The eagle indicator is giving a positive signal. However, if the gold price falls below 1,915, we should avoid buying. If this scenario does not occur at the current price levels, we could buy with the target at 1,953 in the short term.

[KostiaFM]

EUR/USD: The euro falls after hawkish ECB surprise

The European Central Bank surprised market participants by raising interest rates by 25 basis points. We must pay tribute to the ECB – it hasn't forgotten how to surprise! Although such unexpected moves, typical of, say, the Reserve Bank of New Zealand, are not characteristic of the ECB – they indicate a weak level of communication. Some hints of hawkishness were heard from certain representatives of the Bank (for example, Klaas Knot suggested not underestimating the potential for a hawkish scenario), but overall, the market was largely expecting a different outcome. The probability of maintaining the status quo was estimated at around 60-70%, and this confidence was also shaped by cautious/dovish statements from ECB members. Weak PMIs, ZEW, IFO, a contradictory report on inflation growth in the eurozone, weak retail sales, a decline in industrial output, and a slowdown in the Chinese economy – all these factors also spoke in favor of a wait-and-see stance. Therefore, the ECB's decision is one that goes "against the grain."

However, the determination (in the current circumstances, it can even be called boldness) of ECB members did not help the single currency. Ironically, the unexpected hawkish surprise from the ECB sent EUR/USD plunging. Reacting to the results of the September meeting, the pair hit nearly a 4-month low, marking it at 1.0650 (the lower Bollinger Bands line on the daily chart).

So, what is the reason for such an anomalous market reaction at first glance? The devil, as always, is in the details. The ECB raised interest rates by 25 bps with one hand but effectively put an end to the current cycle of monetary policy tightening with the other. The central bank signaled that interest rates have "reached a level that will make a substantial contribution to containing inflation." Such wording is difficult to interpret, so EUR/USD traders viewed the ECB's decision as the "final chord" of the current cycle.

Interestingly, ECB President Christine Lagarde tried to soften the message during the final press conference, stating that "it is not possible to definitively say that ECB rates have reached their peak at this time." However, judging by the EUR/USD reaction, market participants have already drawn conclusions about the prospects for further monetary tightening.

It is important to note again that most ECB officials were cautious or dovish in the run-up to the September meeting, pointing out signs of economic slowdown (especially after the release of PMIs), cooling labor markets, slowing inflation (particularly core HICP), and a slowdown in bank lending. Thus, they hinted at the need to maintain the status quo. However, after the September meeting, it became clear that inflation, which is still at a high level, worries ECB officials more than the deteriorating economic outlook.

The latest inflation report reflected the "stubbornness" of European inflation. The Consumer Price Index remained unchanged at 5.3% in August (against expectations of a decline to 5.1%). This gauge has been steadily declining since October 2022, moving from its peak of 10.6% to the current target of 5.3%. However, the downtrend has recently stalled. As for core inflation, the situation is somewhat different. Core HICP, excluding energy and food prices, rose actively until March, reaching 5.7%. Then, the gauge gradually lost momentum but remained within a range: it was at 5.3% in May, 5.5% in June and July, and finally, in August, the index returned to 5.3%.

This report was published two weeks ago on August 31st. Since then, discussions in the expert community about the ECB's future actions have not subsided. After a series of disappointing economic reports (as listed above), hawkish expectations diminished, and the balance tipped in favor of a wait-and-see stance. However, as we can see, the ECB decided to "squeeze" inflation without considering the fragile economic growth in the eurozone.

At the same time, the ECB weakened the euro with its "conclusive" rhetoric. In particular, it was stated that interest rates are already at a level that will be maintained "for a sufficiently long time." According to the ECB, this will significantly contribute to reducing inflation. The central bank hinted that another round of monetary tightening within the current cycle is possible, but such a step would be of an extraordinary nature. This rhetoric did not sit well with the euro, particularly with EUR/USD buyers, resulting in the pair remaining below the 1.06 level.

From a technical perspective, the bears reached the support level at 1.0650, which corresponds to the lower Bollinger Bands line on the daily chart but failed to break through it. Therefore, selling appears risky right now, as you may "catch a price bottom." Short positions should be considered once the pair breaks through 1.0650 (in which case the bearish target will be around 1.0600) or during bullish corrections. In the latter case, the target would be 1.0650.

[KostiaFM]

EUR/USD: Short-term rise and bearish outlook. Markets eye Fed meeting

Traders are showing a renewed appetite for the euro at the start of this week. However, it is essential to remain cautious. The trend remains bearish, and the eurozone calendar remains almost empty. The US dollar is under the spotlight this week. Meanwhile, some predict another US dollar rally.

What to expect from EUR/USD this week?

The euro will likely face pressure against the greenback in the coming weeks, especially after dipping below a critical level last week. With no new data from the eurozone, the Fed's upcoming rate decision might not add to this pressure and could even boost the pair's quotes. Everything hinges on the message from the US regulator.

The following trading sessions will be tense. The direction for the EUR/USD pair remains unclear, even if some think otherwise. As we know, markets can quickly shift their sentiment.

Following the European Central Bank's (ECB) recent decision on interest rates, the euro began to decline. The decision confirmed rates would remain steady for the foreseeable future, signaling a pause in rate hikes.

The euro hovered near 1.0675, the lowest level since March 2023.

There were initial attempts for a euro rally after the ECB decided to hike rates by 25 basis points, peaking at 1.0729, but these efforts did not bear fruit. This could lead to a test of this year's range between 1.0500 and 1.1000.

Markets expect the ECB to tighten its policy by approximately 11 basis points and cut by 25 basis points in July 2024. This could pressure the euro, especially if followed by a soft review.

The current instability of the EUR/USD pair suggests a stronger dollar position, especially after falling below the 200-day moving average on the daily chart.

Analysts at Societe Generale say that this looks ominous.

Upcoming economic data is anticipated to show a slowdown, implying a downturn in the eurozone due to high interest rates. This economic slowdown will work against the euro.

The euro might remain at risk until economic growth in the eurozone starts to rebound.

The only silver lining for the euro or British pound, in a context where growth forecasts drive currency trajectories, is that growth expectations for the UK and eurozone are already bleaker than in the US.

This should help prevent a dramatic drop in the EUR/USD or GBP/USD pairs, but the pound could still reach 1.2000 and the euro could fall below 1.0500 if we do not see any positive economic news in the near future.

Euro Technical Analysis

The EUR/USD pair is bracing for a rebound from the multi week low of 1.0630 that was recorded on Friday.

If the pair breaks the 15 September low of 1.0631, the next targets will be the 15 March low of 1.0516 and then the 6 January 2023 low of 1.0481.

If the pair breaks through the level of 1.0827 (200-day simple moving average), it could encourage a bullish move to 1.0922 and then the August 30 high of 1.0945.

A break above this level could facilitate a test of the psychological level of 1.1000 and the August 10 peak at 1.1064.

Fed meeting

The US central bank is preparing to release its latest decisions and recommendations, which may cause volatility for the US dollar. However, many experts believe that major changes in the Fed's monetary policy are unlikely.

Highlights include

Rate Forecasts: Many economists expect the Fed to keep rates at 5.25-5.50%.

Fed Dot Plot. This chart will show how FOMC members see future interest rate movements. Most members will likely indicate that the current rate level will remain unchanged through the end of 2023.

Risks for the US dollar. If the dot plot shows that some Fed members are considering a rate cut in 2024, it could put pressure on the dollar.

Fed Summer Indicators. Two CPI inflation reports are expected to be close to consensus. These data, along with other economic indicators, will confirm that the current level of interest rates is likely adequate to stabilize inflation.

Based on these projections and analysis, the Fed's decisions may confirm the current trend in monetary policy and, as a result, the resilience of the dollar in global markets.

US Dollar Technical Analysis

The US dollar index is near its 2023 high of 105.88. Short-term support and resistance levels are located at 104.44 and 105.88 respectively. The long term support level is marked at 103.04.

Bullish Scenario. If the DXY closes above 105.88 during the week, it could signal further dollar strength in the medium term.

Bearish Scenario. If the index reverses and breaches the level of 104.44, it could signal a significant decline to 103.04.

Economic Outlook. Despite the current difficulties, the US dollar continues to attract investors due to high interest rates, especially compared to the economic situation in Europe and elsewhere.