Crude Oil Futures: Extra weakness not ruled out

CME Group’s flash data for crude oil futures markets noted traders reduced their open interest positions for the fourth consecutive session on Thursday, this time by around 5.5K contracts. Volume followed suit and reversed two straight builds and shrank by around 184.3K contracts.

WTI could retest monthly lows near $76.00

Prices of the barrel of WTI charted and inconclusive session on Thursday. The move was on the back of declining open interest and volume and exposes some lack of direction in the very near term, while the resumption of the previous downtrend should not be ruled out. Against that, another visit to the September low at $76.28 (September 26) remains in the pipeline.

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EUR/JPY Price Analysis: Still scope for a move to 144.00

 

• EUR/JPY comes under some pressure and fades two daily gains in a row.
• There is still room for a potential rebound to the 144.00 region.

EUR/JPY seems to have met decent resistance around daily highs near 142.30 at the end of the week.

The continuation of the bounce off last week’s lows remains on the table in the very near term. That said, the cross could therefore extend the bullish attempt to the weekly top at 144.04 (September 20), which is deemed as the last defense for a move to the 2022 peak at 145.63 (September 12).

In the meantime, while above the key 200-day SMA at 135.84, the constructive outlook for the cross should remain unchanged.

Gold Price Forecast: XAU/USD south-run appears more compelling 

Gold price keeps reversal from the key hurdle, drops back towards yearly low.

Risk-aversion, hawkish central banks joined firmer yields to weigh on XAU/USD.

US Q2 GDP eyed for intraday clues, recession, Russia and central banks are in focus.

Bears can keep reins unless crossing $1,660 resistance confluence.

Gold price (XAU/USD) braces for the fresh yearly low, snapping a two-day uptrend, as the US dollar bulls return to the table after a brief absence the previous day. Fears of global recession and hawkish central bank actions are the major drivers that recently propelled the greenback. On the same line could be the upbeat US trade data and doubts over the Bank of England (BOE) and the People’s Bank of China (PBOC) to tame the economic slowdown woes. It’s worth noting that the chatters surrounding heavy rate hikes from the European Central Bank (ECB) joined the BOE’s surprise bond action to trigger the metal’s biggest daily jump in six months the previous day.

Given the sour sentiment and the XAU/USD pullback from the key hurdles, the bears are likely to keep the reins. However, a close watch over the aforementioned risk catalysts and the final readings of the US Q2 Gross Domestic Product (GDP) appears necessary for clear directions.

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price retreats from multiple strong resistances, suggesting a smooth run towards the south.

That said, a convergence of the previous weekly low and the SMA 100 on the hourly play, near $1,640, appears the immediate support to watch during the quote’s further weakness.

Following that, it can quickly decline towards the joint of the Pivot Point one week S1, close to $1,627.

During the XAU/USD downside past $1,627, the $1,600 appears the favorite among the gold bears.

Alternatively, $1,646 acts as the wall of resistance comprising Pivot Point one month S2, Fibonacci 38.2% on one day and 5-DMA.

If the metal prices cross the $1,646 hurdle, a run-up towards $1,653 can’t be ruled out. However, a convergence of 5-HMA, middle Bollinger on one-hour and Fibonacci 23.6% on one day and one week could challenge the buyers afterward.

It’s worth observing that the bullion’s run-up beyond $1,653 could aim for the last defense of bears, namely $1,660 that comprises the 10-DMA and Fibonacci 38.2% on one week.

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Stocks still look expensive and valuations look high – Morgan Stanley

 Will the fourth quarter bring an end to the bear market? Morgan Stanley’s Global Investment Committee believes this bear market is far from over and recommends investors consider three key dynamics to inform their equity investments going forward.

Stock investors should demand a greater premium for taking on risk

“The paths for interest rates, inflation and corporate profitability all remain uncertain. That’s why stock investors should be demanding a greater premium for taking on risk. In other words, stocks still look expensive, and valuations look high, especially given that inflation-adjusted yields have moved up.”

“Investors could be in for more surprises as they continue to overlook the impact of tightening financial conditions. They should be cautious about investing in long-duration or growth-oriented equities, which currently may not offer fair compensation for the risks of rising rates, weakening operating leverage and the strong US dollar.” 

“Any bear-market rally that may occur in the seasonally strong fourth quarter should be used for rebalancing portfolios and tax-loss harvesting.”

EUR/USD Price Analysis: Bears now target 0.9500

EUR/USD drops for the seventh straight session and tests 0.9535.

Below the 2022 low at 0.9535 comes the 0.9500 region.

EUR/USD extends the leg lower to the proximity of 0.9530 earlier on Wednesday, an area last traded back in June 2002.

Odds for extra weakness in the European currency remain well on the table so far with the immediate target at the 2022 low at 0.9552 (September 26). A deeper drop could challenge the round level at 0.9500 ahead of the weekly low at 0.9411 (June 17 2002).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0667.

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Gold Price Forecast: XAU/USD's slide is attributable mainly to USD's strength – Commerzbank

 On Monday, gold price fell to $1,620. The strong US dollar is the main culprit of the yellow metal’s woes, strategists at Commerzbank note

Gold appears to have lost its role as a safe haven to the USD

“Once again, it is the firm US dollar, which on a trade-weighted basis achieved a 20-year high, that is weighing extremely heavily on its price, as are the significantly higher bond yields.”

“Gold appears to have lost its role as a safe haven to the USD, which thanks to the Fed rate hikes is promising considerable returns again, at least in nominal terms.”

“A glance at the gold price in euros reveals that the slide in the gold price is attributable first and foremost to the strength of the USD: goldin euros has actually risen slightly of late, and at around €1,700 per troy ounce is trading back at its early September level.”

Brent Oil: Below $83.00 next supports align at $77.50 and $73.00 – SocGen

On the first day of the last week of September, crude oil extended last week’s losses. Economists at Société Générale expect Brent to head towards $77.50, then $73.00 on a drop under $83.00.

An initial rebound is on the cards

“Daily MACD is anchored within negative territory which denotes steady downward momentum.”

“An initial bounce is not ruled out, however, $93.50 should provide resistance.”

“Brent is close to downside projections of $83.00. Next potential supports are at the lower band of a descending channel at $77.50 and $73.00.”

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EUR/USD Price Analysis: Scope for further losses near term

EUR/USD bounces off fresh cycle lows near 0.9550.

Extra downside could revisit the 0.9411 level near term.

EUR/USD keeps the bearish note well in place and drops to new 2-decade lows near 0.9550, where some initial contention seems to have emerged.

Rising prospects for extra weakness in the European currency remain well on the table for the time being. That said, the loss of the 2022 low at 0.9552 (September 26) should leave the pair vulnerable to a challenge to the round level at 0.9500 prior to the weekly low at 0.9411 (June 17 2002).

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0685.

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The dollar remains firm as the new week begins – BBH

 Economists at Brown Brothers Harriman & Co. (BBH) maintain a bullish outlook for the US dollar amid the prevalent risk-off environment and last week's hawkish FOMC decision.

Key Quotes:

“Markets were already nervous last week as major central banks tightened aggressively but the huge fiscal policy mistake from the U.K. added further fuel to the fire.  MSCI World tumbled -5% in its worst week since mid-June and is adding to those losses today.  With global growth also slowing significantly, the backdrop for risk assets remains challenging.  We expect the dollar to continue strengthening in this environment even as Fed tightening expectations remain elevated.”

“WIRP suggests another 75 bp hike is almost fully priced in for November 2, as is a follow-up 50 bp hike December 14.  Elsewhere, the swaps market is pricing in a terminal rate of 4.75%.  As a result, U.S. rates continue to rise.  The 2-year yield traded near 4.35% today, the highest since 2007, while the 10-year yield traded near 3.82% Friday, the highest since 2010.  The real 10-year yield traded near 1.40% today, the highest since 2010.  This generalized increase in U.S. yields is likely to continue and will ultimately support the dollar.  Of note, the 3-month to 10-year curve remains positively sloped near 61 bp, the steepest since July, and so we are not yet ready to call for an imminent recession in the U.S.”

Gold Price Forecast: XAU/USD plunges to new two-year-lows below $1640

 

• Gold price tanked to new two-and-half years low at $1638.90.
• Global S&P PMIs revealed in the EU, UK, and the US sparked investors’ recession fears, increasing appetite for the safe-haven US dollar.
• Gold Price Analysis: A break below $1638 to send XAU/USD towards $1600.
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Gold price slides to fresh two-and-half-year lows dampened by a risk-off mood and flows towards the US dollar, which rose to new two-decade highs. Overall, US dollar strength and higher US Treasury bond yields are two reasons for the fall in the precious metals complex, mainly the yellow metal. At the time of writing, XAU/USD is trading at $1643.50 a troy ounce.

US equities dropped as Wall Street closed with hefty losses between 1.62% and 1.80% on Friday. The US 10-year benchmark note rate retraced from yielding 3.829% and is set to end the week below the 3.70% threshold. On the same note, the US 10-year Treasury Inflation-Protected Securities (TIPS) bond yield weighed on the non-yielding metal, set to finish at 1.33%.

Gold Price Forecast: XAU/USD edges lower in a familiar range amid relentless USD buying

Gold meets with a fresh supply on Friday and is pressured by sustained USD buying.

Aggressive Fed rate hike bets, elevated US bond yields continue to underpin the buck.

Recession fears weigh on investors’ sentiment and could offer support to the XAU/USD.

Gold attracts fresh selling near the $1,675-$1.676 area on Friday and drops to a fresh daily low during the first half of the European session. The XAU/USD is currently placed just below the $1,665 level and remains confined in a familiar trading range held since the beginning of this week.

The US dollar hits a new 20-year peak on the last day of the week and is seen as a key factor exerting downward pressure on the dollar-denominated gold. Adding to this, the prospects for more aggressive policy tightening by the Fed further contribute to driving flows away from the non-yielding yellow metal.

In fact, the markets have been pricing in another supersized 75 bps Fed rate hike move in November. The bets were reaffirmed by the Fed's so-called dot plot, revealing that policymakers expect the benchmark lending rate to top 4% by the end of 2022. From there, central bank officials anticipate further hikes in 2023.

The Fed's hawkish outlook remains supportive of elevated US Treasury bond yields. The yield on the rate-sensitive two-year US government bond touched a fresh 15-year high and the benchmark 10-year Treasury note jumped to its highest level since 2011 on Thursday. This, in turn, should continue to act as a tailwind for the buck.

Meanwhile, faster interest rate hikes by major central banks have stoked concerns of a deeper global economic downturn. This, along with headwinds stemming from China's zero-covid policy and the risk of a further escalation of the war in Ukraine, have been fueling recession fears and weighing on investors' sentiment.

This is evident from the ongoing fall in the equity markets, which could extend support to the safe-haven gold and help limit deeper losses. Even from a technical perspective, the recent range-bound price action points to indecision among traders, warranting some caution before placing aggressive directional bets.

Market participants now look forward to the release of the flash US PMI prints, due later during the early North American session. The focus, however, will remain on Fed Chair Jerome Powell's speech at an event in Washington, which will influence the USD and produce some meaningful trading opportunities around gold.

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AUD/USD descends to its lowest level since May 2020 amid blowout USD rally to 20-year top

 

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• AUD/USD drops to its lowest level since May 2020 amid broad-based USD strength.
• Bets for more aggressive Fed rate hikes, elevated US bond yields underpin the buck.
• The risk-off mood further benefits the USD and weighs on the risk-sensitive aussie.
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The AUD/USD pair continues losing ground through the first half of the European session on Friday and drops to the 0.6565 area or its lowest level since May 2020.

The US dollar catches fresh bids on the last day of the week and hits a new 20-year peak, which turns out to be a key factor exerting downward pressure on the AUD/USD pair. The Federal Reserve struck a more hawkish tone on Wednesday and signalled that it will undertake more aggressive rate increases to cap inflation. This, in turn, remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback.

In fact, the yield on the rate-sensitive two-year US government bond touched a fresh 15-year high and the benchmark 10-year Treasury note jumped to its highest level since 2011 on Thursday. Meanwhile, investors remain concerned that rapidly rising borrowing costs will lead to a deeper global economic downturn. This, in turn, tempers investors' appetite for riskier assets and is further underpinning demand for the traditional safe-haven buck.

Apart from this, economic headwinds stemming from China's zero-covid policy and the risk of a further escalation in the Russia-Ukraine conflict, have been fueling recession fears. This is seen as another factor contributing to driving flows away from the risk-sensitive aussie. With oscillators still far from being in the oversold territory, the fundamental backdrop supports prospects for an extension of the depreciating move for the AUD/USD pair.

Market participants now look forward to the release of the flash US PMI prints, due later during the early North American session. This, along with the US bond yields and Fed Chair Jerome Powell's speech at an event in Washington, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities heading into the weekend.

US Dollar Index Price Analysis: Bearish moves seen as buying opportunities

DXY climbs to fresh highs near 112.00 before losing momentum.

Further upside remains well on the cards for the dollar near term.

DXY corrects lower after two consecutive daily advances, including new 20-year highs just below the 112.00 mark earlier on Thursday.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 7-month support line near 106.80. That said, occasional bouts of weakness could be deemed as buying opportunities with the immediate target at the 2022 high at 111.81 (September 22).

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 101.95.

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NZD/USD struggles near its lowest level since April 2020 as another big Fed rate hike looms

• NZD/USD drops to its lowest level since April 2020 amid sustained USD buying interest.
• Retreating US bond yields, the risk-on mood caps the buck and limits losses for the pair.
• Investors now seem to move to the sidelines and await the crucial FOMC policy decision.

The NZD/USD pair recovers a few pips from its lowest level since April 2020 touched in the last hour and is currently placed in neutral territory, around the 0.5885 region. That said, any meaningful recovery still seems elusive as investors gear up for another supersized rate hike by the Federal Reserve.

The stronger US CPI report released last week reaffirmed expectations that the USD central bank will continue to tighten its monetary policy at a faster pace. This remains supportive of a strong follow-through US dollar move up to a fresh 20-year peak, which, in turn, should continue to act as a headwind for the NZD/USD pair.

That said, a softer tone surrounding the US Treasury bond yields and a generally positive risk tone keep a lid on any further gains for the safe-haven greenback. Apart from this, slightly oversold conditions on short-term charts offer some support to the risk-sensitive kiwi and help limit losses for the NZD/USD pair.

Apart from this, the intraday bounce could further be attributed to some repositioning trade ahead of the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session. The Fed is widely expected to stick to its aggressive policy tightening path and hike interest rates by at least 75 bps.

Apart from this, the focus will be on the updated economic projections and the dot plot. Furthermore, Fed Chair Jerome Powell's remarks at the post-meeting press conference will be looked upon for clues about future rate hikes. This, in turn, will influence the USD and provide a fresh directional impetus to the NZD/USD pair.

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Malaysia: Trade balance figures came on the strong side – UOB

 UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest trade balance figures in Malaysia.

Key Quotes

“Malaysia’s external trade surprisingly posted stronger gains last month, in part due to year-ago low base effects. Export growth hit a 16-month high of 48.2% y/y in Aug (Jul: +38.0%, UOB est: +30.5%, Bloomberg est: +34.3%) as a result of a triple-digit gain in re-exports (+112.5%) versus a double digit gain in domestic exports (+34.8%). Imports posted the largest ever annual growth on record, at 67.6% (Jul: +41.8%, UOB est: +48.0%, Bloomberg est: +48.0%). This brought trade surplus higher to MYR16.9bn from MYR15.6bn in the preceding month.”

“Increased shipments of commodity-based and electrical & electronic (E&E) products amid stronger demand from almost all trading partners were key drivers of robust export growth in Aug. Exports of petroleum products, liquefied natural gas (LNG) and optical & scientific equipment registered the highest monthly value in the month. Exports to the ASEAN region, South Korea and Hong Kong improved by more than 50% while shipments to the US jumped the most in 15 months by 38.2%.”

“Given that Aug’s export reading defied our earlier expectations of a soft patch in the greater part of 2H22 and the 30.3% year-to-date export growth moved further apart from our full-year growth target of 18.0%, we now upgrade our export growth projection to 26.0% for 2022 with statistical base and commodity price effects remaining wildcards for the outlook. We expect the recent retreat in major commodity prices and lingering global uncertainties particularly a global recession risk to weigh on Malaysia’s export outlook going into 2023, leading to a modest export growth of 1.5% next year.”

US Dollar Index to extend upward momentum on a break above 111 – SocGen

The US Dollar Index (DXY) moves sideways slightly above 109.50. Economists at Société Générale expect the index to enjoy further gains on a break past 111.

Short-term downtrend likely on a dip under 107.60

“If the index establishes itself above the high formed earlier this month at 111 – which is also a graphical level, the up move is expected to extend further towards next projections at 112.60/113.00.” 

“It is worth noting that the daily MACD has started posting negative divergence. Although this is not a reversal signal, it does point towards receding upward momentum.”

“Defending the 50-DMA at 107.60 would be essential for persistence in uptrend. Should a break materialize, a short-term downtrend is likely.”

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EUR/USD Price Analysis: Losses could accelerate below 0.9944

 

• EUR/USD comes under pressure and challenges parity.
• Immediately to the downside comes the weekly low at 0.9944.

EUR/USD triggers a corrective downside soon after hitting multi-session highs around 1.0050 on Tuesday.

The pair seems to have embarked on a consolidative range ahead of the key FOMC event on Wednesday. Immediately to the upside comes the interim 55-day SMA at 1.0097 ahead of the key 7-month resistance line, today near 1.0150. A move beyond the latter is needed to mitigate the downside pressure and allow spot to confront the September high at 1.0197 (September 12) ahead of potential extra gains.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0716.

US Dollar Index to ease lower on a Fed that is perceived as less hawkish – OCBC

 The US Dollar Index (DXY) is rising to the 110.00 area following Friday's retreat. This week’s FOMC meeting could send the DXY lower if the Fed is perceived less hawkish than expected, in the opinion of economists at OCBC Bank.

Caution to keep USD supported on dips in the lead-up to FOMC

“While a hawkish Fed is now the baseline scenario, we caution that a Fed that is perceived as less hawkish could see DXY ease lower post-decision. Meantime, in the lead-up to FOMC, expect caution to keep USD broadly supported on dips.”

“Support at 109.30 (21 DMA), 108.45 (38.2% Fibo retracement of Aug low to Sep high) and 107.70 levels (50-DMA, 50% Fibo).”

“Resistance at 110.30 before 110.78 (previous high).”

Silver Price Analysis: XAG/USD fades rebound from 10-DMA above $19.00

Silver price remains sidelined after bouncing off 10-DMA.

Bullish MACD signals, firmer RSI keeps buyers hopeful but upside remains elusive below the descending resistance line from June.

Multiple supports to test bears before the yearly low.

Silver price (XAG/USD) seesaw around $19.15-20 during early Friday morning in Europe, fading the early Asian session bounce off the 10-DMA.

The bright metal’s latest inaction could be linked to the inability to cross the 50-DMA hurdle, around $19.25 by the press time. Even so, the bullish MACD signals and firmer RSI (14), keep the XAG/USD bulls hopeful.

That said, a downward sloping resistance line from June, around $19.90, appears a tough nut to crack for the bulls.

Following that, the 100-DMA level surrounding $20.35 acts as the last defense for the XAG/USD bears before directing the price towards the previous monthly peak near $20.90 and then to the $21.00 threshold.

Alternatively, pullback moves may initially aim for the 10-DMA support level of $18.90 before directing sellers towards the multiple supports around $18.25 and $18.10.

In the case where silver sellers keep reins past $18.10, the $18.00 round figure and the yearly bottom near $17.55 will be in focus.

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USD/CNH: Next on the upside comes 7.0500 – UOB

 Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggests USD/CNH could retest 7.1000 once 7.0500 is cleared.

Key Quotes

“In our last Chart of the Day update from 29 Aug 2022, when USD/CNH was trading at a much lower level of 6.9200, we titled our update ‘USD/CNH could continue to advance, likely at a rapid pace as there are hardly any resistance levels of note until 7.0000’. While our view of a ‘rapid pace of advance’ was not wrong, USD/CNH did not break 7.0000 as it soared to 6.9967 about a week later before pulling back to a low of 6.9100.”

“USD/CNH rebounded sharply from 6.9100 and yesterday (15 Sep 2022), it cracked 7.0000. The break of the ‘psychological level’ resulted in a swift and sharp surge and USD/CNH continues to accelerate higher today. The price actions are not surprising as the next resistance level of note is at 7.0500. Looking ahead, if 7.0500 is broken, the focus will shift to 7.1000. Within these couple of months, the 2019 and 2020 highs, both near 7.1960, are unlikely to come into view.”

On the downside, the rising trend-line support, currently at 6.9400, is a strong support level but only a breach of the 21-day exponential moving average (at the time of writing, the level is at 6.9260) would indicate the current strong upward pressure has eased.”

GBP/USD remains on the defensive amid modest USD uptick, eyes US data for fresh impetus

GBP/USD comes under renewed selling pressure on Thursday, though lacks follow-through.

Aggressive Fed rate hike bets revive the USD demand and exert some downward pressure.

A positive risk tone caps the safe-haven buck and helps limit the downside for the major.

The GBP/USD pair struggles to capitalize on the previous day's modest uptick and meets with a fresh supply on Thursday. Spot prices remain on the defensive through the first half of the European session, though manage to hold above the 1.1500 psychological mark.

The US dollar catches fresh bids amid expectations for a more aggressive policy tightening by the Fed and turns out to be a key factor exerting some downward pressure on the GBP/USD pair. The stronger US consumer inflation data released on Tuesday all but confirmed that the Fed will hike interest rates at a faster pace. In fact, the implied odds for a full 1% lift-off at the September FOMC meeting currently stand at 30%.

Furthermore, the markets have been pricing in the possibility of another supersized Fed rate hike move in November. This remains supportive of elevated US Treasury bond yields and continues to underpin the greenback. That said, a generally positive risk tone is capping gains for the safe-haven buck. Apart from this, prospects for a 75 bps rate hike by the Bank of England on September 22 offer support to the GBP/USD pair.

This makes it prudent to wait for strong follow-through selling before positioning for an extension of the post-US CPI sharp retracement slide from a two-week high. In the absence of any relevant economic data from the UK, traders look forward to the US macro releases for some impetus later during the early North American session.

Thursday's US economic docket features the release of monthly Retail Sales figures, Weekly Initial Jobless Claims, Regional Manufacturing Indices, and Industrial Production data. This, along with the US bond yields and the broader risk sentiment, will influence the USD and produce short-term trading opportunities around the GBP/USD pair.

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Silver Price Analysis: XAG/USD maintains a large top, further downside ahead – Credit Suisse

 Silver maintains the top analysts at Credit Suisse have been highlighting since mid-May. Therefore, XAG/USD is expected to decline towards the $15.56 support.

Break above $21.39 remains needed to negate the top

“Silver has risen back above the crucial 61.8% retracement support of the whole 2020/21 upmove at $18.65/15, however, still maintains a large top below $21.39 and we hence expect further downside from here towards the $15.56 support from a technical analysis perspective.”

“Next resistance is seen at $20.87 and above $21.39 remains needed to negate the top.”

EU proposes windfall levy to claw back surplus profits from fossil fuel companies

The European Commission announced on Thursday that it proposed a voluntary target for European Union countries to cut overall monthly electricity use by 10% compared to the same period in recent years, as reported by Reuters.

Additional takeaways

"EU Commission proposes 180 euros per megawatt hour revenue cap for non-gas fuelled power generators."

"EU revenue cap would apply to wind, solar, biomass, lignite, nuclear and some hydropower generators."

"EU proposes windfall profit levy to claw back surplus profits from fossil fuel companies."

"EU levy would recoup 33% of oil, gas, coal, refining companies' surplus taxable profits in the fiscal year 2022."

"EU levy would apply to fossil fuels companies that have tax obligations in EU countries."

"EU proposes mandatory target for EU countries to cut electricity use 5% during peak price periods."

Market reaction

The shared currency holds its ground following this development and the EUR/USD pair was last seen rising 0.32% on the day at 1.0002.

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USD strength to persist into early next year – Rabobank

 In the view of economists at Rabobank, the US dollar is set to remain well supported for several months with the hawkish position of the Fed underpinning the attraction of the greenback as a safe haven.

Scope for further dips in EUR/USD below parity

“As the Fed still has a lot of work to do in taming price pressures and ensuring that inflation expectations are well anchored into the medium-term, it can be assumed that the FOMC will not be ready to relinquish its hawkish position just yet. Since this will impact risky assets, we see risk that USD strength persists into early next year.”

“We expect the USD to remain the favoured safe haven relative to either the JPY or the CHF in view of higher US short-term interest rates.”

“Given also that the eurozone is facing a difficult winter which includes the possibility of energy rationing for some businesses, we see scope for further dips in EUR/USD below parity.”

 USD/JPY: A move to 150 can not be ruled out – Rabobank

The pullback in the broad-based value of the USD in recent sessions has offered a reprieve to various stressed currency pairs, among them USD/JPY. Nonetheless, economists at Rabobank still believe that the pair could reach the 150 level.

Scope for USD/JPY to head higher in the coming months

“The dip back towards 142.00 this week will be welcomed by Japanese officials. That said, it is our view that USD strength will sustain for some months yet. It is also possible that the BoJ will maintain loose policy settings into next year. This suggests scope for USD/JPY to head higher in the coming months.”

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Germany's Habeck: We face threat of recession next year

 German Economy Minister Robert Habeck said on Tuesday that their goal is to introduce a new energy market design and price reduction measures for 2022 retroactively, as reported by Reuters.

"We face a threat of recession next year," Habeck added.

Market reaction

These comments don't seem to be having a significant impact on risk mood. As of writing, Germany's DAX 30 Index was up 0.75% on the day at 13,502. Meanwhile, EUR/USD preserves its bullish momentum and continues to push higher toward 1.0200. 

AUD/USD ascends to 0.6900 neighbourhood, nearly two-week high amid weaker USD

• AUD/USD builds on last week’s late bounce and gains traction for the second straight day.
• Retreating US bond yields, a positive risk tone undermines the USD and extends support.
• Recession fears might cap the risk-sensitive aussie ahead of the US CPI report on Tuesday.

The AUD/USD pair catches some bids for the successive straight day on Monday and builds on last week's bounce from sub-0.6700 levels or the lowest since July 14. This also marks the third day of a positive move in the previous four and lifts spot prices to a more than one-week high, closer to the 0.6900 mark during the mid-European session.

A combination of factors force the US dollar to prolong its recent sharp pullback from a two-decade high, which, in turn, is seen lending support to the AUD/USD pair. The markets already seem to have priced in a supersized 75 bps rate hike by the Federal Reserve at the next policy meeting on September 20-21. Furthermore, a modest downtick in the US Treasury bond yields seems to weigh on the greenback.

Apart from this, a generally positive tone around the equity markets further undermines the safe-haven buck and benefits the risk-sensitive aussie. That said, growing recession fears, amid the prospects for a faster policy tightening by major central banks and economic headwinds stemming from fresh COVID-19 curbs in China could cap optimism. This, in turn, warrants some caution for bullish traders.

Investors might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the latest US consumer inflation figures, due for release on Tuesday. The crucial US CPI report for August will play a key role in influencing the Fed's policy outlook. This will drive the USD demand in the near term and help determine the next leg of a directional move for the AUD/USD pair.

In the meantime, spot prices are more likely to consolidate in a range amid absent relevant market-moving economic releases from the US on Monday. That said, the US bond yields, along with the broader risk sentiment, might provide some impetus to the greenback and allow traders to grab short-term opportunities around the AUD/USD pair.

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EUR/GBP to extend its advance once key resistance at 0.8720 is reclaimed – SocGen

 EUR/GBP picks up bids to reverse Friday’s losses. Economists at Société Générale expect the pair to extend its race higher on a break past 0.8720.

Short-term support aligns at 0.8560

“EUR/GBP recently gave a break above the descending trend line drawn since 2020 denoting potential upside. This is also highlighted by weekly MACD which is now firmly anchored within positive territory and above its trigger.” 

“The pair is close to key graphical resistance of 0.8720. Once this is reclaimed, the up move is likely to extend towards projections of 0.8860 and perhaps even towards 0.8980/0.9010.” 

Gold Price Forecast: XAU/USD rises to more than one-week high amid heavy USD selling

Gold gains strong positive traction on Friday amid aggressive USD long-unwinding trade.

Aggressive Fed rate hike bets, elevated US bond yields should help limit the USD losses.

The risk-on impulse could further contribute to capping the safe-haven precious metal.

Gold attracts fresh buying on the last day of the week and climbs to a nearly two-week high during the early part of the European session. The XAU/USD is currently placed just below the $1,730 level and is looking to build on its recent bounce from the lowest level since July 21 touched last week.

The US dollar comes under heavy selling pressure on Friday and retreats further from a two-decade high, which turns out to be a key factor boosting demand for the dollar-denominated commodity. The steep USD downfall to a fresh monthly low could be solely attributed to some long-unwinding and is more likely to remain limited amid hawkish Fed expectations.

In fact, the US central bank is anticipated to tighten its monetary policy at a faster pace to tame inflation and the bets were reaffirmed by Fed Chair Jerome Powell on Thursday. Speaking at a Cato Institute conference, Powell reiterated the central bank's strong commitment to bringing inflation down and added that the Fed needs to keep going until it gets the job done.

Powell's remarks reaffirmed market bets for a supersized 75 bps rate hike at the next FOMC meeting on September 20-21. This remains supportive of elevated US Treasury bond yields, which should help limit any meaningful USD corrective slide. Moreover, other major central banks, except the Bank of Japan, have also maintained a more hawkish bias.

Apart from this, the risk-on impulse - as depicted by a generally positive tone around the equity markets - might further contribute to capping the upside for the safe-haven metal. This, in turn, warrants some caution for aggressive bulls. Nevertheless, gold remains on track to register weekly gains and snap a three-week losing streak.

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