EUR/USD finally breaks above 1.0300 to print 5-week highs

EUR/USD surpasses the key 1.0300 level post-US CPI.

Germany Final CPI rose 7.5% YoY in July.

US CPI surprised to the downside at 8.5% in July.

EUR/USD sees its upside gathers further traction and advance to new multi-week peaks past the 1.0300 level on Wednesday.

EUR/USD boosted by USD-weakness

EUR/USD quickly left behind the key hurdle at 1.0300 the figure after US inflation figures tracked by the CPI disappointed expectations. Indeed, consumer prices rose 8.5% in the year to July, while the CPI excluding food and energy costs rose 5.9% from a year earlier, coming in also below initial estimates for a 6.1% YoY gain.

The pair’s sharp upside follows the equally abrupt – although in the opposite direction – decline in the greenback, as investors now perceive that the Federal Reserve might save a 75 bps rate hike for later and raise rates by half point instead at the September gathering.

On the latter, the probability of a 75 bps hike by the Fed in September shrank to around 27% from nearly 70% before the CPI data was published, according to CME Group’s FedWatch Tool.

What to look for around EUR

EUR/USD breaks above the 1.0300 hurdle with certain conviction helped by the intense drop in the dollar in the wake of lower-than-expected US CPI prints for the month of July.

Price action around the European currency, in the meantime, is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

On the negatives for the single currency emerges the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment gauges and the incipient slowdown in some fundamentals.

Key events in the euro area this week: Germany Final Inflation Rate (Wednesday) – EMU Industrial Production (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. Fragmentation risks amidst the ECB’s normalization of monetary conditions. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is gaining 1.23% at 1.0340 and faces the next up barrier at 1.0346 (monthly high August 10) seconded by 1.0377 (55-day SMA) and finally 1.0615 (weekly high June 27). On the flip side, a break below 1.0096 (weekly low July 26) would target 1.0000 (psychological level) en route to 0.9952 (2022 low July 14).

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Dollar stuck ahead of key U.S. inflation print

 LONDON (Reuters) - The dollar lurked below recent highs on Tuesday as traders awaited this week's key U.S. inflation print for any signs that price pressures are finally abating and that the need for further aggressive U.S. interest rate hikes is easing.

Unexpectedly strong U.S. jobs data on Friday had boosted the greenback, which posted its biggest daily percentage gain since mid-June against the yen that day as investors ramped up bets on a 75 basis point (bps) rate rise in September.

But the currency has pulled back since then as focus shifted to Wednesday's July consumer price index (CPI).

The dollar index, which measures the currency's value against a basket of other peers, was marginally lower at 106.23. It held below a more than one-week peak hit on Friday at 106.93.

Sterling was little changed at around $1.2055 and the euro was 0.2% firmer at $1.0213. The dollar was also flat around 134.90 yen.

"I'm a bit concerned about inflation tomorrow. The market has been wrong-footed all year and if we get a strong core inflation print that will nail expectations for a 75 bps rate hike in September," said Kenneth Broux, a currency strategist at Societe Generale (OTC:SCGLY) in London.

"It's too soon to say it's time to short the dollar as the Fed may have to do more."

The U.S. Federal Reserve hiked rates by a hefty 75 bps in June and July. Money-market futures show traders see about a two-thirds chance of a 75 bps hike next month and have started pushing expectations for rate cuts deeper into 2023.

Economists polled by Reuters see year-on-year headline inflation at 8.7% - incredibly high, but below last month's 9.1% figure. The Fed targets inflation at 2%.

Last week's strong labour data stoked expectations of aggressive near-term hikes, pushing short-dated Treasury yields further above long-term peers.

The gap between two and 10-year Treasury yields, a reliable recession indicator, has grown to its largest in two decades. [US/]

On Monday, a New York Fed survey showed consumers' inflation expectations fell sharply in July, perhaps offering a sliver of hope that the CPI release brings relief.

"The market understandably is waiting for the numbers to then reprice, rather than moving in anticipation of them," said Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC:NABZY) in Sydney.

The dollar's haven status, though, makes the greenback's reaction a little harder to predict, especially as growth and geopolitical worries swirl.

Consumer confidence slid in Australia for a ninth straight month and the Australian and New Zealand dollars edged lower as London trade got under way.

China extended military drills near Taiwan, and the self-ruled island's foreign minister said China was using the drills launched in protest against U.S. House Speaker Nancy Pelosi's visit as an excuse to prepare for an invasion.

GBP/USD falls towards 1.2000 as USD crawls higher ahead of data

GBP/USD returns to the red as the US dollar sees resurgent demand.

Lack of UK political news and risk-off flows weigh on cable.

The pair recaptures 21 DMA but RSI still remains bearish.

GBP/USD is extending its pullback from three-week highs of 1.2091 in the European session, as risk-off flows dominate amid the worsening European gas crisis and an imminent recession in Germany.

Investors seek refuge in the traditional safe-haven asset, the US dollar, as the buck picks up fresh bids to recapture 106.50 against its major peers. The ongoing sell-off in the US Treasury yields fail to deter the dollar bulls. The greenback also finds demand, as investors turn cautious ahead of the Fed’s expected 75 bps rate hike announcement.

Meanwhile, various factors continue to limit the bullish attempts in the pound. A lack of any encouraging on the UK political front, with candidates Liz Truss and Rishi Sunak battling out the leadership race. Ahead of next week’s BOE rate decision, money markets suggest a bold 50 bps than a conservative 25 bps increase. However, economists are much less certain, with 25 out of 54 polled by Reuters expecting a half-point hike, according to the latest Reuters poll.

Friday’s CFTC data showed IMM speculators reduced their GBP exposure by 10% in the fortnight to July 19, with gross GBP longs cut by 7,675 contracts to 33,850, per Reuters. The pair now awaits the US Durable Goods Orders and New Home Sales data. The main event risk for this week, however, remains the FOMC decision due on Wednesday.

Looking at the cable’s daily chart, the pair closed Monday above the bearish 21-Daily Moving Average (DMA), then at 1.2006.

Although with the 14-day Relative Strength Index (RSI) lurking below the midline, sellers have returned and look to retest the 21 DMA resistance turned support, now at 1.1997.

A sustained break below the latter will expose Monday’s low of 1.1960, below which a test of the 1.1900 level will be inevitable.

On the flip side, if bulls manage to defend the 21 DMA, then a fresh advance towards the descending 50 DMA at 1.2238 cannot be ruled out.

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US Dollar Index looks bid above 107.00 ahead of PMIs

 

• The index posts decent gains beyond the 107.00 mark.
• US yields extend the decline across the curve on Friday.
• Flash Manufacturing/Services PMIs next on tap in the docket.

The greenback, in terms of the US Dollar Index (DXY), leaves behind Thursday’s pullback and regains the area beyond 107.00 the figure at the end of the week.

US Dollar Index now looks to data, FOMC

The index extends the erratic performance so far this week and advances north of the 107.00 yardstick, as market participants seen to have already digested the start of the hiking cycle by the ECB on Thursday.

Contrasting with the upbeat tone in the buck, yields in the US cash markets continue their march south and already navigate in multi-session lows across the curve ahead of the key FOMC event due on July 27.

In the NA session, the advanced Manufacturing and Services PMIs for the month of July will be the only releases of note later in the NA session.

What to look for around USD

The index looks side-lined in the 107.00 neighbourhood amidst a broad-based range bound theme so far this week.

In the meantime, the dollar remains underpinned by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: Flash PMIs (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is up 0.49% at 107.12 and faces next contention at 106.38 (weekly low July 20) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 109.29 (2022 high July 15) would expose 109.77 (monthly high September 2002) and then 110.00 (round level).

Gold price weakens further below $1,700, seems vulnerable near one-year low

 

• Gold price witnesses selling for the second straight day and drops to a nearly one-year low.
• The prospects for a further rise in interest rates continues to drive flows away from the metal.
• A positive risk tone exerts additional pressure; modest USD weakness fails to lend support.

Gold price is extending the overnight breakdown-momentum below the $1,700 mark and is continuing to lose ground for the second successive day on Thursday. The downward trajectory is draging the XAUUSD to its lowest level since August 2021, around the $1,689-$1,688 region during the early European session.

Gold price weighed down by hawkish central banks

The prospects for more interest rate hikes by major central banks is becoming a key factor contributing to driving flows away from the non-yielding gold. The European Central Bank is all set to raise interest rates for the first time since 2011 on Thursday. A Reuters report indicated earlier this week that policymakers might discuss a jumbo 50 bps rate hike move to tackle soaring inflation. The Federal Reserve is also expected to raise rates by another 75 bps at its policy meeting on July 26-27.

EUR/USD: Upside could be limited even on good news regarding gas supplies – Rabobank

  EUR/USD has come within a whisker of parity. How low the pair goes is likely to depend on whether or not Russia wants to worsen the economic war with Europe, economists at Rabobank report.

USD strength may not relent until next year

“From a fundamental perspective, it is not difficult to paint a scenario in which EUR/USD could break below 1.00 and hold at lower levels into the winter months. That has been the case for a while.”

“If the Nord Stream 1 natural gas pipeline is switched back on, in time next week after its scheduled maintenance, the EUR is likely to be granted a reprieve. That said, even if the EUR is boosted, we expect USD strength to dominate into next year suggesting upside for EUR/USD could be limited even on good news regarding Nord Stream.”

“For now, we retain our one-month forecast of EUR/USD 1.03. Evidence that Russian gas supplies into Europe will be further disrupted into the winter would cause us to downgrade our forecasts for the EUR further.”

EUR/USD holds on around 1.0500 ahead of German CPI, Sintra

EUR/USD briefly dipped below 1.0500 on USD strength.

German Flash June CPI next on tap in the domestic docket.

Lagarde, Bailey, Powell will meet in Sintra later in the session.

The single currency remains under pressure and prompts EUR/USD to navigate the 1.0500 neighbourhood on Wednesday.

EUR/USD looks to data, ECB Forum

EUR/USD so far loses ground for the second session in a row on Wednesday on the back of the resumption of the risk aversion and the better sentiment surrounding the greenback.

In the meantime, the German money markets show the 10y Bund yields trimming part of the recent 2-day advance and retest the 1.60% region amidst the equally flat performance in the US peers.

In the domestic calendar, advanced inflation figures in Spain showed the CPI is seen rising 10.0% in the year to June. Further June data saw the final EMU Consumer Confidence at -23.6 and the Economic Sentiment at 104. Later in the session, markets’ attention will be on the release of the German preliminary inflation data ahead of the discussion panel between Powell, Bailey and Lagarde at the ECB Forum in Sintra.

What to look for around EUR

EUR/USD faces the re-emergence of the risk-off mood and the subsequent drop to the sub-1.0500 area midweek.

In the meantime, the single currency continues to closely follow news from the ECB Forum in Portugal as well as any developments surrounding the bank’s plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: ECB Forum on Central Banking, EMU Final Consumer Confidence, EMU Economic Sentiment, Germany Flash Inflation Rate, ECB Lagarde (Wednesday) – Germany Retail Sales, Unemployment Change, Unemployment Rate. EMU Unemployment Rate, ECB Lagarde (Thursday) – EMU, Germany Final Manufacturing PMI, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is retreating 0.05% at 1.0511 and faces immediate contention at 1.0358 (monthly low June 15) followed by 1.0348 (2022 low May 13) and finally 1.0300 (psychological level). On the upside, a break above 1.0615 (weekly high June 27) would target 1.0773 (monthly high June 9) en route to 1.0786 (monthly high May 30).

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EUR/USD: A lengthier consolidation phase looks increasingly likely – Credit Suisse

EUR/USD is seen at risk of a lengthier consolidation phase. Notwithstanding,  economists at Credit Suisse stay negative for an eventual sustained break below the 2017 and YTD lows at 1.0350/41.

EUR/USD to suffer an eventual break below 1.0350/41 for a fall to parity

“We see increasing risk for a lengthier consolidation phase. A close above the 13-day exponential average at 1.0555 can add weight to this view for a recovery back to what we continue to see as more important resistance, starting at 1.0627 and stretching up to the 55-day average at 1.0652, which we continue to look to cap on a closing basis.”

“Only above 1.0774/88 would mark a ‘double bottom’ base and a more significant move higher.”

“Support is seen at 1.0470 initially, then 1.0445, below which should clear the way for a retest of 1.0358/41. An eventual break below here should act as the catalyst for a resumption of the core downtrend with support seen next at 1.0217/09 and eventually parity/0.99.”

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EUR/USD remains vulnerable near 1.0400 amid ECB news, choppy USD

EUR/USD is struggling to extend the recovery above 1.0400.

The US dollar remains choppy despite risk-aversion at full speed.

ECB officials said to want new policy instrument ready by the July meeting

EUR/USD is attacking 1.0400, unable to sustain the recovery near the 1.0425 region, as EUR bulls remain unimpressed by the latest European Central Bank (ECB) news.

Reuters reported that European Central Bank (ECB) officials are said to want a new instrument, which will be used to counter the fragmentation issue, ready by the July Governing Council meeting.

Further, the upside attempts in the pair remain elusive, as the risk-on market profile keeps the sentiment around the US dollar buoyed. The rebound in the longer-dated US Treasury yields on the 75 bps Fed rate hike is also underpinning the dollar demand.

Meanwhile, investors assess the cautious policy guidance adopted by the Bank of England (BOE) this Thursday after it hiked rates by 25 bps, as expected. The GBP/USD slump-induced support received by EUR/GBP is cushioning the losses in the shared currency against the dollar, as of writing.

Attention now turns towards a slew of second-tier US economic releases and the Wall Street open for fresh trading impetus on EUR/USD.

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GBP/USD consolidates gains near 1.2550, eyes on UK no-confidence vote

  

The market’s cautious sentiment could be witnessed via the S&P 500 Futures and the US 10-year Treasury yields as both of them struggle around 4,175 and 2.91% even if the Wall Street benchmarks rose the most in a week on Thursday.

Elsewhere, the Australia and New Zealand Banking Group (ANZ) highlights the difference between the currency BOE rate and the one per Taylor rule to suggest more work for the “Old Lady”. Further, a Tory critic, who is a UK Member of Parliament (MP), suggested rejoining the bloc and chatters over a no-confidence vote for UK Prime Minister (PM) Boris Johnson also weighed on the GBP/USD prices.

Looking forward, expectations of likely softer US data may keep GBP/USD buyers hopeful. That said, the headline US NFP is expected to ease to 325K versus 428K prior whereas the ISM Services PMI may retreat from 57.1 to 56.4. Other than the data, US President Joe Biden’s speech will also be important. However, a Platinum Jubilee Bank Holiday can restrict the pair’s moves on Friday.

📕 Comment on Gold on June 3, 2022:

 

📕 Comment on Gold on June 3, 2022:

 - In yesterday's session, precious metal Gold went right with the analysis trend when it bounced up from 1844 to 1870 ($26) and closed the day session with a bullish candle around 1868. The strength of the tree.  Yesterday's candle was the strongest in the past 9 sessions.  Therefore, in my opinion, the possibility of Gold will continue to increase in today's session.

 - Switch to the H4 time frame, the nearest support area for this precious metal is around 1863-1867.  Here we can refer to buying with a safe target below 1874 and above 1880.

Pound falls as UK inflation hits 40 year high

The pound fell against the dollar on Wednesday after data showed British inflation rising to 9%, the highest level in 40 years.

At 0846 GMT, sterling was down 0.9% against the U.S. dollar at $1.23820.

The drop reverses most of the gains made on Tuesday when the pound touched its highest level since May 5.

Strong labour market data had boosted expectations that the Bank of England would have to further increase interest rates, but the latest inflation numbers are fuelling fears that the threat of recession may temper how far the central bank can go.

"Yesterday it looked like with wage growth rising and unemployment so low it meant that the bank had more room for manoeuvre," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV).

"Now the eye wateringly high costs for consumers is going to lead to dropping consumer spending power which will have a deep impact on output in the UK economy."

Consumer price inflation hit 9% in April, making Britain's inflation rate the highest of Europe's five biggest economies and almost certainly the Group of Seven countries, with Canada and Japan yet to report figures for April. Neither are likely to match Britain's price growth.

“Of course the bank doesn’t want to be so aggressive that it pushes the UK into a deep downturn, but it knows it needs to pull some levers to try to keep a lid on inflation," said Streeter.

The fact that the U.S. Federal Reserve is expected to act more aggressively on its interest rate hikes is also making the dollar more attractive, Streeter said, further adding to the pound's weakness as traders flee riskier assets.

Against the euro, the pound was up 0.7% at 84.08 pence.

British foreign secretary Liz Truss said on Tuesday she intended to introduce legislation in the coming weeks to make changes to the Northern Ireland protocol, which was part of the Brexit divorce deal.

According to a note from ING strategists, Brexit-related risks around changes to Northern Ireland protocol and the potential for a trade war with the EU is a major downside risk for the pound, which they expect to trade at mostly below $1.23820 versus the dollar during the summer.

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Russia's Putin: Will react to expansion of military infrastructure in Finland, Sweden

 Russian President Vladimir Putin said on Monday that the expansion of NATO is a problem and it is in the interests of the USA, reported Reuters. Russia has no problems with Finland and Sweden, he continued, but Russia will react to the expansion of military infrastructure in these countries. Putin added that Russia needs to pay additional attention to NATO plans to increase its global influence. 

Finland and Sweden both announced their commitment to applying for NATO membership over the weekend and most NATO nations have come out in support. 

US Dollar Index Price Analysis: Rising bets for extra gains

DXY looks to challenge Thursday’s highs near 105.00.

Further upside should target the 105.60/65 region.

DXY keeps the bullish bias well in place north of the 104.00 hurdle at the end of the week.

Considering the ongoing price action, further gains in the index remains well on the cards and with the immediate hurdle at the round level at 105.00 ahead of 105.63 (December 11 2002 high). Further up, the index is expected to challenge the December 2002 high at 107.31.

The current bullish stance in the index remains supported by the 8-month line around 97.00, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 96.28.

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EUR/JPY Price Analysis: The hunt for 140.00 remains well in place

EUR/JPY adds to the ongoing recovery north of 138.00.

Next on the upside comes the 139.00 hurdle ahead of 140.00.

EUR/JPY extends the upside momentum and trades in multi-day highs past 138.00 at the beginning of the week.

Extra gains now appear on the cards in the very near tern with the next target at the round level at 139.00 ahead of the 2022 high around 140.00 (April 21). Further up is seen the June 2015 peak at 141.05.

In the meantime, while above the 200-day SMA at 130.91, the outlook for the cross is expected to remain constructive.

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EUR/JPY daily chart

EUR/USD: Bulls could not hold the upside, back to 1.0600

EUR/USD faces decent resistance near 10640.

Germany Construction PMI retreated to 46.0 in April.

German 10Y bund yields flirt once again with 1.0%.

The upside momentum in EUR/USD seems to have run out of legs around multi-day highs near 1.0640 on Thursday.

EUR/USD meets resistance near 1.0640

After two consecutive daily advances, including fresh tops around 1.0640, EUR/USD now comes under some selling pressure and challenges once again the 1.0600 neighbourhood.

The corrective move in the pair comes pari passu with the recovery in the German 10y bund yields to the boundaries of the key 1.0% area along with the modest rebound in US yields along the curve.

In the euro docket, earlier results saw German Factory Orders contract at a monthly 4.7% in March, while the Construction PMI eased to 46.0 in April (from 50.9). Across the ocean, weekly Claims will be the only release of note.

What to look for around EUR

EUR/USD jumped to the 1.0640 region following the FOMC’s hangover, where it appears to have run into some resistance. The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Factory Orders, Construction PMI (Thursday) – Germany Industrial Production (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is down 0.24% at 1.0592 and a breach of 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017). On the upside, the next hurdle emerges at 1.0641 (weekly high May 5) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level).

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