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Short Term Elliott Wave View in Gold suggests rally from 7.21.2022 low is in progress as a 5 waves impulse Elliott Wave structure. Up from 7.21.2022 low, wave 1 ended at 1739.27 and pullback in wave 2 ended at 1711.10. The metal then extends higher in wave 3 towards 1788.03. Internal subdivision of wave 3 is in another impulse in lesser degree as the 45 minutes chart below shows. Up from wave 2, wave ((i)) ended at 1741.69 and pullback in wave ((ii)) ended at 1733.60.

The metal extends higher again in wave ((iii)) towards 1780.52. Dips in wave ((iv)) ended at 1768.10. Final leg higher wave ((v)) of 3 ended at 1788.03. Pullback in wave 4 ended at 1753.77 with internal subdivision as a zigzag. Down from wave 3, wave ((a)) ended at 1753.90. Rally in wave ((b)) ended at 1772.77, and wave ((c)) lower ended at 1753.77. This completed wave 4 in higher degree. Index has resumed higher in wave 5. Up from wave 4, wave ((i)) ended at 1788.47, and wave ((ii)) pullback ended at 1773.40. Wave ((iii)) ended at 1794.93, and pullback in wave ((iv)) ended at 1787.70.

Expect 1 more push higher in wave ((v)) to end the 5 waves rally from 7.21.2022 low and complete wave (A). Afterwards, it should pullback in wave (B) to correct that cycle in larger degree 3, 7, or 11 swing before the next leg higher. Near term, expect Gold to end wave (A) soon and see 3 waves pullback, but as far as the pullback stays above 7.21.2022 low at 1680.20, it should resume higher again.

XAUUSD 45 Minutes Elliott Wave Chart

• EURCAD reversed from support level 1.3025
• Likely to rise to resistance level 1.3200

EURCAD currency pair recently reversed up from the pivotal support level 1.3025 (which has been reversing the pair from the middle of July) – intersecting with the lower daily Bollinger Band.

The upward reversal from the support level 1.3025 is likely to form the daily candlesticks pattern Bullish Engulfing.

EURCAD currency pair can be expected to rise toward the next resistance level 1.3200 (which stopped the earlier corrections (2) and 2).

• WTI broke round support level 90.00
• Likely to fall to support level 85.00

WTI crude oil today broke below the key round support level 90.00 (which has been reversing the pair from the end of February).

The breakout of the support level 90.00 accelerated the active impulse wave 5 of the intermediate impulse sequence (C) from the start of June.

WTI crude oil can be expected to fall toward the next support level 85.00 (target for the completion of the active impulse wave 5).

• BoE hikes bank rate by 50 bps to 1.75%
• GBP/USD falls in reaction to weak UK growth forecasts

BoE GDP Forecasts Shock

“Expect the unexpected”, said Oscar Wilde, the famous Irish poet and playwright. That certainly has proven true in relation to Bank of England policy as of late. Thursday’s monetary policy decision was certainly no exception in that regard. This time around, however, it wasn’t the 50 bps hike that has taken the bank rate to 1.75% that proved surprising. Both interest rate markets and the majority of economists had anticipated the move. Less expected, however, was downward revisions to the Bank of England’s UK GDP forecasts, which now point to a technical recession starting in Q4 2022 and persisting throughout 2023. Meanwhile, fresh inflation forecasts point toward CPI inflation topping out at 13.1% in Q4 2022, and remaining persistently high, before dropping sharply from Q3 2023.

GBP/USD Reacts Badly

Unsurprisingly, GBP/USD fell sharply on the news. At the time of writing, the pair was down by nearly 0.23% on the day to trade at 1.2115. Slower expected growth and persistently high inflation clearly highlight the challenges the Bank of England faces in getting inflation under control. Weaker expected growth, in particular, raises serious questions about the central bank’s capacity to raise interest rates as aggressively going forward. As a result, UK 2-year yields ticked lower, down by 10 bps at one point during the day. Thursday’s 50 bps hike appears to be an attempt by the BoE to front load interest rate hikes now to avoid the chance of more aggressive hikes in the future. In turn, this suggests the BoE will struggle to keep pace with the Fed in terms of policy tightening.

Charts Look Pessimistic

It’s not just the fundamentals that appear pessimistic GBP/USD. Be it on the higher weekly or the lower daily timeframe, GBPUSD is trading well below its 200-day exponential moving average. Furthermore, from a market structure perspective, GBP/USD is clearly still also pointing to a clear downtrend since the start of 2022. Price is now sitting close to the halfway mark between the prior May corrective swing high of 1.22670 and July swing low of 1.17603, leaving the pair primed for further losses after Thursday’s decline. Were price to break above the 1.26760 level, which has proven to be a strong pivot level, that might restore more confidence in the pair. Alas, at the moment, the market is far away from that level.

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BoE: high inflation but rising recession risk

In line with expectations, the Bank of England (BoE) hiked the Bank Rate by 50bp to 1.75% (the largest hike in 27 years) with only member voting for a 25bp hike. BoE announced that active QT (i.e. outright government bond selling) will start after the September meeting with proposed bond sales of 10 billion pounds per quarter, totalling a reduction in bond holdings of 80 billion pounds over 12 months.

As expected, attention was on forward guidance rather than the rate hike itself. The BoE announced that it has adopted a meeting-by-meeting approach stating that "Policy is not on a pre-set path.", giving close to no forward guidance to markets. This is similar to some of the other large central banks, namely the Fed and ECB, although BoE's forward guidance is slightly weaker at this point.

One of the key takeaways from the Monetary Policy Report is that the BoE now projects a recession by Q4 2022 based on market pricing, which feeds well into the narrative playing out in markets where rising recession fears are dominating. This deviates from other central banks, who still communicate that a soft landing is possible.

Overall, in our view, it seems fair to conclude that although forward guidance was significantly limited, it is to the dovish side given the economic growth projections. The MPC stated that "the risks around the MPC's projections from both external and domestic factors are exceptionally large at present" highlighting that the course of monetary policy the coming months is still largely uncertain. On the one hand, the Bank of England likely needs to tighten further in order to get inflation under control. On the other hand, the Bank of England is likely to pause when the recession gets visible in data. In other words, monetary policy is not as straight forward in H2 2022 as it was in H1 2022.

Markets reacted accordingly with EUR/GBP moving up from 0.836 to 0.841 and 2yr gilt yields declined to 1.72% from 1.88%. Markets are now pricing in an additional total of nearly 100bp rate hikes this year.

We change our Bank of England call now expecting another 50bp rate hike in September and another 25bp in November, recognising that the Bank of England is probably not ready to fully stop hiking just yet despite rising recession risks. Further tightening is needed in order to cool extraordinarily high inflation pressure. We expect no rate hikes beyond the November meeting (although another 25bp rate hike in December seems like a close call at this point) and believe markets will start to focus even more on possible rate cuts in 2023 when the UK actually falls into recession..

We are slightly more dovish than markets, as the Bank of England has more emphasis on the economic outlook than what markets believe in. We still see a case for EUR/GBP to move slightly higher near-term on relative rates, targeting the cross at 0.86 in 3M. Further out, GBP usually appreciates vs EUR in an environment where USD performs and expect EUR/GBP to move back towards 0.84 in 12M.

The euro is showing little movement for a second straight day. In the North American session, EUR/USD is trading at 1.0187, up 0.14% on the day.

With a light economic calendar today in both the US and Europe, the euro is likely to continue to have a quiet day. Investors shrugged after a soft reading from German Factory Orders earlier today, with a decline of 0.4% in June. This was better than the forecast of -0.8% but lower than the May reading of -0.2%(revised from +0.1%).

German Factory Orders have now posted declines for five straight months, reflecting prolonged weakness in the manufacturing sector. Earlier this week, German Manufacturing PMI slipped into contraction territory for the first time in over two years, with a reading of 49.3. German manufacturing has been hurt by the slowdown in the global economy, and the slowdown in manufacturing is reflected in these two indicators. This raises concerns about the strength of the German economy, as well as the entire eurozone, as Germany is a bellwether for the rest of the bloc.

It is a stretch to paint an optimistic picture for Germany and the eurozone, with the war in Ukraine dragging on and a possible energy crisis courtesy of Russian President Putin. Inflation in the eurozone shows no signs of peaking and the ECB is playing catch-up, having finally raised interest rates last month for the first time in a decade. Russia has demonstrated that it is willing to weaponise its energy exports, and that could lead to an energy shortage ahead of winter, which is only a few months away.

EUR/USD Technical

• EUR/USD is testing resistance at 1.0194. Above, there is resistance at 1.0291
• There is support at 1.0130 and 1.0033

Markets

The Bank of England did what it was expected to do. After delivering a 50 bps rate hike in a 8-1 vote, the biggest in 27 years, the policy rate now stands at 1.75%. Inflation intensified, amongst others due to near doubling in gas prices. But domestic price pressures remain strong too owing to a tight labour market and low unemployment. Wage growth is expected higher than was forecasts in the May report, adding to the risks of a price-wage spiral. Inflation should peak in Q4 this year at more than 13% compared to the 10% in May and will stay at very elevated levels in 2023 (9.5% y/y in Q3). It should drop materially into 2024 to 2% in Q3 and to 0.8% in three years’ time. This is assuming a market implied peak policy rate of 3%. While this used to be a signal from the BoE that markets are pricing in too much tightening (since 2025 inflation is well below target), this is not the case today. Given high uncertainty, the BoE said its putting less weight on the implications of the assumptions made and even its own forecasts. Instead, it let data guide them in deciding which the next move is going to be. This could be another 50 bps in September but it might just as well already return to 25. The MPC’s economic assessment was nothing but grim. It projects the UK economy to enter into a recession in Q4 all the way through 2023. Real household income is projected to fall sharply in 2022 and 2023 in the worst squeeze in living standards in more than 60 years while consumption growth turns negative. Aside from the rate hike, the BoE also decided on quantitative tightening. It will start selling gilts shortly after the September meeting. In the first 12 months, it plans to shrink the balance sheet by £80bn. Taking into account the natural roll-off, this implies a quarterly £10bn of active sales. The strategy is subject to an annual review.

Gilt yields fell off a cliff in a knee-jerk reaction. Moves went as deep as 11 bps for the 2y (or 18 bps even from an intraday perspective). But that changed fast. Markets assume there’s no other option for the BoE to hike further with inflation expected at such high levels. The eventual damage for Gilt yields ranged from -1.3 bps (2y) to -3.2 bps (10y). The steep drop in UK yields caused knock-on effects on European and US bond markets but there too the move (partially) reversed. German yields ease between -2.6 bps and -5.4 bps. A 4 bps drop in US yields retraced about half of those losses, with the wings underperforming the belly of the curve. The British pound, having anticipated today’s move quite in advance, reacted negatively. EUR/GBP jumped from 0.837 to 0.842. Cable (GBP/USD) retreated to 1.21. EUR/USD is eking out a negligible gain and still switches hands sub 1.02.
 
News Headlines

The ECB started publishing the result of its Consumer Expectations Survey, a questionnaire targeting consumers in 6 EU core countries which the central bank started conducting since April 2020. According to the June edition, consumers expect inflation one year ahead still to be 5%. Three years from now, median inflation expectations are at 2.8%, above the ECB’s 2% target. Interestingly, they’ve estimated price increases over the past year up until June to be lower than they actually were (7.2% vs 8.6% HICP). Regarding the economic outlook, households believe the economy will shrink 1.3% in the year ahead while the unemployment rate is seen ticking higher to 11.5%, a significant increase compared to the actual 6.6% today.

The Czech National Bank at the meeting today decided to keep policy rates unchanged at 7%, defying market and analyst expectations for a 25 bps move higher. It’s the first meeting of the CNB in its new composition and with Ales Michl at the helm. Following the decision, Czech money markets assume the current rate to be the terminal one with rate cuts starting around this period next year. Czech swap rates tumble up to 14 bps at the front. The Czech crown in a first reaction lost minor ground, with CNB FX interventions probably capping losses, before staging a remarkable strengthening move that went as far as EUR/CZK 24.50.

Daily Pivots: (S1) 132.58; (P) 133.57; (R1) 134.84; More...

Intraday bias in USD/JPY remains neutral for the moment. Correction from 139.37 could still extend through 130.38. But downside should be contained above 126.35 support, at least on first attempt, to bring rebound. On the upside, firm break of 134.58 will turn bias to the upside for stronger rally to retest 139.37 high.

In the bigger picture, a medium term top should be in place at 139.37, on bearish divergence condition in daily MACD. Fall from there could be correcting whole up trend from 101.18 (2020 low). While deeper decline cannot be ruled out, outlook will stays bullish as long as 55 week EMA (now at 121.84) holds. Long term up trend is expected to resume through 139.37 at a later stage, after the correction finishes.

Daily Pivots: (S1) 0.9548; (P) 0.9600; (R1) 0.9657; More...

Intraday bias in USD/CHF stays mildly on the upside as rebound from 0.9468 short term bottom is in progress. Sustained trading above 55 day EMA (now at 0.9650) will raise the chance that corrective pattern from 1.0063 has completed. Further rally should then be seen to 0.9884 resistance next. This will remain the favored case as long as 0.9468 support holds.

In the bigger picture, medium term up trend from 0.8756 (2021 low) is still in progress. On resumption, next target is 1.0342 (2016 high). Sustained break there will resume long term up trend from 0.7065 (2011 low). This will remain the favored case as long as 0.9471 resistance turned support holds. However, firm break of 0.9471 will raise the chance that such up trend is over. Sustained trading below 55 week EMA (now at 0.9424) could bring deeper medium term fall back to 0.9149 support and below.