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Dollar is staying is the strongest one for the week, as talks of a 100bps hike at the July FOMC meeting heat up. But upside momentum in the greenback hasn't been really too convincing, except versus Yen. EUR/USD is still trying hard to defend parity for now. Yen, on the other hand, is staying broadly pressured on expectation of divergence in BoJ's policy to other peers. Commodity currencies are mixed, with Aussie slightly weaker.

Technically, a major focus remains on whether EUR/USD could eventually defend parity. We'd maintain that the level is 100% projection of 1.1184 to 1.0348 from 1.0773 at 0.9937. As long as this projection level holds, there is still prospect of a near term rebound. However, sustained break there could prompt further downside acceleration to 161.8% projection at 0.9420. This should be decided in the next few days.

In Asia, at the time of writing, Nikkei is up 0.64%. Hong Kong HSI is down -1.32%. China Shanghai SSE is down -0.28%. Singapore Strait Times is up 0.34%. Japan 10-year JGB yield is down -0.0002 at 0.235. Overnight DOW dropped -0.46%. S&P 500 dropped -0.30%. NASDAQ rose 0.03%. 10-year yield rose 0.056 to 2.960.

Gold breaches 1700, close to critical support

Gold's down trend continued this week and breached 1700 handle overnight. Further fall is still in favor but Gold is now close to a critical support zone.

Whole pattern from 2074.84 (2020 high) is seen as a three wave consolidation pattern, with fall from 2070.06 as the third leg. Strong support is expected around 1682.60, with 38.2% retracement of 1046.27 to 2074.84 at 1681.92, to complete the pattern. Break of 1745.21 minor resistance will now be a sign of short term bottoming and bring stronger rise back to 1786.65/1878.92 resistance zone.

However, sustained break of 1682.60 will complete a double top reversal pattern (2074.84, 2070.06), and could prompt deeper decline to 61.8% retracement at 1439.18.

Fed Bullard: 75bps has a lot of virtue to it

In an interview by Nikkei after US CPI release, St. Louis Fed President James Bullard said rate-setters have "framed" the July FOMC meeting as "50 versus 75". "I think 75 has a lot of virtue to it, because the long run neutral that the committee has, according to the Summary of Economic Projections, is actually about 2.5%," he said.

"If we made this move at this meeting, that would get us all the way till the long run neutral value. And obviously we've got more steps to take in meetings ahead, but we can assess as we go through the rest of this year," he added.

While Bullard has been advocating to get interest rate to 3.5% this year, rate exceeding 4% by the end of this year is "possible". "If data came in, continued to come in, in an adverse way, for the committee, then we could consider doing more, as we go through the fall here. So, I'd say it's a possibility."

NZ BusinessNZ manufacturing dropped to 49.7, sector remains in struggle street

New Zealand BusinessNZ Performance of Manufacturing Index dropped from 52.9 to 49.7 in June. Production dropped from 52.6 to 47.8. Employment dropped from 52.8 to 51.2. New orders dropped fro 52.3 to 47.8. Finished stocks dropped from 52.8 to 50.0. Deliveries dropped from 55.1 to 51.7.

BusinessNZ's Director, Advocacy Catherine Beard said that the drop in activity levels for June highlights the fact that the sector remains in struggle street to get back to long-term activity levels.

"The key sub index values of Production (47.8) and New Orders (47.8) both recorded the same level of contraction, which had a combined negative effect on the overall Index.  As mentioned in previous months, a strong and consistent activity level for both these key sub index values will be the only way to push the PMI towards better results."

China GDP grew only 0.4% yoy in Q2, but Jun data improved

China GDP grew only 0.4% yoy in Q2, missing even the expectation of 1.0% yoy. For June, industrial production rose 3.9% yoy, below expectation of 4.3% yoy/. Nevertheless, retail sales rose 3.1% yoy, above expectation of 0.4% yoy. Fixed asset investment rose 6.1% ytd yoy, versus expectation of 6.0%.

"Domestically, the impact of the epidemic is lingering," NBS spokesman Fu Linghui said. "Economic growth is still much lower than its potential, as the fear of Covid outbreaks continues to hurt consumer and corporate sentiment... Even accounting for June's strength, the data are consistent with negative year-on-year growth last quarter," he added.

Looking ahead

Eurozone trade balance will be released in European session. Later in the day, US retail sales, empire state manufacturing index, import price, industrial production, U of Michigan consumer sentiment and business inventories will be released.

EUR/USD Daily Outlook

Daily Pivots: (S1) 0.9960; (P) 1.0013; (R1) 1.0074; More...

EUR/USD continues to lose downside momentum as seen in 4 hour MACD. But further decline is still expected with 1.0121 minor resistance intact. Sustained break of 100% projection of 1.1184 to 1.0348 from 1.0773 at 0.9937 could prompt downside acceleration to 161.8% projection at 0.9420. Nevertheless, break of 1.0121 will indicate short term bottoming, and turn bias back to the upside for rebound, towards 1.0348 support turned resistance.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0773 resistance holds, in case of rebound.

Economic Indicators Update

Gold's down trend continued this week and breached 1700 handle overnight. Further fall is still in favor but Gold is now close to a critical support zone.

Whole pattern from 2074.84 (2020 high) is seen as a three wave consolidation pattern, with fall from 2070.06 as the third leg. Strong support is expected around 1682.60, with 38.2% retracement of 1046.27 to 2074.84 at 1681.92, to complete the pattern. Break of 1745.21 minor resistance will now be a sign of short term bottoming and bring stronger rise back to 1786.65/1878.92 resistance zone.

However, sustained break of 1682.60 will complete a double top reversal pattern (2074.84, 2070.06), and could prompt deeper decline to 61.8% retracement at 1439.18.

China GDP grew only 0.4% yoy in Q2, missing even the expectation of 1.0% yoy. For June, industrial production rose 3.9% yoy, below expectation of 4.3% yoy. Nevertheless, retail sales rose 3.1% yoy, above expectation of 0.4% yoy. Fixed asset investment rose 6.1% ytd yoy, versus expectation of 6.0%.

"Domestically, the impact of the epidemic is lingering," NBS spokesman Fu Linghui said. "Economic growth is still much lower than its potential, as the fear of Covid outbreaks continues to hurt consumer and corporate sentiment... Even accounting for June's strength, the data are consistent with negative year-on-year growth last quarter," he added.

New Zealand BusinessNZ Performance of Manufacturing Index dropped from 52.9 to 49.7 in June. Production dropped from 52.6 to 47.8. Employment dropped from 52.8 to 51.2. New orders dropped fro 52.3 to 47.8. Finished stocks dropped from 52.8 to 50.0. Deliveries dropped from 55.1 to 51.7.

BusinessNZ's Director, Advocacy Catherine Beard said that the drop in activity levels for June highlights the fact that the sector remains in struggle street to get back to long-term activity levels.

"The key sub index values of Production (47.8) and New Orders (47.8) both recorded the same level of contraction, which had a combined negative effect on the overall Index.  As mentioned in previous months, a strong and consistent activity level for both these key sub index values will be the only way to push the PMI towards better results."

Full release here.

In an interview by Nikkei after US CPI release, St. Louis Fed President James Bullard said rate-setters have "framed" the July FOMC meeting as "50 versus 75". "I think 75 has a lot of virtue to it, because the long run neutral that the committee has, according to the Summary of Economic Projections, is actually about 2.5%," he said.

"If we made this move at this meeting, that would get us all the way till the long run neutral value. And obviously we've got more steps to take in meetings ahead, but we can assess as we go through the rest of this year," he added.

While Bullard has been advocating to get interest rate to 3.5% this year, rate exceeding 4% by the end of this year is "possible". "If data came in, continued to come in, in an adverse way, for the committee, then we could consider doing more, as we go through the fall here. So, I'd say it's a possibility."

Full interview here.

DXY:

On the H4, with prices moving above the ichimoku indicator and along the ascending trendline, we have a bullish bias that prices will drop and rise from 1st support at 105.794 where the pullback support and 61.8% fibonacci retracement are to 1st resistance at 111.758 in line with 100% fibonacci projection and 78.6% fibonacci projection. Alternatively, price may break 1st support structure and drop to 2nd support at 103.401 where the horizontal swing low support and -27.2% fibonacci expansion are.

Areas of consideration:

• H4 time frame, 1st resistance at 111.758
• H4 time frame, 1st support at 105.794

XAU/USD (GOLD):

On the H4, with prices moving below the ichimoku indicator and along a descending trendline, we have a bearish bias that prices will rise and drop from our 1st resistance at 1723.09 where the horizontal pullback resistance, 50% fibonacci retracement and 61.8% fibonacci projection are to our 1st support at 1680.83 in line with swing low support and 100% fibonacci projection. Alternatively, price could break 1st resistance structure and rise to our 2nd resistance at 1758.89 in line with overlap resistance and 38.2% fibonacci retracement.

Areas of consideration:

• H4 time frame, 1st Resistance at 1723.09
• H4 time frame, 1st Support at 1680.83

GBP/USD:

On the H4, with prices moving below the ichimoku indicator and within the descending channel, we have a bearish bias that prices will drop to our 1st support at 1.17597 where the swing low support is. Once we have downside confirmation of price breaking 1st support, we would expect bearish momentum to carry price to 2nd support at 1.16560 where the -61.8% fibonacci expansion is. Alternatively, price could rise to 1st resistance at 1.18748 in line with the pullback resistance, 61.8% fibonacci projection and 50% fibonacci retracement.

Areas of consideration:

• H4 1st resistance at 1.18748
• H4 1st support at 1.17597

USD/CHF:

On the H4, with price moving above the ichimoku cloud, we have a bullish bias that price will rise from our 1st support at 0.97732 where the horizontal swing low support is to our 1st resistance at 0.98882 in line with the swing high resistance is. Alternatively, price may not break 1st support and head for 2nd support at 0.97302 where the horizontal pullback support.

Areas of consideration

• 1st support level at 0.97732
• 1st resistance level at 0.98882

EUR/USD :

On the H4, with price moving below the ichimoku cloud and in a descending trendline, we have a bearish bias that price will continue to drop from the 1st resistance at 1.01081 at the overlap resistance in line with the 78.6% fibonacci projection and -27.2% fibonacci expansion to the 1st support at 0.98416 in line with the -61.8% fibonacci expansion. Alternatively, price may reverse off the 1st resistance and rise to the 2nd resistance at the pullback resistance at 1.03634 in line with the 61.8% and 78.6% fibonacci projections.

Areas of consideration :

• H4 1st resistance at 1.01081
• H4 1st support at 0.98416

USD/JPY:

On the H4, with price moving along an ascending trendline and above the ichimoku indicator, we have a bullish bias that price will rise to our 1st resistance at 139.381 where the swing high resistance is. Once there is upside confirmation of price breaking 1st resistance, we would expect bullish momentum to carry price to 2nd resistance at 141.529 in line with 78.6% fibonacci projection. Alternatively, price could drop to 1st support at 137.771 where the pullback support, 61.8% fibonacci retracement and 100% fibonacci projection are.

Areas of consideration:

• H4 time frame, 1st resistance at 139.381
• H4 time frame, 1st support at 137.771

AUD/USD:

On the H4, with price moving below the ichimoku cloud and in a descending trendline, we have a bearish bias that price will continue to drop from the 1st resistance at 0.67235 in line with the 100% fibonacci projection and 127.2% fibonacci extension to the 1st support at 0.65627 in line with the 161.8% fibonacci extension. Alternatively, price may rise to the 2nd resistance at 0.68454 at the overlap resistance in line with the 61.8% and 100% fibonacci projections.

Areas of consideration

• H4 1st resistance at 0.67235
• H4 1st support at 0.6562

NZD/USD:

On the H4, with price moving below the ichimoku cloud and in a descending trendline, we have a bearish bias that price will continue to drop from the 1st pullback resistance at 0.61284 in line with the 127.2% fibonacci extension and 78.6% fibonacci projection to the 1st support at 0.60333 in line with the 161.8% fibonacci extension and 100% fibonacci projection. Alternatively, price may reverse off the 1st resistance and rise to the 2nd resistance at 0.62039 in line with the overlap swing high and 100% fibonacci projection.

Areas of consideration:

• H4 time frame, 1st support at 0.60333
• H4 time frame, 1st resistance at 0.61284

USD/CAD:

On the H4, with price moving above the ichimoku cloud, we have a bullish bias that price will rise from our 1st support at 1.30780 where the horizontal pullback support and38.2% Fibonacci retracement are to our 1st resistance at 1.32252 in line with the horizontal swing high resistance. Alternatively, price may not break 1st support and head for 2nd support where the horizontal overlap support is

Areas of consideration:

• H4 time frame, 1st resistance at 1.32252
• H4 time frame, 1st support at 1.30780

OIL:

On the H4, with price moving below the ichimoku cloud, we have a bearish bias that price will drop to our 1st support at 89.44 where the 161.8% Fibonacci extension is from our 1st resistance at 96.93 in line with the horizontal pullback resistance and 50% Fibonacci retracement. Alternatively, price may break 1st resistance and head for 2nd resistance at 104.77 where the horizontal pullback resistance and 50% Fibonacci retracement is.

Areas of consideration:

• H4 time frame, 1st resistance of 96.93
• H4 time frame, 1st support of 89.44

Dow Jones Industrial Average:

On the H4, with price expected to bounce off the stochastics indicator, we have a bullish bias that price will rise from our 1st support at 30423 where the horizontal pullback support is to our 1st resistance at 31477 in line with the horizontal swing high resistance and 78.6% Fibonacci retracement. Alternatively, price may not break 1st support and head for 2nd support at 30116 where the horizontal swing low support is.

Areas of consideration:

• H4 time frame, 1st resistance of 31477
• H4 time frame, 1st support of 30423

Key insights from the week that was.

This week’s Australian data highlighted the growing disparity between current activity and confidence.

According to NAB’s latest business survey, while business conditions continue to show strength across the economy, confidence has fallen below its long-run average. Arguably this deterioration stems from the availability and price of labour and other inputs as well as growing uncertainty over the global outlook. The rapid turn in monetary policy is also cause for concern for business, though at the moment the impact on activity is limited given support from the labour market and the full re-opening of the services sector. In the second half of 2022 and into 2023, business conditions are likely to come under greater pressure.

While the Westpac-MI consumer sentiment survey continues to signal confidence in the labour market and the longer-term economic outlook, households’ near-term personal financial outlook is of great concern given historic inflation and rapidly rising interest rates. Highlighting this, underlying the seventh consecutive fall in the headline index to a level only seen during times of significant economic disruption are views on family finances 20ppts below average and an economic view for the year ahead 12pts below average.

Unsurprisingly, the ‘time to buy a dwelling’ index is now 32ppts below average and house price expectations continue to deteriorate. Also of concern for the growth outlook, ‘time to buy a major household item’ is now 30ppts down on its average level – note though this indicator is also picking up the rotation from goods to services as the economy re-opens. After its release, Chief Economist Bill Evans provided a video update on the implications for the economy and RBA of these trends.

At least the labour market outlook should remain an enduring positive, with June’s employment print coming in materially higher than expectation at a strong 88k. The employment outcome also saw the unemployment rate fall 0.4ppts to a 48-year low of 3.5% despite a 0.1ppt rise in participation. Australia’s labour market is clearly in unprecedented territory, with there now being one unemployed person per job vacancy and a record-high employment-to-population ratio. Gains over the remainder of 2022 will depend on how much further participation can rise as well as the outlook for immigration.

Australia’s arrivals and departures data suggests material changes in labour supply through immigration will take time, with a robust increase in arrivals to 737k in June offset by a very strong lift in departures to 885k, reflecting the normalisation of visitor flows as recent short-term visitor arrivals cycle out as departures. This lack of positive net arrivals is also evident in the underlying detail. Travel on a permanent/long-term basis and visa-related travel over recent months has shown as many arrivals as departures.

Turning then to New Zealand. As expected, the RBNZ delivered another 50bp hike at their July meeting, taking the cash rate to 2.50%. Our New Zealand economics team provided a full update on the decision and outlook after the announcement, highlighting in particular that the “RBNZ’s focus remains on the risk of homegrown inflation pressures becoming persistent, with strong demand running up against capacity constraints” and that the team continues to expect another 50bp increase in August, taking the cash rate near the level likely to prove the peak for this cycle.

Moving further afield, inflation and the required response of monetary policy remained front of mind for the US. In June, the headline CPI surprised to the upside again, prices rising 1.3%/9.1%yr. Core inflation was also stronger than expected, 0.7%/5.9%yr. Price pressures are certainly strong and broad based. But, in the detail of the report, there were no new breakout price moves. As supply constraints are worked through and demand remains under pressure from declining real incomes and tighter policy, we expect inflation will moderate back near the FOMC’s target.

In terms of the timing and implications for monetary policy, while July has so far seen a significant decline in the price of oil and food commodities, we expect the FOMC will feel compelled to continue tightening at a rapid rate in July and September – we forecast hikes of 75bps and 50bps. However, by the November and December meetings, when we expect two 25bp hikes to conclude the tightening cycle, declining commodity prices and the (already evident) reduction in price growth for goods ex energy and food should combine to give the FOMC comfort that the inflation threat is passing, allowing an on-hold stance to be adopted at a contractionary level of 3.375% from December.

In our view, the implications for activity of the above outturn for policy are concerning, with economic stagnation or recession to remain a material risk through 2022 and 2023. As we outlined this week, the Atlanta Fed’s nowcast for Q2 GDP currently suggests GDP contracted through the six months to June as the headwinds from declining real incomes, the rapid tightening of financial conditions, and historically-low confidence began to take effect.

In addition to the full impact of these forces being felt in coming quarters, it is also now clear that employment growth is slowing abruptly and nominal wages growth decelerating ahead of inflation. These trends bode ill for the business investment outlook as does the 20-year high for the US dollar. If the FOMC does not progressively shift its view on the risks from inflation to activity, not only is stagnation likely during 2022 and 2023, but potentially also into the medium-term. To combat this risk, we anticipate 125bps of easing from December quarter 2023 to December 2024, leaving the fed funds rate at 2.125%.

• Gold broke pivotal support level 1725.00
• Likely to fall to support level 1684.00

Gold recently broke below the pivotal support level 1725.00 (former multi-month support from last September).

The breakout of the support level 1725.00 is aligned with the clear downtrend that can be seen on the daily charts.

Gold can be expected to fall further toward the next support level 1684.00 (former powerful support from August of 2021) – from where gold is likely to correct up.

• EURCAD reversed from major support level 1.3020
• Likely to rise to resistance level 1.3200

EURCAD recently reversed up from the major long-term support level 1.3020 (former multi-year low from the middle of 2015), standing outside of the lower weekly Bollinger band.

The upward reversal from the support level 1.3020 is likely to form the weekly Japanese candlesticks reversal pattern Hammer.

Given the oversold weekly Stochastic, EURCAD can be expected to rise further toward the next resistance level 1.3200.

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