Sample Category Title

Bundesbank's latest monthly report indicates that while some factors are bolstering the economy, they are simultaneously complicating efforts to bring inflation down to target.

"The labor markets are still operating at high capacity, wage growth is brisk, and prices are rising strongly, particularly in the service sector," the report stated.

Bundesbank highlighted that "inflationary risks also predominate on the supply side." Services inflation is expected to decline only modestly in the coming months, with the overall price index likely to fluctuate around current levels.

Given these conditions, the Bundesbank advised that "possible further interest rate cuts should therefore be carefully considered in light of current data."

Bundesbank anticipates the economy to "strengthen somewhat" in the Q3. Private consumption is expected to "pick up a little more speed" driven by strongly rising wages, falling inflation, and a robust labor market, which should continue to support consumer spending.

However, the report also cautioned that industrial activity is likely to improve "only hesitantly" due to weak demand, which could result in GDP growth for Q3 falling slightly short of the expectations from June forecast.

• EURCHF spikes lower following rejection at 23.6% Fibo
• Price trades sideways after break below 50-day SMA
• Momentum indicators are neutral-to-negative

EURCHF has been staging a solid recovery since mid-June, advancing to its highest level in more than a month last Monday. However, the pair experienced a strong pullback following its rejection around 0.9796, which is the 23.6% Fibonacci retracement of the 0.9252-0.9928 upleg.

Should the negative bias persist, the bears could attempt to send the price below the 38.2% Fibo of 0.9670. Lower, the pair’s retreat could pause at the 50.0% Fibo of 0.9590, which lies very close to the 200-day SMA. In case of a downside violation, additional support could be found at the 61.8% Fibo of 0.9510.

On the flipside, if the price erases this latest slump, the 23.6% Fibo of 0.9796 could prove to be a tough barrier for the bulls to overcome. Further upside attempts could meet resistance at the 0.9836-0.9847 range, defined by the May resistance zone and the April peak. Surpassing that hurdle, the pair could revisit its 2024 peak of 0.9928.

Overall, EURCHF has been trading sideways in the past few sessions following an aggressive spike to the downside, which sent the pair below its 50-day SMA. For the bulls to regain confidence for a continuation of the latest uptrend, the pair needs to reclaim its short-term SMA.

EURUSD edges higher in European trading on Monday as bears are taking a breather after a two-day pullback from a multi-week high (1.0948).

Rising 10DMA and Fibo 23.6% of 1.0666/1.0948 (1.0881) contained dips for now, signaling a scenario of shallow correction before larger bulls regain control.

Talks about possible start of easing monetary policy as early as September add to positive outlook for the single currency, as daily studies keep strong positive momentum and MA’s remain in bullish setup.

However, weekly bull trap above 1.0933 Fibo barrier and weekly Doji candle with long upper shadow, warn that bulls might be running out of steam and deeper pullback cannot be ruled out.

Sustained break of 10 DMA / Fibo support to activate such scenario and expose next supports at 1.0840/07 (Fibo 38.2% / 50% / 200DMA).

Conversely, ability to hold above 1.0881support would keep near-term bias with bulls, with extension and close above 1.09 zone to generate initial signal of reversal and formation of a higher low.

Res: 1.0902; 1.0922; 1.0948; 1.0964.
Sup: 1.0881; 1.0840; 1.0807; 1.0788.

The USDCNH pair represents the exchange rate between the US dollar and the Chinese yuan. Factors influencing the US dollar include Federal Reserve policies, inflation rates, and the overall health of the US economy. In contrast, the Chinese yuan is affected by China’s monetary policies, economic growth metrics, and regulatory changes impacting capital flows. Movements in this currency pair can provide insights into shifts in economic policies, trade balances, and broader geopolitical tensions between the USA and China.

US Existing Home Sales, July 23, 16:00 (GMT+2)

The forthcoming release of US existing home sales predicted to decline to 4 million from 4.11 million, serves as a critical economic indicator. If the actual sales figures exceed expectations, suggesting a more robust housing market than anticipated, it could enhance investor confidence in the US economy. A strong real estate sector often correlates with broader economic strength, potentially boosting the US dollar and consequently driving the USDCNH pair higher. However, if the figures are lower than forecast, indicating a sluggish housing market, it could undermine confidence in the economic recovery, leading to a depreciation of the dollar against the yuan and a drop in the USDCNH rate.

CB Leading Index m/m, July 25, 15:00 (GMT+2)

The CB Leading Index from China measures economic activity and is forecasted to show a reduced contraction of -0.3%, an improvement over the previous -0.5%. If the index outperforms expectations by showing minimal contraction or unexpected growth, it would indicate an improving outlook for China's economy. A more robust Chinese economy usually bolsters the yuan, potentially lowering the USDCNH exchange rate as the yuan appreciates against the dollar. Conversely, a greater-than-expected decline in the index would suggest a sharper slowdown, potentially weakening the yuan. In such a case, the USDCNH pair might rise as the dollar strengthens relative to a faltering yuan, reflecting increased concerns over China's economic trajectory.

In the Daily timeframe, USDCNH is in a long-term uptrend. After a minor correction, the price fell to the 61.8 Fibonacci support, testing the MA50. Despite the long-term rise, Momentum fell below 100.0, which requires considering two possible scenarios.

• If the bears push the price below MA50 and 7.2600, the drop will be to 7.2000;
• However, a rebound from support would bring USDCNH back to resistance at 7.3100;

• A potential uptick in Japan’s core-core CPI led by PPI may increase the odds of a BoJ’s interest rate hike in September.
• Republican presidential nominee Donald Trump’s betting odds have slipped after US President Biden decided to bow out of the US Presidential Election race.
• A resurgence of Trumponomics that may be challenged which in turn may lead to a US dollar mixed-bag to negative environment in the short term.
• Another daily close below 156.50 on the USD/JPY may trigger a multi-week corrective decline sequence.

Since the publication of our last analysis, the USD/JPY has indeed shaped the expected decline in the following two weeks; it declined by 538 pips/-3.35% to print an intraday low of 155.37 on Thursday, 18 July 2024 before it closed higher at 157.36 by the end of the US session that held above its key medium-term support at 156.50.

Two key catalysts for the recent weakness seen in the USD/JPY (Japanese yen strength revival); firstly, it has been the increased odds of a more dovish US Federal Reserve expectations to kickstart in the September FOMC meeting after a slew of soft key US economic data in terms of spending and inflationary trends.

Secondly, in an earlier Bloomberg interview with Republican US Presidential candidate Donald Trump published on Tuesday, 16 July, Trump implied that he favored a weaker US dollar against the Japanese yen and Chinese yuan (due to US exports losing competitiveness) despite the medium-term fundamental impact of the FX market is likely still a US dollar strength narrative as policies of Trumponomics of higher tax cuts yield a wider US budget deficit, in turn, drives up longer-term US Treasury yields which is US dollar positive.

Let’s now discuss the current factors (fundamentals, politics, and technical) that may support another leg of JPY strength at least in the short term.

Japan’s consumer inflation deceleration trend has started to stall

Fig 1: Monthly Japan’s PPI & CPI trends (y/y) as of Jun 2024 (Source: TradingView, click to enlarge chart)

Japan’s nationwide core-core CPI (excluding fresh food and energy) has inched slightly higher in June to 2.2% y/y from 2.1% y/y in May (see Fig 1).

An interesting observation to highlight in terms of Japan’s producer prices index (manufacturers input costs) leading correlation with Japan’s core-core inflationary trend.

Based on the past three periods in August 2009, June 2016, and May 2020, the producer prices index (PPI) bottomed out first before core-core CPI trended higher, and the recent PPI has started to inch higher for six consecutive months to hit 2.9% y/y in June which suggests that the deceleration trend of Japan’s core-core CPI from its August 2023 reading of 4.3% y/y may have hit an inflection level in June and could follow the current upward bias trend of PPI.

A further uptick in core-core CPI above Bank of Japan (BoJ) inflation target of 2% is likely to set the stage for another potential interest rate hike in September after it enacted the first rate hike in March after 17 years, and such a signal or guidance may come in the upcoming 31 July monetary policy decision via a potential announcement of a further reduction in the purchase of 10-year Japanese Government Bonds (JGB).

Overall, a further potential reduction in the yield premium gap between US Treasuries and JGBs may support a further strengthening of the JPY.

Trump’s chances of winning the US presidency have slipped

Fig 2: Average betting odds of 2024 US Presidential Election result of 21 Jul 2024 (Source: Real Clear Politics, click to enlarge chart)

After weeks of urging by senior leaders within the Democrat camp, US President Biden has decided to step down from the US Presidential Election race on Sunday, 21 July, and announced his endorsement for Vice President Kamala Harris to be the Democrat US presidential nominee

So far, several prominent Democrats and will-be presidential nominee contenders have thrown in their support to endorse Harris as their preferred choice to face off against Trump as reported by various media outlets, such as Bill and Hillary Clinton, California Governor Gavin Newsom, and all 50 Democrat party state chairs.

The latest average betting odds on the 2024 US Presidential Elections result compiled by Real Clear Politics as of 21 July has indicated Republican presidential nominee, Trump has slipped to 58% from a significantly high level of 66% on 15 July (after the failed assassination attempt). Meanwhile, the odds for Democrat Harris have increased to 30% significantly from 7% over the same period.

Hence, betting markets suggest Trump’s margin of winning has been reduced which may be US dollar negative as the odds of the passage of Trumponomics policies have inched down as well.

More bearish medium-term technical conditions sighted

Fig 3: 1-month of rolling performances of G-10 JPY crosses as of 22 Jul 2024 (Source: TradingView, click to enlarge chart)

Fig 4:USD/JPY medium-term & major trend phases as of 22 Jul 2024 (Source: TradingView, click to enlarge chart)

After a bearish divergence condition sighted on the daily RSI momentum indicator on 3 July, there has been another negative price action following through on the USD/JPY.

It has staged a bearish breakdown below its 50-day moving average, the first time since 8 March 2024, and the lower boundary of the medium-term ascending channel in place since the 28 December 2023 swing low.

These negative observations suggest that USD/JPY may be on the brink of a potential multi-week corrective decline phase if its price action has another daily close below 156.50 that exposes the next medium-term pivotal support at 151.70 (also the 200-day moving average) (see Fig 4).

On the other hand, a clearance above 162.40 sees the continuation of the impulsive upmove sequence for the next medium-term resistances to come in at 164.20/164.90 and 167.10 next.

In an op-ed published today, ECB Governing Council member Peter Kazimir addressed market expectations for two additional rate cuts before the end of the year. He stated that while these market bets are "not entirely misplaced," they should not be considered a "given or a baseline scenario."

Kazimir highlighted that inflation is "on track" to return to the target but cautioned, "we are clearly not there yet." He emphasized the persistent risks of inflationary pressures due to various domestic and global factors. "There is still a non-negligible risk of inflationary pressures re-emerging," he noted.

"There is no need to rush our decisions," Kazimir added, advising a measured approach. "Enjoy the summer lull and wait for the much-anticipated September 'health check.' The upcoming data, combined with fresh forecasts, will set the stage for any necessary decisions."

Market picture

The cryptocurrency market is near 6-week highs, with capitalisation near $2.44 trillion, adding 0.5% in the last 24 hours. A wait-and-see attitude and some profit-taking replaced active buying in the last three days starting Friday. Judging by the dynamics, the market prefers to stand still, waiting for new signals, which may be statements from politicians or important economic data scheduled for the second half of the week.

Bitcoin is trading near $67.2K, losing 0.7% since the beginning of the day. Growth has lost traction near the upper boundary of the descending channel resistance. Here, the first cryptocurrency may linger for a few days, staying within the pattern of the last five months. Prior to that, on Friday, the 50-day moving average served as an important support and launching pad for the latest growth momentum.

Bitcoin will need to overcome $71K to confirm the break of the downward consolidation, which we believe will be in the next few days. Also, during this retreat, there may be a new attempt to drag the price back below the 50-day MA (now near $63.7K).

News background

As a result of another recalculation, the mining difficulty of the first cryptocurrency increased by 3.21% – to 82.05T – after three weeks of decline. The average hashrate for the period since the previous value change was 646.59 EH/s.

The Chicago Board Options Exchange (CBOE) said the first five spot Ethereum-ETFs in the US will launch in just a few days – on 23 July. The SEC approved the launch of such funds on 23 May, but companies had to agree to a Form S-1 filing with the regulator before listing.

Binance CEO Richard Teng said Spot Ethereum-ETFs will provide stable and significant capital inflows over time. He also said product inflows are unlikely to be massive initially.

According to CryptoQuant, crypto whales with balances of 1,000 BTC or more bought 1.45 million coins worth $94 billion in 2024, with their total crypto wallet holdings growing to 1.8 million BTC. Meanwhile, investors continue to add 100,000 bitcoins to their wallets each week.

Julien Bittel, head of macroeconomic research at financial publication Global Macro Investor, said Bitcoin could reach $140K-$190K over the next twelve months. He pointed out the compression of the “Bollinger Bands” on the weekly chart, which has only been seen twice, in April 2016 and July 2023, and then led to a significant rise.

Speculation has begun on social media about a reserve bitcoin fund in the United States, which presidential candidate Donald Trump will allegedly announce at the Bitcoin 2024 conference in Nashville, which will be held from 25 to 27 July. It is expected that the basis for the US Bitcoin reserves will be the confiscated cryptocurrency in the amount of more than 213,000 BTC.

The Australian dollar is coming off a rough week with losses of 1.45% and the downtrend has continued on Monday. AUD/USD is trading at 0.6664 in the European session, down 0.30% on the day at the time of writing. The Aussie climbed 1.9% in the first two weeks of July but has reversed directions and given up all these gains. There are no data releases out of Australia or the US today.

China surprises with rate cut

China surprise the markets by cutting its benchmark lending rates on Monday. The one- year loan prime rate (LPR) was lowered to 3.35% from 3.45% previously and the five-year LPR to 3.85% from 3.95%.
The Chinese central bank made the move in order to boost the economy, which continues to struggle.

China’s GDP slipped to 4.7% in the second quarter, down from 5.3% in the first quarter and below the market estimate of 5.1%. The Chinese government held a plenum last week and released a policy document on its plan to improve the economy. However, the policy update did not contain any concrete plans to deal with major economic issues, such as the property crisis, deflation, and weak consumer confidence.

Will China’s interest rate cuts succeed in kick-starting the sputtering economy and boosting demand? If so, it would be good news for the Australian economy, which is highly dependent on exports to China.
The Federal Reserve is sounding more upbeat about a rate cut, although Jay Powell and his colleagues have been careful not to be specific about the timing of such a critical move. The markets are more and more confident that the Fed will lower rates in September, with a 91% likelihood, according to the CME FedWatch.

AUD/USD Technical

• There is resistance at 0.6718 and 0.6756
• 0.6647 and 0.6609 are the next support levels

The NZD/USD pair is experiencing a significant downturn, trading around 0.5996. Several factors influence this decline, including global political developments and domestic monetary policy expectations.

The recent announcement by US President Joe Biden that he will not seek re-election in 2024 has unexpectedly bolstered the US dollar. Biden's endorsement of Vice President Kamala Harris as his successor has introduced a new dynamic into the political landscape, generally favouring the stability of the US dollar.

Simultaneously, the New Zealand dollar is weakened by the looming possibility of interest rate cuts by the Reserve Bank of New Zealand (RBNZ). Market participants increasingly expect rate reductions beginning early in August following a weaker-than-expected Q2 inflation report. This anticipation builds on the RBNZ's July decision to maintain the official cash rate at 5.5% per annum, coupled with hints that monetary policy might be relaxed if inflation pressures abate.

Adding to the pressure, recent trade data from New Zealand showed a surplus in June, primarily due to a sharper decline in imports compared to exports, suggesting potential economic softness.

NZD/USD Technical Analysis

The NZD/USD pair has established a consolidation range around the 0.6022 level, with a breakout leading to a continuation of the downward trend. The immediate target is 0.5962, with the potential to extend towards 0.5946. The MACD indicator supports this bearish outlook, as it remains below zero and points downwards, indicating sustained selling momentum.

Resistance was found at 0.6022, and the pair is extending its decline towards 0.5962. A corrective bounce to 0.6000 might occur before resuming the downward movement towards 0.5946. The Stochastic oscillator, currently below 20, suggests a potential brief recovery to around 50 before a likely resumption of the downward trend.

Investors and traders should closely monitor these developments, especially any further political news from the US and upcoming economic data from New Zealand. These factors could significantly impact the pair's movements in the near term.

• Increased geopolitical tensions in the Middle East and US election uncertainty have caused a rise in safe-haven demand, particularly for Gold.
• The US Dollar has weakened due to concerns about a potential Kamala Harris presidency and its implications on the economy.
• Market sentiment is expected to be driven by US election developments and geopolitical issues in the first half of the week.

The week kicked off with heightened market activity due to escalating tensions in the Middle East and a surprising announcement from US President Joe Biden on Sunday evening that he will not seek re-election.

Geopolitical concerns surged as the Israeli military launched retaliatory strikes on the port of Hodeidah in Yemen and other targets, prompting threats of new military action from the Houthis against Israel. This escalation raises the risk of a broader conflict in the Middle East, with comments from Russia and Iran further fueling concerns.

Adding to the uncertainty, President Biden unexpectedly announced that he would complete his current term but not run for re-election. This development introduces a new layer of intrigue and uncertainty, which markets typically find unsettling. Following Biden’s announcement, many Democrats quickly rallied behind Vice President Kamala Harris. The US Dollar weakened slightly as markets began to consider the implications of a potential Harris presidency on the economy.

Safe Haven Bids

Markets opened with a strong demand for safe havens, pushing Gold higher in Asian trade, while the Japanese Yen and Swiss Franc also saw gains. Throughout most of the year, the US Dollar has benefited from safe haven flows, but not this time. The current fear stems partly from the prospect of a Kamala Harris and Democratic victory, which could theoretically weaken the US Dollar in the long term due to potential tax increases and lower borrowing costs. This concern likely explains the diminished safe haven appeal of the US Dollar at the moment.

As you can see from the currency strength chart below, JPY and CHF are leading the way this morning.

Currency Strength Chart 

Source:FinancialJuice (click to enlarge)

Looking ahead, there is a slew of important economic data on the horizon. However, for now, I expect that US election developments and geopolitical issues will primarily drive market sentiment in the first half of this week. Unless there are significant escalations or unexpected changes, we may remain in a risk-off mode until Wednesday when key US economic data starts to come in.

Technical Analysis on XAU/USD

Spot Gold (XAU/USD) experienced significant selling pressure on Thursday and Friday but managed to cling to the crucial $2400/oz psychological level. With risk-off sentiment on the rise, further gains could be in store for the precious metal, especially if it continues to hold above the $2400/oz mark.

A weaker US Dollar at the start of the week may also help Gold stage an early recovery. Any signs of escalating tensions or increased uncertainty around the US elections are worth monitoring, as they could further impact Gold prices.

On the weekly timeframe, Gold printed a massive shooting star rejection candle, suggesting potential downside ahead. Moving to the daily chart, Gold prices are eyeing a break of the ascending trendline, which could lead to a retest of the 20-day moving average, currently at 2377.

Overall, the technical and fundamental outlooks are at odds as the week begins. The key question for many this week is which side will dominate and drive price action moving forward.

Support

• 2400 (psychological level)
• 2392
• 2377 (20-day MA)

Resistance

• 2432
• 2450
• 2475

XAU/USD Daily Chart, July 22, 2024

Source: TradingView.com (click to enlarge)