Sample Category Title

The euro has edged higher on Wednesday, after sliding over 1% yesterday. In the North American session, EUR/USD is trading at 1.0147, up 0.29% on the day.

All eyes on Federal Reserve

The markets are eagerly awaiting the FOMC decision later today. The meeting is live, with the Fed expected to raise rates by 75bp for a second straight month, which will bring the benchmark rate to 2.50%. There is an outside chance that the Fed will opt for a massive 100bp move, as inflation shows no sign of peaking and hit 9.1% in June, up from 8.6% in May.

Even if the Fed delivers the expected 75bp increase, the move could shake up the currency markets. Investors will be paying close attention to the Fed’s guidance over the coming months and the tone of Powell’s rate statement and follow-up press conference. If Powell hints that a 75bp increase is coming in September, that would indicate a hawkish stance and the US dollar could gain ground.

The Fed decision comes just ahead of US GDP for the second quarter. After a soft reading of -1.6% in Q1, a modest gain of 0.5% is expected in Q2. The White House, fearing a second straight negative reading which technically defines a recession, is already in pre-damage control mode in case of a GDP decline in Q2, claiming that there are other ways to define a recession besides two consecutive declines.

The euro again finds itself uncomfortably close to the parity line, after a nasty slide on Tuesday. Investors reacted negatively to reports that Russia was slashing in half the gas flow in Nord Stream 1 to 20% of capacity. This has raised fears of an energy shortage in Europe this winter. The EU is scrambling to reduce its energy dependence on Moscow and announced on Tuesday that member states had agreed on a voluntary reduction of 15% in natural gas imports. Still, the agreement has wide holes, with exemptions for members that are not directly linked to EU gas pipelines and are completely dependent on Russia. EU members have to worry about their own citizens, which could make it difficult to have a united front against Russia.

German confidence indicators are pointing downwards, which isn’t surprising given the war in Ukraine and a potential energy crisis. Earlier in the day, GfK Consumer Climate fell 2.9 points to -30.6, below the estimate of -28.9. German consumers have been in a surly mood for months, as the index has been in negative territory since October 2021. The weak release follows Tuesday’s Ifo Business Sentiment, which dropped by 5.6 points to 88.6, shy of the forecast of 90.2.

EUR/USD Technical

• EUR/USD has support at 1.0105 and 0.9992
• 1.0191 has switched to resistance. Above, there is resistance at 1.0304

Daily Pivots: (S1) 136.48; (P) 136.73; (R1) 137.17; More...

Intraday bias in USD/JPY remains neutral as range trading is still extending. On the downside, firm break of 134.73 will confirm short term topping, on bearish divergence condition in 4 hour and daily MACD. Deeper fall would be seen through 55 day EMA to 126.35/131.34 support zone. On the upside, break of 139.37 will resume larger up trend.

In the bigger picture, current rally is seen as part of the long term up trend from 75.56 (2011 low). Next target is 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, which is close to 147.68 (1998 high). This will remain the favored case as long as 126.35 support holds.

Daily Pivots: (S1) 0.9609; (P) 0.9638; (R1) 0.9661; More...

Despite some loss of downside momentum, further decline is in favor in USD/CHF with 0.9738 resistance intact. Fall from 0.9884 is seen as a falling leg of the consolidation from 1.0063. Deeper decline would be seen to 0.9493 support. On the upside, though, above 0.9738 minor resistance will turn bias back to the upside for 0.9884 resistance.

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.

Daily Pivots: (S1) 1.0067; (P) 1.0159; (R1) 1.0209; More...

Intraday bias in EUR/USD remains neutral for the moment. On the downside, firm break of 1.0118 will suggest that rebound from 0.9951 has completed. Bias will be back on the downside for retesting 0.9951 low. On the upside, above 1.0277 will resume the rebound to 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 strong rebound.

Daily Pivots: (S1) 1.1965; (P) 1.2027; (R1) 1.2091; More...

Intraday bias in GBP/USD remains neutral at this point. With 1.1888 minor support intact, further rise is mildly in favor. Above 1.2089 will target 55 day EMA (now at 1.2236). Sustained trading above there will pave the way to 1.2405 resistance and above. On the downside, below 1.1888 minor support will bring retest of 1.1759 low instead.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2666 resistance holds. Next target is 1.1409 low. However, firm break of 1.2666 will bring stronger rise back to 55 week EMA (now at 1.2986).

The currency markets continue to be relatively steady today, as traders are holding their bets ahead of Fed's expected 75bps rate hike. Euro is recovering slightly but remains the worst performer for the week, followed by Yen. On the other hand, Canadian Dollar is leading Australian and Sterling higher. Dollar is mixed for now. The interplay between US stocks, benchmark yields, and Dollar will be the major focus for the retest of the session.

Technically, some attention will also be on Gold's reaction to Fed hike. Recovery from 1680.83 is so far disappoinintg. But another rally is still envisaged. Firm break of 1745.21 minor resitasnce swhould confirm short term bottoming at 1680.83, on bullish convergence condition in 4 hour MACD. That would also be the first signal of near term bullish reversal , and turn focus to channel resitsance at around 1780.

In Europe, at the time of writing, FTSE is up 0.69%. DAX is up 0.64%. CAC is up 0.58%. Germany 10-year yield is up 0.014 at 0.942, staying below 1%. Earlier in Asia, Nikkei rose 0.22%. Hong Kong HSI dropped -1.13%. China Shanghai SSE dropped -0.05%. Singapore Strait Times rose 0.41%. Japan 10-year JGB yield dropped -0.0142 to 0.195, back below 0.2%.

Here are some previews for FOMC:

• What to Expect from FOMC Meeting on July 27th
• Trader Thoughts – Make or Break Time for US Equity Markets
• FOMC Preview – Assessing the Balance of Risk for Traders
• Fed to Likely Hike by 75 bps But May Still Weigh 100-bps Option
• FOMC Meeting Preview: Traders Looking for 75bps, Powell's Presser Key
• All Eyes on Bond Yields ahead of FOMC

US durable goods orders rose 1.9% mom, ex-transport orders up 0.3% mom

US durable goods orders rose 1.9% mom to USD 272.6B in June, much better than expectation of -0.5% mom decline. Ex-transport orders rose 0.3% mom, below expectation of 0.4% mom. Ex-defense orders rose 0.4% mom. Transportation equipment rose 5.4% mom to USD 92.7B.

US goods exports rose 2.5% mom, imports dropped -0.5% mom

US exports of goods rose 2.5% mom or USD 4.4B to USD 181.5B in June. Imports of goods dropped -0.5% mom or USD -1.5B to to USD 279.7B. Good trade deficit came in at USD -98.2B, smaller than expectation of USD -103.2B.

Wholesale inventories rose 1.9% mom, 25.6% yoy to USD 896.0B. Retail inventories rose 2.0% mom, 19.9% yoy to USD 723.0B.

Germany Gfk consumer sentiment hit another rock bottom at -30.6

Germany Gfk consumer sentiment for August dropped from -27.7 to -30.6, below expectation of -28.2. That's another record low since the start of the series in 1991. In July, economic expectations dropped from -11.7 to -18.2. Income expectations dropped from -33.5 to -45.7. Propensity to buy dropped from -13.7 to -14.5.

"In addition to concerns about disrupted supply chains, the war in Ukraine and soaring energy and food prices, there are now worries about sufficient gas supplies for businesses and households next winter. This is currently causing consumer sentiment to hit rock bottom," explains Rolf Bürkl, GfK consumer expert. "Especially as a tight supply of natural gas is likely to add to the pressure on energy prices and thus inflation."

Australia CPI surged to record 6.1% yoy, but below expectations

Australia CPI rose 1.8% qoq in Q2, blow expectation of 1.9% qoq. For the 12-month period, CPI accelerated from 5.1% yoy to 6.1% yoy, below expectation of 6.3% yoy. RBA trimmed mean CPI came in at 1.5% qoq, 4.9% yoy, versus expectation of 1.5% qoq, 4.7% yoy.

The quarterly increase was the second highest since the introduction of the Goods and Services Tax (GST), following on from a 2.1% increase in Q1. The annual rise was the highest since the introduction of GST.

"Annual trimmed mean inflation was the highest since the series commenced in 2003 and annual goods inflation was the highest since 1987, as the impacts of supply disruptions, rising shipping costs and other global and domestic inflationary factors flowed through the economy," said Head of Prices Statistics at the ABS, Michelle Marquardt.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1965; (P) 1.2027; (R1) 1.2091; More...

Intraday bias in GBP/USD remains neutral at this point. With 1.1888 minor support intact, further rise is mildly in favor. Above 1.2089 will target 55 day EMA (now at 1.2236). Sustained trading above there will pave the way to 1.2405 resistance and above. On the downside, below 1.1888 minor support will bring retest of 1.1759 low instead.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2666 resistance holds. Next target is 1.1409 low. However, firm break of 1.2666 will bring stronger rise back to 55 week EMA (now at 1.2986).

Economic Indicators Update

US exports of goods rose 2.5% mom or USD 4.4B to USD 181.5B in June. Imports of goods dropped -0.5% mom or USD -1.5B to to USD 279.7B. Good trade deficit came in at USD -98.2B, smaller than expectation of USD -103.2B.

Wholesale inventories rose 1.9% mom, 25.6% yoy to USD 896.0B. Retail inventories rose 2.0% mom, 19.9% yoy to USD 723.0B.

Full release here.

US durable goods orders rose 1.9% mom to USD 272.6B in June, much better than expectation of -0.5% mom decline. Ex-transport orders rose 0.3% mom, below expectation of 0.4% mom. Ex-defense orders rose 0.4% mom. Transportation equipment rose 5.4% mom to USD 92.7B.

Full release here.

The Australian dollar has edged higher on Wednesday. AUD/USD is trading at 0.6950 in European trade.

CPI rises, but less than expected

Australia’s inflation rate accelerated in the second quarter, but the market reaction was muted, as the 6.1% gain was a notch below the estimate of 6.2%. Inflation still remains the RBA’s number one problem, as CPI jumped from 5.1% in Q1. With inflation coming in a bit less than forecast, RBA hiking expectations have been pared lower, which briefly sent the Australian dollar lower.

The key question of “how much, how fast” the RBA will increase rates depends not just on how high inflation is running, but on the resilience of the economy to withstand ever higher rates. The labour market remains robust, with the unemployment rate falling to 3.5% in June, down from 3.8% in May. The trade surplus jumped in May and the manufacturing sector continues to show strong expansion. At the same time, the global growth outlook is uncertain and fears of a slowdown in China are weighing on risk sentiment which could prove to be a major headwind for the Australian dollar.

The minutes of the RBA July meeting stated that policymakers discussed the neutral rate (which is neither expansionary nor contractionary) and the 1.35% cash rate was “well below” that. Governor Lowe has often quoted 2.5% as around neutral, leaving little doubt that the RBA plans more hikes in the second half of the year.

All eyes are on the Federal Reserve meeting later today. The markets are expecting a 75bp move, but there is an outside chance of massive 100bp, as the Fed continues its epic battle with inflation, which accelerated to 9.1% in June, up from 8.6% in May. If, as expected, the Fed delivers a second-straight 75bp move, it will be interesting to see if the US dollar gains any ground or will the reaction be muted. This will depend on what Fed Chair Powell has to say and the tone of his remarks.

AUD/USD Technical

• There is resistance at 0.7005 and 0.7085
• 0.6897 is providing support, followed by 0.6817

EUR/USD Price May Fall towards This Level

• A trust issue with Mr Putin
• Waiting for Mr Powell’s press conference
• EUR/USD critical levels to monitor

The EU held an emergency meeting yesterday to discuss plans to cut gas consumption by 15%. Leaders are skeptical about Mr Putin’s intentions of returning gas supplies to Europe as he said that he would not cut Europe 100% off from Russian gas.

Nonetheless, the lesson learned from the Ukrainian-Russian war gives the man a lower margin of credibility in Europe. Obviously, reducing energy consumption will have a bad effect on the European GDP and could hit growth levels negatively by 1.5% should these plans take place soon.

On the other side of the Atlantic, markets await the FOMC interest rate decision as the FED is expected to hike 75bp today. Investors will try to get more clarity tomorrow from Mr Powell about the central bank’s monetary policy while recession odds continue to rise due to two factors: a reduced corporate profit outlook and the fall in consumer sentiment.

On July 14, EUR/USD fell to a near 20-year low at 0.9952 then rallied after as some traders took profits. The pair tested 1.0250 on multiple occasions however failed to close above.
Currently, the price moves in the trading zone 1.0000 - 1.0414. A daily close below the low end of the aforementioned trading zone could encourage bears to press the price towards 0.9701. On the other hand, a break above the 21 July high at 1.0277 could send the price towards the high end of the trading zone.