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Cable remains at the back foot but holding just above new 28-month low (1.1898) hit after Tuesday’s 1.37% drop).

Fresh bears cracked former low at 1.1933 (June 14) and 1.1930 (Oct 2016 low) but failed to register a daily close below on a first attempt.

Sterling was dragged by weakening Euro and pressured by recession fears and political turmoil in Britain, as two ministers of the Johnson’s cabinet resigned on Tuesday that increased odds that Boris Johnson will be replaced as Prime Minister before 2023.

Technical studies, in addition to negative fundamentals, remain bearish and support the action, though psychological 1.20 is still providing headwinds, with sustained break lower to signal continuation of a larger downtrend which was paused since 2016.

Break of 1.20/1.1930 support zone will open way towards pandemic low at 1.1409 (Mar 2020), with stronger acceleration to risk drop towards 1.10 and possibly unmask parity level, as many analysts already talk about such scenario.

Falling 10DMA (1.2134) should cap upticks and keep bears in play.

Res: 1.2000; 1.2045; 1.2114; 1.2170.
Sup: 1.1898; 1.1822; 1.1751; 1.1697.

Gold collapsed more than 2.3% in trading on Tuesday, the second steepest daily drop a year after falling 2.5% on June 13. The sharp decline yesterday was due to a combination of several negative factors.

The most obvious factor is the sharp rise in the Dollar on forex, where the DXY index (a basket of the world’s six most popular currencies) has renewed its highs over the last twenty years. Gold often acts as an “anti-dollar with leverage” for investors, so it was unsurprising to see such a market reaction yesterday.

The second possible explanation is a bearish signal, the “death cross”. The 50-day Moving Average fell below the 200-day MA on Monday, but we saw a full-swing market reaction only after liquidity returned after the long weekend in the USA.

The third factor was the continuing sell-off in industrial metals and the drop in Silver due to the worsening global economic outlook. Silver dipped below $19 an ounce on Wednesday morning, the lowest since July 2020.

The price of Gold is now at its low since late last year. This position simultaneously shows us buyer strength and tremendous potential for a decline.

That said, the fundamental factors behind Gold’s weakness are still in place, from a sharp tightening of monetary policy to weak demand for Gold from central banks and investors whose spending has increased significantly in recent months.

A critical intermediate stage in the Gold price decline looks to be the $1730 area, where a 61.8% correction from the 2018-2020 rally, from where Gold gets good demand from last August to September, is taking place.

A double top is forming on the long-term Gold charts, showing the inability of bulls to consolidate the price above $2000/oz the last cycle. A ‘double top’ pattern would form with consolidation below $1700, the March local lows. The final downside target in case of a double top could be the $1300 area, which could take up to six quarters to reach.

EURJPY extended Tuesday’s 1.3% loss to a new three-week low of 138.25 during the early European trading hours on Wednesday as the bearish technical signals remained well intact.

The RSI has further stretched its downfall below its 50 neutral mark, justifying negative sentiment in the market. Likewise, the MACD keeps decelerating below its red signal line, while the falling Stochastics are still above their 20 oversold level, signaling that the latest decline in the price is not overdone yet.

Despite the bearish vibes, the 50-day simple moving average (SMA) and the tentative ascending trendline drawn from the March low of 1.2438 could still act as a safety net against further depreciation today around 139.00. Such hopes could evaporate if the price slides below June’s low of 137.87, bringing the 38.2% Fibonacci retracement of the 124.38 – 144.24 uptrend into view at 136.65 instead. Falling below the latter, the pair could tumble towards the 50% Fibonacci of 134.31.

In order to eliminate negative risks and reinstate confidence in the bullish trend, the price will need to reclaim the 139.55 – 140.00 zone, where the 23.6% Fibonacci is also placed. If efforts prove successful, the bulls will push for a close above the 20-day SMA and the 142.00 level once again after failing to breach them this week. A durable move above those boundaries is expected to provide direct access to the crucial triple top at 144.20. Even higher, the door will open for the strong resistance line seen around 146.70 if the 145.00 psychological mark gives way.

Summarizing, EURJPY’s short-term outlook has turned gloomier following Tuesday’s plunge. A clear close below the trendline and the 50-day SMA could further bolster selling appetite.

The British pound has edged lower today after a massive slide of 1.18% yesterday. GBP/USD is trading at 1.1944 in the European session, down 0.14% on the day. Today’s highlight is the FOMC minutes from the June meeting – investors will be interested in what Fed policy makers had to say about inflation and upcoming rate hikes.

The US dollar enjoyed broad gains on Tuesday and sent the pound below the 1.1900 line for the first time since March 2020. Risk appetite has been waning, with jittery investors flocking to the safety of the US dollar. There were two developments on Tuesday which led to the pummelling of the British pound.

Bailey, Norway strike weighing on sterling

First, Bank of England Governor Bailey, speaking after the release of the BoE Financial Stability Report, warned that the economic outlook for the UK and the rest of the world had “deteriorated materially”, mainly due to the war in Ukraine. Bailey didn’t sugarcoat his message, stating that households and businesses were “vulnerable to further shocks” over the coming months. The BoE’s rate-hike cycle is yet to make a dent in inflation, with no signs of an inflation peak. One could make a strong argument that the BoE has raised the white flag on inflation, which certainly won’t enhance confidence in the central bank.

As well, Norway’s oil and gas workers announced a strike. This would have serious ramifications for the UK, which imports about a third of its gas needs from Norway. This resulted in a spike in gas prices in the UK yesterday and raised the spectre of an energy crisis. With the markets already worried about the UK headed for a recession, the news of the Norway strike soured investors on the pound. The Norwegian government has announced that it has ended the strike by imposing a settlement on both sides, but this could prove to be a temporary solution only.

GBP/USD Technical

• There is resistance at 1.2137 and 1.2243
• GBP/USD continues to test support at 1.1940. Below, there is support at 1.1870

Bulls are taking a breather under new two-decade high, following Tuesday’s 1.3% rally, sparked by fresh risk aversion on recession fears, while the greenback remains underpinned by expectations aggressive Fed, as the US central bank has more opportunities to continue policy normalization than other major central banks.

Markets are taking a breather ahead of release of FOMC June policy meeting minutes later today, which are expected to provide more clues about the central bank’s tightening path, with markets betting on Fed’s increasingly hawkish stance.

Profit-taking on stretched conditions is expected to push the price to the better levels to re-join bullish market.

Immediate support lays at 106.06 (broken upper 20-d Bollinger band) which so far holds today’s action, with more significant points at 105.54 (former top of June 15) and 105.04 (former top of May 13) and parallel-running ascending 10/20DMA’s at 104.76/50 respectively (also Fibo 61.8% of 103.18/106.56 upleg), where dips should find solid ground.

Res: 106.56; 106.81; 107.60; 108.47.
Sup: 106.06; 105.54; 105.04; 104.76.

Eurozone retail sales rose 0.2% mom in May, below expectation of 0.4% mom. Volume of retail trade increased by 1.2% for non-food products, while it decreased by -0.2% for automotive fuels and by -0.3% for food, drinks and tobacco.

EU retail sales was unchanged for the moment. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were registered in Cyprus (+9.0%), Croatia (+1.7%) and Portugal (+1.5%). The largest decreases were observed in Ireland (-6.5%), Finland (-2.8%) and Austria (-2.2%).

Full release here.

UK PMI Construction dropped from 56.4 to 52.6 in June, below expectation of 55.2. S&P Global noted that it's the weakest rise in construction output since September 2021. House building declined for the first time since May 2020. Business optimism dropped for the fifth month running.

Tim Moore, Economics Director at S&P Global Market Intelligence, said: "The gloomy UK business outlook and worsening consumer demand due to the cost of living crisis combined to put the brakes on construction growth in June. Commercial construction saw a considerable loss of momentum as clients exercised greater caution on new spending, while long-term infrastructure projects ensured a relatively resilient trend for civil engineering activity."

Full release here.

In a speech, BoE Chief Economist Huw Pill unpacked the MPC's most recent communication about the outlook for monetary policy decisions.

The latest statement widened the discussions beyond the interest rate decision at August meeting. It reflected the "uncertainties" and "likelihood that we will have to take finely-balanced decisions over rates not just in August but also beyond that, in the face of two-sided risks to the economic outlook into next year."

By referring to "'any further increases in Bank Rate", the BoE talked about rate increases, not decreases. But at the same time, the reference to "any" increases "allows for the possibility of remaining on hold".

The focus on "indications of more persistent inflationary pressures" places emphasis on " identifying potential second-round effects in price and wage setting behavior". Thar prioritizes "the more persistent component of inflation developments over the headline spot measure."

By signaling preparedness to 'if necessary act forcefully in response' to indications of greater persistence in inflation, the statement reflected "both my willingness to adopt a faster pace of tightening than implemented thus far in this tightening cycle".

Full speech here.

BoE Deputy Governor Jon Cunliffe told BBC Radio today, "What we expect is, the cost of living squeeze will hit people's spending, and that will start to cool the economy. We can see signs that the economy is already slowing."

"We forecast over the next year or so that economic growth will be essentially flat," he said. "That's a very different picture to the picture we saw from 2009 to 2011. It's a picture of a slowing economy where people cut back on spending."

"It's our job to make sure that as this inflationary shock passes through the economy, at a time when we have also have a tight labor market, we don't find that a combination of a strong shock from abroad and energy prices combines with domestic factors and leaves us inflation being the new normal," he said. "People can have confidence that we will act to make sure that doesn't happen."

Bitcoin rose 3.5% on Tuesday, ending the day around $20,400, but continued pressure on risky assets in Asia brought the price of the first cryptocurrency back below $20,000 on Wednesday morning. Ethereum has lost 3% in the past 24 hours, with prices for the leading altcoins ranging from -3.1% (DogeCoin) to -1% (BNB).

Total cryptocurrency market capitalisation, according to CoinMarketCap, declined 2% overnight to $898bn.

The Cryptocurrency Fear and Greed Index was down 1 point to 18 by Wednesday and remains in a state of “extreme fear”.

The dynamics of bitcoin and the Dollar in the coming days could be a prologue to the crypto market behaviour in the coming weeks. On the one hand, it is tough to be bullish on cryptocurrencies in an environment of a sharply strengthening dollar and a sell-off in risk. A rising dollar and an aggressive Fed are significant current obstacles to buying cryptocurrencies.

On the other hand, Bitcoin is historically relatively cheap, attracting the interest of long-term buyers. However, it is still tricky for anything more than the formation of a bottom. It will probably take months before a rally, as we saw in 2020, starts.

BTC could fall another 20-40% by the end of the summer, according to Cane Island Alternative Advisors. The US economy is entering a recessionary phase, and capital will leave risky assets accordingly.

The massive fall in cryptocurrency has led to the flight of “market tourists” and margin traders. Only the most committed enthusiasts remain, according to Glassnode. Meanwhile, HODLers continue to accumulate bitcoins.

According to The Telegraph, electric car maker Tesla suffered a loss of $440 million due to the bitcoin collapse. The company invested $1.5 billion in bitcoin in early 2021.

According to Charles Erith, CEO of investment firm ByteTree, bitcoin and gold are the best insurance against economic shocks during inflation.

The European Central Bank (ECB) has demanded that EU countries comply with uniform standards when drafting national laws to regulate the cryptocurrency industry.