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The 200– hour simple moving average pressured the XAU/USD exchange rate on Wednesday. As a result, the commodity fell by 151 pips or 0.84% during yesterday's trading session.

All things being equal, the yellow metal's price could continue to edge south during the following trading session. The possible target for long traders would be near the 1790.00 level.

However, the support line at 1800.00 could still provide support for gold versus the USD within this session.

EUR/USD

Current level - 1.1794

The depreciation of the common European currency against the dollar came to a halt slightly below the support zone of 1.1773 and, at the time of writing the analysis, the pair is headed towards a test of the resistance level of 1.1805. The short-term forecast is for the pair to enter into a consolidation phase within the range between 1.1773-1.1849 before either the buyers or the sellers take control. A spike in volatility is expected around the announcement of the European Central Bank interest rate decision (11:45 GMT) and during the press conference following the announcement (12:30 GMT).

USD/JPY

Current level - 110.14

During yesterday's trading session, the dollar managed to partially recover against the yen, but the test of the resistance level of 110.30 was unsuccessful and the short-term expectations are for the pair to trade in a consolidation phase above the support level of 109.72. The main resistance level remains the aforementioned level of 110.30.

GBP/USD

Current level - 1.3703

The pound found support at the level of 1.3570 and stopped depreciating against the dollar. At the time of writing, the pair is found in a corrective phase, which is expected to be limited by the resistance level of 1.3800. The most likely scenario, after the corrective phase ends, is for the pair to retest the support level of 1.3570.

Markets

The reversal in core bonds that started late on Tuesday continued yesterday. Just as there was no specific reason for the huge risk-off early this week, there was no major trigger for the moves yesterday. Some refer to better-than-expected earnings easing some of the growth fears. While it may have helped, it was probably also technical with the short squeeze/capitulation move by bond shorters perhaps coming to an end. US yields recouped 5.1 bps (5y) to 6.7 bps (10y, still sub 1.30%) with both inflation expectations and real yields rebounding. German Bunds outperformed. Yields rose 1.5 bps (10y) to 3 bps (30y). Equity sentiment also vastly improved. European stocks eked out a nice 1.78% gain (EuroStoxx50 back above 4k). Wall Street rose a little less than 1%. The dollar (and even more the Japanese yen) weakened. EUR/USD reversed earlier losses to finish higher from 1.1781 to 1.1794. Currencies that were under pressure at the start of the week, rebounded. That includes sterling which strengthened from EUR/GBP 0.8645 to just south of 0.86. The optimistic tone holds into Asian dealings where stocks are trading in positive territory everywhere in a session with little economic news. Hong Kong and India outperform. Japan is closed for the remainder of the week. Core bond futures trade a little higher after yesterday’s blow but are off highs. FX markets trade muted. The dollar is showing no clear direction.

The ECB meets today. The July reunion gained in importance after the unexpected conclusion of the strategy review. The inflation target changed to a hard 2% with over- and undershoots equally undesirable and allowed only temporarily. Hitting the new target will probably take a bit longer, thus strengthening the case for prolonged easy monetary policy. Lagarde said guidance in the statement will reflect the polished policy goals. What will be interesting however, is to what extent the new guidance/target will impact the current ECB programmes, including PEPP. The ECB President hinted at a transition of PEPP into a “new format” after its formal deadline in March 2022. By doing so, she prevents markets from anticipating an abrupt end that could cause rates to spike. It is not sure though that Lagarde will go into much details already today. Developments in PEPP, also regarding the buying pace, are usually being discussed when new staff projections are at hand. The next such meeting is in September. We’re also very curious about the ECB’s view on the July core bond surge. Yields have fallen so deep it might even make the ECB uncomfortable. The overall message in any case is likely going to be a dovish one. Question is how much is priced in already, especially given the recent declines not only in yields but also in the euro. That said, the downside alert is still here with us, even with yesterday’s reversal. For that to be called off, the German 10y yield should take out resistance around -0.34/35% first and -0.30% next. In EUR/USD we’re looking at 1.1836.

News headlines

The post-Brexit rift between the UK and the EU on the Northern Ireland Protocol continues. The UK called the EU consider a meaningful rewriting of the agreement. The UK proposals aim to reduce the controls on trade between the Britain and Northern Ireland which remained part of the EU customs union. Amongst other topics, the plan includes a system that goods labelled ‘for NI’ wouldn’t face customs checks. The UK also wants the role of the European Court of Justice in enforcing the protocol to be revised and a change Article 10 on state aid that could affect goods trade in Northern Ireland. European Commission Vice President Sefcovi already rejected the idea of a renegotiation and wants any amendment to take place within the established framework. The UK’s Brexit Minister Frost in Parliament again raised the option that the UK could unilaterally deviate from parts of the agreement. For now, the new phase in the post-Brexit sage had limited impact on sterling. In line with a broader improvement in sentiment, the UK currency yesterday rebounded with EUR/GBP returning from the 0.8650 area to close near 0.86.

Technical analysis

The NZDUSD pair has recently reached the bottom of a large broading expanding wedge pattern on the daily time frame. Sellers failed to stage a breakout under the wedge.

According to the MACD indicator, the NZDUSD pair has formed large amounts of bullish price divergence and could correct back towards the 0.7045 level.

What the possible outcomes are

In our most likely scenario, the NZDUSD pair correct towards at least the 0.7045 level as the bullish price divergence starts to be reversed and buyers step back into the market.

Alternatively, the NZDUSD could close the daily candle below the mentioned broadening wedge pattern level, and then start to collapse towards the 0.6800 level.

Key levels

Support 0.6910 0.6880

Resistance 0.7000 0.7045

Technical analysis

The daily time frame shows that the USDCHF pair has a negative price divergence. The MACD indicator shows that the signal line has been falling while the price has rising.

The daily time frame continues to show that a bearish head and shoulders pattern is in play while the USDCHF pair trades below the 0.9280 resistance level.

What the possible outcomes are

In our most likely scenario, the USDCHF pair will start to decline back towards the 0.9130 level as the negative divergence and a head and shoulders pattern unfold to the downside.

Alternatively, the USDCHF pair could invalidate the bearish head and shoulders pattern and then rally towards the 0.9400 resistance level.

Key levels

Support 0.9130 0.9050

Resistance 0.9280 0.9400

Technical analysis

XAUSUD has a neutral bias as the four-hour time frame is showing both an inverted head and shoulders pattern and a head and shoulders pattern have formed.

The MACD indicator shows that bearish divergence has formed around the $1,780 area. However, the overall price trend remains unclear until the $1,830 to $1,746 price range is broken.

What the possible outcomes are

In our most likely scenario, the XAUUSD pair will eventually fall towards the $1,785 support area and then stage a recovery back towards the $1,830 level.

Alternatively, XAUUSD could break under the $1,785 support level and quickly fall towards the $1,746 level.

Key levels

Support $1,785 $1,746

Resistance $1,830 $1,845

Technical analysis

The RSI is under the line 50, with the MACD indicating that a downtrend may prevail

The price is under MA(10) and MA(15), suggesting a possible downward movement.

What the possible outcomes are

Oil prices are trying to recover after a sharp fall upon the OPEC agreement and fears of surging COVID cases worldwide. Therefore, USDCAD may decline upon the Canadian dollar strengthening as a commodity currency.

In our most likely scenario, the USDACAD pair may experience a downward correction towards the first support level of 1.25234. If the pair falls below the first support level, we can expect a continued downtrend towards the second support level of 1.24447.

Contrarily, the pair may initially rise towards the first resistance level of 1.26143.

If the pair manages to surpass the first resistance level, we should expect a continued surge towards the second resistance level of 1.26706.

Key levels

Support 1.24447 1.25234

Resistance 1.26143 1.26706

The EURUSD pair rose slightly ahead of the latest European Central Bank (ECB) decision. The bank, which will conclude its meeting today, is expected to leave its deposit facility rate at -0.50%. For now, it is also expected to continue with its asset purchases. Analysts will be waiting for more information on the future pace of purchases and hints about when the bank will start tapering. Most importantly, Christine Lagarde will likely be asked about the recent policy change by the bank. The policy updated its inflation target to 2% from the previous “below or close to 2%.

Global stocks rebound continued on Wednesday as investors shrugged the latest information on the Delta variant. The Dow Jones, S&P 500, and Nasdaq 100 index rose by close to 0.80% in the US. Similarly, in Europe and Asia, indices like the DAX, FTSE 100, and Nikkei 225 rose by more than 0.50%. The rise is partly because investors expect the new wave of the virus to be less severe. It is also because of positive corporate earnings. Recent results from companies like Philip Morris, IBM, Goldman Sachs, and JP Morgan were positive. As such, investors expect that growth will rebound.

US stocks momentum faded in the futures market after Senate Republicans managed to block a $1 trillion infrastructure bill. 49 members voted for the bill, short of the 60 needed. Democrats were hoping to pass the $1 trillion bill followed by a $3.5 trillion anti-poverty bill that provides funds for childcare, education, and climate issues. Still, negotiations will go on and there is a possibility that the two sides will ultimately reach a deal. Stocks will today react to earnings by companies like Biogen. Abbott Laboratories, Newmont, and Fifth Third.

EURUSD

The EURUSD pair rose slightly ahead of the upcoming ECB decision. It is trading at 1.1796, which is a few pips above this week’s low of 1.1752. On the hourly chart, the pair is between the descending channel. It has also moved above the 25-day moving average. Further, it seems to have formed a small bullish flag pattern while the signal and histogram of the MACD moved above the neutral level. Therefore, the pair will likely keep rising as bulls target the upper side of the channel at 1.1830.

US30

The Dow Jones erased the losses made on Monday as stocks rebounded. It rose to $34,815, which was above this week’s low of $33,730. On the four-hour chart, the pair has formed a V-shaped recovery and moved to between the middle and upper part of the Bollinger Bands. The histogram of the MACD also moved above the central line. The index will likely have a pullback today as traders start taking profit.

EURGBP

The EURGBP pair erased some of this week’s gains ahead of the ECB meeting. It declined from this week’s high of 0.8670 to the current level of 0.8600. It is also approaching the upper side of the descending channel. The Awesome oscillator and the Relative Strength Index (RSI) have also declined slightly. Therefore, the pair will likely re-enter the descending channel later today.

Market movers today

• Today's main event is the ECB meeting. Market attention turns to the implications and new communication on the back of the new strategic framework. We do not, however, expect new policy signals coming from the change in language. See also ECB Preview: Aligning forward guidance to strategic outcome, 15 July.
• This morning, consumer confidence in Denmark, industrial confidence in Norway and manufacturing confidence in France are due out.
• In the afternoon, US initial jobless claims data are due out.

The 60 second overview

US Inflation: Inflation is becoming a politically sensitive subject in the US as republicans are pushing to make the recent surge in US consumer prices a political liability for the Biden administration. This comes ahead of the final negotiations on President Biden's infrastructure bill as well as the remainder of his USD 4tn spending package including more spending on social security and climate change mitigation.

Nord Stream 2: Germany and the US have finalized a deal paving the way for completion of the Nord Stream 2 gas pipeline extending through the Baltic Sea (the pipeline is already close to completion). Different US governments have during the past decade opposed the idea of Russia delivering gas directly to the largest economy in the EU. Under the new agreement Germany is obliged to take action itself and push for sanctions in the EU targeted Russian energy exports, if Russia makes use of gas exports as a sort of blackmail towards Ukraine. Despite a deal in place, foreign ministers of Poland and Ukraine said that the deal cannot effectively limit the threats posed by completing the pipeline. Also republican senators have criticized the deal.

Jerome Powell: The four-year term of Fed chair Jerome Powell expires February next year, but according to White House sources Powell enjoys wide support among the Biden administration's top economic advisors, although the question of a re-nomination has not yet been discussed with the President. Besides Powell's term also the board term of Richard Clarida expires in January and Randal Quarles' position as vice chair of supervision expires in October. However, Quarles' term with the Board of Governors does not expire until 2032.

Equities: Both American and European indices ended yesterday in green and the S&P500 has over the past three days more or less erased the past week's decline. Despite the spreading of the delta variant hospitalisations remain stable and the current reporting season has seen 85% of the S&P500 companies reporting so far beating analysts' expectations. This morning the Hang Seng index closed 1.8% higher and futures are pointing towards a marginally positive opening in the US and Europe as well.

FI: The 10y US treasury yield rebounded yesterday rising 7bp to 1.29% coming from the lowest yield levels since February. The rebound was driven by a steepening move with the 2y maturity little changed at 0.21% still pricing a slightly more than 50% probability of a 25bp hike within the next 12m. Interestingly treasury yields have traded with a low correlation to implied USD volatility during the past two months - 10y US treasury yields have declined 30bp, but 1y10y vol has remained steady.

FX: Yesterday's rebound in risk aided the hardest hit currencies from Monday and Tuesday higher. Not least NOK had a strong comeback with EUR/NOK now back towards the 10.50 support level. CAD, NZD and GBP were the other outperformers. USD traded somewhat on the back foot, which lifted EUR/USD back towards 1.18 as we enter ECB-day.

Credit: The credit market took lead from the better tone from the equity markets yesterday with tightening across the board. Itraxx main tightened 2bp to +48bp while xover tightened 8bp to +238bp. Activity in the cash market demonstrated similar tightening trends.

Daily Pivots: (S1) 1.2481; (P) 1.2606; (R1) 1.2685; More...

USD/CAD's pull back from 1.2805 extends lower but stays above 1.2485 resistance turned support. Intraday bias remains neutral first. Further rise is still in favor. Break of 1.2805 will extend the rise from 1.2005 to 1.3022 medium term fibonacci level next. On the downside, however, break of 1.2485 will bring deeper fall back to next cluster support at 1.2301 (61.8% retracement of 1.2005 to 1.2805 at 1.2311).

In the bigger picture, fall from 1.4667 is seen as the third leg of the corrective pattern from 1.4689 (2016 high). It should have completed after hitting 1.2061 (2017 low) and 50% retracement of 0.9406 to 1.4689 at 1.2048. Sustained break of 38.2% retracement of 1.4667 to 1.2005 at 1.3022 will pave the way to 61.8% retracement at 1.3650 and above. Overall, medium term outlook remains neutral at worst with 1.2048/61 support zone intact.