Gold Starting Stage 4 Decline and What It Means for Investors

Passive Buy and Hold Investors in General are Starting to Panic: XLU, Dividends, Bonds

It has been an interesting year with stocks down nearly 25% and the bond ETF TLT down over 40% since the 2020 highs. The passive buy and hold investor is becoming panicked and we can see this in the stock market through the mass selling of utility stocks dividend stocks and bonds.

When the masses become fearful they liquidate nearly all assets in their portfolios which is why we see the Big Blue chip stocks selling off along with precious metals. As investors liquidate around the world they focus on where their money can be preserved. With most currency falling in value there is a flood towards the U.S. dollar index as the safety play.

Gold Video Analysis

Here you can watch my detailed analysis along with both my short-term expectations and long-term supercycle outlook.

Global Currency Trends – Monthly Charts

As the US dollar index rises we tend to see precious metals fall. As you can see from the charts below almost all currencies are falling in value helping to send the US dollar index sharply higher this is a headwind for precious metals until it finds resistance in tops.

Gold Monthly Chart Comparing 2008 Bear Market and 2022

Let’s take a look at the monthly chart of gold. I believe gold entered a new bullish supercycle in 2019, which is very similar to the Super cycle that started in 2001.

I believe the bear market in equities we have started can be compared to the 2008 bear market. Technical analysis shows that gold could correct another 16% lower and match the same 34% correction we saw in 2008.

The price of gold is threatening the 1674 support level. If price is broken on the monthly chart it will signal a large sell off to roughly the $1300 to $1400 level for gold.

While the circumstances and economy are very different from 2008 the price charts are painting a very similar picture. I believe there’s still a long way to go for gold to find support and it may take another 8 to 12 months to unfold. I also believe that the precious metal sector will be one of the first assets to bottom and then start a multiyear rally very similar to what happened during the 2009 to 2011 rally.

While the 34% correction starting to take place may look very large it is in line with what we’ve seen in the past. While price charts don’t repeat they do tend to rhyme so I’m expecting a similar type of scenario though I’m sure it will unfold a little differently and take a different length of time to mature.

Price Stage Analysis – Gold Starting Stage 4 Decline

The price of gold is on the verge of breaking down from a stage three topping phase. Once the breakdown is confirmed it will then be in a stage 4 decline which is known as a bear market. It’s important to note that we can have bear markets within supercycles.

Just like when gold started at new super cycle in 2001 which lasted to 2013 there can be large corrections and smaller bear markets within the bullish Super cycle.

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Dollar Index Rockets Higher and Has More Room to Run

The US dollar Index has been one of the hottest assets to own this year. I believe the rising value of the dollar index has been putting downward pressure on the metals sector all year. As you can see from the quarterly chart below, The US dollar index still has more room to run to match the high set in 2001.

Keep in mind I still think there’s another three to five more bars before the dollar forms a top and reverses direction. Each bar on the chart is 3 months because this is the quarterly chart so we still have potentially a year of sideways or lower gold pricing ahead of us.

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Gold Miners Will Be Under Pressure If Gold Falls

If gold breaks down and the bear market in equities continues, we will see gold mining stocks continue to sell off. The large cap gold stocks ETF GDX shows a potential of 44% decline in price over the next year. While this may sound bad it will become an extraordinary opportunity in do time.

I believe silver and silver mining stocks will follow that of gold stocks as well.

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Concluding Thoughts

In short, I’m very excited for what is unfolding in the precious metals sector. And while it may still be early I’m keeping my eye on the sector for the start of a new super cycle rally in 2023 which could be life changing for investors.

TheTechnicalTraders created the Consistent Growth Strategy that can be manually followed or autotraded in a self-directed retirement account for people who do not want to spend their valuable time in front of a computer. Save time to do what you love and lower stress to enjoy every moment of today.

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www.TheTechnicalTraders.com

Disclaimer: This article and any information contained herein should not be considered investment advice. Technical Traders Ltd. and its staff are not registered investment advisors. Under no circumstances should any content from websites, articles, videos, seminars, books or emails from Technical Traders Ltd. or its affiliates be used or interpreted as a recommendation to buy or sell any security or commodity contract. Our advice is not tailored to the needs of any subscriber so talk with your investment advisor before making trading decisions. Invest at your own risk. I may or may not have positions in any security mentioned at any time and maybe buy sell or hold said security at any time.

Gold Price Forecast – King Dollar Lives On

The Fall in the Price of Gold During the Year

To say that gold has been struggling this year is an understatement. As the chart below shows, the price of the yellow metal declined from above $2,000 to below $1,700 (as of September 20). That slide occurred during the highest inflation since the great stagflation of the 1970s.

US Dollar Strength Was Crucial Pressuring Gold Price Lower

One of the headwinds blowing strongly in the gold market has been the strong greenback. As the chart below shows, the American currency has been appreciating since mid-2021. The broad U.S. dollar index rose from 110.5 in June 2021 to 124 right now, or more than 12%.

Wait, wait a second. The dollar strengthened during a period of high inflation (see the chart below) in which money is losing purchasing power. How could the currency gain and lose value at the same time? It doesn’t seem to make any sense.

Nevertheless, it does. Because of inflation, the dollar is losing its internal purchasing power, i.e., how many real goods and services can we buy with these green pieces of paper? However, the exchange rate is about external purchasing power, i.e., how many pieces of paper with different symbols and signatures issued by foreign central banks we can buy.

The answer is: more! As the chart below shows, the dollar is now near its highest levels in decades versus the British pound, the euro, and Japanese yen (please note that, for consistency, the chart paints the exchange rates as the dollar’s value in foreign currencies).

However, it doesn’t necessarily reflect the dollar’s greatness but the fact that other currencies have been even worse. As investors’ saying goes, the dollar is “the least-ugly mug in a beauty contest”. You see, the Fed was terribly delayed with its combat against inflation, but compared to other major central banks, such as the ECB and the Bank of Japan, it’s an uber-hawk that quickly stood up for a fight.

Remember that exchange rates are all about relative values. For example, inflation in the euro area surpassed 5% in December 2021 and by now it has increased to about 9%, but the central bank didn’t lift its interest rates until July 2022.

The faster and more decisive Fed’s reaction increased the divergence in monetary policies and interest rates (see the chart below) between the dollar and the euro, which strengthened the value of the former. The mechanism was simple: higher rates in America attracted money from all over the world, and as investors have been buying dollar-denominated assets, the value of the greenback has increased.

What Does a Strong Dollar Imply for the Global Economy?

Problems! Why? Well, maybe because about 30% of all S&P 500 companies’ revenues are earned abroad, a stronger dollar reduces the dollar’s value of these sales. Or maybe because many governments and companies have international debts denominated in dollars?

Hence, the stronger the dollar, the higher the debt to be repaid. According to the IMF, 60% of low-income countries are in or at high risk of government debt distress. Tighter financial conditions in the U.S. and a stronger dollar could only increase the pressure on countries with foreign debts.

The dollar is America’s currency, but the emerging market’s troubles. Egypt, Pakistan, and Sri Lanka have already asked the IMF for help – and others may follow suit.

Please also note that about half of international trade is invoiced in dollars, which means that importers are facing higher costs not only because of inflation and supply-chain disruptions but also because of the stronger dollar.

What Does the Strong Dollar Mean for the Gold Market?

It goes without saying that the recent appreciation of the greenback has weighed on gold prices. If not for the strong dollar, gold would have fared much better. Indeed, this year, the yellow metal lost about 6% of its value when measured in the U.S. dollar, but it gained 6.2% in euros and 9.3% in British pounds. Thus, maybe gold’s performance hasn’t been disappointing, but simply the greenback has been shining, and maybe gold is an inflation hedge, after all (but in other currencies than the US dollar)!

It gives hope that when the dollar weakens (for example, due to the start of the recession and the Fed’s pivot, or due to the end of the war in Ukraine), gold will start rallying eventually. It seems that the greatest part of the upward move in the greenback is already behind us.

The strong dollar could also trigger some economic turbulence, which could benefit the yellow metal. However, I wouldn’t bet that financial crises in emerging markets will induce a safe-haven demand for gold. Precious metals investors don’t care too much about other countries than the U.S. or Western Europe.

Bottom Line

There is a true silver lining for gold bulls: one reason behind the appreciation of the dollar. The Fed’s tightening cycle is only one driver, but another is safe-haven inflows. Investors have been moving to the U.S. dollar not because it is so strong, but because of economic turmoil and recessionary risk. If so, gold could at some point (perhaps when the Fed pivots and adopts a dovish policy again) start to move in tandem with the greenback.

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care.

U.S. Dollar (DXY) Rebounds As PCE Price Index Exceeds Expectations

Key Insights

  • U.S. dollar moved higher ahead of the weekend. 
  • Commodity-related currencies are under pressure. 
  • USD/JPY is moving towards the important 145 level. 

U.S. Dollar Index Rebounds After Pullback

U.S. Dollar Index settled back above the 112 level and is trying to gain more ground as traders increase purchases of the American currency after the recent pullback.

Today, traders had a chance to take a look at Personal Income and Personal Spending reports from the U.S. Personal Income increased by 0.3% month-over-month in August, while Personal Spending grew by 0.4%.

PCE Price Index increased by 0.3% month-over-month in August, compared to analyst consensus of 0.1%. The higher-than-expected PCE Price Index report provided additional support to the American currency.

EUR/USD Pulls Back Below 0.9800

EUR/USD is moving lower after an unsuccessful attempt to get above the 0.9850 level. Currently, EUR/USD is trying to settle back below 0.9750.

Today, traders focused on the flash readings of the Euro Area inflation reports. The reports indicated that Euro Area Inflation Rate increased from 9.1% in August to 10% in September, compared to analyst consensus of 9.7%. Core Inflation Rate grew from 4.3% to 4.8%, compared to analyst consensus of 4.7%.

The reports show that inflation continues to grow at a robust pace. However, inflation data failed to provide additional support to EUR/USD as traders wanted to take some profits off the table amid rising geopolitical tensions.

GBP/USD Tests The 1.1200 Level

GBP/USD tested the 1.1200 level as the strong rebound continued. The final reading of the UK GDP Growth Rate report indicated that GDP grew by 0.2% in the second quarter, compared to analyst consensus which called for a decline of 0.1%. This report provided material support to the British pound.

GBP/USD

From a big picture point of view, GBP/USD needs to settle above the 20 EMA near the 1.1250 level to continue its rebound. At this point, it looks that GBP/USD will not be able to gain sufficient upside momentum for this move ahead of the weekend.

Commodity-Related Currencies Retreat As Risk Appetite Declines

AUD/USD declined to 0.6450 while NZD/USD pulled back to 0.5670 as traders focused on recession worries. Meanwhile, USD/CAD settled back above the 1.3700 level.

Commodity-related currencies remain sensitive to the dynamics of risk appetite. When demand for the safe-have dollar starts to increase, these currencies find themselves under pressure.

USD/JPY Stays Close To The 145 Level

USD/JPY continues to trade in a tight range below the 145 level. Fundamental reasons push USD/JPY higher. However, traders are worried that BoJ will intervene if USD/JPY crosses the 145 mark. Most likely, we’ll see a test of this level next week despite traders’ fears.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Weekly Price Forecast – Euro Attempts to Recover This Week

Euro vs US Dollar Weekly Technical Analysis

The Euro has gone back and forth during the trading week, and showed a significant amount of support near the 0.95 level. Ultimately, the market is likely to continue seeing a lot of noise, as we had gotten a bit oversold. The parity level above should offer a significant amount of resistance, and for what it is worth, the 50-Day EMA on the daily chart of course is a significant barrier.

All things being equal, this is a market that I think continues to see a lot of volatility, but at the end of the day, this is a market that is still very negative, so this is not going to be a situation where I’d be a buyer, at least not until something changes from a stronger standpoint. For example, the market will almost certainly have some type of relief rally again, but the European Union still struggle overall, and the fact that they are now going to have to worry even more about natural gas, I just don’t see how the economy takes off.

On the other side of the Atlantic Ocean, you have the Federal Reserve which continues to tighten policy. Idea that the Euro suddenly turns round is laughable, and quite frankly I think we have much further to go. The European Union is in a significant crisis, with industries on the continent starting to close due to energy concerns. With this, I believe that we continue to see more of the same, more of a “fade the rally” type of situation.

EUR/USD Price Forecast Video 03.10.22

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Struggling to Continue Upward Momentum

Euro vs US Dollar Technical Analysis

The Euro has gone back and forth during the Friday trading session as we continue to see a lot of volatility in the spare, but quite frankly the Euro had been a little oversold, or perhaps put a little more succinctly: the US dollar was a little overbought.

At this point in time, I think that the market is more likely than not going to continue to go down to the 0.95 level, maybe even lower but that does not necessarily mean we have to get there right away. The parity level looks as if it is going to be a significant resistance barrier, especially now that the 50-Day EMA has arrived. Furthermore, there was a lot of noise in that area, so I do think that the market is waiting to short the Euro in that general vicinity. All things being equal, this is a market that is likely to continue to see a lot of negative pressure, and at this point in time it’s only a matter of time before people start to look at any rally is offering cheap US dollars.

Over the longer term, this is a market that I think continues to be noisy, so you do need to be a bit cautious with your position sizing, but it’s also worth noting that the market has continued to see a lot of negative headlines coming out of the European Union, not the least of which is that the Russian gas lines have blown up. In other words, this is a market that I think still has to look at the situation as being dire for the Europeans.

EUR/USD Price Forecast Video for 03.10.22

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Return to Parity in the Hands of US Inflation and Fed Chatter

It was a busy start to the European session for the EUR. Before the European opening bell, French inflation numbers drew interest.

The French annual inflation rate softened from 5.9% to 5.6%, with consumer prices falling by 0.5% in September. Economists forecast an annual inflation rate of 5.9% and a 0.1% monthly decline in consumer prices.

However, eurozone inflation figures were the key stats of the day. According to prelim figures, the Annual inflation rate accelerated from 9.1% to 10.0%. Economists forecast an annual rate of 9.7%.

According to Eurostat,

  • Energy was the largest contributor, with an estimated annual rate of 40.8% versus 38.6% in August.
  • Food, alcohol, & tobacco had an estimated annual rate of 11.8% versus 10.6% in August.

In the month of September, consumer prices increased by 1.2% after rising by 0.6% in August. Economists forecast a 1.0% rise.

While the stats of influence, ECB member reaction to the latest inflation figures will also draw attention. Frank Elderson and Isabel Schnabel speak today.

EUR/USD Price Action

At the time of writing, the EUR was up 0.10% to $0.98254.

A mixed morning saw the EUR/USD fall to an early low of $0.97943 before rising to a high of $0.98538.

EUR/USD finds early support.
EURUSD 300922 Daily Chart

Technical Indicators

The EUR/USD needs to avoid the $0.9756 pivot to target the First Major Resistance Level (R1) at $0.9875. Hawkish ECB member chatter would support a breakout from the morning high of $0.98538.

However, risk appetite will need to improve throughout the session to support a EUR/USD return to $0.9850. In the case of a breakout session, the EUR would likely test the Second Major Resistance Level (R2) at $0.9935 and resistance at $1.00.

The Third Major Resistance Level (R3) sits at $1.0115.

A fall through the pivot would bring the First Major Support Level (S1) at $0.9696 into play. However, barring a market flight to safety, the EUR/USD pair would likely avoid sub-$0.9600 and the Second Major Support Level (S2) at $0.9576.

The Third Major Support Level (S3) sits at $0.9396.

EUR/USD resistance levels in play above the pivot.
EURUSD 300922 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 100-day EMA, currently at $0.98399. The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA fell back from the 200-day EMA, delivering mixed signals.

A EUR/USD move through the 100-day EMA ($0.98399) would give the bulls a run at R1 ($0.9875) to target $0.99. The 200-day EMA sits at $0.99384. However, a EUR/USD fall through the 50-day EMA would bring the support levels into play.

EMAs bearish.
EURUSD 300922 4 Hourly Chart

The US Session

It is a busier day ahead on the US economic calendar. Personal spending and Core PCE Price Index will be in the spotlight. While the consumption numbers will influence, inflation will be the market focal point.

A larger than forecast pickup in the annual inflation rate would deliver another dollar breakout session. Economists forecast the Index to rise by 4.7% year-over-year in August, up from 4.6% in July.

Later in the session, finalized Michigan Consumer Sentiment and Expectation numbers are also out. Any material revisions would influence the dollar.

FOMC member commentary will also draw interest, with members Bowman, Mester and Williams and Fed Vice-Chair Brainard speaking today,

A pickup in inflationary pressure and hawkish Fed chatter would likely see the Dollar Spot Index (DXY) resume its move towards 115.

Week Ahead: Robust US Jobs Data to Restore USD Index to 1.28?

And as it’s been for most of the year, it’s set to be yet another dollar-centric week for global markets, with investors and traders awaiting the next US jobs report as well as potential policy clues by Fed officials who are scheduled to make public comments over the coming week.

Economic Calendar for Next Week

Monday, October 3

  • Mainland Chinese markets closed this week
  • JPY: Japan 3Q Tankan
  • EUR: Eurozone September manufacturing PMI (final)
  • GBP: UK September manufacturing PMI (final)
  • USD: US September ISM manufacturing and manufacturing PMI (final)
  • USD: Speeches by Atlanta Fed President Raphael Bostic, New York Fed President John Williams

Tuesday, October 4

  • JPY: Tokyo September CPI
  • AUD: Reserve Bank of Australia rate decision
  • EUR: Eurozone August PPI
  • USD: Speeches by New York Fed President John Williams, Dallas Fed President Lorie Logan, Cleveland Fed President Loretta Mester, and San Francisco Fed President Mary Daly

Wednesday, October 5

  • NZD: Reserve Bank of New Zealand rate decision
  • EUR: Eurozone September services PMI (final)
  • Brent: OPEC+ meeting
  • US crude: EIA weekly oil inventory report
  • USD: Speech by Atlanta Fed President Raphael Bostic

Thursday, October 6

  • AUD: Australia August external trade
  • EUR: Eurozone August retail sales, Germany August factory orders
  • USD: US weekly initial jobless claims
  • USD: Speeches by Chicago Fed President Charles Evans, Fed Governor Lisa Cook, Cleveland Fed President Loretta Mester

Friday, October 7

  • EUR: Germany August retail sales, industrial production
  • GBP: Speech by BOE Deputy Governor Dave Ramsden
  • CAD: Canada September unemployment
  • USD: US September nonfarm payrolls, speech by New York Fed President John Williams

US Dollar and the Next US Jobs Report

Recently, the equally-weighted USD index soared past 1.28, well above the 1.25 level cited in our previous Week Ahead article (posted every Friday). 1.25 also marked the early-April 2020 cycle high.

However, this dollar index then swiftly unwound gains, as it pulled away from ‘overbought’ conditions, with its 14-day relative strength index moving back below the 70 level.

The upcoming US jobs report may help determine whether this USD index can be restored to its recent peak above 1.28, or at least remain at these elevated levels.

Here are the market forecasts at present:

  • August nonfarm payrolls: 250,000 increase (median estimate)
    If so, this would be the lowest monthly jobs growth since December 2019.
  • August US unemployment rate: 3.7% (median estimate)
    If so, this would mark s slight uptick, but still hovering close to the pre-pandemic low of 3.5%.
  • 75-basis point hike by the Fed in November: 69%

If the US labour market continues to demonstrate its resilience, either by way of a higher-than-expected headline NFP figure or a lower-than-expected unemployment rate, that should ramp up market expectations for yet another 75-basis point hike by the Fed at its next policy decision due November 2nd.

Such ramped-up expectations may then restore the USD Index back up to 1.28.

Also, keep an eye on the slate of Fed officials who are scheduled to make public comments in the coming week.

Should they offer fresh signs that they’re willing to take bolder measures to quell stubbornly elevated US inflation, that may translate into more USD strength as well.

Alternatively, if market fears over an ultra-aggressive Fed further subside, that may in turn see the US dollar unwinding more of its recent gains.

For more information visit FXTM.

U.S. Dollar (DXY) Heads Towards Yesterday’s Lows As Pound Rebounds

Key Insights

  • U.S. dollar is mostly flat in volatile trading. 
  • The rebound in GBP/USD continues. 
  • Commodity-related currencies are under strong pressure.

U.S. Dollar Index Settled Back Below 113

U.S. Dollar Index moved back below the 113 level as traders continued to take profits after the recent rally.

Today, traders had a chance to take a look at the final reading of the second-quarter GDP Growth Rate report. The report indicated that GDP declined by 0.6%, in line with the analyst consensus.

Initial Jobless Claims report showed that 193,000 Americans filed for unemployment benefits in a week, compared to analyst consensus of 215,000. Interestingly, the strong report did not provide additional support to the American currency as traders focused on the rebound of the British pound.

GBP/USD Continues To Rebound

GBP/USD moved towards the 1.1000 level as traders were ready to buy the British pound after the recent sell-off.

It looks that the Bank of England managed to calm traders with its intervention plans in the UK government bond markets. However, it should be noted that the yield of UK 10-year government bonds rebounded from 4.01% to 4.12% today.

GBP/USD

GBP/USD continues to move higher. RSI returned to the moderate territory, which indicates that GBP/USD may soon face more pressure. However, a move above the 1.1000 level may open the way to the test of the first significant resistance level at 1.1220. No material levels were formed between 1.1000 and 1.1220 so this move may be fast.

EUR/USD Stays Above 0.9700 After Germany’s Inflation Exceeds Expectations

EUR/USD is trading above the 0.9700 level after the release of disappointing economic reports. Euro Area Economic Sentiment declined from 97.3 in August to 93.7 in September, compared to analyst consensus of 95.

In Germany, Inflation Rate increased from 7.9% in August to 10% in September, compared to analyst consensus of 9.4%.

Germany’s inflation reports may provide some support to euro as they indicate that ECB will be forced to raise rates aggressively. While higher rates will certainly put more pressure on economic activity, inflation has reached unacceptable levels.

Commodity-Related Currencies Move Lower Amid Recession Fears

Commodity-related currencies gained strong downside momentum and are down by about 1% against the U.S. dollar.

AUD/USD declined towards 0.6450, while NZD/USD moved to 0.5665. Meanwhile, USD/CAD tested the 1.3750 level.

Commodity markets are mostly moving lower today, and it remains to be seen whether commodity-related currencies will get any support during today’s trading session.

USD/JPY Heads Towards The 145 Level

USD/JPY has recently managed to settle back above the 144.50 level. There are no signs of interventions from the Bank of Japan, so USD/JPY may try to test the key 145 level.

The pressure on the Japanese yen may increase after the better-than-expected U.S. Initial Jobless Claims report. The BoJ remains extremely dovish while the Fed will have to raise rates aggressively, which is bullish for USD/JPY.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Continues to Look For a Floor

Euro vs US Dollar Technical Analysis

The Euro initially pulled back a bit during the trading session on Thursday but turned around to show signs of life. By doing so, the market looks as if it is trying to figure out whether or not we have reached a bottom. There’s almost no chance of that, and I do think that this is a simple recovery at this point in time. At this juncture, the parity level is what I think the buyers will be looking at as a ceiling, so therefore if we get anywhere near that level, and of course get signs of exhaustion, I will be more than willing to sell this.

The 50-Day EMA is approaching that level, and is going to be interesting for short-sellers to say the least, as it has operated as a downtrend line. Ultimately, the 0.95 level underneath is the “floor in the market”, and if we break down below there we will see another flush. That being said, I don’t expect to see that, because we are a little oversold. Nonetheless, the situation in the European Union has not changed in the slightest, so I do think that we have a situation where you are fading rallies.

That has worked for years, and it’s a bit rich to think that it’s suddenly going to change now. In fact, we would have to take out the 200-Day EMA to make a real statement about strength. Furthermore, we would need to see the Federal Reserve shift its attitude, something that we have not seen.

EUR/USD Price Forecast Video for 30.09.22

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Return to $0.99 Hinged on Hawkish ECB Member Chatter

It was a busy start to the European session for the EUR. Prelim September inflation figures from Spain and Eurozone consumer and business sentiment figures drew interest early in the session.

The stats were EUR/USD negative, with inflation pressures in Spain softening and business and consumer confidence waning.

In September, Spain’s annual inflation rate softened from 10.5% to 9.0% versus a forecast of 10.0%. The Eurozone economic sentiment indicator fell from 97.6 to 93.7 in September. Economists forecast a decline to 95.0.

While the stats weighed on the EUR early, ECB member chatter will also provide direction. De Guindos, McCaul, and Lane speak today. Following hawkish ECB chatter on Wednesday, the markets will look for more of the same to deliver EUR support.

EUR/USD Price Action

At the time of writing, the EUR was down 0.63% to $0.96701. A mixed start to the day saw the EUR/USD rise to an early high of $0.97383 before falling to a low of $0.96357.

EUR/USD under early pressure.
EURUSD 290922 Daily Chart

Technical Indicators

The EUR/USD needs to move through the $0.9673 pivot to target the First Major Resistance Level (R1) at $0.9810. Hawkish ECB member chatter would support a breakout from the Wednesday high of $0.97508.

However, risk appetite will need to improve throughout the session to support a EUR/USD return to $0.98. In the case of a breakout session, the EUR would likely test the Second Major Resistance Level (R2) at $0.9888 and resistance at $0.9900.

The Third Major Resistance Level (R3) sits at $1.0103.

Failure to move through the pivot would leave the First Major Support Level (S1) at $0.9595 in play. However, barring a market flight to safety, the EUR/USD pair would likely avoid sub-$0.9500 and the Second Major Support Level (S2) at $0.9458.

The Third Major Support Level (S3) sits at $0.9243.

EUR/USD support levels in play below the pivot.
EURUSD 290922 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA, currently at $0.97501. The 50-day EMA fell back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals.

A EUR/USD move through the 50-day EMA ($0.97501) would give the bulls a run at R1 ($0.9810) and the 100-day EMA ($0.98430). The 200-day EMA sits at $0.99460. However, failure to move through the 50-day EMA would leave the EUR/USD under pressure.

EMAs bearish.
EURUSD 290922 4 Hourly Chart

The US Session

It is a busy day ahead on the US economic calendar. Weekly jobless claims and Q2 GDP numbers will draw market interest, with FOMC member chatter also in focus. Later today, FOMC member Bullard will speak. However, following hawkish commentary from earlier in the week, Bullard will need to deviate from the script to influence the dollar.

Monetary policy divergence and sentiment towards the global economic outlook had supported a DXY return to 115 near-term. However, recent chatter from ECB members may have narrowed monetary policy divergence near-term.

U.S. Dollar (DXY) Retreats After Testing New Highs

Key Insights

  • U.S. dollar is losing ground as traders take profits off the table. 
  • GBP/USD is mostly flat after BoE decides to intervene in bond markets. 
  • USD/JPY faced resistance below the 145 level. 

U.S. Dollar Declines After Strong Rally

U.S. dollar pulled back after testing new highs as traders took some profits off the table after the strong rally.

Today, traders had a chance to take a look at Pending Home Sales report for August, which indicated that Pending Home Sales declined by 2% month-over-month. On a year-over-year basis, Pending Home Sales decreased by 24.2%.

The U.S. dollar is overbought, and the near-term dynamics of the American currency depend on the demand for safe-haven assets. In case the demand for safe-haven assets remains elevated, the U.S. dollar may get more support.

EUR/USD Continues Its Attempts To Rebound

EUR/USD moved back above the 0.9600 level as some traders were willing to bet on a rebound after the strong sell-off.

The fate of Nord Stream pipelines after explosions remains the key topic in the EU. Some reports indicate that Germany fears that these pipelines would never work again if they are not repaired quickly as salty water will lead to corrosion.

The EU is not ready to get rid of the Russian gas in the near term, so the elimination of Nord Stream pipelines will put additional pressure on the European economy. In the near term, EUR/USD may be sensitive to technical factors after the huge sell-off.

EUR/USD

From a big picture point of view, EUR/USD remains in a downside trend. However, it may gain upside momentum in the near term as it is oversold.

GBP/USD Is Volatile After BoE Decision To Buy Bonds

GBP/USD is mostly flat in volatile trading as markets react to BoE’s plans to buy UK government bonds. The recent surge in yields is forcing the BoE to act.

Obviously, starting a quantitative easing program at a time when BoE is raising rates does not look like a logical move. However, the situation is almost critical, so central bank has to do something to calm bond markets.

It remains to be seen whether the decision will provide support to GBP/USD in the near term. Currently, GBP/USD is trading above 1.0700 after testing support at 1.0550.

Commodity-Related Currencies Rebound

AUD/USD gained strong upside momentum as commodity markets moved higher. Currently, AUD/USD is trying to settle above 0.6470, while NZD/USD is moving towards 0.5670.

Canadian dollar also received support in today’s trading session, and USD/CAD moved back below the 1.3700 level. In case the rebound in commodity markets continues, commodity-related currencies will get more support.

USD/JPY Faced Resistance Below The Key 145 Level

USD/JPY failed to get to the test of the key 145 level and settled below 144.50. There are no signs of interventions from the BoJ, but it looks that traders are worried that Japan’s central bank will continue to defend the important level at 145.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Continues to Show Extreme Volatility

Euro vs US Dollar Technical Analysis

The Euro continues to be very noisy, and therefore you need to look at it through the prism of a market that is trying to figure out where the bottom is. We are nowhere near it from what I can see, and I do think that we continue to see a lot of volatility and selling occasionally. Ultimately, the market is likely to continue seeing a lot of selling pressure every time we rally, so therefore I look at this as a “fade the market” type of situation. The parity level above will continue to be significantly resistant, and I think it’s going to take a small miracle to get above there for any significant amount of time. In fact, it’s going to take central bank intervention or attitude changes to make that happen.

If we do break down below the 0.95 level, it’s likely that we go much lower, perhaps breaking down to the 0.90 level eventually. Ultimately, this is a market that I have no interest in trying to buy, and I do think that the Euro continues to be a bit of a punching bag for the rest of the world. At this point, this market is overdone, so look for some type of bounce in the short term, but also look at it as an opportunity to pick a “cheap US dollars” in the short term. I do believe that eventually we have a scenario where we have plenty of runway to start shorting, but remember that bear market rallies tend to be brutal, and I do think that we have a good shot at seeing one relatively soon.

EUR/USD Price Forecast Video for 29.09.22

For a look at all of today’s economic events, check out our economic calendar.

Mid-Week Technical Outlook: Dollar Dominates FX Space

Major currencies have been crushed by the dollar’s meteoric rise this month with the British Pound and New Zealand dollar shedding over 8%. Given how the dollar continues to draw strength from aggressive rate hike bets, geopolitical tensions, and positive US economic data – more upside could be on the cards.

With more Fed officials scheduled to speak this week, this may translate to more volatility on the dollar. Where there is volatility, there are potential opportunities.

Our focus today will be mainly on USD crosses with the tool of choice none other than technical analysis.

DXY Bulls Unstoppable?

The dollar’s appreciation over the past few days has been phenomenal. Bulls remain supported by key fundamental forces with the technicals signalling further upside. Prices are trading around 114.70 as of writing with the next key point of interest at 115.00. A strong breakout above this level may open the doors towards 115.34 and 118.75. Should 115.00 prove to be strong resistance, a decline back towards 113.30 and 111.60.

EUR/USD Eyes 0.9500

An appreciating dollar has dragged the EURUSD well below parity. Prices are heavily bearish on the daily timeframe with the candlesticks respecting a bearish channel. A strong breakdown below 0.9500 could open a path towards 0.9300. If 0.9500 proves to be tough support to crack, a rebound back towards 0.9900 and parity could become reality.

GBP/USD Preparing to Resume Selloff

It’s been a rough week for the GBPUSD. After hitting an all-time low on Monday, we saw the currency stage a sharp rebound. Nevertheless, prices remain heavily bearish with a break back below 1.0600 suggesting a decline towards 1.0520 and 1.0350, respectively. Should prices rebound back towards 1.0850, the currency pair could test 1.1000 and 1.1350.

AUD/USD Bears Eye 0.6200

Aussie bears remain in the driving seat as the currency pair descends lower with each passing day. There have been consistently lower lows and lower highs while the MACD trades to the downside. A strong breakdown below 0.6350 could encourage a decline towards 0.6270 and 0.6200.

USD/JPY Breakout on the Horizon

It’s all about the 145.00 level on the USDJPY. A stronger dollar could encourage bulls to conquer this resistance, opening the doors towards 147.00 and higher. Given how this level has stood the test of time. A rejection from this point could result in the USDJPY trading back within its current range.

NZD/USD Rebound in the Process?

After dropping over 500 pips this month, could the NZDUSD be preparing for a rebound? There have been consistently lower lows and lower highs while the MACD trades to the downside. Prices recently staged a strong rebound from the 0.5560 level with bulls eyeing 0.5720 and 0.5800, respectively, below 0.55600 – prices may sink towards 0.5500.

For more information visit FXTM.

EUR/USD to Target a Return to $0.97 on Hawkish ECB Chatter

It was a busier start to the European session for the EUR. Economic data included German consumer sentiment and French consumer confidence numbers.

The German GfK Consumer Climate Indicator fell from -36.5 to -42.5 in October. Economists forecast a decline to -39.0.

According to the GfK report,

  • Income expectations fell from 22.4 points to a record low of -67.7 points, which sent the headline figure into the deep red.
  • The propensity to buy fell for an eighth consecutive month. A 3.8-point fall left the indicator at -19.5 points, the lowest value since October 2008.
  • Economic expectations also hit reverse, falling 4.3 points to -21.9, its lowest value since May 2009.
  • According to the report, there is an increasing fear that the German economy will slip into a recession.

In France, the consumer confidence index fell from 82 to 79. Economists forecast a decline to 80.

While the stats drew interest, ECB President Lagarde also spoke this morning. Lagarde said,

“We will do what we have to do, which is to continue hiking interest rates in the next several meetings. Our primary goal is not to reduce growth, put people on the dole or create a recession. Our primary objective is price stability.”

Slovak central bank governor Peter Kazimir reportedly favored a 75-basis point rate hike at the next meeting. However, Kazimir caveated his comment by saying that it was also necessary to wait for fresh data.

Later today, ECB member Frank Elderson will speak. The markets will look for any comments on the economic outlook, inflation, and monetary policy. Sensitivity to central bank chatter has heightened, making the EUR/USD pair more sensitive to commentary from both sides of the Atlantic.

EUR/USD Price Action

At the time of writing, the EUR was down 0.45% to $0.95498. A mixed start to the day saw the EUR/USD rise to an early high of $0.96006 before falling to a low of $0.95358.

The EUR fell through the First Major Support Level (S1) at $0.9551.

EUR/USD under pressure.
EURUSD 280922 Daily Chart

Technical Indicators

The EUR/USD needs to move through S1 and the $0.9611 pivot to target the First Major Resistance Level (R1) at $0.9653 and the Tuesday high of $0.96708.

However, risk appetite will need to improve throughout the session to support a EUR/USD breakout from $0.9650. In the case of a breakout session, the EUR would likely test resistance at $0.97 and the Second Major Resistance Level (R2) at $0.9713.

The Third Major Resistance Level (R3) sits at $0.9814.

Failure to move through S1 and the pivot would leave the Second Major Support Level (S2) at $0.9509 in play. However, barring a market flight to safety, the EUR/USD pair would likely avoid sub-$0.9500. S2 should limit the downside.

The Third Major Support Level (S3) sits at $0.9408.

EUR/USD support levels in play.
EURUSD 280922 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA, currently at $0.97650. The 50-day EMA slid back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.

A EUR/USD move through R1 ($0.9653) and R2 ($0.9713) would give the bulls a run at the 50-day EMA ($0.97650). The 200-day EMA sits at $0.99614. However, failure to move through the 50-day EMA would leave the EUR/USD under pressure.

EMAs bearish.
EURUSD 280922 4 Hourly Chart

The US Session

It is a busy day ahead on the US economic calendar. Housing sector numbers are due out along with goods trade data. However, the stats are unlikely to influence the dollar or market risk sentiment.

Fed Chair Powell will be the key driver through the US session. Powell will deliver welcoming remarks at the 2022 Community Banking Research Conference.

Any comments relating to the economic outlook, inflation, and monetary policy will impact the global financial markets. FOMC members Bullard and Bowman will also speak today.

Monetary policy divergence and sentiment towards the global economic outlook support a DXY return to 115 near-term. The dynamic is unlikely to shift until a marked deterioration in US labor market conditions and a sharp slowdown in consumption.

US Dollar Supported as Fed Officials Call for More Rate Hikes to Fight Inflation

The U.S. Dollar is trading flat early Wednesday after posting a choppy, two-sided trade the previous session despite hawkish commentary from several Federal Reserve policymakers.

The greenback is edging lower against the Euro and Japanese Yen, but is slightly higher against the British Pound. The subdued price action is the result of traders monitoring central bank activity and the impact on the growth of the global economy from their aggressive efforts to drive down inflation.

At 23:52 GMT, December U.S. Dollar Index futures are trading 114.095, unchanged. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $30.68, up $0.02 or +0.05%.

Daily December U.S. Dollar Index

Dollar Supported by Hawkish Fed Members

With the dollar index hovering just below a two-year high at 114.445, the trading activity suggests higher prices could continue especially with Federal Reserve officials ignoring the pain in the stock market while calling for the need of further rate hikes.

Minneapolis Federal Reserve Bank President Neel Kashkari was the latest hawk to voice his opinion when he said on a WSJ Live interview Tuesday that the Fed needs to keep tightening until it has evidence underlying inflation is heading down, then should pause and “let the tightening work its way through the economy” to see if it has done enough.

Early Monday, Susan Collins, the new president of the Federal Reserve Bank of Boston, endorsed Fed projections released last week that signaled its benchmark interest rate would rise to 4.6% by next year, up sharply from about 3.1% now.

Later, Cleveland Fed President Fed President Loretta Mester said, “When there’s a lot of uncertainty, it can be better for policymakers to actually act more aggressively, because aggressive action and pre-emptive action can prevent the worst-case outcomes from happening.”

Avoiding Recession Will Be a Challenge

The comments from the three Fed policymakers contributed to the ongoing debate about how badly the Fed’s rate hikes – the fastest in more than 40 years – will hurt the economy. By increasing its benchmark rate, the Fed is making mortgages, auto loans and credit cards more expensive for consumers and businesses.

Boston Fed President Collins acknowledges the rising worries about a recession, but she believes, “the goal of a more modest slowdown, while challenging, is achievable.”

Other Fed officials hope their rate hikes will achieve a “soft-landing” by slowing consumer and business spending enough to bring down inflation but not so much as to cause a recession. However, many economists are increasingly skeptical that such an outcome is likely. They think the U.S. could face a recession next year.

Fed Chairman Jerome Powell even acknowledged that “the chances of a soft landing are likely to diminish” as the Fed steadily raises borrowing costs.

“No one knows whether this process will lead to a recession or, if so, how significant that recession would be,” Powell said.

Short-Term Outlook

There needs to be a slowdown in the economy to get inflation under control and the Fed sees rate hikes as the means to achieve this. This will be supportive for the U.S. Dollar until the Fed slows the size and the pace of the rate hikes, allowing other policymakers like the European Central Bank to catch up.

Even a U.S. recession is not likely to be enough to weaken the dollar because other economies are already headed there like the Euro Zone. Furthermore, a global recession will likely enhance the greenback’s appeal as a safe-haven asset.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Dollar (DXY) Is Mostly Flat Despite Profit-Taking

Key Insights

  • U.S. dollar managed to rebound from session lows. 
  • EUR/USD remains under pressure after explosions in natural gas pipelines. 
  • GBP/USD is trading above 1.0750.

U.S. Dollar Moved Away From Session Lows

U.S. Dollar Index settled near the 114 level as traders took some profits off the table after the recent rally.

Interestingly, Treasury yields continue to move higher, and the yield of 10-year Treasuries is trying to settle above the 3.95% level. In case this attempt is successful, it will move towards 4.00%, which will be bullish for the U.S. dollar.

Today, the U.S. released Durable Goods Orders report, which indicated that Durable Goods Orders declined by 0.2% month-over-month in August, compared to analyst consensus of -0.4%.

New Home Sales increased by 28.8% month-over-month in August. CB Consumer Confidence grew from 103.2 in August to 108 in September, compared to analyst consensus of 104.5.

U.S. economic reports indicated that the economy remained in a decent shape. At this point, the U.S. economy is definitely stronger than its developed peers, which provides additional support to the American currency.

EUR/USD Remains Under Pressure

EUR/USD is currently trying to settle below the 0.9600 level as traders fail to find positive catalysts for the European currency.

The mysterious leaks from Nord Stream pipelines may serve as an additional bearish catalyst for EUR/USD. Most likely, these leaks were caused by explosions.

As usual, all parties involved will blame each other, but the key takeaway is that Europe will not get natural gas through these pipelines in winter even if there is a political will to restore supplies.

EUR/USD

EUR/USD is oversold, but there is more room to gain additional downside momentum. In case EUR/USD manages to settle below 0.9590, it will head towards the next support at 0.9550. A move below this level will push EUR/USD towards 0.9500.

On the upside, the nearest significant resistance level is located at 0.9670. If EUR/USD climbs back above this level, it will head towards 0.9725. A successful test of this level will open the way to the test of the resistance at 0.9810. Traders should note that the recent sell-off was strong, and there are big gaps between levels. In this situation, they should be prepared for fast moves.

GBP/USD Attempts To Rebound

GBP/USD has managed to settle above 1.0750 as the pound continues its attempts to rebound after the huge sell-off.

Markets are shocked by UK’s plans to cut taxes and increase borrowing. The yield of UK 10-year government bonds is testing new highs near 4.38%.

The dynamics of UK government debt markets indicate that the panic is not over yet. In this environment, GBP/USD may find itself under more pressure after the first wave of profit-taking.

USD/CAD Is Trading Near 1.3700

USD/CAD pulled back towards 1.3650 before rebounding to 1.3700 as traders remained focused on the safety of the U.S. dollar.

Commodity markets are moving higher today, but this rebound does not provide significant support to commodity-related currencies.

AUD/USD is mostly flat, trading near 0.6450. NZD/USD made an attempt to settle above 0.5700 but pulled back towards the 0.5650 level.

USD/JPY Looks Ready To Test The Key 145 Level

USD/JPY is trading near the 145 level as traders believe that the BoJ does not have enough firepower for interventions at these levels.

Fundamentally, the yen should stay weak as the BoJ refuses to raise rates when the Fed is raising them aggressively.

Technically, the key question is whether the BoJ is ready to defend the 145 level or it will allow USD/JPY to move towards the 150 level.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Continues to Drift Back and Forth

Euro vs US Dollar Technical Analysis

The Euro has gone back and forth during the trading session on Tuesday as we continue to see a lot of noisy behavior, but most decidedly negative. At this point, the market is likely to continue to see a lot of rallies, but those rallies are more likely than not going to continue to be selling opportunities to pick up cheap US dollars going forward. Ultimately, the parity level would need to be broken to take any rally seriously, which is something that is not going to happen anytime soon.

The 0.95 level underneath will be an area potential support, and of course is a large, round, psychologically significant figure that people will pay close attention to. Ultimately, the market is likely to continue to see a lot of volatility, and a lot of negativity, so at this point I think it’s only a matter of time before we see this as a situation where you are fading the first hints of exhaustion after a short term rally.

If we were to break above the parity level, then it’s possible that we could take off to the upside, but that would take a huge shift in monetary policy coming out of the Federal Reserve, and of course something good coming out of the European Union, which does not seem to be very likely in this current environment. The market will continue to see a lot of concerns out there when it comes to the future direction of the economy over the next several months, and at this point it just makes no sense to try to get long at this juncture.

EUR/USD Price Forecast Video for 28.09.22

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Faces Sub-$0.9550 on Hawkish Fed Chatter and Positive US Stats

It was a quiet start to the European session for the EUR. French unemployment figures will draw interest shortly.

However, the numbers are unlikely to have a material impact on the EUR/USD pair, with the markets holding out for ECB chatter later today.

From the ECB, ECB members Luis de Guindos and ECB President Christine Lagarde will deliver speeches today. Lagarde will draw the most interest, with the ECB President speaking on how central banks should address financial stability challenges related to the digitalization of financial services.

Any off-topic comments on inflation, economic outlook, and monetary policy will provide the EUR/USD pair with direction.

EUR/USD Price Action

At the time of writing, the EUR was up 0.12% to $0.96202.

A choppy start to the day saw the EUR/USD fall to an early low of $0.95840 before rising to a high of $0.96708.

EUR/USD finds morning support.
EURUSD 270922 Daily Chart

Technical Indicators

The EUR/USD needs to move through the $0.9624 pivot to target the First Major Resistance Level (R1) at $0.9694 and the Monday high of $0.97093.

However, risk appetite will need to improve throughout the session to support a EUR/USD breakout from $0.97. In the case of a breakout session, the EUR would likely test the Second Major Resistance Level (R2) at $0.9780.

The Third Major Resistance Level (R3) sits at $0.9937.

Failure to move through the pivot would see the EUR/USD test the First Major Support Level (S1) at $0.9538. However, barring a market flight to safety, the EUR/USD pair should avoid sub-$0.9500 and the Second Major Support Level (S1) at $0.9467.

The Third Major Support Level (S3) sits at $0.9310.

EUR/USD support levels in play below the pivot.
EURUSD 270922 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA, currently at $0.98189. The 50-day EMA fell back from the 100-day EMA, with the 100-day EMA sliding back from the 200-day EMA, delivering bearish signals.

A EUR/USD move through R1 ($0.9694) and R2 ($0.9780) would give the bulls a run at the 50-day EMA ($0.98189). The 200-day EMA sits at $0.99858. However, failure to move through the 50-day EMA would leave the EUR/USD under pressure.

EMAs bearish.
EURUSD 270922 4 Hourly Chart

The US Session

It is a busy day ahead on the US economic calendar. Durable and core durable goods orders will draw interest before consumer confidence figures for September. Weak core durable goods orders would test support for riskier assets.

However, consumer confidence will have the most influence as the markets look for consumer response to the Fed’s rate hike and FOMC projections. Surging mortgage rates, higher interest rates amidst a gloomy economic backdrop, and the current inflation environment are likely concerns.

Labor market conditions remains a positive for consumers.

Economists forecast the CB Consumer Confidence Index to rise from 103.2 to 104.5 in September. Aside from the US economic indicators, FOMC members will also draw interest today. FOMC member Bullard will speak later today.

Monetary policy divergence and sentiment towards the global economic outlook support a DXY return to 115 near-term. Direction is unlikely to shift until a marked deterioration in US labor market conditions and a sharp slowdown in consumption.

ECB’s Lagarde Reiterates Need to Raise Rates Several Times Even if Growth Slows Substantially

The Euro collapsed to a new 20-year low early Monday dragged down by a plunging British Pound, a right-wing victory in Italy’s general elections and expectations that aggressive rate hikes by the major central banks would send the global economy into recession.

On Monday, the EUR/USD settled at .9608, down 0.0080 or -0.83%. The Invesco CurrencyShares Euro Trust ETF (FXE) finished at $88.70, down $0.78 or -0.87%.

Monday’s Recap

Fear hit the Euro trade on Monday after the British Pound plunged to a record low early in the session in Asia, following last week’s announcement by the new U.K. government that it would implement tax cuts and investment incentives to boost growth.

In other news, Giorgia Meloni became Italy’s first woman prime minister as the head of its most right-wing government since World War Two after leading a conservative alliance to triumph at Sunday’s election.

According to Giada Giani, Economist at Citi, “Meloni’s first key decision will be the appointment of the finance minister, with a pro-Europe, fiscally-cautious personality looking a likely choice for now. We do not expect an immediate push for a major fiscal relaxation, but we do see risks over the medium term that the right’s policy agenda will clash with EU objectives.”

ECB’s Lagarde Says She Won’t Fix ‘Policy Errors’

The European Central Bank won’t use its latest emergency scheme to buy the bonds of countries that make “policy errors”, its President Christine Lagarde said on Monday in response to a question about Italy’s likely next government.

Asked in the European Parliament whether the ECB could deploy its Transmission Protection Instrument to help Italy, Lagarde wouldn’t name any country but said the scheme was only there to support fiscally prudent countries while others should apply for a bailout.

Lagarde was referring to the fact that Meloni’s government is inheriting one of the Euro Zone’s heaviest debt burdens at a time of rising borrowing costs and looming recession.

ECB President Lagarde Warns Against Inflation from Fiscal Stimulus

Lagarde, who is battling the highest inflation in the Euro Zone’s history, also said countries using their budget to protect citizens from high food and energy costs must be careful not to fuel further price growth.

“It is essential that fiscal support used to shield those households from the impact of higher prices is temporary and targeted,” Lagarde told a parliamentary hearing in Brussels. “This limits the risk of fueling inflationary pressures, thereby also facilitating the task of monetary policy.”

Lagarde also repeated the ECB’s most recent message that interest rates will need to rise over the next several policy meetings even as growth slows substantially.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Dollar Index (DXY) Pulls Back From Highs As Pound Rebounds After Sell-Off

Key Insights

  • GBP/USD found support below 1.0400 and moved back above the 1.0800 level. 
  • EUR/USD tested new lows near 0.9550.
  • Commodity-related currencies are losing ground despite the rebound in commodity markets. 

U.S. Dollar Tested New Highs

U.S. Dollar Index made an attempt to settle above 114.50 after the huge sell-off in GBP/USD. Traders reacted to Britain’s borrowing plans and rushed to the safety of the U.S. dollar.

As a result, GBP/USD moved below the 1.0400 level before rebounding above 1.0800. The U.S. Dollar Index pulled back from highs and settled below 113.50.

GBP/USD

From a technical point of view, GBP/USD remains oversold. However, traders should note that we can see another wave of panic before the pound will be ready to rebound towards 1.1000.

Meanwhile, the yield of UK 10-year government bonds is trying to settle above 4.15%. A week ago, these bonds yielded 3.15%, so the sell-off in UK government bonds was massive.

Most likely, the developments in GBP/USD will have a significant impact on the general dynamics of the U.S. dollar in the upcoming trading sessions.

EUR/USD Tested Support Near 0.9550

EUR/USD tested new lows near 0.9550 but moved back above 0.9650 as some traders were willing to bet on a rebound after the huge sell-off.

The panic in the European government debt markets continues. The yield of Italy 10-year government bonds is currently trying to settle above 4.50%. Such levels were last seen back in 2013, when bond markets were recovering after the 2011 debt crisis.

Traders will need to monitor the developments in the debt markets as the continuation of the current trend may trigger another sell-off in EUR/USD.

USD/JPY Rebounds As Traders Shrug Off Intervention Risks

USD/JPY continues to rebound after the recent invervention from the Bank of Japan. Currently, USD/JPY is trying to settle back above the 144 level.

In case this attempt is successful, USD/JPY will move towards the important 145 level. The key question is whether the BoJ is ready to defend this level. In case there are no signs of inverventions near 145, USD/JPY may quickly move towards the 150 level.

Commodity-Related Currencies Remain Under Pressure

AUD/USD is currently trying to settle below 0.6500 while NZD/USD is trading near 0.5710. Meanwhile, USD/CAD has recently made an attempt to get above the 1.3700 level.

It should be noted that trading action in commodity-related currencies is calm compared to GBP/USD and EUR/USD. Today’s rebound in commodity markets provides support to these currencies, but this support is not sufficient enough to push them higher against the U.S. dollar.

For a look at all of today’s economic events, check out our economic calendar.