Trade Of The Week: Big Week For Dollar As NFP Looms

G10 currencies were practically pulverized by the greenback’s dominance with the pound shedding roughly 17% and yen over 20%.

After hitting a fresh 20-year high above 114.50 last week, the Dollar Index (DXY) tumbled thanks to a sharp recovery in the euro & pound. Given how the euro makes over 55% and the pound more than 10% of the DXY weighting, any further recovery in both currencies may influence the index’s direction in the short term.

We also saw some action on the equally-weighted dollar index which failed to secure a weekly close above 1.2800.

Despite the weakness witnessed last week, dollar bulls remain in the driving seat with the fundamentals keeping the engines healthy and running smoothly. However, a fresh catalyst could be needed for bulls to switch into higher gear in the weak ahead…and this could be the highly anticipated US jobs report on Friday.

Taking a quick look at the technical picture, prices remain bullish on the weekly charts as there have been consistently higher highs and higher lows. The DXY could make a new higher low before pushing higher or simply push back above 114.50 to test 114.73 and beyond.

The Low Down…

King dollar continues to feast on aggressive rate hike bets and global recession fears.

Last week, a chorus of Fed speakers struck an almost universally hawkish note on rate hikes. We saw the 10-year Treasury move above 4% for the first time since 2008, fuelled by expectations for the Fed to launch more monetary bazookas. As concerns intensified over the hawkish policies by global central banks sparking a recession, investors turned to the dollar as a shelter of safety.

As the first month of Q4 gets underway, dollar bulls have kicked off on a shaky start. Although it has weakened against most currencies, it is still early days. Traders are predicting a 66% probability of a 75-basis point rate hike in November. If this becomes reality, that would mark the fourth consecutive jumbo-sized 75 bp rate hike in 2022 against the inflation menace. Such a move could inject dollar bulls with renewed inspiration but investors may be more concerned with what happens beyond November and the New year.

Ahead of the Fed’s next policy meeting next month, key US economic data and speeches from Fed officials may influence expectations over how aggressive rates are hiked. Given how the dollar remains highly sensitive to speculation around hikes, this could translate to volatility over the next few weeks.

The Week Ahead…

It’s all about the US jobs report on Friday.

The consensus expects the US economy to have created 250k jobs in September which comes after a fifth straight beat in August. The unemployment rate is projected to remain at 3.7% while wage growth is seen hitting 0.3%. If the pending jobs data meets or exceeds market expectations, this may reinforce bets over the Fed moving ahead with a 75 basis point rate hike in November. Alternatively, a soft jobs report may reduce the odds of another jumbo- rate hike – weakening the dollar while supporting equity markets.

It may be wise to keep a close eye on the numerous speeches from Fed officials throughout the week. If Fed speakers remain hawkish and signal more aggressive hikes, this could keep dollar bulls hydrated ahead of the US jobs report. On the other hand, any hint of doves may see dollar bears enter the scene.

Dollar Set to Rebound?

After failing to secure a weekly close above 1.2800, the equally-weighted dollar index has edged slightly lower. Nevertheless, the fundamentals remain in favour of bulls and this could limit downside losses.

Bulls need to push back above 1.2800, to open a path back towards 1.2880 and higher. Sustained weakness below 1.2800 may open the doors towards 1.2500 and 1.2184.

Should 1.2500 prove to be reliable support, a rebound back towards 1.2800 could be a possibility.

For more information visit FXTM.

U.S. Dollar (DXY) Declines As ISM Manufacturing PMI Misses Expectations

Key Insights

  • U.S. dollar found itself under pressure after the release of a disappointing ISM Manufacturing PMI report for September. 
  • GBP/USD gained 1% after UK scrapped plans to cut taxes for high-earners. 
  • Commodity-related currencies rallied as commodity markets rebounded. 

U.S. Dollar Is Under Pressure At The Start Of The Week

U.S. Dollar gained downside momentum after the release of ISM Manufacturing PMI report, which indicated that ISM Manufacturing PMI declined from 52.8 in August to 50.9 in September, compared to analyst consensus of 52.2.

The U.S. Dollar Index moved below the 112 level after the report was released. Most likely, the U.S. dollar will remain sensitive to disappointing economic reports as it has recently tested multi-decade highs.

EUR/USD Is Stuck Near 0.9800

EUR/USD is swinging between gains and losses as the situation in the European economy remains challenging. Today, traders had a chance to take a look at the final reading of the Euro Area Manufacturing PMI report.

The report indicated that Euro Area Manufacturing PMI declined from 49.6 in August to 48.4 in September, compared to analyst consensus of 48.5. Numbers below 50 show contraction. It remains to be seen whether the disappointing data will put additional pressure on the euro as the current rebound may continue due to profit-taking.

GBP/USD Rallies As UK Scraps Plans For Tax Cuts

GBP/USD gained strong upside momentum after UK scrapped plans to cut taxes for high-earners. Previously, markets were worried that tax cuts and increased spending would crush the country’s finances.

GBP/USD

GBP/USD is currently trying to settle above the 20 EMA at 1.1250. In case this attempt is successful, GBP/USD will head towards the next resistance level, which is located at 1.1365. A move above this level will open the way to the test of the resistance at 1.1450.

On the support side, the nearest support level for GBP/USD is located at 1.1085. If GBP/USD declines below this level, it will move towards the next support level at 1.1000. A successful test of the support at 1.1000 will push GBP/USD towards the support at 1.0935.

Commodity-Related Currencies Rebound As Commodities Rally

Today, silver rallied 7% while WTI oil gained 5%, providing significant support to commodity-related currencies.

AUD/USD rebounded towards 0.6500, while NZD/USD managed to settle back above 0.5700. USD/CAD found itself under strong pressure and moved below the 1.3650 level.

Traders should note that the commodity rally has been extremely strong, so they must be prepared for a pullback due to profit-taking. In this scenario, commodity-related currencies will move away from recent highs.

USD/JPY Pulls Back Below The Key 145 Level

USD/JPY made an attempt to settle above the 145 level but faced significant resistance and pulled back towards 144.50.

Traders remain worried about potential interventions from the Bank of Japan. Most likely, USD/JPY will need significant catalysts to settle above the 145 level and test new highs.

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

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.

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.

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.

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.

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.

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.

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.

U.S. Dollar (DXY) Rallies Amid Global Market Sell-Off

Key Insights

  • The global rush to safe-haven assets provided significant support to the American currency. 
  • GBP/USD is down by more than 2% as traders react to the weak economic data from the UK. 
  • EUR/USD is testing new lows. 

U.S. Dollar Tests New Highs Ahead Of The Weekend

U.S. dollar is testing new highs as traders rush to safe-haven assets amid global market sell-off.

The U.S. has recently released flash PMI reports for September. Manufacturing PMI increased from 51.5 in August to 51.8 in September, compared to analyst consensus of 51.1. Services PMI grew from 43.7 to 49.2, compared to analyst consensus of 45.

The strong reports provided additional support to the U.S. dollar. The U.S. economy remains in a decent shape, so the Fed will continue to raise rates aggressively.

EUR/USD Heads Towards The 0.9700 Level

EUR/USD dropped to new lows after the release of PMI reports. Euro Area Manufacturing PMI declined from 49.6 in August to 48.5 in September, while Euro Area Services PMI decreased from 49.8 to 48.9. Numbers below 50 show contraction.

EUR/USD

The sell-off in EUR/USD continues. Interestingly, RSI is still in the moderate territory, so there is enough room to gain additional downside momentum in case the right catalysts emerge. EUR/USD received some support near 0.9725, but it remains to be seen whether it has enough support for a rebound.

GBP/USD Tests Multi-Decade Lows

GBP/USD is falling like a rock. Today’s economic reports from the UK were disappointing. Consumer Confidence decreased from -44 in August to -49 in September. UK Manufacturing PMI increased from 47.3 to 48.5, while UK Services PMI declined from 50.9 to 49.2.

Currently, GBP/USD is trying to settle below 1.1000. Back in 1985, GBP/USD traded as low as 1.0520 but quickly rebounded towards 1.2000. The pound is clearly oversold, and it looks that the risks of a rebound are significant.

AUD/USD Remains Under Strong Pressure

Not surprisingly, commodity-related currencies have also found themselves under strong pressure. AUD/USD declined towards 0.6560 while NZD/USD tested the 0.5800 level. USD/CAD is currently trying to settle above the 1.3550 level.

Commodity markets are falling, and commodity-related currencies will likely remain under significant pressure ahead of the weekend.

USD/JPY Gets Back Above 143

USD/JPY is trying to settle back above the 143 level after the strong sell-off, which was caused by BoJ interventions.

At this point, it looks that the BoJ is ready to intervene when USD/JPY is above the 145 level. It is not clear whether the BoJ wants to push USD/JPY below 140.

While the yen will remain weak due to the dovish policy of the country’s central bank, USD/JPY bulls should be ready for more interventions near the 145 level.

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

U.S. Dollar (DXY) Pulls Back After Yesterday’s Rally

Key Insights

  • Traders take some profits in the U.S. dollar after yesterday’s strong rally. 
  • GBP/USD gains some ground after BoE raises rate to 2.25%. 
  • USD/JPY retreats as BoJ intervenes. 

U.S. Dollar Is Under Some Pressure As Traders Take Profits

U.S. Dollar Index is losing some ground in a volatile trading session as traders take some profits off the table after yesterday’s Fed Interest Rate Decision.

Today, traders had a chance to take a look at the Initial Jobless Claims report, which indicated that 213,000 Americans filed for unemployment benefits in a week, compared to analyst consensus of 218,000. The labor market remains in a good shape, and the Fed has every reason to stay hawkish.

Meanwhile, Treasury yields are testing new highs. The yield of 2-year Treasuries is currently trying to settle above 4.13%, while the yield of 10-year Treasuries is testing the 3.65% level. Higher Treasury yields may provide additional support to the American currency.

EUR/USD Is Mostly Flat After Yesterday’s Sell-Off

EUR/USD is trying to rebound after yesterday’s sell-off. Currently, EUR/USD is trying to stay above the 0.9850 level.

Today, the EU released the flash reading of the Euro Area Consumer Confidence report for September, which indicated that Euro Area Consumer Confidence declined from -25.0 in August to -28.8 in September.

The European economy continues to suffer from the energy crisis, which puts pressure on consumer mood. The economic weakness and the hawkish Fed may put additional pressure on EUR/USD in the upcoming trading sessions.

GBP/USD Gains Some Ground After BoE Raises Rate To 2.25%

GBP/USD is trading near 1.1280 after the BoE Interest Rate Decision. The Bank of England increased the rate from 1.75% to 2.25%, in line with the analyst consensus.

The British pound continues to trade near multi-decade lows, and it will likely need strong catalysts to break out of the current downside trend.

USD/JPY Retreats As BoJ Intervenes

USD/JPY suffered a strong sell-off after the Bank of Japan intervened to provide support to the Japanese yen.

Interventions began when USD/JPY traded above 145.50. The sell-off was strong and pushed USD/JPY below the 141 level.

Interestingly, an attempt to rebound above 143 was also met with strong selling. Currently, USD/JPY is trading near the 142 level.

USD/CAD Tests New Highs

USD/CAD has recently made  an attempt to settle above 1.3540 but lost momentum and pulled back towards 1.3480.

Other commdoity-related currencies have also tested new lows today. NZD/USD made an attempt to settle below the 0.5800 level, while AUD/USD declined below 0.6600.

It should be noted that NZD/USD and AUD/USD managed to rebound from recent lows as some traders were willing to bet that the recent pullback was too strong.

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

U.S. Dollar (DXY) Rallies As Fed Stays Hawkish

Key Insights

  • U.S. dollar gained additional upside momentum after the Fed Interest Rate Decision. 
  • Treasury yields tested new highs. 
  • The Fed looks ready to fight inflation at all costs. 

U.S. Dollar Index Tests New Highs

U.S. dollar rallied after the release of the Fed Interest Rate Decision. The Fed increased the target range for the federal funds rate to 3.0% – 3.25%, in line with the analyst consensus. The Fed noted that “ongoing increases in the target range will be appropriate.”

The Fed has also updated its economic projections, which differ materially from June projections.

The Fed expects that GDP will grow by 0.2% in 2022 and 1.2% in 2023. Back in June, the Fed projected GDP growth of 1.7% in both years. Unemployment Rate is expected to increase from 3.8% in 2022 to 4.4% in 2023, compared to the previous expectation of 3.9% in 2023. Put simply, the Fed expects that its aggressive rate hikes will hurt employment.

Importantly, the Fed has changed its median federal funds rate projections. The Fed believes that the federal funds rate will increase to 4.4% in 2022 and 4.6% in 2023. Previous expectations were 3.4% in 2022 and 3.8% in 2023.

The major change in Fed’s expectations boosted Treasury yields. Currently, the yield of 2-year Treasuries is trying to settle above the 4.10% level. The yield of 10-year Treasuries has recently made an attempt to settle above 3.60%. Higher Treasury yields and hawkish Fed may provide additional support to the American currency.

Currencies Drop To New Lows Against The U.S. Dollar

EUR/USD gained strong downside momentum and tested the 0.9815 level after the release of the Fed Interest Rate Decision. These levels were last seen back in 2002.

Meanwhile, GBP/USD declined towards 1.1250. The British pound has not been that weak since 1985.

Commodity-related currencies have also found themselves under strong pressure. AUD/USD declined towards 0.6620, while NZD/USD tested the 0.5850 level. USD/CAD settled above the 1.3400 level and moved towards 1.3440.

Not surprisingly, USD/JPY also managed to gain upside momentum and made an attempt to get to the test of the 145 level. At this point, the key question is whether the Bank of Japan is ready to defend this level or it will allow USD/JPY to settle above 145.

Traders should note that the Fed Press Conference starts soon, so markets will react to Powell’s words. At this point, the Fed’s commentary looks hawkish, which is bullish for the U.S. dollar. However, Powell’s comments may change the market’s mood, so traders should be prepared for fast moves.

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

Canadian Dollar Plunges as Slower Inflation Lowers Rate Hike Expectations

The Canadian Dollar is trading at its lowest level in nearly two years against the U.S. Dollar late Tuesday as the greenback broadly advanced on hawkish Federal Reserve expectations and domestic data showed inflation easing more than expected in August. The Loonie was also pressured by a sell-off in crude oil and equities.

At 17:10 GMT, the USD/CAD is trading 1.3357, up 0.0105 or +0.79%. The Invesco CurrencyShares Canadian Dollar Trust ETF (FXC) is at $73.19, down $0.59 or -0.80%.

Domestic Inflation Eases More than Expected

Canada’s annual inflation rate slowed to 7.0% in August, below analyst forecasts of 7.3% and down from 7.6% in July, Reuters reported.

Much of the deceleration in the annual inflation rate was due to a drop in gasoline prices and slower gains in the shelter index, but all three core measures of inflation also eased slightly.

Plunge in Crude Oil, Weaker Stock Market Set Risk-Off Tone

The inflation data wasn’t the only factor weighing on the Canadian Dollar. The currency was also driven lower by a plunge in crude oil prices and weak investor sentiment.

U.S. and Canadian shares fell ahead of a Federal Reserve interest rate decision on Wednesday, while the price of oil followed other risk assets lower, dropping nearly 2%. Oil is one of Canada’s major exports.

Government Bond Yields Lower as Rate Hike Expectations Dip

Canadian government bond yields were lower across the curve on Tuesday. The 10-year eased nearly 5 basis points to 3.103%, while it fell about 11 basis points further below the equivalent U.S. rate to a differential of 45.2 basis points.

The widening interest rate differential made the U.S. Dollar a more attractive investment, contributing to the weakness in the USD/CAD. The Forex pair also gained after money market traders lowered the probability of a 50-basis point interest rate hike by the Bank of Canada in October to 85%. A move of that magnitude was fully-priced before the inflation data.

Short-Term Outlook

The main trend is up according to the daily swing and the trend is likely to continue on Wednesday after the Fed raises its benchmark interest rate. On the daily chart, the next two targets are the October 29, 2020 main top at 1.3390 and the September 30, 2020 main top at 1.3421. The latter is a potential trigger point for an acceleration to the upside.

On the downside, the nearest support is a 50% level at 1.3338, followed by the minor bottom at 1.3227.

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

U.S. Dollar (DXY) Gains Ground As Traders Bet On Hawkish Fed

Key Insights

  • U.S. dollar is gaining ground as Treasury yields rise. 
  • EUR/USD is stuck near the 1.0000 level as traders are not ready for big moves ahead of the Fed Interest Rate Decision. 
  • USD/JPY managed to get out of the recent trading range. 

U.S. Dollar Index Tries To Settle Above 110

U.S. dollar is moving higher as traders continue to prepare for the Fed Interest Rate Decision, which will be released tomorrow.

The FedWatch Tool indicates that there is a 82% probability of a 75 bps rate hike. The market’s view on the upcoming rate hike has stabilized in recent trading sessions. Not surprisingly, the U.S. Dollar Index has found itself in a range between the support at 109.50 and the resistance at 110.20.

Meanwhile, Treasury yields keep moving higher, and the yield of 2-year Treasuries is trying to settle above the 4.00% level. In case this attempt is successful, the American currency may get more support.

EUR/USD Stays Glued To The 1.0000 Level

EUR/USD remains stuck near the 1.0000 level as traders wait for the outcome of the Fed meeting.

Today, the U.S. released Building Permits and Housing Starts reports. The reports indicated that Housing Starts increased by 12.2% month-over-month in August, while Building Permits declined by 10%.

Most likely, the reports will not have a significant impact on EUR/USD dynamics as traders remain focused on the Fed.

GBP/USD Moves Back To 1.1400

GBP/USD is currently trying to settle below the 1.1400 level as the British pound remains under pressure.

There are no important economic reports scheduled to be released in the UK today, so traders will stay focused on general market sentiment.

Yesterday’s rebound in riskier assets was short-lived, and demand for safe-haven assets stays strong, which is bearish for the pound.

NZD/USD Tests New Lows

NZD/USD is currently trying to settle below the 0.5900 level as commodity-related currencies remain under strong pressure.

AUD/USD has recently moved below the 0.6700 level, while USD/CAD is testing the resistance at 1.3340.

Strong dollar and recession fears serve as the key catalysts for the recent moves in commodity-related currencies.

USD/JPY Breaks Out Of The Recent Trading Range

USD/JPY has recently managed to get above the resistance at 143.60 and is trying to gain additional upside momentum.

USD/JPY

USD/JPY has traded in the 142.70 – 143.60 range in recent trading sessions. In case USD/JPY settles above 143.60, it wil move towards the next resistance level, which is located near 144.50. A move above this level will push USD/JPY towards the resistance at 145.00.

On the support side, a move below 143.60 will push USD/JPY back into the previous 142.70 – 143.60 range. In case USD/JPY declines below the support at 142.70, it will head towards the next support level at 142.00.

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

Fed Goes Large Again With More to Come

Written on 20/09/2022 by Lukman Otunuga, Senior Research Analyst at FXTM

Fed to Ramp Up Hawkish Rhetoric

Markets expect the U.S Federal Reserve will hike the target range by another 75bps at its meeting tomorrow. This would make it three jumbo-sized rate hikes in a row and take the Fed Funds rate up to 3%-3.25%, which is nearing “restrictive territory”. There is much speculation about whether the FOMC raise rates by a monster 100bps, but markets are giving this less than a one in five chance of this happening. The extension of the “dot plots” through 2025 will offer much insight into how Fed officials view the evolving economic cycle.

The central focus for FOMC policymakers at present is fighting raging inflation and bringing price pressures back to the Fed’s target of 2%. Front-loading of interest rate rises has been the weapon of choice for tightening policy while quantitative tightening ramped up earlier this month to $95 billion per month.

The latest inflation data came in hotter-than-expected and shocked markets into further raising the chances of rates staying higher for longer. August CPI figures highlighted the persistent and sticky nature of inflation, driven by shelter prices which have a lagging effect and continue to rise.

Any chance of a “hike of the century”?

After the shock US inflation report last week, money markets went into overdrive and saw over a 30% chance of a 100bp rate hike at tomorrow’s FOMC meeting. That probability has now come down to around 17% according to the CME FedWatch Tool. We’ve had plenty of hawkish Fedspeak recently, but it does seem that a mega-hike would probably unnerve Wall Street as the Fed hasn’t been willing to take that step before.

A rate move of that size may also imply some panic at the world’s most important central bank. It would increase the likelihood that the FOMC will overtighten policy and decrease the chances of a soft landing.

Fed Statement and Dot Plot in Focus

The statement language will be guided by the latest Summary of Economic Projections, which were last released in June. Meaningful changes in expectations are anticipated with the forecast for the Fed funds rate shown in the dot plot expected to be more hawkish. The previous projections saw rates at 3.4% at the end of this year, followed by 3.8% by the end of 2023. Markets currently see rates peaking at 4.5% in March and to be cut to 4% by December next year. Inflation forecasts are likely to be lifted while growth estimates are lowered.

Market Reaction and the Dollar

The greenback has hit multi-year highs this year while risk markets have suffered as the rate hike cycle has ramped up with front-loading. Tighter monetary policy increases the headwinds for risk assets, and this should help support the dollar going forward. In the near term, a 75bp “hawkish hike” is the minimum expected by markets.

For more information, please visit: FXTM

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U.S. Dollar Index (DX) Futures Technical Analysis – Lower, but Stable Ahead of Fed Interest Rate Decision

The U.S. Dollar is edging lower against a basket of major currencies on Tuesday as traders adjust their positions ahead of the start of the Federal Reserve’s two-day policy meeting later today.

Helping to put a little pressure on the index are slightly lower Treasury yields. They are giving back some of yesterday’s advance to their highest levels since 2007.

At 07:22 GMT, the December U.S. Dollar Index is trading 109.290, down 0.176 or -0.16%. On Monday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $29.36, down $0.04 or -0.14%.

Against the major currencies, the dollar is losing ground versus the Euro, British Pound and Canadian Dollars.

Based on recent comments from European Central Bank (ECB) officials, traders are expecting aggressive rate hikes over the next several months.

In the U.K., the Bank of England is expected to raise its benchmark rate by 50 basis points on Thursday.

Later today at 14:30 GMT, investors will get the opportunity to react to consumer inflation data out of Canada. The reports are expected to show inflation rose in August, which is likely to prompt calls for additional rate hikes.

In the U.S., investors will be focusing on reports on Building Permits and Housing Starts. Traders may show little reaction to the data with the Fed scheduled to announce a big interest rate hike on Wednesday. Ahead of the announcement, traders are looking for the Fed to raise rates 75 basis points with some experts calling for a full-percentage point increase.

Daily December U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 110.480 will reaffirm the uptrend. A move through 107.450 will change the main trend to down.

The short-term range is 107.450 to 109.995. Its retracement zone at 108.723 to 108.422 is the nearest downside target.

The major support is the long-term Fibonacci level at 107.780.

Daily Swing Chart Technical Forecast

Trader reaction to 109.535 is likely to determine the direction of the December U.S. Dollar Index on Tuesday.

Bearish Scenario

A sustained move under 109.535 will indicate the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into the short-term retracement zone at 108.723 to 108.422.

Bullish Scenario

A sustained move over 109.535 will signal the presence of buyers. If this generates enough upside momentum then look for a retest of the minor top at 109.995.

Side-Notes

Looking ahead, the short-term direction of the December U.S. Dollar Index is likely to be determined by trader reaction to 108.723 to 108.422.

The longer-term direction will be determined by trader reaction to 107.780.

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

U.S. Dollar (DXY) Gains Ground As Treasury Yields Test New Highs

Key Insights

  • U.S. dollar is moving higher as traders bet on hawkish Fed. 
  • British pound is moving lower at the start of the week. 
  • USD/CAD pulled back from the 1.3340 level after the release of Canada’s PPI data. 

U.S. Dollar Starts The Week On A Strong Note

U.S. Dollar Index continues its attempts to settle above the 110 level as Treasury yields keep moving higher.

The yield of 2-year Treasuries is testing the 3.95% level, while the yield of 10-year Treasuries is trying to get above 3.50%. The FedWatch Tool indicates that there is a 80% probability of a 75 bps rate hike on September 21.

Markets fear that this rate hike will be accompanied by hawkish comments from Fed Chair Jerome Powell. Most likely, trading will stay choppy and nervous until the Fed releases its Interest Rate Decision.

EUR/USD Remains Stuck Near The Key 1.0000 Level

EUR/USD has recently slipped below the 1.0000 level. There are no important economic reports scheduled to be released in the Euro Area today, so traders will stay focused on the dynamics of Treasury markets.

Tomorrow, EUR/USD traders will have a chance to take a look at the latest PPI data from Germany. Analysts expect that PPI declined from 37.2% year-over-year in July to 37.1% in August.

It remains to be seen whether this report will serve as a significant catalyst for EUR/USD as it will be released just one day ahead of the Fed Interest Rate Decision.

GBP/USD Remains Under Pressure

GBP/USD is moving towards yearly lows as markets remain worried about the slowdown of the UK economy.

While the Fed is expected to raise the interest rate by 75 bps, the Bank of England is projected to deliver a 50 bps hike on September 22.

The slower pace of interest rate hikes in combination with the weak UK economy continue to serve as significant bearish catalysts for the pound.

USD/CAD Tested New Highs As The Pullback In Commodity Markets Continued

USD/CAD has recently made an attempt to get to the test of the 1.3350 level, but lost momentum after the release of the PPI report from Canada.

The report indicated that PPI declined from 11.5% year-over-year in July to 10.6% year-over-year in August. The continuation of the pullback in some commodity markets put additional pressure on the Canadian dollar.

Other commodity-related currencies have also moved lower at the start of the week. AUD/USD declined below the 0.6700 level, while NZD/USD tested yearly lows at 0.5930.

USD/JPY Looks Ready To Move Out Of The Trading Range

USD/JPY received support near 142.70 and rebounded towards 143.50. Traders are waiting for any signs of interventions from the Bank of Japan. Meanwhile, USD/JPY is consolidating near multi-decade highs.

USD/JPY

From a technical point of view, USD/JPY is stuck in a range between the support at 142.70 and the resistance at 143.60. In case USD/JPY manages to get out of this range, it will have a good chance to gain strong momentum.

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

USD/CAD Eyes a Return to 1.3350 on Fed and Risk Sentiment

It was a quiet start to the US session for the USD/CAD, with no economic indicators from Canada or the US to consider.

The lack of stats left the Loonie in the hands of crude oil prices and market risk sentiment. With the Fed set to deliver another 75-basis point rate hike on Wednesday, bets of a more hawkish Fed should provide dollar support.

Crude oil prices were on the decline through the European session. Concerns over demand weighed. WTI was down 2.01% to $83.40.

USD/CAD Price Action

At the time of writing, the USD/CAD was up 0.30% to 1.33042. A bullish morning saw the dollar rise from an early low of 1.32498 to a high of 1.33240.

The USD/CAD tested the First Major Resistance Level (R1) at $1.3307.

USD/CAD on the move.
USDCAD 190922 Daily Chart

Technical Indicators

The USD/CAD will need to avoid the 1.3266 pivot to retarget the First Major Resistance Level (R1) at 1.3307 and the morning high of 1.33240. A lack of economic indicators should support bullish sentiment towards the dollar following the CPI report.

In case of a risk-off-fueled extended rally, the USD/CAD should test the Second Major Resistance Level (R2) at 1.3348 and resistance at 1.3350. The Third Major Resistance Level (R3) sits at $1.3430.

A fall through the pivot would bring the First Major Support Level (S1) at $1.3224 into play. Barring a risk-on-fueled rally, the USD/CAD should avoid sub-1.32 and the Second Major Support Level (S2) at 1.3184. The Third Major Support Level (S3) sits at 1.3102.

USD/CAD resistance levels in play above the pivot.
USDCAD 190922 Hourly Chart

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bullish signal. This morning, the USD/CAD pair sat above the 50-day EMA, currently at 1.31651.

The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening on the 200-day EMA, delivering bullish signals for the USD/CAD pair. A hold above the 50-day EMA would support another run at R1 (1.3307) and 1.3350.

However, a fallback through S1 (1.3224) would bring S2 (1.3184) and the 50-day EMA (1.31651) into view.

EMAs bullish.
USDCAD 190922 4 Hourly Chart

The US Session

It is a quiet US economic calendar. There are no economic indicators to consider, leaving the markets to focus on the Fed’s Wednesday policy move and projections.

Last week’s CPI report suggests a hawkish rate hike, supporting a DXY return to 110.

There are no FOMC member speeches to consider, with the FOMC in its September blackout period (September 10-22). The lack of chatter will leave the markets in data-dependent mode.

This morning, the split between a 75-basis point and a percentage point rate hike was 80% to 20%, favoring a 75-basis point hike. However, we have seen a rise in the probability of a percentage point hike on November 2. This morning, the probability of a percentage point hike stood at 13.3% versus 0% before the August CPI report.

U.S. Dollar (DXY) Lost Its Gains After Consumer Sentiment Report

Key Insights

  • U.S. dollar is mostly flat ahead of the weekend. 
  • GBP/USD tested new lows after the disappointing Retail Sales report. 
  • USD/JPY is trading near the 143 level. 

U.S. Dollar Index Faced Resistance Above The 110 Level

U.S. dollar is mostly flat in today’s trading while traders stay focused on rising Treasury yields. The yield of 2-year Treasuries is trying to settle above the 3.90% level, while the yield of 10-year Treasuries is testing the 3.45% level.

Today, traders had a chance to take a look at the preliminary Michigan Consumer Sentiment report from the U.S. The report indicated that Consumer Sentiment increased from 58.2 in August to 59.5 in September, compared to analyst consensus of 60.

Consumer Sentiment continues to rebound from recent lows, but it remains at low levels. However, the Fed will likely remain focused on its fight against inflation and ignore recession worries, which is bullish for the U.S. dollar.

EUR/USD Is Trading Near 1.0000

EUR/USD has recently made an attempt to settle below the 0.9950 level but failed to develop sufficient downside momentum and moved back towards the 1.0000 level.

Today, EUR/USD traders focused on the final reading of the Euro Area Inflation Rate report for August. The report indicated that Euro Area Inflation Rate increased from 8.9% in July to 9.1% in August, in line with the analyst consensus.

There were no surprises in the report, and it had little impact on currency dynamics.

GBP/USD Tests New Lows

GBP/USD tested new lows after a disappointing Retail Sales report. The report indicated that Retail Sales declined by 1.6% month-over-month in August, compared to analyst consensus which called for a decline of 0.5%. On a year-over-year basis, Retail Sales decreased by 5.4%.

GBP/USD

GBP/USD remains technically weak. RSI is in the moderate territory, and there is plenty of room to gain additional downside momentum in case the right catalysts emerge. If GBP/USD settles back below the 1.1400 level, it will move towards the recent lows at 1.1350.

USD/CAD Rallies To New Highs

USD/CAD has finally managed to settle above the resistance at 1.3200 and moved towards the 1.3300 level.

Other commodity-related currencies are mostly flat today. AUD/USD is stuck near the 0.6700 level, while NZD/USD is trading near 0.5980.

USD/JPY Is Stuck Near 143

USD/JPY is trying to stabilize after the recent volatility. USD/JPY failed to settle above 143.50 and pulled back towards the 143 level.

As I noted yesterday, USD/JPY may need to spend some time in the 143 – 144 range before it can move towards the 145 level.

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

Week Ahead: Fed to Fan Red-Hot US Dollar?

Take your pick: the US Federal Reserve, the Bank of England (meeting delayed from last week), the Bank of Japan, and Norges Bank (the central bank of Norway) are all set to hold their respective policy meetings.

Though of course, the Fed surely takes centre stage considering that it’s the most powerful central bank in the world and holds so much sway across global financial markets.

Calendar for Next Week

Here’s what to expect for the coming week:

Monday, September 19

  • UK markets closed for funeral of Queen Elizabeth II

Tuesday, September 20

  • JPY: Japan August CPI
  • CNH: China loan prime rates
  • AUD: RBA September meeting minutes
  • CAD: Canada August CPI

Wednesday, September 21

  • USD: Fed rate decision
  • US crude: EIA weekly oil inventory report

Thursday, September 22

  • NZD: New Zealand 3Q consumer confidence, August external trade
  • JPY: Bank of Japan policy decision
  • NOK: Central Bank of Norway rate decision
  • GBP: Bank of England rate decision
  • USD: US weekly initial jobless claims
  • EUR: Eurozone September consumer confidence

Friday, September 23

  • AUD: Australia September PMIs
  • EUR: Eurozone September PMIs
  • GBP: UK September PMIs and consumer confidence
  • CAD: Canada July retail sales

Hawkish Expectations

Here’s what markets are forecasting for the upcoming Fed decision due mid-week:

  • 75 basis point hike fully priced in.
  • 25% chance of a 100bps hike.
  • US interest rates to peak around 4.5% by March 2023 (from the current 2.5%, before the September FOMC meeting next week).
    That’s an extra 50 basis points on top of the 4% peak forecasted just this time last week (before the latest US CPI was released – more on that in a bit).

Such hawkish expectations (that the Fed would have to trigger more of these outsized rate hikes to combat stubbornly elevated inflation) has restored this equally-weighted US dollar index back to its recent peak, trading around levels not seen since the onset of the global pandemic.

The ramp-up in expectations for a more aggressive Fed came in the wake of the US August consumer price index (CPI) released on September 13th.

We learned that inflation rose by a higher-than-expected 8.3% in August, compared to the 8.1% figure forecasted by economists.

The core CPI print (excluding more volatile items such as food and energy prices) also came in 0.2 percentage points above the forecasted 6.1% figure.

In other words, US inflation remains stubbornly elevated, despite the Fed having already hiked by 225 basis points since March.

Recall how before this week’s US CPI release, some segments of the markets believed that the Fed may just be contented with a 50bps hike at the September FOMC meeting.

Such expectations have been dashed by the hotter-than-expected August CPI that was unveiled earlier this week.

The higher-than-expected inflation numbers are set to frame the Fed’s upcoming pivotal decision.

  • Should the Fed indeed trigger that gargantuan 100bps hike, that may send this equally-weighted USD index up to 1.23, a fresh 2-year high.That 1.23 region may offer initial resistance for this USD index, as it did back in May 2020. Stronger resistance is set to arrive around 1.25, as was the case back in early April 2020.
  • However, should the Fed unexpectedly deliver a dovish shocker, perhaps by triggering only a 50bps hike or suggesting that most of its intended rate hikes are already in the past, that could see this USD index swiftly unwinding recent gains.A moderating greenback would in turn allow the rest of the FX space room to breath a massive sigh of relief.

For more information visit FXTM.