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04/09/2023

Gold price regains positive traction and remains within the striking distance of a one-month top.
Expectations that the Federal Reserve is down with its rate-hiking cycle underpin the XAU/USD.
A positive risk tone might hold back bulls from placing aggressive bets and cap any further gains.
Gold price attracts fresh buying on the first day of a new week and steadily climbs back above the $1,945 level during the Asian session. The XAU/USD remains well within the striking distance of a one-month high, around the $1,952-$1,953 region touched on Friday and seems poised to build on its recent goodish rebound from over a five-month trough, around the $1,885 zone touched in August.

The mixed monthly jobs report released from the United States (US) on Friday ensured that the Federal Reserve (Fed) will leave interest rates unchanged at its September policy meeting, which, in turn, is seen benefitting the non-yielding Gold price. In fact, the headline NFP showed that the US economy added 187K jobs in August, higher than market expectations. That said, the previous month's reading was revised down from 187K to 157K. Furthermore, the unemployment rate climbed to 3.8% from 3.5% in July and Average Hourly Earnings edged lower to 4.3% on a yearly basis from 4.4%. The data points to a slight deterioration in the labour market and gives the Fed less headroom to keep raising interest rates.

The outlook fails to assist the US Dollar (USD) to capitalize on its strong gains registered over the past two trading days and turns out to be another factor lending support to the Gold price. A softer buck tends to underpin demand for US Dollar-denominated commodities, including the XAU/USD. The downside for the USD, however, remains cushioned as the markets are still pricing in the possibility of one more 25 basis points (bps) Fed rate hike move by the end of this year. This remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the Greenback. Apart from this, a generally positive tone around the equity markets might contribute to capping gains for the safe-haven precious metal.

Expectations that the Fed is nearing the end of its rate-hiking cycle, along with the optimism over more supportive measures from China to shore up economic growth, continue to boost investors' confidence. In fact, China's top economic planner – the National Development and Reform Commission (NDRC) – said this Monday that it would establish a designated department to bolster the country's faltering private economy. This comes after China increased local dollar liquidity and loosened some mortgage rules last week. In the absence of any relevant market-moving economic releases and a bank holiday in the US, the risk-on flow might hold back traders from placing aggressive bullish bets around the Gold price, at least for now.

04/09/2023

EUR/USD hovers around 1.0780 amid the thin trading volume due to the US holiday.
European Central Bank (ECB) Governor Pierre Wunsch said it's too early to talk about ending hikes entirely.
US Nonfarm Payrolls for August came in at 187K better than the estimation of 170K and July's reading of 157K.
The EUR/USD pair remains on the defensive above the mid-1.0700s during the Asian session on Monday. The major currently trades near 1.0782, gaining 0.05% for the day.

On Saturday, Belgian Central Bank Governor and European Central Bank (ECB) Governing Council member Pierre Wunsch said that the central bank could do a little bit more. He added that ECB will have to pause the policy at some point but it's too early to talk about ending hikes entirely. Additionally, ECB policymaker, Francois Villeroy de Galhau said that they are very close to a peak in interest rates, but still a long way from considering rate cut.

On the US Dollar front, the US Nonfarm Payrolls (NFP) for August came in at 187K, better than the estimation of 170Kand the July's reading of 157K, the US Bureau of Labor Statistics showed on Friday. Meanwhile, the Unemployment Rate fell significantly to 3.8%, compared to the market estimate of 3.5% and the prior data of 3.5%. The monthly Average Hourly Earnings rose by 0.2%, against the expectation of 0.3%. Finally, the US Manufacturing PMI came in at 47.6 versus 46.4 prior and better than the market consensus of 47.0.

Market players believe that the Federal Reserve (Fed) is likely to end its tightening cycle. According to the CME FedWatch tool, markets have priced in that the Fed will not hike rates in its September meeting and the possibility of raising rates in November and December declined to almost 35%. Despite registering its lowest weekly gain since early July, the US Dollar (USD) trades in positive territory for the sixth straight week.

The US market is closed for the Labor Day holiday. Market participants will keep an eye on the German Trade Balance for July, the Eurozone Sentix Investor Confidence for September, and German Buba President Joachim Nagel’s speech ahead of the ECB's President Lagarde Speech. Traders will take cues from the statement and find the trading opportunities around the EUR/USD pair.

04/09/2023

USD/CAD oscillates in a narrow band below the 1.3600 mark on Monday.
The technical setup favours bulls and supports prospects for further gains.
A convincing break below the 200-day SMA will negate the positive bias.
The USD/CAD pair struggles to capitalize on Friday's solid recovery from levels just below the 1.3500 psychological mark or a two-week low and kicks off the new week on a subdued note. Spot prices remain below the 1.3600 round figure through the Asian session, though the near-term bias seems tilted in favour of bullish traders and suggests that the path of least resistance is to the upside.

Bets that the Federal Reserve (Fed) will leave interest rates unchanged at its September policy meeting, along with a positive risk tone, weigh on the safe-haven US Dollar (USD) and act as a headwind for the USD/CAD pair. Market participants, however, seem convinced that the Fed will keep rates higher for longer and have been pricing in the possibility of one more 25 bps lift-off by the end of this year. This remains supportive of elevated US Treasury bond yields and should help limit the downside for the buck.

Moreover, growing worries about a deeper global economic downturn overshadow the optimism led by more stimulus measures from China and support prospects for a further near-term appreciating move for the Greenback. The Canadian Dollar (CAD), on the other hand, is weighed down by Friday's data, showing the economy contracted during the second quarter. This, along with a modest pullback in Crude Oil prices, could undermine the commodity-linked Loonie and lend support to the USD/CAD pair.

From a technical perspective, the recent breakout through the 200-day Simple Moving Average (SMA) and the emergence of fresh buying on Friday favours bullish traders. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and have also eased a bit from the overbought zone. This further adds credence to the near-term positive outlook for the USD/CAD pair, though it will still be prudent to wait for acceptance above the 1.3600 round-figure mark before positioning for further gains.

The next relevant hurdle is pegged near the 1.3635-1.3640 area, or the multi-month peak touched in August. Some follow-through buying has the potential to lift the USD/CAD pair to the 1.3700 mark en route to the 1.3740-1.3745 resistance zone. The momentum could get extended further towards the 1.3800 round figure, above which spot prices could climb to the YTD peak, around the 1.3860 area touched in March.

On the flip side, any meaningful slide is more likely to find decent support near the 1.3555-1.3550 area. a subsequent slide could be seen as a buying opportunity near the 1.3500 mark and remain limited near the 1.3460-1.3455 region, or the 200-day SMA. The latter should act as a pivotal point, which if broken decisively would shift the bias in favour of bearish traders and make the USD/CAD pair vulnerable. Spot prices might then fall to the 1.3400 mark en route to the next relevant support near the 1.3370 area.

USD/CAD daily chart
fxsoriginal

Technical levels to watch

04/09/2023

Asia-Pacific shares edge higher on China stimulus despite light calendar.
Hang Seng rallies as Country Garden wins creditors approval for delayed bond coupon payment.
Mixed updates about US-China ties, US Labor Day holiday restricts market moves.
Risk catalysts eyed for clear directions, China inflation will be crucial to watch.
The risk appetite improves in Asia during a sluggish start to the week elsewhere as China defends the region’s bulls whereas the US Labor Day holiday allows policy hawks to take a breather. Further, the risk-positive news about China’s struggling real-estate plays Country Garden also underpins the cautious optimism even as the Sino-US headlines prod bulls.

While portraying the mood, the MSCI’s index of Asia-Pacific shares outside Japan rises to the highest level in a month, up 1.20% intraday at the latest, whereas Japan’s Nikkei 0.50% on a day by the press time.

It’s worth noting that Hong Kong’s Hang Seng resumes trading after a long weekend, due to the off on Friday, while posting than a 2.0% jump on a day as Country Garden gains the creditor’s approval for onshore bond payment’s delay.

China’s government established a special cell to promote the private economy and opening up barriers for the services industry and bolstered the sentiment early Monday, following a slew of measures to defend the world’s second-largest economy.

Among the major moves, the People's Bank of China’s (PBoC), heavy cut to its foreign exchange reserve requirement ratio (FX RRR) to 4% from 6.0% effective from September 15 gained a major attention. On the same line were a slew of China banks cut interest rates on Yuan deposits to ease the pressure from lower mortgage rates announced previously. Additionally, Reuters cited four people familiar with the matter to report that China is likely to step up action to revive the country’s property sector.

Alternatively, the US-China tension, mainly due to the concerns that American businesses are less comfortable in Beijing, as well as US President Joe Biden’s readiness to restore ties with Taiwan, prods the market’s optimism amid a sluggish session.

Elsewhere, the disappointing prints of Australia’s Company Gross Operating Profits for Q2 2023 and Japan’s upbeat Monetary Base for August underpins the upbeat performance of Australia’s ASX and Japan’s Nikkei 225, mainly backed by Chinese equities. It’s worth noting that shares in New Zealand buck the trend with minor losses as New Zealand’s Terms of Trade Index improves in Q2 2023.

Above all, the receding odds of the Federal Reserve’s (Fed) hawkish moves in the future join the China measures to keep the Asia-Pacific buyers hopeful, especially amid the US Labor Day holiday.

On a broader front, the US Dollar Index (DXY) snaps a two-day winning streak with mild losses to around 104.15 whereas the S&P 500 Futures print mild gains. It’s worth noting that the benchmark US 10-year Treasury bond yields dropped in the last two consecutive weeks after rising to the highest levels since 2007, to 4.18% at the latest.

Also read: Forex Today: The Dollar doesn't give up

04/09/2023

AUD/USD consolidates above 0.6450 after the US mixed employment data.
Investors turn cautious on the expected 25 bps rate hike by the Fed, following the moderate employment figures.
Aussie traders anticipate that the RBA will extend the rate pause for a second successive month.
AUD/USD recovers from the previous session’s losses, trading higher around 0.6460 during the Asian session on Monday. The pair experienced downward pressure due to mixed employment data from the United States (US) released on Friday. The moderate figures reinforce the possibility of no interest rate change by the US Federal Reserve (Fed) at the September meeting.

The US Nonfarm Payrolls report for August printed the reading of 187K, compared to the market consensus of 170K. The data reported 157K figure in the month of July. Average Hourly Earnings (Aug) declined to the rate of 4.3%, which was expected to remain consistent at 4.4% from the previous reading.

However, investors are still factoring in a 25 basis points (bps) rate hike by the US Federal Reserve (Fed), which acts as a headwind for the AUD/USD pair and limits the gains of the pair.

Market participants will watch the Reserve Bank of Australia (RBA) monetary policy meeting on Tuesday. The RBA is expected to extend the rate pause for the second consecutive month and defy the expected rate hike of a quarter basis points as the cost pressure in the country is easing.

US Dollar (USD), which measures the performance of the Greenback against six other major currencies, hovers around 104.20. Additionally, the improved US Treasury yields provided support to the buck, which closed at 4.18% on Friday. Market participants await additional guidance from the Fed regarding its upcoming policy decision as robust US Nonfarm Payrolls data raised the concerns around inflation outlook.

25/08/2023

DOLLAR IS LIKELY TO GIVE BACK A GOOD PART OF THE GAINS IF POWELL DISAPPOINTS – COMMERZBANK

25 August 2023, 11:20

The main event today will be the US Fed's Jackson Hole Symposium. Economists at Commerzbank analyze how Fed Chair Powell’s speech could impact the US Dollar.

Hawkish comments by Powell could push the USD a bit further

Comments by Powell, which the market interprets as hawkish, could push the USD a bit further.

If Powell disappoints, on the other hand, the Dollar is likely to give back a good part of the gains it has already made in the run-up to the speech.

25/08/2023

USD/CAD TREADS WATER TOWARD 1.3600, FED CHAIR POWELL’S SPEECH EYED

25 August 2023, 11:13

USD/CAD consolidates below the 1.3600 psychological level.

Investors await Fed Chair Powell’s speech, seeking further cues on the inflation outlook.

China's economic situation drives Oil prices lower, influencing the Loonie pair.

USD/CAD extends gains for the second consecutive day, trading around 1.3590 during the European session on Friday. The US Dollar (USD) strengthened due to the solid United States (US) employment data, which reinforces the concerns over the inflation outlook. For the week ending on August 18, the index dropped to 230K from the previous reading of 240K, which was expected to remain consistent.

The US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against six major currencies, hovers around 104.20. Market participants await the US Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole Symposium, seeking insights into the financial and economic outlook, helping to shape potential strategies in response to placing bets on the USD/CAD pair.

Furthermore, the former President of the St. Louis Federal Reserve James Bullard, expressed hawkish sentiments that provided support to the US Dollar (USD). Bullard stated, as reported by Bloomberg, that "The reacceleration could put upward pressure on inflation and thus makes it impossible for the Fed to start cutting rates anytime soon." Conversely, Patrick Harker, President of the Federal Reserve Bank of Philadelphia, suggested the possibility of concluding the rate hike trajectory, while the President of the Boston Federal Reserve advocated for maintaining a bias to keep rates elevated for an extended period.

Investors remain positive on the Fed’s hawkish stance, leading to an increase in US Treasury yields and providing support to the Greenback. China's economic challenges are driving down the Oil prices, which in turn is having a negative impact on the Canadian Dollar (CAD), given Canada is one of the Crude oil exporters.

25/08/2023

NZD/USD SEEMS VULNERABLE NEAR 0.5900, LOWEST SINCE NOVEMBER 2022 AHEAD OF FED’S POWELL

25 August 2023, 11:02

NZD/USD continues losing ground for the second straight day and hits a fresh YTD low.

Bets for more Fed rate hikes continue to boost the USD and exert pressure on the pair.

Spot prices show resilience below 0.5900 as traders await Fed Chair Powell’s speech.

The NZD/USD pair drifts lower for the second successive day on Friday and touches a fresh low since November 2022 during the early part of the European session. Spot prices, however, once again show some resilience below the 0.5900 mark and quickly recover a few pips in the last hour, though any meaningful upside remains elusive amid the underlying bullish tone around the US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, advances to a two-and-half-month top as traders continue to price in the possibility of further policy tightening by the Federal Reserve (Fed). The bets were reaffirmed by the overnight hawkish remarks by Fed officials, keeping the door open for one more 25 bps lift-off by the end of this year. The outlook, meanwhile, remains supportive of elevated US Treasury bond yields and continues to underpin the buck.

Apart from the view that the Fed will keep interest rates higher for longer, worries about a deeper global economic downturn further benefit the safe-haven Greenback and should contribute to capping the NZD/USD pair. Against the backdrop of the worsening economic conditions in China, a host of manufacturing surveys on Wednesday painted a grim picture of the health of economies across the globe and fueled recession fears. This should act as a headwind for the growth-sensitive Kiwi.

Traders, however, might refrain from placing fresh bearish bets around the NZD/USD pair and prefer to move to the sidelines ahead of Fed Chair Jerome Powell's highly-anticipated speech at the Jackson Hole Symposium. Investors will look for fresh cues about the Fed's future rate-hike path, which will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the major. Nevertheless, spot prices remain on track to register losses for the sixth straight week.

Technical levels to watch

25/08/2023

GERMAN IFO BUSINESS CLIMATE INDEX DECLINES TO 85.7 IN AUGUST VS. 86.7 EXPECTED

25 August 2023, 11:02

German IFO Business Climate Index came in at 85.7 in August.

IFO Current Economic Assessment fell to 89.0 this month.

The August German IFO Expectations Index arrived at 82.6.

The headline German IFO Business Climate Index dropped further to 85.7 in August versus last month's 87.4 and the market expectations of 86.7.

more to come ..

25/08/2023

EUR/USD: LAGARDE CAN GIVE THE EURO SOME RELIEF – ING

25 August 2023, 10:59

The world’s two most prominent central bankers are both speaking at Jackson Hole today. ECB President Christine Lagarde has to deal with a worsening economic outlook in the Eurozone, but economists at ING suspect she will stick to data dependency and a hawkish tone.

EUR/USD can rebound

Our perception is that Lagarde is unhappy with the market's recent scale-down of rate expectations in the Eurozone (a September hike is only 40% priced in), and she may prefer to keep overlooking some evidence of worsening growth and stick with a pure data-dependent approach. Ultimately, if inflation surprises on the upside, the chances of a hike in September would rise quite significantly in our view, especially given the deteriorating growth outlook, which means that could be the ECB’s last chance to raise rates.

We think there is room for some re-tightening after Lagarde’s speech today, and for EUR/USD to enjoy a relief rally after the break below 1.0800 saw more bearish momentum building overnight.

25/08/2023

MOMENTUM GROWING FOR A PAUSE IN ECB RATE HIKES AS RECESSION FEARS RISE – REUTERS

25 August 2023, 10:57

Reuters cited some sources with knowledge of the discussion on Friday, saying that momentum is growing for a pause in ECB rate hikes as recession fears rise but the debate is still open.

Additional takeaways

Advocates of ECB pause point to weak growth, benign wage growth, China's slowdown, improved policy transmission.

Policymakers agree any ECB decision to pause would need to make clear job is not done and that future hikes could still be needed.

developing story ...

25/08/2023

POUND STERLING TUMBLES ON BLEAK ECONOMIC OUTLOOK AND CAUTIOUS MARKET MOOD

25 August 2023, 10:54

Pound Sterling refreshes 11-week low as higher interest rates dampen economic prospects.

UK construction firms go out of business due to stubborn cost inflation.

The Jackson Hole Symposium will drive further price action in the FX domain.

The Pound Sterling (GBP) is consistently facing a sell-off due to the widening consequences of a historically aggressive rate-tightening cycle by the Bank of England (BoE). The GBP/USD prints a fresh 11-week low amid bearish market sentiment and rising risks of a recession in the UK economy. In the battle against stubborn inflation, the BoE has raised interest rates to 5.25%, the consequences of which are impacting UK corporations, forcing some to report insolvency due to their inability to cover interest obligations.

The UK’s persistent Consumer Price Index (CPI) inflation and eventually declining real income of households have resulted in weaker Retail Sales, portraying a bleak demand environment. This has compelled firms to operate at lower capacity. Market participants expect that the consequences of higher interest rates by the BoE will expand further as the central bank prepares to tighten monetary policy further in September.

Daily Digest Market Movers: Pound Sterling drops further due to rising recession risks

Pound Sterling refreshes 11-week low near 1.2550 as market sentiment remains bearish with rising expectations that the UK economy is set to shrink.

The current tightening cycle by the Bank of England is historically aggressive, and the UK economy is facing its consequences.

This week, S&P Global reported preliminary UK Manufacturing PMI for August that dropped significantly to 42.5 from estimates of 45.0 and July’s reading of 45.3. This has been the lowest factory data figure since the pandemic period.

Also, Services PMI shifted into the contraction phase, remaining below the 50.0 threshold. The economic data landed at 48.7, lower than estimates of 50.8 and July’s release of 51.3. This indicates that firms are underutilizing their entire capacity due to risks of deteriorating demand propelled by rising price pressures.

The odds of UK firms announcing corporate default have risen amid their inability to obligate rising borrowing costs. A survey from the BoE shows that the share of non-financial UK companies experiencing a weak debt-service coverage ratio will rise to 50% by year-end from last year’s reading of 45%.

UK’s Confederation of Business Industry (CBI) reported on Thursday that the monthly balance of retail sales fell to -44 in August from -25 in July. This was the biggest decline since March 2021. UK retailers are less interested in making fresh investments next year, said CBI economist Martin Sartorius.

British construction companies have gone out of business at the highest rate in a decade as home building slowed down and government projects were delayed due to stubborn core inflation. UK authority’s Insolvency Service shows about 4,280 operators became insolvent in the past year through June.

In spite of rising recession risks, the BoE cannot pause the rate-tightening spell as current inflationary pressures are excessively higher than the desired rate of 2%.

Investors are now expecting that the BoE will raise interest rates by 25 basis points (bps) in September and interest rates will peak around 5.75% against the former projection of 6.0%.

Meanwhile, British energy regulator Ofgem has come forward to provide some relief to UK households by lowering its price cap on household energy bills. The cap was lowered to an annual level of GBP 1,923 for a typical dual-fuel household, compared with July’s price reduction of GBP 2,074. “The drop will save households an average of GBP 151 compared with the previous quarter,” the UK regulator said.

On Monday, UK markets will remain closed due to the summer bank holiday.

Market sentiment is bearish as investors remain worried about Federal Reserve (Fed) Chair Jerome Powell’s commentary at the Jackson Hole Symposium. Investors remain concerned whether Fed Powell will underpin more interest rate requirements or guide about how long interest rates will remain steady at elevated levels.

The US Dollar Index (DXY) confidently climbs above the 104.00 resistance as fears of a slowdown in China deepen due to rising deflation risks. Also, 10-year US Treasury yields rebounded to 4.25%.

Technical Analysis: Pound Sterling refreshes 11-week low

Pound Sterling prints a fresh 11-week low near 1.2550. The Cable witnessed immense selling pressure after a breakdown of the crucial support at 1.2615. More downside in the major is expected as the 20 and 50-day Exponential Moving Averages (EMAs) delivered a bearish crossover. The Cable is expected to extend its downside toward the 200-day EMA, which currently trades at 1.2480. Momentum oscillators indicate that the bearish impulse has been triggered.

BoE FAQs

What does the Bank of England do and how does it impact the Pound?

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

How does the Bank of England’s monetary policy influence Sterling?

What is Quantitative Easing (QE) and how does it affect the Pound?

What is Quantitative tightening (QT) and how does it affect the Pound Sterling?

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