USDCAD is coming lower,  after 75bp increased by BoC, but Rogers noted that the rates will need to be rised further. At the same time, we see USD making a strong reversal across the board while crude oil is trying to stabilize near 80-82USD. This makes a perfect case for some bearish price action. However this reversal can be temporary as we are now tracking wave b pullback that can belong to a higher degree fifth wave of an ending diagonal.  Ideall resistance is at 1.3300/1.3400 area. I think that later this year or in 2023 current USD bull cycle can come to an end, but of course this will depend on further FEDs interest rate policy decision. As soon as FED will signal that they are approaching end of the cylce the USD will be expected to turn south across the board. 

Another pivotal week lies ahead for currency traders, with the latest US inflation report set to decide whether the dollar’s relentless rally will finally cool off. Meanwhile, markets are leaning towards a half-point rate increase from the Bank of England, although sterling’s fate is mostly in the hands of global forces.    Inflation cooldown It’s been a glorious year for the US dollar so far. The reserve currency is essentially the only asset that has gained ground over the last nine months, riding a perfect wave of widening interest rate differentials, safe-haven flows, and an absence of alternatives.  The Fed poured gasoline on this rally recently when Chairman Powell pledged to do whatever it takes to eradicate inflation, even if that means a period of economic pain. He reinforced the notion that interest rates will need to be kept high for some time, sending traders scrambling to price in a ‘higher for longer’ path.  Encouraged by a labor market that is essentially at full employment, the Fed chief is convinced the economy can absorb this blow without sliding into a deep recession. Markets are currently pricing in an 85% probability for another three-quarter point increase this month and a terminal rate of just under 4% to be reached early next year.  Naturally, the upcoming data will be a crucial piece of this puzzle. The CPI inflation report for August is out on Tuesday and forecasts point to a negative monthly print, which would drag the yearly rate down too. Gasoline prices kept sliding during the month and business surveys from S&P Global suggest services companies raised their selling prices at the slowest pace in one-and-a-half years, adding credence to the forecast.  A second consecutive month of softening price pressures would be music to the ears of Fed officials, but it wouldn’t be enough to get them off their warpath. The Fed’s second-in-command, Lael Brainard, said this week it would take “several” months of low inflation readings before they become confident inflation is moving down to its 2% target.  As for the dollar, even a disappointing inflation print is unlikely to change the overall trend. The markets could start flirting with a half-point Fed hike this month and that might deal a blow to the greenback, but it is difficult to envision a reversal while Europe is suffering from energy shortages, the yen is in freefall, and China’s property crisis is deepening.  Retail sales for August will follow on Thursday, ahead of the latest University of Michigan consumer survey on Friday, which has turned into a market-moving release lately.   BoE - double or triple?  Over in the United Kingdom, the Bank of England will announce its rate decision on Thursday. Market pricing is leaning towards a half-point rate increase, assigning a 65% probability to this scenario against a 35% chance for a larger move of three-quarters of a percent.  It’s a tough choice for the BoE. Business surveys point to an economy that's already contracting as demand crumbles under the weight of the cost-of-living crisis. Along with the government’s plan to cap energy prices, which will likely prevent inflation from reaching the 13% peak the BoE envisioned in its latest forecasts, there is a strong case that policymakers should play it safe and opt for the smaller move.  The problem with that is the exchange rate. Sterling has already depreciated dramatically, second only to the collapsing Japanese yen this year. Going for half measures would invite further weakness, exacerbating inflationary pressures.  There’s a barrage of data releases ahead of the rate decision that will help shape market expectations. The show will kick off on Monday with GDP stats for July, ahead of the employment report for the same month on Tuesday, and the latest inflation data on Wednesday. Then on Friday, retail sales for August are due out.  As for sterling, the most important variable won’t be how hard the BoE strikes next week but rather what happens with stock markets. Because of the UK’s chronic twin deficits, the pound has developed a tremendous sensitivity to global risk sentiment, with Cable trading in lockstep with the S&P 500 most of the time.  In this respect, the outlook for stocks remains challenging. The Fed is hell-bent on keeping rates high until inflation is vanquished, the pace of quantitative tightening doubled up last week, valuations are still not cheap, and a series of earnings downgrades might be imminent if Europe and China continue to roll over.  A glance at China Finally, the monthly data dump from China that includes retail sales and industrial production will be released on Friday. Investors will pay close attention to assess the damage from a property sector in freefall and the recent lockdowns of major cities.  Ahead of this dataset, Australia’s latest jobs numbers and New Zealand’s GDP print for...

DXY traded to 110.78 highs against tops to the 40 and 50 year averages at 110.72 to 111.55. Points 110.72 - 111.55 holds as tops for months to come. DXY tops are driving non USD anchor pairs higher such as AUD/USD, NZD/USD, EUR/USD and GBP/USD. DXY tops drove USD/CAD 100 pips lower to current 1.3000's from 1.3200 highs. USD/JPY from reported 144.82 tops now trades 142.00's. DXY at current 108.00 crossed below 109.00's CAD/JPY. On the way higher for DXY to 110.78, EUR/AUD broke above vital 1.4740 to trade 1.4881 highs. Next FX focus is wide range currencies EUR/AUD, EUR/NZD, GBP/AUD and GBP/NZD. AUD/USD currently trades 0.6868 Vs AUD/EUR at 0.6749 and EUR/AUD at 1.4815. Last evening at 4:00 pm EST, AUD/USD traded 0.6750 Vs AUD/EUR at 0.6754 and EUR/AUD 1.4807. As DXY dropped to assist AUD/USD higher, AUD/USD was provided further assistance to cross above AUD/EUR to trade 126 pips higher to 0.6876. NZD/USD at current 0.6138 competes with NZD/EUR at 0.6081 Vs EUR/NZD at 1.6444 as NZD/USD crossed above NZD/EUR. EUR/CAD at 1.3124 Vs CAD/EUR 0.7619 to CAD/CHF 0.7379 and CAD/USD 0.7695. Yesterday at 4:00 pm, EUR/CAD 0.7642 Vs USD/CAD 0.7640 and CAD/CHF 0.7414. Actual at 4 yesterday, USD/CAD 1.3090 Vs EUR/CAD 1.3085. CAD/GBP at 0.6623 trades above NZD/GBP at 0.5286 and AUD/GBP at 0.5909. Next week DXY at 108.00's Vs EUR/USD at 1.0000's and parity offers roughly an 800 pip spread and down from 1100 at week's beginning. Despite DXY at extreme 50 year highs and judged by wide range currency reciprocals, moves won't see violent up and down swings but rather fairly normal movements. EUR/USD is expected a close in the vicinity of 1.0052 to range next week from 0.9944 to 1.0085. EUR/USD big break for higher prices is now 1.0225. Targets next week then become 1.0154. USD/JPY target and big break is located at 141.11. USD/JPY must break 135.00's for a deeper move lower. JPY cross pairs trade severely overbought but must break for GBP/JPY is found at 162.47 and EUR/JPY at 138.59 while CAD/JPY is held higher by 104.00's, AUD/JPY at 93.00's and NZD/JPY 84.00's. Next week to short JPY cross pairs targets EUR/JPY 140'ss and GBP/JPY easily 163.00's. USD/CAD most vital is located at 1.2958 and targets 1.2834. USD/CAD broke below the 5 year average at 1.2980. DXY lower then targets USD/CAD at 400 pips from the 5 year average at 1.2563. Lower USD/CAD and DXY challenges EUR/CAD big break at 1.3245 GBP/USD trades 1.1574 to 1.1783 in wide ranges. Severely overbought EUR/NZD for lower must clear 1.6338 and not much to changes since last week. Overbought EUR/NZD continues its wide divergence to oversold GBP/NZD. GBP/CHF at 1.1200's trades a lifetime low never seen before in 69 years of trade since 1953. GBP/CHF at the 2008 crash traded 1.9948 and dropped 8700 pips or 600 pips per year.

Markets have ended the week on a firmly risk-on note, with stocks making further headway in the final session. Stocks rally to end the week “Investors have put the ECB hike and Powell’s warning about more rate increases firmly behind them, and the rally of the past two days has gathered strength. While the broader bear market most likely has further to run, it looks like the next bear market rally has also kicked into action. This provides scope for some significant short-term upside in stocks, although traders will probably only stick around for a while, and investors should be careful not to jump in too quickly or too enthusiastically.” Markets keep calm and carry on “UK investors will no doubt be feeling somewhat conflicted given the current events, and the BoE has followed the lead set by other institutions by postponing its rate increase. But otherwise it is very much business as usual, and next week will still see a significant focus on the UK with CPI and employment data, although it is unlikely to provide a real change in trend for sterling, which still looks to be on a downward path against the dollar.”

Gold failed to make a convincing move in either direction. August inflation data from the US could trigger a significant reaction. Gold’s technical outlook points to a lack of recovery momentum. Following a quiet start to the week, gold edged lower but managed to stay afloat above $1,700. With the dollar facing heavy selling pressure ahead of the weekend, XAU/USD extended its upward correction and reached a ten-day high near $1,730 on Friday. Nevertheless, the pair failed to preserve its bullish momentum and closed the week little changed below $1,720. August inflation data from the US next week could have a significant impact on gold’s valuation. What happened last week The trading action was subdued on Monday as US financial markets remained closed in observance of the Labor Day holiday. With trading volumes returning to normal levels on Tuesday, risk aversion became apparent in markets, and the dollar started to gather strength, causing XAU/USD to stretch lower. Following Gazprom’s decision to halt gas supplies to Europe late Friday, the company’s Deputy CEO Vitaly Markelov stated on Tuesday that the Nord Stream 1 pipeline will not be launched until Siemens Energy replaces the faulty equipment. Over the weekend, however, Siemens said it had not been asked to do the job and added that sanctions would not prohibit maintenance. Heightened concerns over a deepening energy crisis in the euro area provided an additional boost to the greenback. Meanwhile, the ISM reported on Tuesday that the Services PMI improved to 56.9 in August from 56.7 in July. The Employment Index returned into the expansion territory above 50 and the Prices Paid Index, the inflation component, edged slightly lower to 71.5 from 72.3. The 75 basis points (bps) Fed rate hike probability in September climbed above 70% after this data, lifting US Treasury bond yields and further weighing on gold.  The data from China showed early Wednesday that Imports and Exports both rose at a softer pace in August than expected. Although the disappointing trade figures from China forced gold to stay on the backfoot in the first half of the day, the yellow metal reversed its direction during the American session. The Federal Reserve’s Beige Book showed that US firms saw progress on labor supply and price pressure in July, causing the US Dollar Index to pull away from the multi-decade high set at 110.78. On Thursday, the European Central Bank (ECB) announced that it hiked its key rates by 75 bps as expected. ECB President Christine Lagarde adopted a cautious tone regarding future rate increases, but the 10-year US bond yield rose more than 10%, causing XAU/USD to suffer losses. In turn, XAU/USD also registered daily losses despite the greenback’s uninspiring performance. In a speech delivered on the same day, FOMC Chairman Jerome Powell reiterated that they need to act strongly on inflation and said that history cautions against prematurely loosening the policy. Nevertheless, these remarks had no lasting impact on the USD’s performance against its rivals. Ahead of the weekend, the positive shift witnessed in risk sentiment triggered a deep dollar sell-off and gold climbed to its highest level in over a week at $1,729.55. Some profit-taking toward the end of the European session, however, capped the precious metal’s gains. Next week The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) data for August on Tuesday. On a monthly basis, the CPI is expected to decline by 0.1%. The Core CPI, which excludes volatile food and energy prices, is forecast to stay unchanged at 0.3%. FOMC policymakers refrained from confirming a 75 bps rate hike in September and a soft inflation report could cause the probability of a 50 bps rate increase to rise. In that scenario, US T-bond yields are likely to fall sharply and trigger a decisive rally in gold. On the flip side, stronger-than-expected CPI prints could cement a 75 bps rate hike and not allow XAU/USD to turn north. It’s worth noting, however, that markets are already leaning toward an oversized hike, suggesting that the dollar’s potential gains could remain limited.  August Retail Sales figures will be featured in the US economic docket on Thursday, but investors are unlikely to react to these data due to the fact that they are not adjusted for price changes.  On Friday, August Industrial Production and Retail Sales data from China will be looked upon for fresh impetus. Both prints are forecast to reveal a stronger expansion than recorded in July. If these figures disappoint, gold could have a hard time finding demand, with investors losing hope for a steady recovery in gold’s demand and vice versa. Finally, the University of Michigan’s flash September Consumer Sentiment Index report will be released on Friday. Market participants are likely to pay close attention to the long-run inflation expectations component of...

EUR/USD climbs to a two-week high on Friday amid the emergence of fresh USD selling. The risk-on impulse seems to be the only factor exerting pressure on the safe-haven buck. Bets for more aggressive Fed rate hikes could limit the USD downside and cap the major. The EUR/USD pair witnessed good two-way price swings on Thursday and finally settled nearly unchanged for the day, around the parity mark. The shared currency struggled to attract buyers after the European Central Bank (ECB) delivered an unprecedented 75 bps rate hike to snuff off record high inflation. It is worth mentioning that the Eurozone CPI surged to 9.1% in August and is expected to rise to double-digits in the coming months. In the accompanying monetary policy statement, the ECB said that it expects to raise interest rates further to dampen demand. The jumbo rate hike, however, was already priced in the markets and hence, did little to provide any meaningful impetus to the shared currency. This, along with the emergence of some intraday US dollar buying, dragged the pair to the 0.9930 area. Speaking at a Cato Institute conference, Fed Chair Jerome Powell reiterated the central bank's strong commitment to bringing inflation down and warned against prematurely loosening monetary policy. Powell added that the Fed needs to keep going until it gets the job done and reaffirmed market bets for a supersized rate hike at the next FOMC meeting on September 20-21. This, in turn, triggered a fresh leg up in the US Treasury bond yields and provided a modest lift to the greenback. That said, the risk-on impulse, as depicted by a goodish recovery in the US equity markets, acted as a headwind for the safe-haven buck. Furthermore, ECB sources noted that a 75 bps hike in October remains on the table if the inflation outlook warrants an additional big step, assisting the EUR/USD pair to recover early losses. The recovery momentum extends through the Asian session on Friday and lifts spot prices to a two-week high. The USD comes under renewed selling pressure and retreats further from a two-decade high touched earlier, which, in turn, is seen pushing the EUR/USD pair higher. It, however, remains to be seen if the pair can capitalize on the move amid worries about the gas supply crisis in Europe, which could drag the region's economy faster and deeper into recession. The indefinite shutdown of the Nord Stream 1 pipeline has only raised fears of an imminent worst-case scenario, warranting some caution for bulls. Traders now look forward to ECB President Christine Lagarde's speech, the EU Economic Summit and the Eurogroup meeting for a fresh impetus. Later during the North American session, comments by Fed officials will influence the USD and produce short-term trading opportunities around the major. Technical Outlook From a technical perspective, a strength beyond the 38.2% Fibonacci retracement level of the August-September downfall might have already set the stage for additional gains. That said, any subsequent move up is likely to confront stiff resistance near the 50% Fibo. level, around the 1.0115 region. Some follow-through buying has the potential to lift the EUR/USD pair further towards the 1.0175 area, or the 61.8% Fibo. level. This is followed by the 1.0200 round-figure mark, above which spot prices could accelerate the momentum towards the next relevant hurdle near the 1.0265-1.0275 supply zone. On the flip side, weakness below the 1.0050 area (38.2% Fibo. level) could now be seen as a buying opportunity and remain limited near the parity mark. The latter nears the 23.6% Fibo. level and should act as a pivotal point for intraday traders. A convincing break below could make the EUR/USD pair vulnerable to retesting the overnight swing low, around the 0.9930 region, before eventually dropping to the 0.9900 round figure. The downward trajectory could further get extended towards a two-decade low, around the 0.9865 zone touched earlier this week, which if broken decisively will be seen as a fresh trigger for bearish traders.

EUR/USD stages a goodish recovery on Wednesday amid a sharp USD pullback from a 20-year top. Retreating US bond yields and a recovery in the risk sentiment undermined the safe-haven buck. Bulls struggle to capitalize on the move as the focus remains on the ECB meeting and Powell’s speech. The EUR/USD pair witnessed a short-covering bounce on Wednesday and rallied around 135 pips from the vicinity of its lowest level since October 2002. The strong intraday move up lifted spot prices back above the parity mark and was sponsored by a sharp US dollar pullback. Following the recent strong run-up to a 20-year peak, the USD bulls opted to take some profits off the table amid retreating US Treasury bond yields. Apart from this, a late recovery in the US equity markets further undermined the safe-haven greenback. The shared currency further drew support from mostly better-than-anticipated economic releases from the Eurozone. According to the official data released earlier this Wednesday, German Industrial Production fell by 0.3% in July against the 0.4% decline expected. Furthermore, the Eurozone GDP was revised higher to show a growth of 0.8% during the second quarter of 2022 vs. 0.6% estimated previously. Adding to this, Russian President Vladimir Putin said on Wednesday that Nord Stream 1 is practically shut down and added that we can launch Nord Stream 2 gas pipeline if necessary. This helped ease concerns about an extreme energy crisis in Europe. Furthermore, some cross-driven strength from a sharp move up in the EUR/GBP cross offered additional support to the euro. The overnight positive move could further be attributed to some repositioning trade ahead of the key central bank event risk, though lacked any follow-through. The EUR/USD pair now seems to have entered a consolidation phase and oscillated in a narrow trading band around the parity mark through the Asian session on Thursday. Investors seem reluctant and prefer to wait for the highly-anticipated European Central Bank (ECB) meeting. The ECB is widely expected to lift interest rates for the second time in as many meetings to curb stubbornly high inflation. Investors, however, remain divided over the size of the hike amid the worsening economic outlook. The market pricing, meanwhile, indicates a greater chance of a supersized 75 bps increment amid a record high annualized inflation of 9.1% for the Eurozone in August. This increases the risk of disappointment in case the ECB decides to opt for a gradual approach toward raising interest rates. Apart from the decision, the focus will be on the post-meeting press conference, where comments by ECB President Christine Lagarde should infuse some volatility around the euro crosses. Traders on Thursday will also take cues from Fed Chair Jerome Powell's speech, which should influence the USD price dynamics and provide some meaningful impetus to the EUR/USD pair. Technical Outlook From a technical perspective, the overnight breakout through an ascending trend-line resistance might have already set the stage for additional gains. Any further move up, however, is likely to confront a barrier near the 1.0050 area ahead of the 1.0080-1.0090 supply zone. Some follow-through buying beyond the 1.0100 mark will suggest that the EUR/USD pair has formed a near-term bottom and pave the way for some meaningful recovery. Spot prices might then climb to the next relevant hurdle near the 1.0165 region before aiming to reclaim the 1.0200 round figure. The momentum could further get extended, though runs the risk of faltering near the 1.0265-1.0275 resistance. On the flip side, the descending trend-line resistance breakpoint, around the 0.9960-0.9955 region, now seems to protect the immediate downside ahead of the 0.9935 area and the 0.9900 mark. This is followed by a two-decade low, around the 0.9865 zone, which if broken decisively will be seen as a fresh trigger for bearish traders. The EUR/USD pair might then turn vulnerable to slide further towards the 0.9800 round figure. Some follow-through selling below the 0.9770 region has the potential to drag spot prices further towards the 0.9700 mark en route to the 0.9620-0.9610 zone, or the August/September 2002 lows.

The ECB is expected to hike rates by 50 bps in its September meeting. Markets are wagering a 75 bps rate hike amid surging energy costs. The bank’s staff projections are in focus, with no respite seen for the EUR. After raising interest rates for the first time in over a decade in July, the European Central Bank (ECB) is set for another rate increase this Thursday, although the big question is whether the central bank will opt for 50 basis points (bps) or 75 bps hike amid record-high inflation and recession risks. The ECB will announce the interest rate decision at 1215 GMT, which will be followed by President Christine Lagarde’s press conference at 1245 GMT. The ECB remains in a tough spot The ECB finds itself in a tough spot in the last leg of the European summer. The old continent sees desperate times, in the face of rising inflation and an imminent recession. The central bank maintains its resolve to prioritize the taming of inflation even if it could mean some pain for the economy, and, therefore, is set to hike its three key interest rates by another 50 bps at this month’s monetary policy meeting. Following the Fed’s Jackson Hole Symposium and a record high annualized inflation of 9.1% for the Eurozone last month, markets priced in an 80% probability of a 75 bps increment in September. Top ECB policymakers also joined the Fed’s chorus of going in for an outsized rate hike to control raging inflation. Over the past week, however, the Russian giant Gazprom’s gas cut-off to Europe from its Nord Stream 1 pipeline has complicated the situation for the ECB. Gas prices have soared 255% in 2022 and on Monday jumped roughly 30% following the Nord Stream 1 shutdown news. The euro area is bearing the brunt of a protracted Russia-Ukraine war and the Western sanctions against Moscow. The German economy is the worst affected, with a recession imminent. Source: Reuters Amidst the deepening European gas crisis and mounting recession fears, the euro has tumbled to fresh two-decade lows below 0.9900 against the US dollar, down 13% so far this year. The rapid depreciation of the shared currency is amplifying the effects of soaring energy costs, accentuating concerns over already record-high inflation. Against this backdrop, markets remain in favor of an outsized rate hike, as bringing down inflation is likely to be of utmost priority even though controlling energy costs is out of the purview of the central bank. Markets are now wagering around a 68 bps rate hike on Thursday, given that the peripheral yields have surged this week after euro area economies issued a huge amount of bonds this week. But earlier this week, during the so-called ‘blackout period’ for the ECB, a bunch of the central bank policymakers talked up the ‘slow normalization’ process. Governing Council member Mario Centeno said that “the ECB may achieve inflation goal with slow normalization.” His colleague, Martins Kazaks, said a broad and protracted recession could slow rate hikes. Meanwhile,  fellow policymaker Yannis Stournaras noted that “Eurozone inflation is close to its peak,” hinting at a slow down in the bank’s tightening path. The ECB commentary could be seen as a deliberate attempt to temper the aggressive ECB tightening expectations. The officials spoke just a couple of days ahead of the policy announcement, implying a 50 bps hike. Investors will also closely examine the staff projections, as the ECB said that it remains data-dependent on its future rate hike outlook. The central bank’s forecast on the growth and inflation outlook will have a significant impact on the common currency. Trading EURUSD price with the ECB EUR traders are bracing for high volatility and big market impact from the upcoming ECB policy announcements, with EUR/USD meandering near 20-year troughs on the 0.9800 level. A 75 bps rate hike by the ECB could come as a surprise and offer a temporary respite to EUR/USD, as such a move is not fully priced in yet. The pair could recover the parity mark on a super-sized rate increase. Although the renewed upside in the euro is likely to remain short-lived amid the dire Eurozone economic outlook. However, if the ECB projects a recession in early 2023, then it could take the wind out of the EUR/USD recovery, smashing the price back towards the two-decade lows. The previous forecasts showed that the bank expected a 2.1% growth for this year but is likely to be revised downward this time. Meanwhile, a 50 bps rate hike could question the central bank’s commitment to fighting inflation. It could also highlight the ECB’s concerns about the risks of a deep recession. In such a case, the pair could extend the downtrend towards 0.9700, as it would widen the Fed-ECB monetary policy divergence. At...

Recent economic data paint a picture of increasing concerns about the economic outlook. In the US, high inflation and rising interest rates play a key role. In the euro area, the same factors play a role – although interest rates are still below those in the US – but skyrocketing energy prices and gas supply disruption are additional forces that should drag down growth. Easing price pressures in business surveys are a hopeful development but selling price expectations remain nevertheless exceptionally high given the weakening of order books. This could point to input price pressures that force businesses to charge higher prices to protect their margins. It is to be feared that slowing demand will make this increasingly difficult, forcing companies to cut back on investments and new hirings. The summer break is supposed to be a period of disconnecting from the economic and geopolitical news flow. The focus shifts to relaxing, food, enjoying the weather, etc. The focus of attention flips once the holidays are over. This year is no exception, rather to the contrary. The extreme conditions in many countries during the summer months – high temperatures, drought in some countries and flooding in others, forest fires – have reminded us that the impact of climate change has become all too visible and that it entails a huge cost, not only in terms of human suffering but also for the economy. Looking at the economic data, the picture that emerges is one of increasing concerns about the economic outlook. Although thus far it has been gradual, this development is likely to accelerate. Concerning the gradualism, high activity levels and well-filled order books still provide some resilience to the rising headwinds. In the US, according to the nowcast of the Federal Reserve Bank of Atlanta, recent data correspond to a healthy increase of real GDP (chart 1). Job creation remains strong, and the Conference Board’s consumer confidence index has rebounded in August. However, signs of slowdown are growing. Households suffer from high inflation, giving rise to a big increase in credit card balances1. Activity in the housing sector is suffering from the rise in mortgage rates, the pace of hiring is slowing, and new vacancies are down. The surveys of the regional Federal Reserve banks points toward a more cautious stance of companies in terms of capital expenditures. This is unsurprising considering that 81% of CEOs contacted by the Conference Board expect a brief, shallow recession in the US over the next 12 to 18 months2. Domestic demand growth will slow down further under the influence of Federal Reserve rate hikes, whereas net exports should suffer from the strong dollar and the slowdown in the rest of the world. Chinese growth, after a slow rebound since late spring, has disappointed again in July and downside risks remain high. In the euro area, like in the US, a distinction should be made between the activity level and its change. In manufacturing, the duration of production that is assured by current order books remains at a record high level (chart 2) but the assessment of orders books has seen two large drops in a row. Employment expectations have also declined in recent months but remain in the upper end of the historical range (chart 3). Based on the shocks hitting the euro area economy – high inflation, the jump in gas and electricity prices, the weakening of the euro, rising interest rates, the shutoff of Russian gas supply – business sentiment is expected to weaken further, which should weigh on the hiring intentions and investment projects of companies. As has been the case historically, this should be followed rapidly by rising unemployment expectations of households. Thus far, elevated inflation has been the key factor behind the drop in consumer confidence to historically low levels. Fears about job losses would make matters worse for consumer spending. A decline in inflation would bring some relief for households’ purchasing power, but the latest energy price shocks should delay the peak in inflation and slow down its subsequent decline. Easing price pressures in business surveys are a hopeful development. As shown in chart 4, the assessment of order books has declined and so have the selling price expectations. However, the latter remain exceptionally high given the situation with respect to the former. This could reflect input price pressures that force businesses to charge higher prices to protect their margins. It is to be feared that slowing demand will make this increasingly difficult, forcing companies to cut back on investments and new hirings. Download The Full Eco Flash

Liz Truss’ pledge to freeze energy costs brings optimism on her first day, while the Nasdaq underperforms despite stronger service PMI data. Liz Truss energy plans bring hope that inflation can be brought under control “The pound has outperformed many of its peers today, with Liz Truss delivering a much-anticipated shock and awe announcement aimed at bringing energy prices under control. In a week that is dominated by central bank announcements from the RBA, BoC, and ECB, it should be noted that monetary policy’s ability to bring inflation under control in the face of weakening currencies and soaring energy prices is somewhat limited. The decision to freeze UK energy prices ahead of next month’s widely anticipated spike will arguably provide a greater impact on inflation expectations than a 75bp hike in interest rates. The dramatic Covid spending package enacted under Rishi Sunak looks to be just the beginning, with this package costing up to £130 billion over the coming 18 months. For the near-term this seems and effective way to bring greater certainty and relieve the pressure on the Bank of England, but the long-term consequence will undoubtedly result in another pile of debt that will ultimately need paying through higher taxes.” US services jobs remain strong as PMI highlights continued growth “A belated start to the week for US markets has brought fresh losses at the open, with growth names driving underperformance for the Nasdaq. Today’s ISM services PMI reading brought plenty of grounds for optimism, with a surprise rise accompanied by a declining price growth, rising employment growth, and particular strength for new orders. With 83% of Friday’s 315k payrolls reading coming from the private services sector (263k), there is no doubt that rising prices are yet to stifle employment in the critical segment of the economy. ”

EUR/USD hits a fresh two-decade low and is pressured by a combination of factors. Russian gas cut stokes recession fears and weighs heavily on the shared currency. Hawkish Fed expectations continue to underpin the USD and contribute to the fall. The EUR/USD pair opens with a modest bearish gap on the first day of a new week and drops to its lowest level since December 2002, below the 0.9900 mark during the Asian session. Russia's indefinite closure of its main gas supply pipeline stokes fears over a worsening energy crisis in Europe and weighs on the shared currency. Hours after the Group of Seven leaders agreed to implement a price cap on Russian oil, Gazprom cancelled the resumption of gas flows through the Nord Stream 1 pipeline citing an oil leak in a turbine. This, in turn, fuels worries about a potential economic recession in the Eurozone, which, along with a stronger US dollar, exerts downward pressure on the major. The USD Index, which measures the greenback's performance against a basket of currencies, rose to its highest level since late 2002 and remains well supported by hawkish Fed expectations. Despite Friday's mixed US monthly jobs report, investors seem convinced that the US central bank will stick to its aggressive policy tightening path. The headline NFP showed that the US economy added 312K jobs in August, better than the 300K anticipated. This, however, marked a notable slowdown from the previous month's downwardly revised reading of 526K. Moreover, the US unemployment rate unexpectedly rose to 3.7% from 3.5% in July and Average Earnings growth slowed to 0.3% from 0.5% in the previous month. Nevertheless, the markets are still pricing a greater chance of a supersized 75 bps rate hike at the September FOMC meeting. This, in turn, remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback. The fundamental backdrop supports prospects for extending the recent bearish trend, though a combination of factors might help limit losses for the EUR/USD pair. Relatively lighter trading volumes on the back of the US Labour Day holiday should keep traders from placing aggressive bearish bets. Furthermore, calls for an unprecedented jumbo 75 bps interest rate hike by the European Central Bank could lend some support to the common currency. Hence, investors might prefer to move on the sidelines ahead of the key central bank event risk - the ECB policy decision on Thursday. Nevertheless, the path of least resistance for the major is to the downside and any attempted recovery would still be seen as a selling opportunity. Technical Outlook From a technical perspective, the EUR/USD pair is flirting with descending trend-line support extending from mid-July. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for additional losses. Spot prices might then accelerate the fall towards the next relevant support near the 0.9850-0.9845 zone before eventually dropping to the 0.9800 round figure. On the flip side, the 0.9930-0.9935 region now seems to be an immediate hurdle. Any further move up runs the risk of fizzling out rather quickly near the parity mark. That said, sustained strength beyond might trigger a short-covering bounce towards the 1.0050-1.0055 supply zone, above which the EUR/USD pair could reclaim the 1.0100 mark. Some follow-through buying will suggest that spot prices have bottomed out and set the stage for a move towards the 1.0150-1.0155 intermediate hurdle en route to the 1.0200 round figure and the 1.0260-1.0270 resistance.

Investors appear relatively pleased with the jobs report despite some initial choppy trade following the release. The headline NFP figure was a little larger than expected at 315,000 which may have created that initial unease as a knockout report could have effectively paved the way for a 75 basis point rate hike this month. But once you dig a little deeper, there are aspects of the report that will please the Fed and support the case for easing off the brake. While we can't put too much weight on one report, a surprise spike in participation from 62.1% to 62.4% will undoubtedly be welcomed, lifting unemployment to 3.7% from 3.5% along with it. As will hourly earnings rising by 5.2% against expectations of a small increase to 5.3%. All of this will be a relief to policymakers but I'm not sure it will be enough to change their minds at this point. There's been such an effort to put 75 basis points on the table in recent weeks, to change their mind on the back of this would seriously undermine their guidance in future. If paired with another decent drop in inflation in a couple of weeks, more may be convinced. We're seeing some relief in equity markets after what has been a pretty dire week until now. US futures have added half a percent since the release while the dollar and US yields are slightly lower, albeit after some very choppy trade initially. Gold is breathing a huge sigh of relief, up around 0.75% on the day, with $1,680 support potentially safe for now. This is a really significant area of support for the yellow metal and while it didn't get too close on this occasion, a move below could see gold trading at two-year lows which could be a major blow. Bitcoin is another instrument that is displaying some relief having spent the week desperately defending $20,000 support. The report isn't enough in itself to overly excite traders, not even the crypto crowd I would have thought, but it could reinforce that support which is important. A break of $20,000 could be painful for bitcoin and today's data may enable it to hold above here for a while longer yet.