Today, flash estimates for 2Q GDP growth in the Eurozone countries were released. The EZ surprised markets with strong q/q momentum of +0.7% (1Q: +0.5%), despite inflationary pressures and global uncertainty. Compared to the previous year, 2Q GDP growth was a solid +4.0% (1Q: +5.4%). Top performers included Italy and Spain. Austria also surprised positively. The International Monetary Fund (IMF) has revised its growth forecasts significantly downwards. The IMF now expects global growth of +3.2% (-0.4 pp compared to April) in 2022 and +2.9% (-0.7 pp compared to April) in 2023. The revisions for China and the US are the main drivers of lower global growth expectations. View the full report here

GDP yesterday reported -0.9, we had -1.0 and the Atlanta Fed -1.2. By the data, it was clear the Atlanta Fed was off its forecast. Not that it matters as the currency and market price would've traded to the exact same levels despite the variation to GDP forecasts. The laugh to the forecast is 12 numbers were required and voila, -1.0 was done. Anybody could've performed the same quick operation and found -1.0. Anybody today can factor the new GDP averages and find the next GDP release. Nothing will change in 3 months. The GDP and any economic release is a stand alone entity and factors by itself. The only difference between today and yesterday is a slight change to the averages. And the change is very slight. The 1 year average at 1.04 should drop so the forecast in turn should also drop for the next quarter. NFP is coming and NFP as a stand alone release factors the exact same as GDP averages. The only difference is NFP contains different numbers than GDP. See my blog at btwomey.com for many. many past NFP forecasts. Also see my blog as posted Sunday was weekly levels for 20 currency pairs. Currency markets next week focus is on the big MA break to MA points and terrific movements. Market prices brought us to the brink as markets are known to perform time and time again. USD/JPY is the main focus as 132.36 is here to change the entire USD/JPY trajectory from longs to shorts. JPY cross pairs EUR/JPY broke lower yesterday at 137.88 and now trades 135.00's. GBP/JPY broke below 162.72. NZD/JPY broke below 83.95. AUD/JPY and CAD/JPY are hold outs at 92.45 and 102.96 for CAD/JPY. EUR/USD has a long way to go before 1.0439 breaks higher. Monitor bottoms to EUR/USD by EUR/CHF current 0.9736 and big break for higher at 1.0034. Also USD/CHF at current 0.9515 and big break at 0.9619. Overall EUR/USD trades 1.0439 to 1.0034 and USD/CHF 0.9619. GBP/USD 1.2321 waits fo higher GBP. GBP/CAD is oversold from 1.5826. Recall FX weekly and higher for GBP/CAD. GBP/CAD traded 200 pips higher this week. GBP/NZD remains a problem pair and GBP/AUD trades at the mercy of AUD/USD. Overbought AUD/USD big break is located at 0.6992. NZD/USD 0.6354 waits to trade higher. Oversold EUR/CAD at week's beginning traded 200 pips higher and remins deeply oversold. USD/CAD 1.2852 for higher. Higher is guaranteed if CAD/JPY breaks below 102.96. EUR/AUD trades massively oversold and good longs for next week. From 1.4500;s, good target is 1.4700's. EUR/AUD is the best trade against GBP/AUD and EUR/NZD better than GBP/NZD. Severely overbought AUD/EUR explains AUD/USD to break 0.6992. DXY 106.50's for higher to target 107.00's. Gold/silver ratio Currencies for 2000 years are characterized either as Gold or Silver currencies and the connection was established in antiquity. The connection in the modern day can't ever change. Silver currencies are the lesser valued 0 point currencies. Asia, central and South America are classified as Silver currencies. Mexico is a Silver Currency. USD, Europe and Canada are Gold Currencies and classified by their 1.0 exchange rate designation. If the Gold/Silver ratio is high or at a vital level then the effect is seen from Gold Currencies as Gold currencies will also trade at a vital MA point. Gold on its best days over the past 3 and 4 weeks traded 30 ish points while EUR/USD traded 100 ish pips and a difference of 70 ish points. Silver traded 1 point yesterday Vs  120 pips for JPY/USD 0.7545 to 0.7424. Weekly Silver traded 2 points from 20.22 to 18.21 vs JPY/USD 276 pips from 0.7545 to 0.7269. For every 1 point traded in Silver, JPY/USD trades 100 ish pips. Best to convert exchange rates to work with smaller numbers. Gold and EUR/USD work the exact same as Silver to Silver currencies such as JPY/USD. Roughly 30 points to Gold trades 100 ish pips for EUR/USD. Not much will ever change in the Silver Vs Silver currency ratios nor Gold to Gold Currencies as the relationhsips were established 2000 years ago. If the Gold /Silver ratio relationship is extremely low to Silver then Silver currencies go long as all are oversold. If Gold is high then short Gold Currencies as Gold currencies are overbought. 

Bank of England meeting – 04/08 – having seen the Federal Reserve hike rates by 75bps last week, the pressure is on the Bank of England to at least follow with a bumper rate hike of its own. Since the Bank of England was given its independence the Monetary Policy Committee has never raised rates by more than 25bps, while they’ve never been slow to cut them by much more than 25bps increments. This appears to speak to the conservative nature of the central banks mindset, and thus makes it difficult to move out of that narrow way of thinking. With inflation now at 9.4% and at the Bank of England’s own admission set to go as high as 11% the central bank is running out of excuses not to hike in a more aggressive fashion. With industrial action now part of the background noise, wage growth is likely to remain well underpinned over the coming months. At its June meeting the MPC once again issued a baffling statement of intent over its response to inflationary pressure. They said that they would act “forcefully” on inflation if necessary, following it up by saying they expect inflation to peak at an eye watering 11% by year end, an upgrade from its previous 10%, thus begging the question as to what level of inflation would justify a bigger hike? Sadly, this sort of mixed messaging isn’t a new thing from the Bank of England, his predecessor Mark Carney was famously named “the unreliable boyfriend” however it has got even worse under the stewardship of Andrew Bailey. While the central bank’s flakiness is nothing new to those who have been following its communications in the City of London, it has now attracted the ire of senior politicians. While this isn’t a particularly welcome development, its not altogether surprising, given recent events. There is no question the Bank of England, as do all other central banks, have a thankless task in these difficult times, however to some extent they are authors of their own misfortune, with a complete inability to admit their mistakes. This continues to happen now, with decisions being taken with a very narrow focus. If the Bank of England wants to prevent its mandate being questioned further it could start by doing its job, and stop lecturing the rest of us on whether to ask for a wage rise. This week the Bank of England will also be coming out with a new set of economic projections, and while a 25bps rate rise is the least we can expect, there’s also a good chance the Bank of England will make history and move by 50bps. US non-farm payrolls (Jul) – 05/08 – the June payrolls reports posed more questions than answers when it was released a month ago, even though it was the weakest number this year at 372k. It was still much higher than expected with the unemployment rate steady at 3.6%. Wages growth remained steady at 5.1%, while the May numbers were revised up to 5.3%, however the fall in the participation rate to 62.2% was puzzling. With wages rising at a slower rate than inflation, and vacancies at record levels this ought to be going the other way but isn’t. With the US labour market still looking solid we are now starting to see evidence of weakness in the services sector, while weekly jobless claims have been rising steadily for three months now, and are back above 250k, having hit a 50 year low of 167k back in April. The rise in jobless claims appears to be the first sign the US labour market is showing signs of weakness even if this isn’t being reflected in the actual numbers. July payrolls is expected to see 250k jobs added, which coincidentally was the forecast for June which was beaten quite comfortably. The headline numbers are of lesser importance than the wages numbers which are expected to remain steady at or around 5%. Global Services PMIs (Jul) – 03/08 – the most recent flash PMI numbers for Europe and the US showed a sharp drop-in economic activity in July raising concerns that the increase in energy, as well as food prices is starting to act as a brake on consumption. In Germany, as well as the US we saw sharp drops into contraction territory, although France managed to stand out with a slightly better performance, although this could be because the French government is insulating the French consumer from the worst of the energy price spike. The UK is looking slightly more resilient however even here the economy is facing challenges as orders start to show signs of slowing. RBA rate meeting – 02/08 – having hiked rates by 50bps for two meetings in a row, the RBA is expected...

The coming week is shaping up to be another crucial one for gauging recession risks and monetary policy paths. It’s NFP week in the United States and the RBA and Bank of England will decide whether to accelerate their hiking cycles. The ISM PMIs are bound to attract a lot of attention as well in the US as growth concerns intensify. Elsewhere, employment figures in Canada and New Zealand, and manufacturing PMIs out of China will be the highlights. Meanwhile, a meeting of OPEC+ countries might yet result in a decision to produce more oil.

Gold closed the second straight week in positive territory. Falling US T-bond yields helped XAUUSD gather bullish momentum. Additional gains are likely in case buyers clear $1,780 resistance. Following a consolidation phase above $1,700 at the beginning of the week, gold gathered bullish momentum and climbed to its highest level since early July above $1,760. Although the yellow metal lost its bullish momentum on Friday, it managed to close the second straight week in positive territory. The near-term technical outlook points to a bullish tilt and XAUUSD looks to extend its recovery ahead of the July jobs report from the US. What happened last week? The data from the US fueled recession fears earlier in the week but investors refrained from taking large positions ahead of the US Federal Reserve’s policy announcements. The headline General Business Activity Index of the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey dropped to -22.6 in July from -17.7 in June. On Tuesday, the Conference Board (CB) reported that the Consumer Confidence Index declined to 95.7 from 98.4 in June. “Inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months,” the CB noted in its publication. The US Census Bureau announced on Wednesday that Durable Goods Orders rose by 1.9% on a monthly basis in June, coming in much better than the market expectation for a decrease of 0.4%. On a negative note, Pending Home Sales fell by 8.6% in the same period, compared to analysts’ forecast for a decline of 1.5%. The Fed hiked its policy rate by 75 basis points (bps) to the range of 2.25-2.5% following the July policy meeting as expected. During the press conference, FOMC Chairman Jerome Powell said that they will not be providing any rate guidance from now on. "Our thinking is that we want to get to a moderately restrictive level by end of this year," Powell noted. "That means 3% to 3.5%." These comments triggered a dollar sell-off and weighed heavily on US Treasury bond yields, providing a boost to XAUUSD mid-week. Following the Fed event, the probability of a 75 bps rate hike in July dropped to 20% from nearly 50% in the previous week. Additionally, the US Bureau of Economic Analysis’ (BEA) advanced estimate revealed that the US economy contracted at an annualized pace of 0.9% in the second quarter, missing the market forecast for an expansion of 0.5% by a wide margin. The benchmark 10-year US T-bond yield lost nearly 5% in the second half of the day as investors continued to scale down hawkish Fed bets.  The BEA's monthly publication showed on Friday that inflation in the US, as measured by the Personal Consumption Expenditures (PCE) Price Index, climbed to 6.8% on a yearly basis in June from 6.3% in May. The Core PCE Price Index, the Fed's preferred gauge of inflation, rose to 4.8% from 4.7% in the same period. The dollar staged a rebound on hot inflation data and capped gold's upside ahead of the weekend. Next week On Monday, the ISM Manufacturing PMI data from the US will be watched closely by market participants. In case this print arrives below 50, the USD is likely to have a difficult time finding demand. On the other hand, an upbeat reading by itself might not be enough for investors to reassess the Fed’s rate outlook. The ISM will also release the Services PMI report on Wednesday. The S&P Global’s Services PMI fell to 47 in July’s flash estimate from 52.7 in June, pointing to a contraction in the service sector’s business activity. The dollar weakened against its major rivals after this data and a similar market reaction could be witnessed if the ISM’s Services PMI falls into the contraction territory.  Finally, the US Bureau of Labor Statistics will publish the July jobs report on Friday. Nonfarm Payrolls (NFP) are expected to rise by 260,000 following June’s better-than-forecast increase of 372,000. The Unemployment Rate is seen to remain steady at 3.6%. When commenting on the labor market, Powell said that it was extremely tight and said that the job growth was still robust. "Overall labor market suggests underlying aggregate demand remains solid,” the Chairman added. Although the US central bank acknowledges the slowdown in economic activity, it remains committed to fighting inflation as long as the job market remains healthy. Hence, the market reaction should be pretty straightforward with an upbeat NFP print providing a boost to the dollar and vice versa. Investors will also pay close attention to Fed officials’ comments throughout the week. The fact that there is still a 20% probability of a 75 bps rate hike suggests that the dollar has more room on the downside if markets end up fully pricing in...

EUR/USD reversed modest intraday losses on Thursday amid the emergence of fresh USD selling. A technical recession in the US reaffirmed a gradual Fed rate hike path and weighed on the USD. The European gas crisis acted as a headwind for the euro and kept a lid on any meaningful upside. Investors now look forward to important Eurozone macro data and the US PCE for a fresh impetus. The EUR/USD pair witnessed good two-way price moves on Thursday and the intraday volatility was sponsored by a combination of factors. The shared currency was weighed down by worries that a halt of gas flows from Russia could trigger an energy crisis in the Eurozone. In fact, the Russian state-controlled energy giant Gazprom said on Wednesday that natural gas deliveries to Germany via the Nord Stream 1 pipeline have been cut further to 20% of capacity. The pipeline operator had announced the first reduction on Monday to 40% citing a missing turbine. Apart from this, political instability in Italy - ahead of elections in September - added to concerns about the regions economic outlook and further undermined the euro. That said, the emergence of fresh US dollar selling assisted the pair to recover intraday losses and settle nearly unchanged for the day. The USD struggled to capitalize on its modest intraday gains and met with a fresh supply following the disappointing release of the Advance US Q2 GDP report. According to the first estimate released by the US Bureau of Economic Analysis, the world's largest economy contracted by 0.9% annualized pace during the April-June period. The reading was worse than the 0.4% rise estimated and comes on the back of a 1.6% decline in the previous quarter, confirming a technical recession. Against the backdrop of Wednesday's less hawkish FOMC, a shrinking US economy reinforced expectations that the Fed would not raise interest rates as aggressively as previously expected. This was evident from a steep decline in the US Treasury bond yields. This, along with a strong follow-through rally in the US equity markets, exerted additional downward pressure on the safe-haven greenback. The USD selling bias remains unabated through the Asian session on Friday and continued lending support to the EUR/USD pair. Spot prices, however, lack bullish conviction, warranting some caution before positioning for any further appreciating move. Market participants now look forward to a rather busy economic docket, featuring the release of the preliminary estimates of the second quarter GDP from the Eurozone, Germany, France, Italy and Spain. Apart from this, the flash version of the Eurozone consumer inflation figures would influence the common currency. Later during the early North American session, traders would take cues from the US Personal Consumption Expenditures (PCE report) - the Fed preferred inflation gauge. A flurry of important macro data should infuse a fresh bout of volatility in the markets and provide a fresh impetus on the last day of the week. Technical Outlook From a technical perspective, spot prices, so far, have struggled to confirm a breakout through the top end of a short-term descending trend channel. This makes it prudent to wait for sustained strength beyond the 38.2% Fibonacci retracement level of the 1.0787-0.9952 downfall, around the 1.0270-1.0280 region, before placing fresh bullish bets. Some follow-through buying beyond the 1.0300 mark would be seen as a fresh trigger for bulls and pave the way for additional gains. The EUR/USD pair could then surpass an intermediate resistance near the 1.0365-1.0370 region, or the 50% Fibo. level, and aim to reclaim the 1.0400 mark. The momentum could further get extended towards the 50-day SMA resistance, currently near the 1.0425 region, en-route the 61.8% Fibo. level, around the 1.0470 zone. On the flip side, the 1.0100 psychological mark, nearing the weekly low, now seems to have emerged as immediate strong support. A convincing break below would shift the bias back in favour of bearish traders and make the EUR/USD pair vulnerable. Spot prices could then accelerate the fall towards retesting the parity mark before eventually dropping to challenge the YTD low, around the 0.9950 region touched earlier this month.

EUR/USD - 1.0181 Despite euro's erratic fall from last Thurday's 2-week high of 1.0278 to retrace rise from July's 20-year bottom at 0.9953 to 1.0097 in post-FOMC, subsequent rally on broad-based usd's weakness due to less hawkish comments by Fed's Powell suggests pullback possibly over, above 1.0257 would yield stronger gain to 1.0295/00. On the downside, only below 1.0150/55 would risk another fall towards 1.0097. Data to be released on Thursday: Australia retail sales, export prices, import prices. France producer prices, Italy industrial sales, trade balance, EU business climate, economic sentiment, industrial sentiment, services sentiment, consumer sentiment, Germany CPI. US GDP, PCE prices, initial jobless claims, continuing jobless claims, KC Fed manufacturing and Canada average weekly earnings.  

The US economy is expected to have grown a modest 0.4% in the second quarter. A second consecutive negative reading will indicate the US is in a recession. USD strength or weakness will be directly linked to the market sentiment. The US will publish the preliminary estimate of the second quarter Gross Domestic Product on Thursday, July 28. The economy is expected to have grown at an annualized pace of 0.4%, improving from a 1.6% decline in Q1. Macroeconomic data, however, points to heightened downward risks for the economy, particularly figures linked to the last half of the quarter, as spending retreated sharply. A negative figure will mean the US is in a technical recession, defined as two consecutive quarters with negative GDP readings. Following the first year of the pandemic, global economies bloomed. The US expanded substantially throughout 2021 but lost momentum by the end of the year. Supply-chain issues and bottlenecks were initially blamed for the slowdown, alongside shocking spending that led to higher inflation. Central bankers were expecting the latter to be temporary, realizing too late that they missed big. Nor did they foresee Russia’s decision to invade Ukraine and create a global energy and food crisis would go on to fuel price pressures. Central banks rushed into quantitative tightening, but things are getting no better. Inflation among developed economies keeps reaching multi-decade highs while business activity shrinks. Short-lived hopes? In this scenario, there is a small chance the US economy would expand modestly in the second quarter of the year. Maintaining growth in the third quarter of the year, however, seems unlikely. Treasury Secretary Janet Yellen said the country is not in a recession but in “a period of transition in which growth is slowing.” “A recession is a broad-based contraction that affects many sectors of the economy. We just don’t have that,” she added. And indeed, some sectors of the economy are doing well. Job creation has been robust in the last two years, while business activity decelerated but remains in expansionary territory. A figure signaling growth will indicate the US is skipping a recession, but any number below 1% will bring little relief to those concerned about the economic slowdown. Rather it will just buy a bit more time. USD possible scenarios Generally speaking, the dollar has more chances of appreciating in a risk-averse environment than falling amid poor local data. The EUR is the greenback’s weakest rival as local turmoil caps demand. Should the dollar surge, selling EUR/USD seems the best choice. The Swiss Franc, the British Pound and the Australian dollar are at the other end of the range. A falling dollar plus resurgent stocks will make AUD/USD the preferred choice, while, in the case stocks fall, eyes should turn to CHF and GBP.

The US Federal Reserve has raised rates by 75 bps as expected to around 2.50%. An acknowledgment of some softening has been balanced by comments about a strong economy.  Fed Chair Powell has dropped guidance, moving to a meeting-by-meeting basis. Markets cheer lower chances of tougher policy, and it may prove short-lived.  "We think it's time to go to a meeting-by-meeting basis" – investors have seen this key quote as lowering the chance for yet another 75 bps rate hike in September. Markets are up, the dollar is down. Federal Reserve Chair Jerome Powell has also skipped a chance to push back against market expectations for rate cuts next year.  Is this rally justified? Another quote by Powell, that the Fed is looking for "compelling evidence that inflation is falling" may be interpreted as the Fed is in search for an excuse to slow down. It seems markets were on a quest to take profits on dollar longs, and for a "buy the dip" reaction in markets. However, it may prove short-lived. After the Fed raised rates by 75 bps as expected, it only provided token acknowledgement of some moderation in economic activity: However, it is followed by the word "nonetheless" and then talk about economic strength: Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Moreover, a meeting-by-meeting basis also leaves room for nasty upside surprises in inflation and further strong job reports. The current repricing of September's rate hike seems premature. There are two inflation reports and two Nonfarm Payrolls ones ffrom now unitl the next Fed meeting on September 21.  Being more data dependent means more market volatility – and that can go both ways.  Perhaps the first sign of weakness would come from weekly jobless claims. An increase to above 300,000 would lower Fed expectations and push the dollar further down. However, while that isn't happening, the upcoming inflation report could send the dollar skyrocketing.  All in all, the current swing could be premature. 

The US Federal Reserve has raised rates by 75 bps as expected to around 2.50%. An acknowledgment of some softening has been balanced by comments about a strong economy.  Fed Chair Powell has dropped guidance, moving to a meeting-by-meeting basis. Markets cheer lower chances of tougher policy, and it may prove short-lived.  "We think it's time to go to a meeting-by-meeting basis" – investors have seen this key quote as lowering the chance for yet another 75 bps rate hike in September. Markets are up, the dollar is down. Federal Reserve Chair Jerome Powell has also skipped a chance to push back against market expectations for rate cuts next year.  Is this rally justified? Another quote by Powell, that the Fed is looking for "compelling evidence that inflation is falling" may be interpreted as the Fed is in search for an excuse to slow down. It seems markets were on a quest to take profits on dollar longs, and for a "buy the dip" reaction in markets. However, it may prove short-lived. After the Fed raised rates by 75 bps as expected, it only provided token acknowledgement of some moderation in economic activity: However, it is followed by the word "nonetheless" and then talk about economic strength: Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Moreover, a meeting-by-meeting basis also leaves room for nasty upside surprises in inflation and further strong job reports. The current repricing of September's rate hike seems premature. There are two inflation reports and two Nonfarm Payrolls ones ffrom now unitl the next Fed meeting on September 21.  Being more data dependent means more market volatility – and that can go both ways.  Perhaps the first sign of weakness would come from weekly jobless claims. An increase to above 300,000 would lower Fed expectations and push the dollar further down. However, while that isn't happening, the upcoming inflation report could send the dollar skyrocketing.  All in all, the current swing could be premature. 

A combination of factors dragged EUR/USD to over a one-week low on Tuesday. The European gas crisis weighed heavily on the euro amid resurgent USD demand. The downside remains cushioned ahead of the highly anticipated FOMC decision. The EUR/USD pair witnessed aggressive selling on Tuesday and tumbled nearly 150 pips from the daily swing high, around mid-1.0200s. The sharp intraday fall dragged spot prices to over a one-week low and was sponsored by a combination of factors. The shared currency was weighed down by renewed worries over a halt of gas flows from Russia, which could trigger an energy crisis in the Eurozone. In fact, Gazprom announced that the flow through Nord Stream 1 will be cut to 20% of capacity in the next day or two, for an indeterminate time. Though temporary, the supply reduction could drag the region's economy faster and deeper into recession. Apart from this, resurgent US dollar demand exerted additional downward pressure on the major. The prospects for a global economic downturn continued weighing on investors' sentiment, which was evident from the prevalent risk-off environment. This, in turn, assisted the safe-haven USD to stage a solid rebound from the vicinity of its lowest level since July 5 touched the previous day. Apart from this, a late pickup in the US Treasury bond yields further underpinned the greenback and helped offset mostly disappointing US macro data. The Conference Board's US Consumer Confidence Index fell for the third consecutive month and came in at 95.7 in July, missing estimates. Adding to this, New Home Sales fell 8.1% in June and overshadowed the Richmond Fed Manufacturing Index, which unexpectedly bounced to 0 in July from -11 in the previous month. The overnight USD move up, however, lacked follow-through amid uncertainty over the Fed's tightening path, which, in turn, offered some support to the EUR/USD pair during the Asian session on Wednesday. The recent softer US economic releases have forced investors to scale back their expectations for more aggressive rate hikes by the US central bank. Hence, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced later during the US session. The Fed is widely expected to raise interest rates by 75 bps and leave the door open for further hikes. This, along with Fed Chair Jerome Powell's remarks at the post-meeting presser, would influence the USD and provide a fresh impetus to the major. Heading into the key central bank event risk, traders might take cues from the US Durable Goods Orders data. Apart from this, the US bond yields and the broader market risk sentiment will drive the USD demand, which, in turn, should allow traders to grab short-term opportunities around the EUR/USD pair. The fundamental backdrop, however, seems tilted in favour of bearish traders, suggesting that any intraday move could be seen as a selling opportunity. Hence, it would be prudent to wait for strong follow-through buying before positioning for an extension of the recent recovery from the lowest level since December 2002 touched earlier this month. Technical Outlook From a technical perspective, spot prices, so far, have struggled to break through a resistance marked by the top end of a short-term descending trend channel. Furthermore, repeated failures near the 38.2% Fibonacci retracement level of the 1.0787-0.9952 downfall suggest that the recent recovery move might have already run out of steam. Some follow-through selling below the 1.0100 round-figure mark would reaffirm the negative bias and make the EUR/USD pair vulnerable to retesting the parity mark. The downward trajectory could further get extended and force spot prices to challenge the YTD low, around the 0.9950 region. On the flip side, the 1.0180 region, followed by the 1.0200 mark should now act as an immediate hurdle ahead of the aforementioned descending channel resistance. The latter is currently pegged near the 1.0215-1.0220 supply zone, which if cleared could lift the EUR/USD pair back towards the 38.2% Fibo. level, around the 1.0275-1.0280 region. Sustained strength beyond, leading to a subsequent move above the 1.0300 mark, would be seen as a fresh trigger for bulls. Spot prices could then accelerate the momentum and aim to reclaim the 1.0400 round figure.

The US Federal Reserve is set for another 75 bps rate hike on July 27. Fed Chair Powell's pledge to fight persistenly high inflation and policy guidance hold the key.  The US dollar is basing to kickstart a fresh rally towards a two-decade high. Despite an imminent technical recession in the US, the Federal Reserve (Fed) is determined to deliver another super-sized rate hike when it concludes its two-day policy meeting on July 27. Fed Chair Jerome Powell’s response to fighting inflation will be closely examined alongside the policy guidance for the September meeting. Inflation peaking, not so far After announcing the largest rate hike since 1994 in June, the Fed is set for the second consecutive 75 bps rate hike at its July policy meeting, lifting the federal funds rate range to between 2.25% and 2.5%. In doing so, the world’s most powerful central bank will be effectively ending the pandemic-era support for the US economy. Markets are wagering a roughly 80% chance of another 75 bps rate hike by the Fed this month when compared to a 20% likelihood of a full percentage-point rise, per CME’s Fed Watch Tool. The odds of a 100 bps rate hike at the July meeting had jacked up to over 95% after the US inflation came in hotter than expected in June. Surging gas, food and rent costs catapulted US inflation to a new four-decade peak in June, which arrived at 9.1% YoY, much higher than May’s 8.6% jump. On a monthly basis, prices rose 1.3% from May to June, another substantial increase, after prices had jumped 1% from April to May. The inflation scorcher squashed expectations of peaking consumer prices and bolstered the bets for a 1% hike in rates. At the June post-policy meeting press conference, Powell acknowledged that the rise in the University of Michigan’s five year ahead five-year inflation expectations from 3.0% in May to 3.3% in June was the main reason behind the central bank’s bigger rate hike. However, the June number was revised down to 3.1%, while the Fed’s closely-watched inflation measure fell to 2.8% in July, its lowest in one year. Further, Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostic said that they favor a 75 bps rate hike at the upcoming July meeting. For a potential 100 bps Fed lift-off, Waller said the market is “getting ahead of itself.” These factors, subsequently, watered down expectations for a full percentage point increase. With a 75 bps rate hike fully baked in, all eyes remain on Powell’s commitment to curbing inflation even with an increased risk of tipping the economy into a mild recession. That said, Powell’s rate hike guidance for the September meeting and beyond will hold utmost significance, in absence of any updated projections at the July meeting. Source: CMEGroup The CME FedWatch Tool now shows the probability of a 75 bps September rate increase at a coin flip level while that of a 50 bps move stands at 49%. Meanwhile, money markets are pricing in an 83.4% chance that the target rate range will climb to between 3.25% and 3.5%, or higher by the end of 2022. Powell could afford to pre-commit a 75 bps rate hike for September, given that the US labor market remains in a healthy condition.  The US economy added 372,000 jobs in June, exceeding economists’ estimates for 250,000 jobs. The US unemployment rate held steady at 3.6%, while the labor participation rate ticked slightly down to 62.2%. However, signs of peaking inflation could be the only risk, at the moment, which could dissuade the Fed from committing to larger rate hikes going forward. The Fed is ready to tolerate a weaker growth outlook so long as the inflation monster is controlled. Trading the US dollar with the Fed announcement The US dollar index is trying to find a base just above the 106.00 level after the recent correction from a two-decade top of 109.29. The benchmark 10-year US Treasury yields are holding near two-month lows, as a recession and a 75 bps July rate hike are fully priced in by the market. Therefore, the dollar, as well as, the yields need Powell to leave doors open towards a bigger than 50 bps rate hike for September to keep its commitment to fighting rising prices. Technically, the dollar gauge (DXY) has been gathering support just above the 61.8% Fibonacci Retracement level of the latest upsurge to over twenty-year highs, which is aligned at 105.90. Hawkish policy guidance from Powell will revive the bullish interest in the dollar, breaking the index from its previous week’s range to recapture the 107.50 barrier.    The abovementioned critical 61.8% Fibo support could cave in if the Fed acknowledges signs of peak inflation and/or hints at slowing down on its tightening path...