major currencies

Australia posts strong trade surplus US ADP employment surprises with massive gain US unemployment claims and ISM Services PMI will be released later on Thursday Thursday has been a busy day for AUD/USD. The Australian dollar rose after a strong Australian trade balance report but has reversed directions following a sparking US ADP employment release. In the North American session, AUD/USD is trading at 0.6639, down 0.20%.   Australia’s trade surplus widens Australia continues to post monthly trade surpluses, supported by exports of iron ore and natural gas to Asian Pacific countries. China’s recovery has been uneven but there has still been an increased demand for iron ore and coal from Australia. The June trade surplus was A$11.8 billion, above the consensus of A$10.9 billion. The Australian dollar gained ground on the strong trade surplus, only to give up all these gains after the US ADP employment report posted a massive gain of 497,000 in June, up from 267,000 in May and well above the consensus of 228,000. The ADP report is not considered a reliable indicator for Friday’s nonfarm payrolls release, but investors still keep an eye on it and the huge gain has boosted the US dollar against the major currencies. US nonfarm payrolls are expected to move in the opposite direction of the ADP report, with a consensus of 225,000 in June, down sharply from 339,000 in May. Later on Thursday, the US releases unemployment claims and the ISM Services PMI. Unemployment claims dropped sharply to 239,000 in the previous release and are expected to rise to 245,000. The ISM Services PMI has shown weak expansion in recent months, with readings slightly above the 50.0 level, which separates expansion from contraction. The June consensus stands at 51.0, slightly higher than the May reading of 50.3 points. . AUD/USD Technical AUD/USD continues to test resistance at 0.6659. This is followed by resistance at 0.6722 0.6597 and 0.6534 are providing support

UK jobs report expected to show strong employment and wage growth US nonfarm payrolls declined in June The British pound has drifted lower on Monday. GBP/USD is trading at 1.2827 in the European session, down 0.09%. UK employment data expected to remain strong The UK labour market remains resilient despite a cooling economy and high interest rates. Tuesday’s June jobs report is expected to show strong numbers. The economy is expected to produce 158,000 jobs in June, after a banner reading of 250,000 in May. The unemployment rate is projected to remain at a low 3.8% and unemployment claims are expected to continue declining. Wage growth is expected to rise to 6.8%, up from 6.5%. That sounds like great news, but not when you’re the Bank of England and need the labour market to show some cracks and wage growth to slow down. A tight labor market and strong wage growth have hampered efforts by the central bank to lower inflation and the OECD said last week that the UK was the only major economy where inflation is still rising. The May inflation report was a disappointment, with headline inflation remaining at 8.7% and the core rate rising from 6.8% to 7.1%. BoE Governor Bailey will likely comment on the job numbers and investors will be looking for clues about the BoE’s plans at the August 3rd meeting. The BoE has raised rates to 5.0%, but more tightening will be needed in order to curb inflation and the money markets have fully priced in a peak rate of 6.5% by February.   US dollar takes a hit after nonfarm payrolls decline The US dollar was broadly lower against the major currencies on Friday, after nonfarm payrolls slid to 209,000, below from the downwardly revised reading of 306,000 in May but not far from the 225,000 consensus estimate. The downturn may have surprised many investors who were caught up in the hype of a massive ADP employment release which showed a gain of 497,000. There was speculation of a blowout nonfarm payroll reading but in the end, the consensus estimate was close and the US dollar was broadly lower on expectations that the Fed could be close to winding up its rate-tightening cycle.   GBP/USD Technical GBP/USD tested support at 1.2782 earlier today. The next support level is 1.2716 There is resistance at 1.2906 and 1.2972  

AUD underperformed among the major currencies against the USD from 27 to 28 July 2023 ex-post FOMC, ECB, and BoJ. Split view among economists and interest rates traders on RBA monetary policy decision today. Short-term bearish downside momentum at this juncture as the AUD/USD failed to trade above the 200-day moving average. Key short-term resistance on AUD/USD is at 0.6740. This is a follow-up analysis of our prior report, “AUD/USD Technical: Rebounded right at 200-day moving average” published on 25 July 2023. Click here for a recap. The AUD/USD staged a rebound thereafter and reached an intraday high of 0.6821 on 27 July, just shy of the 0.6835 intermediate before it staged a bearish reversal and shed -198 pips ex-post FOMC, ECB, and BoJ to print an intraday low of 0.6623 on last Friday, 28 July. The Aussie has underperformed among the major currencies against the US dollar in the last two trading days of last week where the AUD/USD recorded an accumulated loss of -1.68% from 27 July to 28 July versus EUR/USD (-0.63%), GBP/USD (-0.71%), and JPY/USD (-0.65%) over the same period. The weak performance of the AUD/USD is likely to be attributed to the wishy-washy monetary policy guidance of the Australian central bank, RBA that led to a split forecast among economists and traders for today’s RBA monetary policy decision. Split view among economists and traders on RBA decision According to polls, the consensus among economists is calling for a hike of 25 basis points hike to bring the policy cash rate to 4.35% after a pause in the previous meeting in July. In contrast, data from the ASX 30-day interbank cash rate futures as of 31 July 2023 has indicated a patty pricing of only a 14% chance of a 25-bps hike, down significantly from a 41% chance priced a week ago.     Fig 1: AUD/USD medium-term trend as of 1 Aug 2023 (Source: TradingView, click to enlarge chart) From a technical analysis standpoint, the price actions of the AUD/USD are still trapped within a major sideway range configuration with its range resistance and support at 0.6930 and 0.6580 respectively.       Fig 2: AUD/USD minor short-term trend as of 1 Aug 2023 (Source: TradingView, click to enlarge chart) The AUD/USD has managed to stage a minor rebound of 117 pips from its last Friday, 28 July intraday low of 0.6622 in conjunction with an oversold reading seen in the hourly RSI oscillator on the same day. Interestingly, the minor rebound has challenged and retreated at the key 200-day moving average yesterday, 31 July during the US session (printed an intraday high of 0.6739). Right now, the hourly RSI oscillator has broken below its ascending support after it hit an overbought condition yesterday which indicates that short-term momentum has turned bearish. Watch the 0.6740 key short-term pivotal resistance to maintain the bearish tone, and a break below 0.6625 intermediate support exposes the major range support of 0.6600/6580. However, a clearance above 0.6740 negates the bearish tone to see the next resistance at 0.6835 in the first step.  

AUD underperformed among the major currencies against the USD from 27 to 28 July 2023 ex-post FOMC, ECB, and BoJ. Split view among economists and interest rates traders on RBA monetary policy decision today. Short-term bearish downside momentum at this juncture as the AUD/USD failed to trade above the 200-day moving average. Key short-term resistance on AUD/USD is at 0.6740. This is a follow-up analysis of our prior report, “AUD/USD Technical: Rebounded right at 200-day moving average” published on 25 July 2023. Click here for a recap. The AUD/USD staged a rebound thereafter and reached an intraday high of 0.6821 on 27 July, just shy of the 0.6835 intermediate before it staged a bearish reversal and shed -198 pips ex-post FOMC, ECB, and BoJ to print an intraday low of 0.6623 on last Friday, 28 July. The Aussie has underperformed among the major currencies against the US dollar in the last two trading days of last week where the AUD/USD recorded an accumulated loss of -1.68% from 27 July to 28 July versus EUR/USD (-0.63%), GBP/USD (-0.71%), and JPY/USD (-0.65%) over the same period. The weak performance of the AUD/USD is likely to be attributed to the wishy-washy monetary policy guidance of the Australian central bank, RBA that led to a split forecast among economists and traders for today’s RBA monetary policy decision.   Split view among economists and traders on RBA decision According to polls, the consensus among economists is calling for a hike of 25 basis points hike to bring the policy cash rate to 4.35% after a pause in the previous meeting in July. In contrast, data from the ASX 30-day interbank cash rate futures as of 31 July 2023 has indicated a patty pricing of only a 14% chance of a 25-bps hike, down significantly from a 41% chance priced a week ago.     Fig 1: AUD/USD medium-term trend as of 1 Aug 2023 (Source: TradingView, click to enlarge chart) From a technical analysis standpoint, the price actions of the AUD/USD are still trapped within a major sideway range configuration with its range resistance and support at 0.6930 and 0.6580 respectively.   Short-term momentum has turned bearish   Fig 2: AUD/USD minor short-term trend as of 1 Aug 2023 (Source: TradingView, click to enlarge chart) The AUD/USD has managed to stage a minor rebound of 117 pips from its last Friday, 28 July intraday low of 0.6622 in conjunction with an oversold reading seen in the hourly RSI oscillator on the same day. Interestingly, the minor rebound has challenged and retreated at the key 200-day moving average yesterday, 31 July during the US session (printed an intraday high of 0.6739). Right now, the hourly RSI oscillator has broken below its ascending support after it hit an overbought condition yesterday which indicates that short-term momentum has turned bearish. Watch the 0.6740 key short-term pivotal resistance to maintain the bearish tone, and a break below 0.6625 intermediate support exposes the major range support of 0.6600/6580. However, a clearance above 0.6740 negates the bearish tone to see the next resistance at 0.6835 in the first step.

Japan’s core CPI eases in July The decline supports expectations that BoJ will maintain policy USD/JPY has dipped lower on Friday The Japanese yen has extended its gains on Friday. In the North American session, USD/JPY is trading at 145.29, down 0.38%. The month of August has been kind to the US dollar, which has posted strong gains against all of the major currencies. USD/JPY has risen 2.34% in that period and on Thursday, the yen fell as low as 146.56, a nine-month low against the US dollar. The yen has been the worst performer among the majors over the past month, and the currency’s sharp depreciation has raised speculation that Tokyo could respond by intervening in the currency markets. Japan’s Ministry of Finance (MOF) shocked the markets in September 2022 when it intervened and bought billions of dollars with yen, which propped up the Japanese currency. At that time, the yen was also trading around the 146 level, and that has many investors on edge that the MOF may be planning another intervention.   Japan’s core CPI eases in July Japan’s inflation has been hovering above 3% for a prolonged period, higher than the Bank of Japan’s target of 2%. The BoJ has insisted that it will not loosen its ultra-accommodative monetary policy until it has evidence that inflation is sustainable, such as higher wage growth. The markets are not taking the BoJ at its word, as the BoJ keeps its cards very close to the chest in order to surprise the market when it shifts policy. Clearly, transparency is not high on the BoJ’s list, in contrast to the Federal Reserve and other major central banks. Since inflation data could well lead to a shift in policy, every inflation report out of Japan attracts significant attention. The July CPI report, released today, was no exception. Core CPI, which excludes fresh food, eased to 3.1% y/y, matching the consensus estimate and down from 3.3% in June. The indicator is closely watched by the BoJ and the decline supports expectations that the BoJ will maintain its current policy. This, despite the fact that Core CPI has now exceeded the BoJ’s 2% inflation target for 16 consecutive months.   The BoJ is not expected to make any major shifts to policy in the near-term, but that doesn’t necessarily mean that the central bank will stay completely on the sidelines. At the July meeting, the BoJ surprised the markets with a tweak to its monetary policy which provided more flexibility to the 10-year bond yield cap. Governor Ueda insisted that this was not a move towards normalization, but investors have learned the hard way that the BoJ is not hesitant to make policy moves that have blindsided the markets.   USD/JPY Technical USD/JPY is testing support at 145.71. Below, there is support at 144.07 There is resistance at 1.4640 and 147.31  

The net short position in USD grew by $490 million to -$16.272 billion over the reporting week after a strong correction a week earlier. The decline is largely related to long positions on the euro, and in terms of other major currencies, the notable trend is selling across all significant commodity currencies (Canadian, Australian, New Zealand dollars, and also the Mexican peso). The yen and franc are slightly doing better, i.e., there is demand for safe-haven currencies and a sell-off in commodity currencies. Since long positions in gold have decreased by $4.5 billion, we can expect increasing demand for the US dollar.     PMIs for the eurozone, the UK, and the US will be published on Wednesday, which can significantly influence the rate forecasts of the European Central Bank, the Bank of England, and the Federal Reserve. Last week, we witnessed a clear uptrend in bond yields, suggesting increased demand for risk amid more upbeat economic reports. At the same time, we see a sharp deterioration in China's economy, which, on the contrary, points to slowing demand. This dilemma may be resolved after the release of the PMIs, so we can expect increased volatility.   EUR/USD The final estimate confirmed that the euro area annual inflation rate was 5.3% in July 2023, with core inflation unchanged at 5.5%. Since there are no seasonal factors that could explain the price increase at the moment, it would be best to assume the most obvious explanation - price growth is supported by broad price pressures in the growing services sector. Stubborn inflation supports market expectations that the ECB will raise rates in September, and this increase is already reflected in current prices. The strong labor market is also in favor of a rate hike. After a sharp decrease a week earlier, the net long position in the euro grew by $1.275 billion, putting the bearish trend into question. The settlement price is below the long-term average, giving grounds to expect a continuation of the euro's decline, but the momentum has noticeably weakened.   A week earlier, we assumed that the bearish trend would continue. Indeed, the euro consistently passed two support levels, but did not reach the 1.0830 level. The resistance at 1.0960, which the euro can reach if a correction develops, is still considered in the long term. We assume that the trend remains bearish, and the 1.0830 level will be tested in the short term. GBP/USD Inflation in July fell from 7.9% to 6.8%. This is mostly due to the fall in the marginal price of OFGEM (Office of Gas and Electricity Markets) from 2500 pounds to 2074. Without this decline, inflation would have still fallen, but much less - to 7.3%. Despite the sharp decline, inflation remains at a very high level, and further falls in the marginal price of energy carriers are unlikely. The NIESR Institute suggests that, among the possible scenarios for future inflation behavior, we should choose between "very high", assuming an average annual inflation of around 5% over 12 months, and "high persistence", which is equivalent to an annual level of 7.4%. Needless to say, both scenarios imply inflation higher than in the US, so the likelihood of a higher BoE rate remains, leading to a yield spread in favor of the pound. These considerations do not allow the pound to fall and support it against the dollar, while against most major currencies, the dollar continues to grow. After three weeks of decline, the long position in GBP grew by $302 million to $4.049 billion. Positioning is bullish, the price is still below the long-term average, but, as in the case of the euro, an upward reversal is emerging.       In the previous review, we assumed that the pound would continue to decline, but UK inflation pressure remains stubborn, which changed the rate forecast and supported the pound. A correction may develop, and the nearest resistance level is 1.2813. If the pound goes higher, the long-term forecast will be revised. At the same time, we still consider the bearish trend, and the chances of restoring growth are high, with the nearest target being the support area of 1.2590/2620.  

Hawkish Fed vs. Dovish others  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Swiss National Bank (SNB) and the Bank of England (BoE) surprised by maintaining their rates unchanged at yesterday's trading session. The Bank of Japan (BoJ) surprised by maintaining its ultra-lose monetary policy stance unchanged. Combined with a hawkish pause earlier this week, the major currencies further sank against the greenback. The USDCHF advanced past the 200-DMA, and Cable slipped to 1.2232, a fresh low since March, and whispers of a potential return to parity against the US dollar sparked, yet again. Reasonably, the pound-dollar could return to 1.20, and below, if the major 38.2% Fibonacci support – which stands at 1.2080 is pulled out and lets the pair slip into a medium-term bearish consolidation zone. But we will likely see the Federal Reserve (Fed) soften its tone before we start talking about parity in Cable.   Now, looking at what the BoE did, you know that I was surprised, and intrigued with the decision. In Switzerland for example, inflation – official inflation – steadied below the SNB's 2%, target. The latest data shows that the Swiss CPI is at no higher than 1.6% - even though we are expecting a monstrous rise in health insurance costs, and another 20% rise in average in electricity costs that will certainly drill holes in our pockets at the start of next year, but for now inflation is at 1.6%, say the numbers, and alone, it justifies a SNB pause. But in Britain, the no action is quite premature. Inflation in Britain is almost at 7%, the energy prices are rising, the war in Ukraine is nowhere close to being over, sterling pound is now losing value, which means that whatever the Brits will import from now will cost them more than during the last months, when the pound was appreciating. It's hard to see how, with all these developments, the BoE won't be obliged to hike, again. The only way is a really bad economic performance.  

US unemployment claims higher than expected US unemployment claims, released earlier today, climbed unexpectedly to 218,000, up from an upwardly revised 206,000 a week earlier. The reading was higher than the consensus estimate of 210,000. The higher-than-expected release may garner some headlines but the Fed won’t be too concerned, as the four-week moving average, which smooths out week-to-week moves, remained almost the same as the previous four-week moving average. The US labour market has remained strong despite the Federal Reserve’s steep rate-tightening cycle. The US economy is in good shape and there is growing confidence that the Fed will be successful in guiding it to a soft landing. The markets have priced in an 86% probability of a rate hike by March but the Fed is showing more caution, with some Fed members warning that rate cuts are not necessarily imminent. Still, the fact that the Fed is on board for rate cuts next year has lifted risk appetite and sent the US dollar in retreat against the major currencies. Spain kicks off inflation releases on Friday, with Germany, France and the eurozone to follow next week. Inflation has been heading lower in the major eurozone economies and the markets have priced in up to six rate cuts next year. ECB President Lagarde has pushed back against these expectations, saying that rate cuts were not discussed at the December meeting. Spain’s CPI is expected to rise in December, with a market consensus of  3.4% y/y and 0.3% m/m. In November CPI eased to 3.2% y/y and -0.4% m/m. . EUR/USD Technical EUR/USD tested resistance at 1.1086 earlier. Above, there is resistance at 1.1144 1.1050 and 1.0992 are providing support