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USD/JPY stages a comeback. What the market is watching
338478 August 31, 2023 22:21 Forexlive Latest News Market News
USDJPY 10 mins
The US dollar has battled back today as better economic data pushes back against the idea the economy is rapidly slowing. USD/JPY is still lower on the day — down 20 pips — but has rebounded to 146.05 from 145.64. It’s part of a broader bid in the US dollar since the PCE report today and other data showed a resilient economy.
In the bigger picture, the market is volatile at the moment as it struggles to get a grasp on the health of the US economy. Data earlier this week was soft and weighed heavily on USD. Today, Dollar General reported this on the economy:
“The macroeconomic environment is more challenging than the Company had previously anticipated, which the Company believes is having a significant impact on customers’ spending levels and behaviors”
The company warned that there have been negative comp sales in June, July and continuing into the first two weeks of August. They expect a continuation in that trend through year end.
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AUD/USD Price Analysis: Needs stability above 0.6500 for a decisive breakout
338476 August 31, 2023 22:17 FXStreet Market News
- AUD/USD strives for stability above 0.6500 for a fresh upside ahead of US NFP.
- The Australian Dollar as a proxy to Chinese economy might come under pressure if China’s factory activities remain below 50.0.
- AUD/USD has been consolidating in a wider range of 0.6336-0.6525 for the past 15 trading sessions.
The AUD/USD pair consolidates in a narrow range near the psychological resistance of 0.6500 in the New York session. The Aussie asset remains topsy-turvy as investors await the US Nonfarm Payrolls (NFP) for August, which will be published on Friday. In addition to the US NFP, ISM Manufacturing PMI will be keenly watched.
After US Automatic Data Processing (ADP) Employment report, investors hope that the labor market is losing resilience. Firms are operating with the current labor force due to the deteriorating demand environment.
Meanwhile, the Australian Dollar will dance to the tunes of the Caixin Manufacturing PMI data. The Australian Dollar as a proxy to the Chinese economy might come under pressure if China’s factory activities remain below the 50.0 threshold.
AUD/USD has been consolidating in a wider range of 0.6336-0.6525 for the past 15 trading sessions. The Aussie asset is aiming to stabilize above the 200-period Exponential Moving Average (EMA), which trades around 0.6480.
Momentum would turn bullish after the Relative Strength Index (RSI) (14) shifts into the 60.00-80.00 range.
A recovery move above August 15 high around 0.6522 will drive the asset to August 9 high at 0.6571. Breach of the latter will drive the asset towards August 10 high at 0.6616.
In an alternate scenario, a fresh downside would appear if the Aussie asset dropped below August 17 low around 0.6360. This would expose the asset to the round-level support of 0.6300 followed by 03 November 2022 low at 0.6272.
AUD/USD two-hour chart
OPEC August output rose 220k bpd led by Iran – survey
338475 August 31, 2023 21:49 Forexlive Latest News Market News
Reuters’ influential ‘secondary sources’ oil survey is out and highlights rising Iranian production. The country isn’t subject to OPEC quotas because of sanctions declines.
The Biden administration — which blocked the Keystone XL pipeline — has instead turned a blind eye to Iranian sanctions and has recently loosened them on Venezuela as well. Those moves were done to lower oil prices.
In any case, Iran’s production is now up to 3.1 million barrels per day, rising 200b bpd and erasing nearly half of the ‘lollypop’ cut from Saudi Arabia. Other OPEC moves — particularly Nigeria — added a net 20k bpd.
OPEC oil production August
The other question about Iran is whether that oil never stopped being produced and it’s only now being counted.
WTI crude oil is up for the sixth day today.
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United States Chicago Purchasing Managers’ Index above expectations (44.1) in August: Actual (48.7)
338474 August 31, 2023 21:49 FXStreet Market News
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Silver Price Forecast: XAG/USD corrects from $25 as Fed’s preferred inflation tool remains sticky
338472 August 31, 2023 21:40 FXStreet Market News
- Silver price corrects sharply from $25.00 as the US PCE price index remains sticky.
- The US Dollar Index (DXY) holds gains around 103.60 as persistent PCE data offsets the impact of the softer labor demand.
- Silver price is approaching the horizontal resistance plotted from July 20 high around $25.27
Silver price (XAG/USD) faces selling pressure near the psychological resistance of $25.00 as the US Bureau of Labor Statistics reported that the Personal Consumption Expenditure (PCE) price index remained stubborn in July.
The monthly headline and core PCE grew at a stable pace of 0.2%. Also, the annual headline and core PCE accelerated marginally to 3.3% and 4.2% as expected by market participants.
Apart from that, the US Department of Labor reported weekly jobless claims data. For the week ending August 25, individuals claiming jobless benefits dropped to 228K vs. expectations of 235K and the former reading of 232K.
The US Dollar Index (DXY) holds gains around 103.60 and is looking to extend gains further as persistent PCE data offsets the impact of the softer labor demand reported by US Automatic Data Processing (ADP) for August, released on Wednesday.
After Fed’s preferred inflation measure, investors shift focus to the US Nonfarm Payrolls (NFP) data for August, which will be published on Friday at 12:30 GMT. As per the expectations, US labor formed witnessed a fresh addition of 170K payrolls, lower than July’s reading of 187K. The Unemployment Rate is seen unchanged at 3.5%. Apart from that, Average Hourly Earnings data will be keenly focused.
Silver technical analysis
Silver price is approaching the horizontal resistance plotted from July 20 high around $25.27 on a two-hour scale. Upward-sloping 50-period Exponential Moving Average (EMA) indicates that the upside momentum is extremely bullish.
The Relative Strength Index (RSI) (14) oscillates in the bullish range of 60.00-80.00, which indicates that the upside momentum is active.
Silver two-hour chart
EUR/USD Price Analysis: A drop to the 200-day SMA is not ruled out
338470 August 31, 2023 21:35 FXStreet Market News
- EUR/USD sharply reverses part of the recent three-day advance.
- Next on the downside comes the 200-day SMA (1.0812).
EUR/USD faces strong headwinds and slips back to the 1.0860 zone on Thursday following tops near 1.0950 recorded in the previous session.
Despite the daily knee-jerk, the pair’s current momentum seems to be favouring the continuation of the march north for the time being. That said, there is a temporary hurdle at the 55-day SMA at 1.0968, which precedes the psychological 1.1000 mark and the August top of 1.1064 (August 10).
In case losses gather extra impulse, a pullback to the 200-day SMA, today at 1.0812, should not be ruled out.
In the meantime, the pair is likely to keep the bullish outlook unchanged while above the 200-day SMA.
EUR/USD daily chart
ECB to pause hiking in September, while retaining a tightening bias – Nordea
338469 August 31, 2023 21:33 FXStreet Market News
Economists at Nordea share their view on the European Central Bank’s (ECB) policy outlook following the release of the July Monetary Policy Meeting Accounts.
ECB will pause hiking in September, while retaining a tightening bias
“The monetary policy account from the ECB’s July meeting did not offer much guidance on what the ECB would do at its September meeting.”
“The activity data since the July meeting has been weak, while inflation has proved to be sticky. In fact, stagflation risks were mentioned twice in the account. A few of the more hawkish Governing Council members have talked in favour of another hike lately, while most, including Executive Board member Schnabel today, have kept an open mind.”
“We stick to our long-held baseline that rates have peaked at 3.75%, and think the ECB will pause hiking in September, while retaining a tightening bias. It will be a close call, though, and there may be an intense battle ahead between those in favour of hiking and the ones wanting to keep rates unchanged at the ECB’s September meeting.”
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USD Index Price Analysis: Recovery targets the 104.50 area
338467 August 31, 2023 21:29 FXStreet Market News
- DXY makes a U-turn following three daily drops in a row.
- Further upside retargets the monthly highs near 104.50.
DXY halts a three-session negative streak and manages to regain some composure and retest the 103.50/60 band on Thursday.
Once the recovery gathers steam, the index should shift its focus to another visit to the monthly peak of 104.44 (August 25) just before the May top of 104.69 (May 31). The breakout of this level could prompt a probable test of the 2023 high at 105.88 (March 8) to re-emerge on the horizon.
While above the key 200-day SMA, the outlook for the index is expected to remain constructive.
DXY daily chart
EUR/JPY Price Analysis: No changes to the bullish bias near term
338465 August 31, 2023 21:17 FXStreet Market News
- EUR/JPY comes under pressure following new 2023 peaks.
- The next up barrier remains at the key round level at 160.00.
EUR/JPY reverses a five-day positive streak and breaks below the 159.00 support on Thursday.
The continuation of the uptrend could see the cross challenging the recent 2023 peak at near 159.76 (August 30) ahead of the key round level at 160.00. The surpass of the latter should not see any resistance level of note until the 2008 high at 169.96 (July 23)
So far, the longer term positive outlook for the cross appears favoured while above the 200-day SMA, today at 147.92.
EUR/JPY daily chart
Gold price remains clam despite persistent core PCE reading
338464 August 31, 2023 21:17 FXStreet Market News
- Gold price oscillates above $1,940.00 as investors await US NFP data.
- The US ADP Employment report suggests that the NFP report could show job creation is slowing.
- US ADP report also showed the slowest wage growth since October 2021.
Gold price (XAU/USD) finds nominal selling pressure as the Fed’s preferred inflation tool turns out persistent in July. Earlier, the yellow metal was trading sideways after a rally inspired by soft labor demand due to the deteriorating economic outlook. The precious metal is expected to remain on the sidelines as investors are likely to make an informed decision after the release of US Nonfarm Payrolls (NFP) data on Friday.
The US ADP Employment report released on Wednesday showed that the labor market is not as resilient as previously thought. Firms have slowed down their hiring process, adding to evidence of an uncertain economic outlook. Lower labor demand boosted hopes of a soft landing from the Federal Reserve (Fed) as Chair Jerome Powell conveyed at the Jackson Hole Symposium that inflation has become more responsive to labor markets.
Daily Digest Market Movers: Gold price faces pressure as core PCE remains sticky
- Gold price faces some selling pressure as the US Personal Consumption Expenditure (PCE) price index remained sticky in July. The monthly headline and core PCE grew at a stable pace of 0.2%. Also, the annual headline and core PCE accelerated marginally to 3.3% and 4.2% as expected by market participants.
- For the week ending August 25, individuals claiming jobless benefits dropped to 228K vs. expectations of 235K and the former reading of 232K.
- After US PCE data, investors shift their focus to the US NFP and ISM Manufacturing PMI data for August, which will be released on Friday.
- The precious metal continues its three-day winning spell and is expected to extend its recovery as labor demand from US firms starts softening due to deteriorating demand.
- After fewer job vacancies, US ADP Employment Change data showed the effects of higher interest rates. The ADP report for August showed the US private sector added 177K employees, lower than expectations of 195K and less than half of the upwardly revised July’s reading of 371K.
- The slowdown in job growth majorly came from the leisure and hospitality sector. Job creation by hotels, restaurants, and other employers in the sector fell by 30K in August after months of strong hiring.
- Wage growth also slowed in August. Job stayers saw an annual pay growth of 5.9%, while job changers’ pay growth slowed to 9.5%.
- August numbers are consistent with the pace of job creation before the pandemic, said Nela Richardson, chief economist at ADP. “After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede,” she said.
- Fed Chair Jerome Powell conveyed in his commentary at the Jackson Hole Symposium that inflation is getting more responsive to the job market. Therefore, softening labor market conditions might ease upside risks to inflation.
- As per the CME Group FedWatch Tool, interest rates are widely expected to remain unchanged in September. Also, the Fed is seen keeping rates steady at 5.25%-5.50% by year-end.
- Atlanta Fed Bank President Raphael Bostic said that the policy is restrictive enough to bring inflation to 2% over a reasonable time frame.
- The US Dollar sees a pullback move after an intense sell-off to near 103.00. However, more downside seems favored as investors hope that interest rates by the Fed have peaked. 10-year US Treasury yields rebounded moderately to 4.12%.
- US housing demand remains under pressure as higher mortgage rates are increasing again. Still, the worst of the housing sector correction appears to have passed due to tight supply.
- According to property analysts polled by Reuters, forecasts for a price fall this calendar year have wiped out and the short US housing market correction is now over.
Technical Analysis: Gold price attempts a Rising Channel breakout
Gold price continues its three-day winning spell but the upside seems restricted near $1,950.00 as investors await US NFP data to get in-depth information about labor market conditions. The precious metal gathers strength to deliver a breakout of the Rising Channel chart pattern formed on a lower time frame. The yellow metal secures stability above the 20-day and 50-day Exponential Moving Averages (EMAs), supporting more upside ahead.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Euro remains well under pressure near 1.0860
338461 August 31, 2023 21:12 FXStreet Market News
- The Euro fades most of Wednesday’s advance vs. the US Dollar.
- European stocks now trade with decent gains across the board.
- EUR/USD revisits the 1.0860 region amidst USD recovery.
- The USD Index (DXY) rebounds markedly and revisits 103.50.
- US, German yields trade slightly on the defensive.
- Germany’s labour market report came in mixed in August.
- EMU advanced figures showed inflation remained sticky in August.
- US PCE, Core PCE matched expectations in July.
The Euro (EUR) continues to face selling pressure against the US Dollar (USD), resulting in a break below the important 1.0900 level for EUR/USD and a return to the area around 1.0860 on Thursday.
At the same time, the Greenback is experiencing a recovery, leading to a rebound in the USD Index (DXY) from the two-week lows near the 103.00 level and a challenge of the 103.50 region. Additionally, US yields are declining across the yield curve as investors reassess the likelihood of the Federal Reserve pausing its normalization process for the next few months.
In the meantime, the narrative surrounding the Federal Reserve’s (Fed) tighter-for-longer stance appears to have dwindled following the recent weaker-than-expected economic data.
By contrast, there is no news around the European Central Bank (ECB) regarding its potential decision on rates once the summer season is over.
In the domestic calendar, Retail Sales in Germany contracted 0.8% MoM in July and 2.2% over the last twelve months. Still in Germany, the Unemployment Change increased by 18K individuals in August and the Unemployment Rate ticked higher to 5.7%. Looking at the broader euro area, advanced inflation figures saw the headline CPI rise 5.3% YoY and 5.3% YoY when it comes to the Core CPI. Later in the session, the ECB will publish its Accounts for the July 27 meeting.
In the US docket, headline PCE rose 3.3% YoY in July and Core PCE gained 4.2% from a year eaerlier. In addition, Initial Jobless Claims increased by 228K in the week to August 26, Personal Income expanded 0.2% MoM in July and Personal Spending rose 0.8% MoM in the same period. Later in the session, Boston Fed Chair Susan Collins is also due to speak.
Daily digest market movers: Euro faces a probable drop to 1.0810
- The EUR surrenders part of the recent strong advance against the USD.
- Fundamentals in Germany continue to deteriorate amidst stagflation talks.
- Investors see the Fed keeping rates on hold in the next few months.
- BoE’s Huw Pill said the country is facing second-round effects from inflation.
- Investors see the Fed on hold for the remainder of the year.
- ECB’s Isabel Schnabel said there is uncertainty around the peak rate.
- ECB’s Robert Holzmann advocated for 1-2 extra rate hikes.
- Further stimulus measures are likely to be taken by the PBoC in the near term.
- BoJ’s Toyoaki Nakamura said economic recovery is needed to end the loose policy.
- US docket showed a stubborn PCE and firm weekly Claims.
Technical Analysis: Euro risks a deeper retracement near term
The three-day rebound in EUR/USD seems to have met quite a decent obstacle ahead of the 1.0950 region.
In case bulls regain the upper hand and EUR/USD surpasses the weekly top of 1.0945, the pair is expected to meet the provisional 55-day Simple Moving Average (SMA) at 1.0967 prior to the psychological 1.1000 barrier and the August top at 1.1064 (August 10). Once the latter is cleared, spot could challenge the July 27 peak at 1.1149. If the pair surpasses this region, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 seen on July 18. Further up comes the 2022 high at 1.1495, which is closely followed by the round level of 1.1500.
The resumption of the downward bias could motivate the pair to initially test the key 200-day SMA at 1.0813 ahead of the August low of 1.0765 (August 25). The breach of the latter exposes the May 31 low of 1.0635 prior to the March 15 low of 1.0516 and the 2023 low at 1.0481 seen on January 6.
Furthermore, sustained losses are likely in EUR/USD once the 200-day SMA is breached in a convincing fashion.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
US Core PCE within market expectations in July, Bitcoin price likely to begin recovery
338459 August 31, 2023 21:12 FXStreet Market News
- US Core Personal Consumption Expenditures Price Index rose 0.2% MoM and 4.2% YoY in July.
- The Federal Reserve Chair has hinted at future interest rate hikes in his speech at the Jackson Hole Symposium.
- Bitcoin price is likely to recover in light of the PCE inflation data.
The Federal Reserve’s preferred measure of inflation, Core PCE, excludes food and energy prices that are influenced by global factors. Core PCE rose 4.2% YoY in July, according to the US Bureau of Economic Analysis report on Thursday.
The Core PCE reading is within market expectations and below Fed Chair Powell’s preliminary estimate of 4.3% for July.
Also read: Breaking: US Core PCE inflation rises to 4.2% as anticipated
What Core PCE Price Index reading for July means for Bitcoin price
The Core PCE Price Index reading for July was in line with the market expectation, rising 4.2% over the 12 months to July. While this is a slightly stronger pace than the 4.1% increase recorded in June, risk assets like Bitcoin benefit from the possibility that inflation is cooling down in the US.
Fed Chairman Jerome Powell had reiterated in his recent speech at Jackson Hole that officials watch Core PCE more closely, for an outlook on US inflation and offered a preliminary estimate of 4.3% for July’s Core PCE rate. The actual reading came 0.1% below the estimate, in line with the expectations of economists.
Economists surveyed by FactSet – a research system that provides inputs to Wall Street professionals – had predicted the Core Annual PCE inflation rate to bump up to 4.2%, signaling that inflation is likely cooling down after a year of interest rate hikes.
Moreover, this reduces the likelihood of an interest rate hike in September, easing the selling pressure on risk assets like Bitcoin and altcoins.
Bitcoin is likely to begin its recovery and eye resistance at the $28,000 level, in light of the recent data release. In the event of an interest rate hike in September, BTC’s recovery rally to the August monthly high above the key $30,000 level could be jeopardized.
BTC/USDT five minute price chart on Binance
Bitcoin price is currently influenced by other factors, like SEC’s appeal against Grayscale’s win in the lawsuit and macroeconomic releases like Nonfarm Payrolls for July. It remains to be seen whether BTC price yields gains for holders or retraces to test support at the $27,000 level.
Bitcoin, altcoins, stablecoins FAQs
Bitcoin is the largest cryptocurrency by market capitalization, a virtual currency designed to serve as money. This form of payment cannot be controlled by any one person, group, or entity, which eliminates the need for third-party participation during financial transactions.
Altcoins are any cryptocurrency apart from Bitcoin, but some also regard Ethereum as a non-altcoin because it is from these two cryptocurrencies that forking happens. If this is true, then Litecoin is the first altcoin, forked from the Bitcoin protocol and, therefore, an “improved” version of it.
Stablecoins are cryptocurrencies designed to have a stable price, with their value backed by a reserve of the asset it represents. To achieve this, the value of any one stablecoin is pegged to a commodity or financial instrument, such as the US Dollar (USD), with its supply regulated by an algorithm or demand. The main goal of stablecoins is to provide an on/off-ramp for investors willing to trade and invest in cryptocurrencies. Stablecoins also allow investors to store value since cryptocurrencies, in general, are subject to volatility.
Bitcoin dominance is the ratio of Bitcoin’s market capitalization to the total market capitalization of all cryptocurrencies combined. It provides a clear picture of Bitcoin’s interest among investors. A high BTC dominance typically happens before and during a bull run, in which investors resort to investing in relatively stable and high market capitalization cryptocurrency like Bitcoin. A drop in BTC dominance usually means that investors are moving their capital and/or profits to altcoins in a quest for higher returns, which usually triggers an explosion of altcoin rallies.
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