USDJPY is moving in an Ascending channel and the market has reached the higher low area of the channel.
This month, it is anticipated that the Bank of Japan will change the YCC band on JPY 10-year bonds from 0.50% to 1.0%. Inflation in FY 2023 was higher than the Bank of Japan’s forecast of 2%, so future meetings may see rate increases from the central bank.
The AUD/JPY cross experiences some selling pressure on Friday during the Asian session, halting its recovery from the monthly low, which was reached earlier this week in the 93.25-93.20 range. In the last hour, spot prices have fallen to a new daily low in the 94.55 region, ending a two-day winning streak. Growing rumours that the Bank of Japan (BoJ) may modify its Yield Curve Control (YCC) policy as soon as this month continue to support the Japanese Yen (JPY), which in turn puts some pressure on the AUD/JPY cross. In fact, according to former BoJ Executive Director Hideo Hayakawa, the policy ‘tweak’ under consideration would increase the range around zero for the 10-year Japanese Government Bond to 1% from its current level of 0.5 percent. Additionally, according to Japanese media, the BoJ is expected to increase its FY2023 inflation forecast, which has been above the target of 2% for more than a year and should put pressure on the central bank to start winding back its ultra-loose monetary policy settings. In addition, a slight decline in US equity futures favours the safe-haven JPY and hurts the risk-averse Aussie, adding to the offered tone around the AUD/JPY cross.
However, given the expectation that China will announce additional stimulus measures to support the weak domestic economy, the downside appears to be minimal, at least for the time being. Wang Yi, China’s foreign minister, added to this by sounding upbeat and claiming that relations between China and Australia have improved, stabilised, and developed. This should, in turn, provide some support for the Australian Dollar (AUD), a proxy for China, and act as a positive force for the AUD/JPY cross. Another option for traders is to wait for the important Chinese macro data to be released, which is scheduled for Monday’s Asian session. This further makes it prudent to hold off on setting up for the continuation of the recent slide from the YTD peak touched in June until there has been strong follow-through selling.
XAUUSD Gold price is moving in the Box pattern and the market has reached the horizontal support area of the pattern.
The market continues to see US dollar weakness as a result of June’s inflation data coming in much lower than anticipated. This indicates that the FED may decide to pause the rate cycle in the second half of 2022, which would cause yielding investors to move to non-yielding assets like gold out of fear.
As markets process the unexpectedly subdued official inflation numbers released by the United States in the previous session, gold prices have continued to rise into Thursday’s trading session in Europe and are still very close to one-month highs. A mere 0.2% increase in consumer prices in June, far below expectations, resulted in the weakest annualised increase in more than two years of 4.8%. The fight against inflation has not yet been won, but a weakening trend is now evident. Investors are therefore reevaluating how high US interest rates could rise and projecting no more than two more gradual increases this year. The Fed Funds Target Rate is now expected to increase by a quarter of a percentage point in July, with a 25% chance that there will be another similar change before the year is out. That has decreased from about 35% prior to the data. The likelihood of further half-point increases appears to have significantly decreased.
Non-yielding gold has benefited from the possibility of future lower-than-anticipated bond yields, and the idea that the metal serves as an inflation hedge has been refuted by the metal’s strong gains on lower inflation. The US Dollar’s decline in response to the data also gave gold wings. For those who hold other currencies, a weaker dollar enhances the appeal of dollar-denominated gold and gold derivatives. On Wednesday, spot gold increased by more than $30/ounce and is still, just barely, above $1960 in Europe. It has not reached these levels since mid-June. The market’s attention will be on US inflation and its likely impact on Fed policy on Thursday. The most recent weekly unemployment claim statistics are also on the agenda, along with an official snapshot of producer prices.
USD index Analysis
USD index has broken the Box pattern in downside.
Governor of the FED Reserve Christopher Waller stated that the FED will make two additional rate increases of 25 basis points this year due to strong job growth and a very low rate of unemployment. The banking industry’s success and previous rate hikes have already had a positive impact on the economy.
In prepared remarks to be delivered before a gathering held by The Money Marketeers of New York University, Federal Reserve Governor Christopher Waller expresses his support for raising rates at the July FOMC meeting, according to Reuters. The decision-maker also indicated his hesitation to declare US inflation under control and his support for additional rate increases this year. The robust strength of the labour market and the solid overall performance of the U.S. economy gives us room to tighten policy further, said Waller of the Fed.
Fed’s Waller used the example of the summers of 2021, when inflation briefly decreased before rapidly increasing, to allay the concerns raised by this week’s unfavourable US inflation hints. Fed is likely to need two additional rate increases of 25 basis points in 2018. The banking industry is robust and adaptable. Most previous rate hikes have already had an effect on the economy.
EURCAD is moving in an Ascending channel and the market has reached the higher high area of the channel.
Industrial production in the Eurozone came in at 0.20%, which is less than the 0.30% forecast for the month of May. In the June meeting, ECB Lagarde already announced that there would be two additional rate increases in 2023. Ignazio Visco, a member of the ECB Governing Council, stated that the peak in interest rates is rapidly approaching.
The Eurozone Industrial Production for May decreased to 0.2% MoM from 0.3% market expectations and 1.0% previous readings. However, it should be noted that the European Central Bank (ECB)’s (June policy meeting) announcement on Thursday indicated that at least two consecutive rate hikes were required for inflation projections to come true. We are not very far’ from an interest rate peak, on the other hand, according to ECB Governing Council member Ignazio Visco in an interview with Italy’s Sky TG24 news channel.
Markets in the Asia-Pacific region continue to be more stable despite these plays, but the S&P500 Futures register slight losses as they approach their yearly high. The European Commission’s (EC) economic forecasts and trade statistics may serve as a guide for traders.
EURCHF is moving in the Descending channel and the market has fallen from the lower high area of the channel.
The collapse and emergency rescue of Credit Suisse were both caused by state institutions, according to a report released on Thursday by the Swiss parliament. It is only the fifth time that a similar investigation has been opened in Switzerland, and the parliamentary investigations committee is the most potent tool at the disposal of lawmakers.
EURNZD is moving in an Ascending channel and the market has reached the higher low area of the channel.
Investors are currently considering purchasing New Zealand dollars as the Reserve Bank of New Zealand (RBNZ) has temporarily stopped raising interest rates in order to lessen the strain on the country’s economy. New Zealand’s outlook has completely dimmed, and tighter policy could have had even more detrimental effects. Investors should be aware that the RBNZ’s interest rates are 5.5%.
GBPCHF is moving in the Box pattern and the market has fallen from the resistance area of the pattern.
The growing wagers that the Bank of England BoE may need to raise interest rates further to combat high inflation continue to support the British Pound GBP. The BoE could instead increase interest rates from their current level of 5% to a cycle peak of 6.5% in order to reduce demand and bring inflation down. This is suggested by the current market pricing.
GBPJPY is moving in the Descending channel and the market has reached the lower high area of the channel.
Stronger UK wage growth data contributed to the rumours, which BoE Governor Andrew Bailey and UK Finance Minister Jeremy Hunt claim is hurting efforts to control inflation. This, to a greater extent, helps counteract the possibility of a recession in the UK later this year and indicates that the GBPUSD pair’s path of least resistance is still upward.
Because of the UK’s decreased demand and inflation, the Bank of England is anticipated to raise interest rates this year from 5% to 6.5%. UK Governor Bailey and UK Chancellor Hunt predicted that while labour costs will rise and inflation will moderate, the unemployment rate should rise in order to reduce demand.
AUDJPY is moving in an Ascending channel and the market has rebounded from the higher low area of the channel.
The appointment of Michele Bullock as the following RBA Governor was made public by Australian Treasurer Jim Chalmers. She started working for the organisation in 1985 and has been the Deputy Governor since April 2022. She is well-versed in our economics, performs admirably in the position of governor, and will take the oath in September.
After Australian Treasurer Jim Chalmers revealed that Michele Bullock would succeed Mr. Philip Lowe as RBA Governor in September, the Australian Dollar declined. Since then, the currency has recovered, and Australia’s S&P/ASX 200 equity index has steadily risen after receiving a boost from Wall Street. Since April 2022, Ms Bullock has served as the bank’s deputy governor. She has worked for it since 1985. She is known for being a prominent economist in her own right. The majority of people see the appointment as a smooth leadership transition occurring at a crucial time for RBA monetary policy. The bank has allegedly increased rates in an excessively aggressive manner, according to some monetary policy tourists in the mainstream media. If some of the new governor’s recent remarks become future policy, they might be disappointed in her.
She suggested in a recent speech that in order to cool off inflation, the unemployment rate may need to reach 4.5%. Right now, it is 3.6%. The market implication is that Australian monetary policy will likely be managed similarly to how it has been for a number of decades, indicating a steady hand at the wheel. The six-month portion of the curve erased 25 basis points of tightening earlier this week, causing interest rate futures to shift to a less hawkish outlook. Although a hike by the RBA at its August meeting is currently only seen as a remote possibility by the markets, a 25 basis point increase by year’s end is anticipated.
Deflation risks in China will never materialise, according to the deputy governor of the People’s Bank of China, and additional stimulus will be injected to strengthen the economy across all sectors. The CPI data tends to decline in July before rising again in August.
According to the most recent remarks made by People’s Bank of China PBoC Deputy Governor Guoqiang Liu, China has not experienced deflation, and there are no deflationary risks in the second half of 2023 H2 2023. Additionally, the PBoC representative noted that the Consumer Price Index CPI might continue to fall in July before rebounding in August. Central Bank has ample tools, PBoC Deputy Governor said, adding that they will step up countercyclical adjustments. The policymaker also displayed readings that would increase support for important sectors while maintaining appropriate credit growth.
Crude Oil Analysis
Crude Oil is moving in an Ascending channel and the market has reached the higher high area of the channel.
The Bank of Canada raised interest rates by 0.25% to 5.00% in July, which caused a decline in the value of the Canadian dollar. BoC Governor Tiff Mack helm stated that further increases in interest rates could reduce economic demand. The Loonie continues to be supported against Counter pairs by oil prices.
In July policy meeting on Wednesday, the Bank of Canada BoC increased the benchmark interest rates by 25 basis points bps, to 5.0%. On the policy outlook, BoC Governor Tiff Macklem said that further interest rate increases are required to reduce price pressures and slow the growth of the economy’s demand. The commodity-linked Loonie is still being supported on Friday thanks to this as well as the recent increase in crude oil prices to new three-month highs.
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