XtreamForex | Daily Technical Analysis

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AUD/JPY Cross Gains Momentum, Surpassing 100-hour SMA after Hitting Two-day High
The AUD/JPY cross is showing signs of momentum, pushing past the 100-hour Simple Moving Average (SMA) and reaching a two-day peak. This trend mirrors the progress of the EUR/USD pair, which is also advancing towards a fresh 2023 high close to 1.1150. The performance of both pairs has been influenced by a general weakening of the US dollar.

The AUD/JPY cross has managed to ascend to a two-day high, notably breaking through the 100-hour SMA. Market observers are now keenly waiting for the release of the Producer Price Index (PPI), an important economic indicator due later today.

Meanwhile, recent data from the US Bureau of Labor Statistics (BLS) reveals that the country’s Consumer Price Index (CPI) fell to 3% year-on-year in June, down from 4% in May. This figure came in slightly lower than the market estimate of 3.1%. Concurrently, core CPI inflation, which excludes unpredictable food and energy costs, slipped from 5.3% to 4.8%. Despite these decreases, both the CPI and core CPI saw monthly increases of 0.2%, not quite meeting analysts’ forecasts.

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US Inflation Slows; Equity Markets Rally on Earnings News

The slowing down of US inflation has been a welcome development in the financial markets. Along with positive earnings news, this has contributed to a robust rally in equity markets. The EUR/JPY pair, however, has seen only a slight recovery from its intraday low, hovering around 154.80 as we head into Friday’s European session.

This performance of the EUR/JPY pair seems to reflect the recent bounce in Treasury bond yields, while also mirroring underwhelming data from Japan. Amid relatively slow trading hours, the US 10-year and two-year Treasury bond yields are showing modest gains around 3.78% and 4.65% respectively. This is after hitting a two-week low the previous day, indicating some form of recovery.

In Japan, the Government Bond (JGB) yields for 10-year have retreated from an 11-week high. This comes as the bond yields from Europe and Germany await the opening bell for their next move. Furthermore, Japan’s Industrial Production for May dropped significantly to -2.2% MoM and 4.2% YoY, compared to the previous figures of -1.6% and 4.7% respectively. This suggests a significant slowdown in Japan’s industrial sector. Capacity Utilization also fell sharply to -6.3%, a stark decline from the market forecast of -2.5% and previous readings of 3.0%.

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EUR/USD Volatility Rises Above 1.1200 Ahead of US Retail Sales

As the anticipated US Retail Sales data for June looms, the EUR/USD pair has experienced a noticeable increase in volatility, crossing the significant 1.1200 threshold. This major currency pair has found a degree of stability as investors from around the globe eagerly await these crucial figures that will undoubtedly influence their financial strategies and future market moves.

During the Asian trading session, S&P500 futures have logged some losses, signaling a cautious sentiment among market participants as we delve into the second-quarter earnings season. Additionally, US equities faced some downturns last Friday, with investors expressing apprehension that corporate earnings might experience fluctuations due to the Federal Reserve’s assertive tightening policies and the strict credit standards established by commercial banks to preserve asset quality.

Simultaneously, the US Dollar Index (DXY) is witnessing a decrease in volatility after forming a base just below the 100.00 level. It is projected that the DXY will exhibit significant movement following the announcement of the US Retail Sales data. The market consensus suggests an increased growth in monthly retail demand at a faster rate of 0.5%, a notable increase from the previous 0.3%. Excluding automobiles, retail demand is expected to see an upturn of 0.3%, a slight rise from the last recorded figure of 0.1%.

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AUD/USD Steady Above 0.6800 Amid RBA Policies
The Australian dollar to United States dollar (AUD/USD) pair is currently demonstrating a steady performance, maintaining its position above the 0.6800 mark in the Tokyo session. Despite the Reserve Bank of Australia (RBA)’s inclination towards further policy restrictions, the Aussie currency has yet to experience a significant shift.

During the RBA’s monetary policy meeting in July, the board’s preference leaned towards the Australian economic outlook, leading to the decision to keep interest rates steady. This decision comes amidst a backdrop of weak consumer spending in the second quarter and a Gross Domestic Product (GDP) growth rate of approximately 0.2%. These figures illustrate the impact of the aggressive policy-tightening measures that have been implemented.

It’s worth noting that there is a stark contrast between the interest rates raised by the RBA and those of other developed economies. This discrepancy provides ample room for potential future hikes by the RBA, which could potentially influence the performance of the AUD/USD pair.

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GBP/JPY drops 100 pips below 181.00 due to poor UK inflation, yields
The GBP/JPY currency pair saw a considerable drop of 100 pips to below 181.00, driven primarily by disappointing UK inflation data and weaker Treasury bond yields. The pair dipped further to around 180.80 in the early hours of Wednesday morning in London, reflecting the market’s reaction to these economic indicators. This decline has been amplified by cautious market optimism and a dovish perspective on the Bank of Japan (BoJ).

In June, the UK’s Consumer Price Index (CPI) inflation fell short of expectations, dropping to 7.9% Year-on-Year (YoY), compared to the anticipated 8.2% and the previous figure of 8.7%. A similar trend was observed in the Core CPI, which slipped to 6.9% YoY, moving against market predictions and previous readings of 7.1%.

This downturn in inflation rates has thrown into question the previously hawkish sentiment surrounding the Bank of England (BoE). The uncertainty has contributed to the GBP/JPY’s three-day losing streak, highlighting the sensitivity of the currency pair to changes in economic conditions.

Alongside this, BoJ Governor Kazuo Ueda defended the bank’s easy-money policy at a G20 meeting in India. He acknowledged that achieving the 2% inflation target sustainably remains a distant goal for the central bank, thus reinforcing a dovish outlook.

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The GBP/USD pair continues to experience pressure, hovering near the 1.2920 level

The GBP/USD pair is enduring continuous strain, staying close to the critical 1.2920 level as the European session commences. This stress is fueled by the weaker-than-expected inflation data from the UK for June. The monthly Consumer Price Index (CPI) saw a mere increase of 0.1%, failing to meet the anticipated growth of 0.4% and significantly lesser than May’s 0.9% rise. More alarmingly, the yearly CPI fell to 7.9%, not meeting the predicted 8.2% and considerably lower than May’s 8.7% increment. Furthermore, the core CPI, which eliminates the unpredictable food and oil prices, dropped to 6.9%, below the expected market consensus of 7.1%.

Considering this underwhelming inflation data, there is speculation over the Bank of England’s (BoE) approach in its forthcoming policy meeting on August 3. Market analysts suggest that the BoE may lean towards a modest rate hike of 25 basis points (bps) instead of the previously speculated 50 bps increment, in an effort to stimulate economic growth amidst these uncertain times.

In the meantime, the US Dollar Index (DXY), a measure of the Greenback’s strength against other major currencies, has seen a significant surge, reaching the 100.20 mark after initially hitting the 100.00 level during the early Asian market hours. This rise in the DXY contributes further to the downward pressure on GBP/USD, making the Pound Sterling less appealing to investors due to a stronger US Dollar.

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USD/JPY Crosses 140.20 Mark in Surge While Investors Anticipate BoJ Rate Decision

During the European session on Friday, the USD/JPY pair demonstrated strong upward momentum, crossing the 140.20 mark. This surge in the exchange rate can be attributed to the diverging monetary policies pursued by the Bank of Japan (BoJ) and the Federal Reserve (Fed). The BoJ has maintained an ultra-loose monetary policy, while the Fed has resumed its tightening policy, leading to the weakening of the Japanese Yen against major currencies.

Positive signs for the US economy were evident in the latest weekly data released by the US Department of Labour (DOL). Initial Jobless claims for the week ending July 15 totaled 228,000, surpassing market expectations of 242,000 and marking a decline from the previous figure of 237,000. This reading represented the lowest level since mid-May. Furthermore, the Philadelphia Federal Reserve Manufacturing Survey showed a reading of -13, better than the consensus of -10. However, Existing Sales for June were disappointing, revealing a contraction of 3.3% MoM after a marginal 0.2% gain in the previous reading.

Investors are eagerly awaiting the upcoming Federal Reserve meeting, with expectations of a 25-basis-point interest rate hike. Additionally, the possibility of another rate hike before the year’s end has gained traction following the release of the latest economic report. As a result, the US Dollar is displaying broad-based strength in the forex market.

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WTI Oil Holds Steady Above $76.60 as FOMC Meeting Approaches
Western Texas Intermediate (WTI), the benchmark for US crude oil, is maintaining its position above the $76.60 level on Friday, displaying consolidation after achieving its fourth consecutive weekly gain. This upward momentum comes amidst indications of a tightening oil market.

Adding to market dynamics, tensions between Russia and Ukraine have escalated, with Russia attacking Ukrainian food export facilities for the fourth consecutive day and seizing ships in the Black Sea. These geopolitical developments have provided support to WTI prices.

Examining recent data, the Energy Information Administration (EIA) reported a decrease of 708,000 barrels in crude oil stocks for the week ending July 14. This figure contrasted with expectations of a 2.44-million-barrel decline and a 5.946 million barrel gain observed the previous week, further contributing to the positive sentiment surrounding WTI.

Additionally, Baker Hughes disclosed a decline of seven oil rigs in the United States this week, marking the largest drop since early June. With the number of active oil rigs reaching its lowest level since March 2022, at 530, concerns over the supply-side dynamics have emerged, propelling crude oil prices higher.

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AUD/USD Holds Firm to Robust Intraday Advances, Nears Daily Peak at Approximately 0.6770-75 Range

The Australian Dollar (AUD) against the US Dollar (USD) pair, also known as AUD/USD, has been exhibiting strong intraday gains during the early European trading session on Tuesday. For the second consecutive day, it continues to experience fresh buying interest around the 200-day Simple Moving Average (SMA), a key technical indicator that traders use to analyze market trends. The spot prices have reached a new daily high in the 0.6770-75 range, buoyed by multiple supportive factors.

Investor sentiment is primarily being driven by China’s pledge to bolster its fragile economy. This commitment has infused a positive risk tone in the global equity markets, which is beneficial for the risk-sensitive Australian Dollar. This optimism stems from the recent announcements made by China’s Politburo, the ruling Communist Party’s top decision-making body. They have outlined plans to make strategic adjustments to their economic policies with a focus on increasing domestic demand, bolstering confidence, and mitigating risks.

Adding to this, the National Development and Reform Commission (NDRC) of China has introduced measures aimed at stimulating private investment in infrastructure projects. They also aim to strengthen financing mechanisms for private initiatives. These actions are seen as proactive steps towards stabilizing the Chinese economy and have contributed to the upbeat investor sentiment.

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USD/CHF Dips, Stays Above 0.8600 Pre-FOMC
Today, the USD/CHF currency pair is again experiencing a downward trend, marking a second consecutive day of decline. Following an intraday uptick to the 0.8655 region, the pair has seen fresh selling activity and drifted into negative territory. During the early European session, spot prices fell to a new weekly low, with the pair currently trading around the 0.8620 area, down nearly 0.20%.

The U.S. Dollar (USD) is extending its modest pullback from a two-week high and continues to lose ground for the second straight day. This ongoing downtrend in the USD is exerting significant downward pressure on the USD/CHF pair. The USD’s dip can be attributed to some repositioning trade ahead of the anticipated Federal Open Market Committee (FOMC) decision. However, this dip is expected to be limited as traders eagerly await fresh cues about the near-term policy outlook.

Market participants have been progressively discounting the possibility of any further rate hikes this year, following the widely expected 25 basis points increase slated for this Wednesday. Despite this, investors remain skeptical about whether the Federal Reserve (Fed) will commit to a more dovish stance, given the strength and resilience of the U.S. economy. This skepticism persists despite Tuesday’s upbeat U.S. Consumer Confidence Index, which raised optimism that the U.S. economy could avoid a recession this year.

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