XtreamForex | Daily Technical Analysis

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AUD/USD Gains Momentum Above 0.6800 Amid Weakening USD
The AUD/USD currency pair demonstrated considerable strength during Thursday’s Asian trading session, surpassing the key 0.6800 level. This significant surge was largely driven by a weakening US Dollar, pushing the major pair to trade around 0.6807, marking a day’s gain of 0.75%. This movement exhibits the dynamic nature of global currency markets, where fluctuations can be triggered by a multitude of factors ranging from economic data releases to changes in monetary policy.

One of the contributing factors to this movement is the release of key economic data from Australia. The Australian Bureau of Statistics disclosed that the Import Price Index for the second quarter fell by 0.8% on a quarter-over-quarter basis. This figure is considerably less than the market’s expected decline of 7.3%, and it also marks an improvement from the previous reading’s drop of 4.2%. On the other hand, the Export Price Index experienced a steeper fall than anticipated, dropping by 8.5%, which contrasts with a rise of 7.8% in the first quarter.

This recent softening in Australian data has led to speculation about the Reserve Bank of Australia (RBA) potentially pausing additional rate hikes. Earlier in the week, the Australian Consumer Price Index (CPI) increased by 0.8% in the second quarter of 2023, a slower growth compared to the 1.4% increase seen in the first quarter and also below the market consensus of a 1.0% rise.

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EUR/JPY Rebounds from Intraday Low, Remains Steady Around 153.00 Level

The EUR/JPY cross experienced a rollercoaster ride in the financial markets, starting with a brief bullish spike that pushed it towards the 155.00 region. However, this upward momentum was short-lived as the pair swiftly plummeted to its lowest level since mid-June. The culprit behind this sudden downturn was a somewhat hawkish message delivered by the Bank of Japan (BoJ) on a Friday, which caught many traders off guard.

The BoJ’s announcement on that eventful Friday was centered around its Yield Curve Control (YCC) policy. The central bank decided to make the YCC policy more flexible by shifting away from rigid limits for the 10-year Japanese government bond yield cap, opting for “references” instead. This decision had an immediate and profound impact on the financial markets, particularly the Japanese Yen.

As a consequence of the BoJ’s policy shift, the 10-year Japanese government bond yield surged to its highest level since September 2014. This significant boost in yields strengthened the Japanese Yen, prompting aggressive selling around the EUR/JPY cross and leading to a sharp decline in its value.

Despite the initial turmoil, the EUR/JPY pair demonstrated resilience and managed to recover a considerable portion of its intraday losses. During the early European session, spot prices found stability just above the 153.00 mark, with only marginal changes for the day. This recovery was partly supported by a positive sentiment surrounding US equity futures, which diminished the safe-haven appeal of the Japanese Yen.

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Dollar Plunges to Upper 138 Yen Zone Amidst Speculation Over BOJ Policy Adjustment
The U.S. dollar saw a dramatic fall to the upper 138 yen level in Tokyo’s early trading hours on Friday. This substantial shift was driven by widespread speculation that the Bank of Japan (BOJ) may be considering adjustments to its ultra-easy monetary policy during its meeting later that day.

The yield on the benchmark 10-year Japanese government bond soared to 0.505 percent, exceeding the central bank’s upper limit of 0.500 percent. This increase in yields was spurred by a news report suggesting that the BOJ could potentially discuss a policy alteration, which might permit long-term interest rates to rise above the current cap by a certain margin.

In reaction to this news report, the value of the dollar plunged by roughly 2 yen. As of 9 a.m., the U.S. currency was being traded at 138.88-91 yen, a noticeable drop from its preceding rates of 139.45-55 yen in New York and 139.98-140.00 yen in Tokyo at 5 p.m. the previous day.

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Dollar Plunges to Upper 138 Yen Zone Amidst Speculation Over BOJ Policy Adjustment
The U.S. dollar saw a dramatic fall to the upper 138 yen level in Tokyo’s early trading hours on Friday. This substantial shift was driven by widespread speculation that the Bank of Japan (BOJ) may be considering adjustments to its ultra-easy monetary policy during its meeting later that day.

The yield on the benchmark 10-year Japanese government bond soared to 0.505 percent, exceeding the central bank’s upper limit of 0.500 percent. This increase in yields was spurred by a news report suggesting that the BOJ could potentially discuss a policy alteration, which might permit long-term interest rates to rise above the current cap by a certain margin.

In reaction to this news report, the value of the dollar plunged by roughly 2 yen. As of 9 a.m., the U.S. currency was being traded at 138.88-91 yen, a noticeable drop from its preceding rates of 139.45-55 yen in New York and 139.98-140.00 yen in Tokyo at 5 p.m. the previous day.

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GBP/JPY Surges to a Three-Week High of 182.80-182.85 on Broad JPY Weakness
The GBP/JPY pair has seen a significant rise for the second consecutive day on Monday, reaching a three-week high in the early European trading session. The pair is currently hovering around the 182.80-182.85 region, a surge of over 650 pips from Friday’s lowest point since June 13. This upward trend is largely due to the widespread weak performance of the Japanese Yen (JPY).

Indeed, the JPY is one of the worst-performing currencies among the G-10 and is under pressure due to an unexpected operation by the Bank of Japan to purchase ¥300 billion ($2 billion) worth of Japanese government bonds (JGB). This marks the first such operation since February 2022 and comes after a notable increase in the yield of 10-year benchmark JGB to a nine-year high, triggered by the BoJ’s decision to introduce more flexibility into its Yield Curve Control (YCC) policy last Friday. The BoJ stated that the 0.5% cap for the 10-year JGB yield will now be considered “references” rather than “fixed limits”.

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USD/CAD holds above the 1.3200 mark with limited upside potential

During Tuesday’s Asian session, the USD/CAD pair exhibited a modest rebound, managing to recover most of the losses experienced in the previous trading session. Presently, the pair is hovering around the 1.3220 mark, reflecting a modest 0.25% increase for the day. This recent price action places the spot prices in proximity to the three-week high recorded on Monday, generating interest among traders and investors.

The principal driving force behind the recent strength of the US Dollar (USD) can be attributed to the growing likelihood of the Federal Reserve (Fed) implementing further policy tightening measures. Fed Chair Jerome Powell’s statements from the previous week, emphasizing the necessity of an economic slowdown and labor market weakness to achieve a credible 2% inflation target, have significantly contributed to the USD’s surge. Additionally, a positive US GDP report has bolstered market expectations regarding a potential 25 basis points rate hike by the Fed, possibly taking place in either September or November. As a result of these developments, US Treasury bond yields have experienced an upward trajectory, thereby increasing the allure of the Greenback as a safe-haven asset, especially amid lingering concerns surrounding China’s post-COVID recovery slowdown.

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EUR/GBP Stalls Near 0.8600 Ahead of BoE Announcement with Mixed Sentiments
EUR/GBP is currently facing a struggle to maintain its strength near the 0.8600 level, as it enters Wednesday’s London session. The cross-currency pair appears to be brushing off mixed Eurozone data, while at the same time validating concerns over the UK’s economic outlook, resulting in the largest daily surge in two weeks seen in the previous trading session.

The recent release of the UK’s inflation data, which showed a downturn, has given some support to the Bank of England (BoE) hawks, as they try to combat soaring inflation amidst sluggish economic activities and labor market challenges domestically. Adding to the woes of the British Pound (GBP) is the setback faced by the ruling Tory Party in the recent by-elections, where they lost some key seats, further dampening market sentiment towards the currency.

Meanwhile, on the European front, Germany’s Unemployment Rate for June eased to 5.6%, slightly better than the 5.7% forecast and the previous reading. Additionally, the final figures of Germany’s HCOB Manufacturing PMI for July came in as expected at 38.8. Similarly, the Eurozone’s HCOB Manufacturing data also matched the initial forecasts of 42.7.

Supporting the euro, the European Central Bank (ECB) has been taking a “meeting-by-meeting” approach, and their recent decision to implement a 0.25% rate hike has boosted confidence among EUR/GBP bulls.

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USD/CAD settles at 1.3350, a one-month high, as the Oil price and US Dollar weaken

The USD/CAD currency pair has stabilized around the 1.3350 mark, a significant one-month high, in a volatile market landscape where key US economic data is keenly anticipated. This relative steadiness is due to a mix of contributing factors, including the decline in Oil prices and a lukewarm performance by the US Dollar Index (DXY).

The recent fluctuations in WTI crude oil prices have been striking. The commodity rose to its highest point since April 17, before abruptly reversing course and suffering its largest losses in six weeks. This sudden swing was instigated by an increase in risk aversion and rising speculation that Oil producers, especially those in OPEC+, are resistant to further production cuts. As per Reuters’ sources, the Oil cartel is likely to maintain its current output policies in its upcoming meeting on August 4. Consequently, WTI crude oil prices are currently on a two-day downward trend, trading approximately at $79.20 per barrel, indicating a 0.40% intraday drop.

Conversely, the US Dollar Index (DXY) found some resilience amidst the risk-averse market atmosphere. Boosted by robust US Treasury bond yields, the DXY hit a three-week peak. Moreover, encouraging US ADP Employment Change figures for July added to the positive outlook for the US Dollar. However, a persistent resistance line that’s held for nine weeks is limiting the DXY’s gains, keeping the gauge steady against six major currencies at 102.60.

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Euro Hovers Near 1.0950 Ahead of US NFP Data Release
As the week draws to a close, the Euro (EUR) continues to trade in an uncertain manner against the US Dollar (USD), keeping the EUR/USD pair confined within a tight trading bracket around the 1.0950 mark. The uncertainty is mirrored in the USD Index (DXY), which has maintained steady trade within the mid-102.00s range. This lack of clear direction can be attributed to the absence of a definitive trend in US yields, despite their recent surge to nine-month highs across multiple segments of the yield curve.

Investors’ attention is now drawn towards the forthcoming release of the Nonfarm Payrolls report for July. The report is widely anticipated to reflect an increase of approximately 200K jobs. This heightened interest is largely driven by the Federal Reserve’s recent emphasis on the role of economic data in shaping its monetary policy decisions, a point that was underscored during its event held on July 26.

Currently, there is rampant speculation that the rate hike executed by the Fed in July might be the last one we will see in the near-term future. This conjecture has been fuelled by the Federal Reserve’s insistence on basing its decisions on economic data points, suggesting that unless the data indicates a need for further hikes, the current rates could hold steady for some time.

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EUR/USD Stays Defensive Below 1.1000, Vulnerable Amid Modest USD Strength

At the start of the new trading week, the EUR/USD pair encountered notable selling pressure, leading to a retracement from its recent peak near the 1.1040 level. During the Asian session, spot prices slipped below the psychologically significant 1.1000 mark, temporarily disrupting the two-day recovery that had lifted the pair from the 100-day Simple Moving Average (SMA) around 1.0910. The recent rebound in EUR/USD had come after it touched a nearly one-month low last Thursday, signaling underlying weakness in the currency pair.

Driving the market sentiment, the US Dollar (USD) gained traction as investors embraced the hawkish stance of the Federal Reserve (Fed). Despite a somewhat underwhelming US Non-Farm Payrolls (NFP) report released on Friday, which indicated the addition of 187,000 jobs in July with downward revisions for May and June figures, the USD found support due to robust wage growth and a lower unemployment rate, both of which pointed to a tightening labor market. These factors solidified the possibility of the Fed implementing a 25 basis points rate hike in either September or November, bolstering the demand for the greenback.

On the flip side, the euro faced challenges as expectations grew that the European Central Bank (ECB) would halt its streak of nine consecutive interest rate hikes during its September meeting. Concerns escalated as indications arose that inflation in the Euro Zone had likely reached its peak. Notably, Fitch Ratings’ statement on the matter and the ECB’s economic bulletin, both hinting at a potential slowdown in underlying inflation, further weighed on the sentiment surrounding the EUR/USD pair.

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