Daily Market Analysis from ForexMart

The global recession is getting closer. USD, EUR, GBP overviewCFTC data reflects a significant deterioration in sentiment towards the US dollar. The overall short position on the USD increased by 7.39 billion during the reporting week, reaching -19.88 billion, marking the largest weekly change since 2020, and the highest bearish bias since 2021.Significant adjustments were observed in positions on the euro and yen. In addition, it is worth noting that the net long position on gold increased by a substantial 6.231 billion, reaching 38.258 billion. Buying gold while simultaneously selling the dollar often signifies expectations that the dollar will weaken.The Federal Reserve's rate hike on Wednesday is considered a done deal, and the market's primary focus will be on the forecasts. The Fed's main goal is to lower inflation expectations and reduce demand, so far this goal has not been achieved. Retail sales data for June indicates high consumer activity, suggesting a potential threat to the sustainability of core inflation.The prospects for the dollar remain unclear for now. Either tightening financial conditions will lead to a sharp decline in consumption, creating conditions for a recession, or the transition will be more gradual. In the first case, the dollar will weaken, while in the second, any corrective decline may be short-lived, as the eurozone economy is closer to a recession than the US economy.EUR/USD:The European Central Bank meeting will take place on Thursday, and a 25 bps rate hike is considered a done deal, as Council members have repeatedly communicated in their comments. The rate hike itself is unlikely to cause a significant movement.The main focus will be on the forecasts, from which the market will obtain information about the plans for the September meeting - either the central bank signals another rate hike, or it decides to take a pause. These post-meeting data will be the factor that either pushes the euro higher or fuels the corrective decline.The eurozone economy is slowing down, and the PMI data published on Monday came out worse than expected in all sectors - both in manufacturing and services. The slowdown in activity suggests that inflation deceleration will continue, and the September meeting will be the last one where the ECB raises rates. If the market confirms this assumption, the euro will fall, and the uptrend will come to an end.The net long position on the euro increased by 5.8 billion during the reporting week, marking the most significant improvement in sentiment towards the euro since September of last year. The calculated price has yet to move up.Investors seem to be anticipating the end of the Fed's rate hike cycle, as well as the US dollar's bullish momentum. The FOMC meeting will take place on Wednesday, and the expected rate hike is already fully priced in. As a result, the yield spread will start to favor the euro, as the ECB is still far from the end of its rate cycle. It is assumed that the end of the Fed's tightening cycle will be accompanied by hawkish comments, which could push EUR/USD to fall towards the support level at 1.1010/20. Considering the significant change in sentiment on futures after the formation of a local base, the euro will likely attempt to bring back its upward movement.GBP/USD:The retail sales data for June came out better than expected, supporting the pound as maintaining high consumer demand also implies the preservation of high inflation expectations and, consequently, an increase in the Bank of England's rate forecasts.At the same time, business activity is slowing down faster than expected - the manufacturing PMI fell from 46.5 to 45 in July, while the services PMI fell from 53.7 to 51.5. The composite PMI also slowed down from 52.8 to 50.7. Considering that GDP growth is minimal and the UK economy is half a step away from a recession, maintaining high consumption while PMI activity declines implies a transition to a stagflation regime, which combines high inflation and recession. This is an awful scenario for the BoE, which they would like to avoid.Inflation in the UK is higher than in the eurozone and the US, which suggests further rate hikes by the BoE even before the threat of a recession. This factor will support demand for the pound in the short term.The net long position on GBP increased by 499 million during the reporting week, reaching 5.192 billion, reflecting bullish positioning. The calculated price is currently pointing downwards, which suggests an attempt to develop a corrective decline.The pound has fallen below the support level at 1.2847, which technically indicates the possibility of a downward movement. The next support is at 1.2770/90, where the lower band of the long-term bullish channel lies. Considering that speculative positioning in futures is shifting in favor of the pound, we assume that the bearish attempts are of a corrective nature, and the pound is unlikely to fall below 1.2770. After forming a local peak, we expect the pair to resume its uptrend.

US dollar comes on top as euro lags behindThe American currency has once again taken the lead, pushing the European currency to the sidelines. The dollar was boosted by strong US consumer confidence data. Meanwhile, the euro has experienced a significant decline remains hopeful of a rebound in the near future.On the evening of Tuesday, July 25th, the greenback demonstrated significant growth against the euro, soaring higher after the release of encouraging consumer confidence data in the USA. According to latest reports, the consumer confidence index in the US increased to a 2-year high of 117 points in July, up from the revised 110.1 points in June.Against this backdrop, the US Dollar Index (USDX) performed well, reaching a peak of 101.65 points but later dipped slightly by 0.08%. It's worth noting that USDX exhibited a consistent uptrend over six consecutive trading sessions, nearly recouping 50% of its losses from early July. According to Sean Osborne, a leading currency strategist at Scotiabank, the prospects for the US dollar remain uncertain: "While the DXY rebound has extended a bit more than I expected the broader outlook for the USD remains somewhat challenging and I still rather look for the USD to weaken in H2," he commented.Nevertheless, the euro, the recent market favorite, was unable to take advantage of the dollar's moves and suffered a noticeable setback against it. However, most of the G10 currencies strengthened against the American currency, particularly the Australian dollar, the Swiss franc, and the Japanese yen.The unexpected driving force behind the surge of major currencies against the greenback was the optimism regarding the prospects of the Chinese economy. Recently, Chinese authorities outlined revised plans for additional economic support, extending their backing to troubled sectors such as the real estate market, while pledging to boost consumption and address regional government debts.Analysts argue that this newfound Chinese optimism weighed down on the dollar, which is now bearing the burden of China-inspired optimistic sentiment against its major G10 peers. As a result, the US dollar index retreated from its two-week highs after being previously supported by elevated PMI data. Furthermore, market participants' uncertainty about the Federal Reserve's forthcoming actions contributed to the dollar's decline.Investors and traders expect that on Wednesday, July 26th, the Federal Reserve will raise its key interest rate, marking the final move in the current tightening cycle. According to analysts, the monetary authorities will maintain the possibility of further maneuvers in the future, in case a return to tightening is deemed necessary. However, there are risks involved. "Policymakers will want to leave the door open to more tightening down the road but history shows markets are quite attuned to the top of the rate cycle when it comes and USD has generally weakened once peak rates are in," analysts at Scotiabank warned.In this complex situation, the euro finds it challenging to stay afloat. EUR has demonstrated weakness after the publication of Eurozone economic data. According to reports from the German research institute IFO, key indicators, namely the EU Business Climate Index and the Current Assessment Index, came in worse than previously forecast. In July, the business climate index in Germany dropped to 87.3 points from the previous 88.6 points, falling short of market expectations of 88 points.This ambiguous situation has negatively impacted EUR/USD. After rising to 1.1100, the pair reversed course and fell to the lowest level in two weeks around 1.1050. On Wednesday morning, July 26th, EUR/USD was trading between 1.1058 and 1.1059, gradually attempting to break free from the downward spiral.According to analysts, currently EUR/USD lacks momentum for growth, despite the rebound from the two-week low. The pair benefitted from the US dollar's short term retreat, but failed to attract bulls due to concerns about a recession in the Eurozone.The market's focus is now on policy meetings of central banks around the world, which are taking place this week. On Wednesday, July 26th, the Fed will announce the policy decision following the July meeting. The overwhelming majority of analysts expect the Fed funds rate to be hiked by 25 basis points to 5.25% - 5.5%.On Thursday, July 27th, the European Central Bank (ECB) will hold its meeting. Later, the ECB will publish its decision, which analysts also believe will lead to a 25 basis point rate hike to 4.25%.If the ECB's rhetoric turns out to be less hawkish than that of the Fed, EUR/USD may fall below the key psychological level of 1.1000. However, analysts still consider 1.1050 as the key support level.Additionally, on Thursday, the US will publish its first estimate of GDP growth for Q2 2023. Preliminary data indicate the American economy grew by 1.8% year-on-year during this period, following a 2% increase in Q1. Despite this, market participants remain primarily focused on the Federal Reserve and ECB meetings, their monetary policies, and the hints provided by the central bank heads regarding future actions.

The Bank of England will raise interest rates in SeptemberThe week ended quite predictably for both instruments, but the wave analysis suggests that it is quite challenging to predict what lies ahead. Both uptrends cannot be impulsive, but they can be five-wave corrective patterns of the a-b-c-d-e kind. Consequently, quotes can rise within the wave e. The recent downward waves have taken a three-wave corrective pattern at the moment, which corresponds to a corrective status but not an impulsive one. However, after three waves, two more waves can be built. Based on the above, both instruments, from current levels, have an equal probability of either starting a new upward movement or extending the decline.In this situation, I recommend focusing on the nearest Fibonacci levels. For the euro, the wave analysis is somewhat more complicated, while for the pound, we see a clear three-wave downward movement. A successful attempt to break the 161.8% Fibonacci level may indicate the end of the downward wave, which would be the fourth wave within an uptrend. The euro may also construct a similar wave formation.The question of further interest rate hikes by the Bank of England is also crucial for the market right now. Many analysts (including myself) believe that the tightening cycle will end this year, with only three meetings remaining until the end of the year. The next meeting is likely to result in a 100% rate hike, as BoE Governor Andrew Bailey has not signaled any pause, and inflation remains high. Bailey has also given an approximate inflation target for autumn 2023. If inflation decreases to 5%, the BoE will take a less aggressive approach to interest rates.In November, the probability of a rate hike is 50/50. Consequently, by December, the likelihood of a rate increase approaches zero. This implies that, at best, there may be two more rate hikes. Meanwhile, the FOMC may raise rates one more time, resulting in almost complete parity between the two central banks. In my view, this scenario suggests a horizontal movement or continuation of the downward trend, but not a new upward wave for both instruments. After all, the ECB is also starting to talk about a possible pause in September in recent weeks.Therefore, I believe that there's a high probability that both instruments will fall, and the nearest Fibonacci levels should help determine the resumption of the downward movement. I also want to draw attention to the similarity in the movements of the euro and the pound. Hence, a signal for one instrument can be used for the other as well.Based on the conducted analysis, I conclude that the formation of the upward wave set is complete. I still consider targets around 1.0500-1.0600 quite realistic, and with these targets in mind, I recommend selling the instrument. The a-b-c structure looks complete and convincing, and closing below the 1.1172 mark indirectly confirms the formation of the downtrend segment. Therefore, I insist on selling the instrument with targets around 1.0836 and below. I believe that the formation of the downtrend segment will continue.The wave pattern of the GBP/USD instrument suggests a decline. As the attempt to break the 1.3084 mark (from top to bottom) was successful, my readers were able to open short positions, as I mentioned in my recent reviews. The target was set at 1.2618 and the pair managed to reach this mark. There is a risk of completing the current downward wave if it is the 4th wave. In this case, a new upward movement will start from the current levels as part of the 5th wave. In my opinion, this is not the most likely scenario, and a successful attempt to break 1.2618 (or an unsuccessful attempt at 1.2840) will indicate the market's readiness to continue building the downward wave and trend segment.

The global economy is slowing down, risk appetite is decreasing, and the USS is experiencing increased demand. Overview of USD, CAD, JPYActivity in the currency market remains subdued in the absence of significant economic reports, with the main focus on the US inflation report on Thursday, which could lead to more pronounced movements.Risk assets are still under pressure due to weak data from China, indicating a decline in global demand. Following Tuesday's disappointing external trade data, it was revealed that China's economy has slipped into deflation, with inflation turning negative at -0.3% YoY in July. Consumer prices rarely decrease in China, and given that other countries continue to grapple with high inflation, this is a worrying sign for the global economy as a whole.The US dollar remains the leader in the currency market, playing the role of the primary safe-haven currency in the current conditions.USD/CADThe Canadian dollar has received several sensitive blows and lost its positive momentum against the USD. The labor market report for July showed a decrease in the number of new jobs (-6.4K), while an increase of 21.1K was forecasted, which is particularly noticeable against the backdrop of strong growth in June (+59.9K).The unemployment rate rose from 5.4% to 5.5%, and more importantly, the average wage growth increased from 3.9% YoY to 5% YoY. Wage growth is usually a bullish factor as it fuels high inflation, but with simultaneous economic slowdown, this factor begins to work against it.The Ivey Purchasing Managers Index (PMI) for July dipped into contraction territory, hitting a multi-month low of 48.6 points. This indicates an economic slowdown. However, the price sub-index rose to a 5-month high, increasing from 60.6 points to 65.1 points.The Canadian economy has suddenly lost the advantage that allowed for expectations of sustainable CAD growth. Inflation remains strong, and to contain it, it is logical to anticipate further actions by the Bank of Canada. These expectations are in favor of CAD strengthening. However, simultaneously, a slowdown in activity with further tightening of monetary policy could lead Canada's economy into a recession. This, on the contrary, limits the resolve of the Bank of Canada.The unstable equilibrium deprives the Canadian currency of its advantage, weakening the bullish momentum.The net long position on CAD has increased slightly over the reporting week, with positioning being neutral. However, the calculated price after the release of the disappointing employment report turned upwards and moved above the long-term average.The sharp upward turn in the calculated price reduces the chances of a confident resumption of USD/CAD decline. Currently, the pair is trading near the middle of a corrective bearish channel. If no additional arguments arise from the Canadian side, the likelihood of further growth will remain high. The long-term target is the upper band of the channel at 1.3690/3720, with support at 1.3350/70.USD/JPYThe key question that will determine the fate of the Japanese yen remains how resolutely the Bank of Japan is prepared to act in order to reduce domestic inflation. Alternatively, the Bank might continue adopting a wait-and-see position, resorting to adjustments to the current monetary policy.Possible hawkish steps by the BOJ involve two potential actions - either a complete abandonment of the yield curve control (YCC) policy or a withdrawal from negative interest rates. Any actions in this direction will be interpreted by the market as a hawkish signal, leading to yen strengthening. Conversely, maintaining the current policy will inevitably contribute to further yen weakening.The recent comments from BOJ officials after the July 28 meeting are cautious and do not provide grounds to expect any decisive steps. For example, BOJ Deputy Chief Uchida Shinichi stated at a press conference that the Bank is "considering an exit from monetary easing but does not see reasons for any actions in the foreseeable future," and that the decision is still "far off."In other words, the "wait and see" policy remains in place. The yen can start to strengthen under current conditions only if negative trends in the global economy intensify, leading to a noticeable increase in demand for safe-haven assets. As long as there is no reason for such a scenario, there is no reason for yen strengthening.The net short position on the yen has slightly increased over the reporting week and solidified just above -7 billion, speculative positioning is confidently bearish. The calculated price is above the long-term average and aimed at continuation of growth.The development of the upward movement for USD/JPY is still the main scenario, despite attempts at consolidation near the 143 level. A week ago, we identified the local high at 145.06 as the target for bullish momentum development and the upper band of the channel at 147.30/70 as the long-term target. These targets remain relevant and can only be adjusted in case of truly significant changes from the BOJ in its monetary policy. As long as changes are cosmetic, the dollar is objectively stronger in this pair.

EUR/USD. Weekly preview. US retail sales, Fed minutes, ZEW indicesOver the course of the first two weeks of August, the EUR/USD pair has failed to establish a clear direction. Despite prevailing bearish sentiments, sellers have been unable to solidify their position at the base of the 9th figure, let alone breach the support level at 1.0870. All of this indicates that the bears are hesitant, who are eager to lock in profits as soon as the price dips below the 1.0950 level (the middle line of the Bollinger Bands indicator on the weekly chart). The significant events of the previous week, like China's foreign trade data, the downgrade of American banks' ratings by Moody's, and the US inflation reports, led to a certain level of volatility. However, once again, the price remained within the confines of the 9th figure, with a brief impulsive surge to 1.1062. The pair completed a circle and returned to it's previous positions.The economic calendar for the upcoming trading week is relatively modest, although not entirely devoid of events. Let's review the main highlights of the next five days.Monday - TuesdayAt the start of the trading week, the pair is likely to trade with the momentum of Friday. Monday's economic calendar is almost empty, with perhaps the German Wholesale Price Index being of interest. This indicator is expected to show a positive trend, but will still remain in the negative territory, both on a yearly basis (-2.6%) and on a monthly basis (-0.1%).The main release on Tuesday is the US Retail Sales report. Positive dynamics are anticipated here. According to forecasts, retail sales volume in the US is expected to increase by 0.4% in July, following a 0.2% growth in June. Excluding auto sales, the indicator is also projected to rise by 0.4%. Additionally, the Empire State Manufacturing Index, which is based on a survey of manufacturers in the New York Federal Reserve District, will be released on Tuesday. Here, on the contrary, negative dynamics are expected, with the indicator predicted to decline to -0.3.Furthermore, on Tuesday, Neel Kashkari, the President of the Federal Reserve Bank of Minneapolis, will be speaking. He could potentially generate increased volatility among the dollar pairs. Firstly, he holds voting rights in the Committee this year. Secondly, Kashkari has already commented on recent inflation releases, and his tone was rather positive. According to him, the US central bank has made "good progress" in combating inflation. If he voices similar rhetoric next week, the dollar might come under pressure again.During the European session on Tuesday, traders should pay attention to the German ZEW Economic Sentiment indices. In particular, the business sentiment index for Germany in August is expected to remain at the July level of -12 points. The business expectations index is expected to deteriorate to -15 points (the worst reading since December 2022). The current situation index is also projected to worsen to -63 points (the lowest reading since November of the previous year).WednesdayOn Wednesday, EUR/USD traders will focus on the minutes of the July Federal Reserve meeting. Recall that the outcomes of the July meeting did not favor the US dollar. Among all the possible scenarios, the Fed implemented perhaps the most dovish one. The US central bank tied the fate of the interest rate to the dynamics of key macroeconomic indicators. The central bank retained the key formulations of the accompanying statement in their previous form, and Fed Chairman Jerome Powell, during the final press conference, indicated that the September Fed meeting could end with either another rate hike or keeping it unchanged. He emphasized that the central bank in the fall will evaluate the entire set of macroeconomic data "with special emphasis on progress in the field of inflation." The Fed's indecisive stance was interpreted against the US dollar.A hawkish tone in the minutes of the July meeting could provide support to the US dollar, especially since this meeting took place before the release of US inflation data for July. However, in my opinion, the document will likely reflect the Fed members' hesitant stance, considering the corresponding formulations in the final communique.In addition, on Wednesday, the report on the volume of building permits issued in the US will be released (expected growth of 1.1%), as well as the industrial production report (also expected to grow by 0.3%, following two months of negative dynamics).ThursdayOn Thursday, traders should focus on the Philadelphia Federal Reserve's Manufacturing Index. The indicator has been in the negative zone since September 2022. According to forecasts, in August, the index will also remain below the "waterline" but will demonstrate positive dynamics, rising to the level of -9.8 points.Furthermore, on Thursday, traders could also pay attention to the Initial Jobless Claims data in the US. Over the past two weeks, this indicator has been rising, and according to forecasts, this trend will continue: next week, the number of claims is expected to increase by 250,000 (last week - 248,000, the week before last - 227,000).FridayThe economic calendar for the final trading day of the week is not packed with events for the EUR/USD pair. The only thing of interest is the eurozone inflation data for July. We will learn the final assessment of July's Consumer Price Index (CPI), which, according to forecasts, should match the initial assessment (a decrease in the Consumer Price Index and an increase to 5.5% in the core CPI).ConclusionsThe EUR/USD pair is in a hanging state. In order to develop a downtrend, sellers need more than just to establish themselves at the base of the 9th figure – they need to overcome the support level of 1.0870 – at this price point, the lower line of the Bollinger Bands indicator on the daily chart coincides with the upper and lower bands of the Kumo cloud. If the bears break through this price barrier, the Ichimoku indicator will form a bearish "Parade of Lines" signal, indicating the strength of the downward movement. This is not an easy task, considering the fact that over the last two weeks, the downward momentum has faded at the base of the 9th figure.The bulls don't have an easy task either: they need to establish themselves above the 1.1050 mark – this is the upper line of the Bollinger Bands, coinciding with the Kijun-sen line on the same timeframe. In that case, the pair can move towards the 11th figure. However, throughout August, buyers only impulsively tested the 1.1050 target, afterwards they retreated, locking in profits. Given the relatively uneventful economic calendar for the upcoming week, we can assume that the pair will continue to trade within the range of 1.0950 – 1.1050, with periodic attempts to establish themselves at the base of the 9th figure.

Growth in yields and stable inflation suggest further rate hikes. USD, EUR, GBP ReviewThe 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/USDThe 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/USDInflation 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.

The most interesting events this weekThe previous trading week was filled with important events and reports. When looking at the range and movements of both instruments, one might wonder: why was it so subdued? It was reasonable to expect stronger movements and market reactions. To briefly recap, key reports from the United States turned out weaker than market expectations. Even the stronger ones left a peculiar impression. GDP grew by 2.1% in the second quarter, not the expected 2.4%. The ADP report showed fewer new jobs than expected. Nonfarm Payrolls reported more jobs, but the previous month's figure was revised downward. The ISM Manufacturing Index increased but remained below the 50.0 mark. The unemployment rate rose to 3.8%, which few had anticipated.Based on all these reports, one might have assumed that it was time to build a corrective upward wave, but on Thursday and Friday, the market raised demand for the US dollar, so both instruments ended the week near their recent lows. So what can we expect this week?On Monday, the most interesting event will be European Central Bank President Christine Lagarde's speech.On Tuesday, another speech by Lagarde, as well as Services PMIs of the European Union, Germany, and the United Kingdom. We can also expect speeches by other members of the ECB Governing Council. I advise you to monitor the information related to Lagarde's speeches. If she softens her stance, it can have a negative impact on the euro's positions.Wednesday will begin with a report on retail trade in the EU and end with the US ISM Services PMI. We can consider the ISM report as the main item of the week, although the ISM Manufacturing PMI that was released on Friday did not stir much market reaction. It is likely that the index will remain above the 52.7 mark, which is unlikely to trigger a market reaction.On Thursday, you should pay attention to the final estimate of GDP in the second quarter for the European Union. If it comes in below 0.3% quarter-on-quarter, the market may reduce demand for the euro. The US will release its weekly report on initial jobless claims. On Friday, Germany will publish its inflation report for August, and that's about it. There are hardly any important events and reports this week.Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still believe that targets in the 1.0500-1.0600 range are feasible, and I recommend selling the instrument with these targets in mind. I will continue to sell the instrument with targets located near the levels of 1.0637 and 1.0483. A successful attempt to break through the 1.0788 level will indicate the market's readiness to sell further, and then we can expect the aforementioned targets, which I have been talking about for several weeks and months.

The euro could be heading down for a long timeThe euro kicked off the new week with some negative traction. In previous articles, I've already drawn your attention to the statements of some members of the European Central Bank's Governing Council, which boiled down to a simple idea – the hawkish rhetoric is fading, and the ECB is preparing to conclude the process of tightening monetary policy. Thus, the decrease in demand for the euro is quite natural.On Monday, ECB President Christine Lagarde refused to answer questions about the rate at the September meeting. Some of her colleagues actively hinted that rates should be kept at peak levels for as long as possible but didn't mention new rate hikes. On Wednesday, Peter Kazimir said that interest rates could rise by another 25 basis points. This could happen as early as next week, although a pause in September with a subsequent increase in October or December is also possible.In my opinion, it doesn't matter when exactly the ECB will raise rates for the last time. The key point is that until the tightening process is complete, there is at most one more hike. Right now, it's not even important how high inflation is in the European Union and how quickly it is decreasing because rates have been the priority for the market over the past year. Since the ECB may raise rates for the last time and the Federal Reserve may raise rates for the last time, it may seem that the euro and the dollar are in similar conditions. However, this is not the case. First, the sentiment suggests a decline. Second, the US currency has been falling for quite a while, and during this period, the Fed has been more aggressive than the ECB. This implies that the euro is a bit more expensive than it should be. I believe that most factors currently favor further depreciation.I would also like to note another statement from another member of the ECB's Governing Council, Francois Villeroy de Galhau, who stated that interest rates are near their peak, echoing Kazimir's rhetoric. Villeroy also noted that there is currently no recession, and inflation will not slow down to 2% until at least 2025. This implies that the central bank will not further tighten its policy to avoid causing a recession in the European economy, and they can afford to wait on inflation.Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still believe that targets in the 1.0500-1.0600 range are quite feasible. Therefore, I will continue to sell the instrument with targets located near the levels of 1.0636 and 1.0483. A successful attempt to break through the 1.0788 level will indicate the market's readiness to sell further, and then we can expect to reach the targets I've been discussing for several weeks and months.The wave pattern of the GBP/USD pair suggests a decline within the downtrend. There is a risk of completing the current downward wave if it is d, and not wave 1. In this case, the construction of wave 5 might begin from the current marks. But in my opinion, we are currently witnessing the construction of the first wave of a new segment. Therefore, the most that we can expect from this is the construction of wave "2" or "b". I still recommend selling with targets located near the level of 1.2442, which corresponds to 100.0% according to Fibonacci.

Trading Signal for GOLD (XAU/USD) on September 12-13, 2023: buy above $1,919 (3/8 Murray - 21 SMA)Early in the European session, gold (XAU/USD) is trading around 1,923.19, above the 3/8 Murray, and above the 21 SMA. On the 4-hour chart, we see that gold is consolidating within a bullish trend channel formed since August 6.If theinstrument remains above 1,919 in the next few hours, we could expect it to continue rising and the price could reach the top of this channel around 1,930.According to the 4-hour chart, the bears are gaining strength in the short term, but overall, XAU/USD remains consolidated around 1,920 - 1,930. XAU/USD is above the daily pivot point which gives it a positive outlook. The key level is 1,923, above which gold is expected to continue rising to 1,930 and up to 1,953 (5/8 Murray).In case gold trades below 1,919, a bearish acceleration is expected to occur, but for this, we should wait for confirmation below 1,915, which could be seen as a signal to sell with the first target of 2/8 Murray at 1,906. The price could even reach the psychological level of 1,900.Meanwhile, gold might produce a positive signal if it manages to settle above 1,920. Then, there will be an opportunity to buy with targets at 1,930, 1,937, and 1,953.The eagle indicator is giving a positive signal. However, if the gold price falls below 1,915, we should avoid buying. If this scenario does not occur at the current price levels, we could buy with the target at 1,953 in the short term.

EUR/USD: The euro falls after hawkish ECB surpriseThe European Central Bank surprised market participants by raising interest rates by 25 basis points. We must pay tribute to the ECB – it hasn't forgotten how to surprise! Although such unexpected moves, typical of, say, the Reserve Bank of New Zealand, are not characteristic of the ECB – they indicate a weak level of communication. Some hints of hawkishness were heard from certain representatives of the Bank (for example, Klaas Knot suggested not underestimating the potential for a hawkish scenario), but overall, the market was largely expecting a different outcome. The probability of maintaining the status quo was estimated at around 60-70%, and this confidence was also shaped by cautious/dovish statements from ECB members. Weak PMIs, ZEW, IFO, a contradictory report on inflation growth in the eurozone, weak retail sales, a decline in industrial output, and a slowdown in the Chinese economy – all these factors also spoke in favor of a wait-and-see stance. Therefore, the ECB's decision is one that goes "against the grain."However, the determination (in the current circumstances, it can even be called boldness) of ECB members did not help the single currency. Ironically, the unexpected hawkish surprise from the ECB sent EUR/USD plunging. Reacting to the results of the September meeting, the pair hit nearly a 4-month low, marking it at 1.0650 (the lower Bollinger Bands line on the daily chart).So, what is the reason for such an anomalous market reaction at first glance? The devil, as always, is in the details. The ECB raised interest rates by 25 bps with one hand but effectively put an end to the current cycle of monetary policy tightening with the other. The central bank signaled that interest rates have "reached a level that will make a substantial contribution to containing inflation." Such wording is difficult to interpret, so EUR/USD traders viewed the ECB's decision as the "final chord" of the current cycle.Interestingly, ECB President Christine Lagarde tried to soften the message during the final press conference, stating that "it is not possible to definitively say that ECB rates have reached their peak at this time." However, judging by the EUR/USD reaction, market participants have already drawn conclusions about the prospects for further monetary tightening.It is important to note again that most ECB officials were cautious or dovish in the run-up to the September meeting, pointing out signs of economic slowdown (especially after the release of PMIs), cooling labor markets, slowing inflation (particularly core HICP), and a slowdown in bank lending. Thus, they hinted at the need to maintain the status quo. However, after the September meeting, it became clear that inflation, which is still at a high level, worries ECB officials more than the deteriorating economic outlook.The latest inflation report reflected the "stubbornness" of European inflation. The Consumer Price Index remained unchanged at 5.3% in August (against expectations of a decline to 5.1%). This gauge has been steadily declining since October 2022, moving from its peak of 10.6% to the current target of 5.3%. However, the downtrend has recently stalled. As for core inflation, the situation is somewhat different. Core HICP, excluding energy and food prices, rose actively until March, reaching 5.7%. Then, the gauge gradually lost momentum but remained within a range: it was at 5.3% in May, 5.5% in June and July, and finally, in August, the index returned to 5.3%.This report was published two weeks ago on August 31st. Since then, discussions in the expert community about the ECB's future actions have not subsided. After a series of disappointing economic reports (as listed above), hawkish expectations diminished, and the balance tipped in favor of a wait-and-see stance. However, as we can see, the ECB decided to "squeeze" inflation without considering the fragile economic growth in the eurozone.At the same time, the ECB weakened the euro with its "conclusive" rhetoric. In particular, it was stated that interest rates are already at a level that will be maintained "for a sufficiently long time." According to the ECB, this will significantly contribute to reducing inflation. The central bank hinted that another round of monetary tightening within the current cycle is possible, but such a step would be of an extraordinary nature. This rhetoric did not sit well with the euro, particularly with EUR/USD buyers, resulting in the pair remaining below the 1.06 level.From a technical perspective, the bears reached the support level at 1.0650, which corresponds to the lower Bollinger Bands line on the daily chart but failed to break through it. Therefore, selling appears risky right now, as you may "catch a price bottom." Short positions should be considered once the pair breaks through 1.0650 (in which case the bearish target will be around 1.0600) or during bullish corrections. In the latter case, the target would be 1.0650.

EUR/USD: Short-term rise and bearish outlook. Markets eye Fed meetingTraders are showing a renewed appetite for the euro at the start of this week. However, it is essential to remain cautious. The trend remains bearish, and the eurozone calendar remains almost empty. The US dollar is under the spotlight this week. Meanwhile, some predict another US dollar rally.What to expect from EUR/USD this week?The euro will likely face pressure against the greenback in the coming weeks, especially after dipping below a critical level last week. With no new data from the eurozone, the Fed's upcoming rate decision might not add to this pressure and could even boost the pair's quotes. Everything hinges on the message from the US regulator.The following trading sessions will be tense. The direction for the EUR/USD pair remains unclear, even if some think otherwise. As we know, markets can quickly shift their sentiment.Following the European Central Bank's (ECB) recent decision on interest rates, the euro began to decline. The decision confirmed rates would remain steady for the foreseeable future, signaling a pause in rate hikes.The euro hovered near 1.0675, the lowest level since March 2023.There were initial attempts for a euro rally after the ECB decided to hike rates by 25 basis points, peaking at 1.0729, but these efforts did not bear fruit. This could lead to a test of this year's range between 1.0500 and 1.1000.Markets expect the ECB to tighten its policy by approximately 11 basis points and cut by 25 basis points in July 2024. This could pressure the euro, especially if followed by a soft review.The current instability of the EUR/USD pair suggests a stronger dollar position, especially after falling below the 200-day moving average on the daily chart.Analysts at Societe Generale say that this looks ominous.Upcoming economic data is anticipated to show a slowdown, implying a downturn in the eurozone due to high interest rates. This economic slowdown will work against the euro.The euro might remain at risk until economic growth in the eurozone starts to rebound.The only silver lining for the euro or British pound, in a context where growth forecasts drive currency trajectories, is that growth expectations for the UK and eurozone are already bleaker than in the US.This should help prevent a dramatic drop in the EUR/USD or GBP/USD pairs, but the pound could still reach 1.2000 and the euro could fall below 1.0500 if we do not see any positive economic news in the near future.Euro Technical AnalysisThe EUR/USD pair is bracing for a rebound from the multi week low of 1.0630 that was recorded on Friday.If the pair breaks the 15 September low of 1.0631, the next targets will be the 15 March low of 1.0516 and then the 6 January 2023 low of 1.0481.If the pair breaks through the level of 1.0827 (200-day simple moving average), it could encourage a bullish move to 1.0922 and then the August 30 high of 1.0945.A break above this level could facilitate a test of the psychological level of 1.1000 and the August 10 peak at 1.1064.Fed meetingThe US central bank is preparing to release its latest decisions and recommendations, which may cause volatility for the US dollar. However, many experts believe that major changes in the Fed's monetary policy are unlikely.Highlights includeRate Forecasts: Many economists expect the Fed to keep rates at 5.25-5.50%.Fed Dot Plot. This chart will show how FOMC members see future interest rate movements. Most members will likely indicate that the current rate level will remain unchanged through the end of 2023.Risks for the US dollar. If the dot plot shows that some Fed members are considering a rate cut in 2024, it could put pressure on the dollar.Fed Summer Indicators. Two CPI inflation reports are expected to be close to consensus. These data, along with other economic indicators, will confirm that the current level of interest rates is likely adequate to stabilize inflation.Based on these projections and analysis, the Fed's decisions may confirm the current trend in monetary policy and, as a result, the resilience of the dollar in global markets.US Dollar Technical AnalysisThe US dollar index is near its 2023 high of 105.88. Short-term support and resistance levels are located at 104.44 and 105.88 respectively. The long term support level is marked at 103.04.Bullish Scenario. If the DXY closes above 105.88 during the week, it could signal further dollar strength in the medium term.Bearish Scenario. If the index reverses and breaches the level of 104.44, it could signal a significant decline to 103.04.Economic Outlook. Despite the current difficulties, the US dollar continues to attract investors due to high interest rates, especially compared to the economic situation in Europe and elsewhere.