“We believe we are far from a Fed pivot to dovish policy and thus not yet at the peak for the USD.”

“EUR/USD is set to fall below parity to bottom at around 0.97 at the turn of the year.”

“We see the US economy doing better than most other major economies ahead. It has become clear that Europe and Asia will pay a hefty price to keep the lights and heating on this winter, while the US will benefit from its energy independence. Even if you don’t agree and instead expect the US economy to crash soon, the USD should do well because of its status as the ultimate safe haven.”

 

USD/JPY turns lower for the second straight day on Thursday amid renewed USD selling. Diminishing odds for a larger Fed rate hike in September continue to weigh on the buck. The Fed-BoJ policy divergence and a positive risk tone could undermine the safe-haven JPY. A convincing break below the post-US CPI swing low is needed to confirm a fresh breakdown.

“1.0370 (Fibonacci 61.8% retracement of the latest downtrend, Aug. 10 high) aligns as key resistance. In case this level turns into support, EUR/USD could target 1.0400 (psychological level) and 1.0450 (static level).”

“On the downside, 1.0300 (psychological level, Fibonacci 50% retracement) aligns as interim support ahead of 1.0230 (Fibonacci 38.2% retracement, 200-period SMA on the four-hour chart) and 1.0200 (psychological level, 100-period SMA).”

In its monthly report published on Thursday, the International Energy Agency (IEA) said that it expects the global oil demand to rise by 2.1 million barrels per day in 2023 to surpass the pre-Covid levels at 101.8 million bps, as reported by Reuters.

USD/CAD remains on the defensive near a two-month low touched on Wednesday. Hopes for a less aggressive Fed, the risk-on mood continues to weigh on the buck. An uptick in oil prices underpins the loonie and also contributes to capping the pair.

EUR/USD trades with gains since Monday and looks to consolidate the recent breakout of the key 1.0300 hurdle always on the back of the intense offered stance in the US dollar.

Indeed, sellers so far remain in control of the sentiment surrounding the greenback, particularly after US inflation showed signs of slowing down its pace in July, as per Wednesday’s releases.

Along with the above, the probability of a 75 bps rate hike by the Fed next month continues to dwindle, which is another factor dragging hurting the buck’s mood.

Nothing scheduled data wise in Euroland on Thursday should leave the attention to the publication of US Producer Prices and Initial Claims.

24-hour view: “Yesterday, USD dropped sharply to 6.7163 before rebounding to close at 6.7235 (-0.45%). The rebound amidst oversold conditions suggests USD is unlikely to weaken further. For today, USD is more likely to trade between 6.7200 and 6.7500.”

Next 1-3 weeks: “Our latest narrative was from last Wednesday (03 Aug, spot at 6.7750) where USD is likely to trade between 6.7350 and 6.8000. Yesterday (10 Aug), USD cracked the support at 6.7350 and plummeted to a low of 6.7163. The rapid build-up in downward momentum suggests USD could weaken further to 6.7100. Only a break of 6.7650 (‘strong resistance’ level) would indicate that USD is unlikely to weaken further.”

The index resumes the downside and flirts with 105.00. A 50 bps rate hike in September remains favoured so far. Producer Prices, Initial Claims next on tap in the NA session.

Attracts reverses a dip to the 1.2180 area amid the emergence of fresh USD selling on Thursday. Diminishing odds for a larger Fed rate hike in September, the risk-on mood undermines the USD. Bulls might still wait for some follow-through buying before positioning for any further move up.

EUR/USD has tumbled below 1.0300 amid a notable recovery in the US dollar. Risk remains in a weaker spot amid US-Sino tensions and China's covid woes, underpinning the dollar's safe-haven appeal. Investors reassess Fed rate hike expectations after soft US CPI. 

“We think cable will struggle to get above the 1.23 level and would favour a return to the 1.20 area. We would have tight stops on short cable positions just above 1.2300, however.”

“A quiet August with benign conditions could see EUR/GBP edging back below 0.8400 – confounding the pound pessimists.”

“It seems it is too early to expect any sustained downside move in the short end of the US Treasury yield curve. And historically (since the 1980s) the US 2-10 year US curve has struggled to invert more than by 50 bps. That suggests limited downside for US yields from here (including the US 10-year), which would favour positioning back into long USD/JPY.”

“Expectations of quiet summer markets have seen expected volatility priced through the FX options market continuing to sink further. This will favour the carry trade and we could see fresh interest in pairs like long MXN/JPY which could push to the 6.80 area this month.” 

“The low-yielder weighted DXY should find good demand below 105 and we would favour a recovery back to the 106.00/106.30 area.”

 

“We would favour 1.0350/0400 proving the top of the August trading range for EUR/USD.”

“In addition to the Russian threat from energy prices, the European manufacturing industry now has to contend with drought conditions and low water levels on the Rhine. That will challenge coal shipments, amongst other cargoes, and is keeping European natural gas prices bid near the highs. This factor remains an outright euro negative.”

In the view of economists at Goldman Sachs, the Federal Reserve is set to hike rates by 50 basis points at the next meeting. Regarding EUR/USD, the pair is expected to retest parity.

Here is what you need to know on Thursday, August 11:

The US Dollar Index (DXY), which tracks the greenback's performance against a basket of six major currencies, lost more than 1% on Wednesday after the data from the US showed that annual inflation declined to 8.5% in July from 9.1% in June. DXY stays in a consolidation phase above 105.00 early Thursday as investors await the weekly Initial Jobless Claims and the Producer Price Index (PPI) data from the US. Following Wednesday's impressive rally, Wall Street's main indexes remain on track to open in positive territory with US stock index futures rising between 0.35% and 0.5%. Meanwhile, the benchmark 10-year US Treasury bond yield continues to fluctuate between 2.7% and 2.8%.

Commenting on the inflation data, Chicago Fed President Charles Evans said that they were not finished with rate hikes. On a similar note, Minneapolis Fed...

AUD/USD attracts some dip-buying on Thursday and climbs back closer to the 0.7100 mark. The risk-on impulse undermines the safe-haven USD and benefits the risk-sensitive aussie. Recession fears, the overnight hawkish remarks by Fed officials could limit the USD losses. A sustained move beyond the 0.7100 mark is needed to support prospects for further gains.

Silver keeps pullback from six-week high inside a bearish chart pattern. Higher low on RSI backs firmer prices to suggest short-term grind towards the north. 200-SMA adds to the downside filters before directing sellers towards July’s low.

“We expect the market to swing back into a small surplus in 2023. As such, we see limited upside in iron ore prices.”

“We have lowered our end-of-year target to $115/t and expect prices to trend lower in Q4 and into 2023 as the impact of the stimulus measures peter out and iron ore demand weakens.”

“We ultimately see prices at the end of 2023 sitting under $100/t as the market tightness eases.”

 

Tensions are running high with rising fears over a Chinese invasion of Taiwan in the not too distant future. While risks are rising, economists still see a rather small probability of a Chinese invasion of Taiwan in the next couple of years. However, the risk of war in the medium to longer term is high, in their view.

24-hour view: “USD lurched lower and nose-dived to 132.01 before rebounding to close at 132.87 (-1.67%). The rebound amidst oversold conditions suggests that USD is unlikely to weaken further. For today, USD is more likely to consolidate and trade between 132.30 and 133.60.”

Next 1-3 weeks: “Our view from Monday (08 Aug, spot at 135.40) where USD could advance to 136.00 was invalidated as USD plunged below our ‘strong support’ level at 134.00. Note that USD closed lower by a whopping 1.67% (NY close of 132.87), its largest 1-day drop since Nov 2021. While oversold shorter-term conditions could lead to a couple of days of consolidation first, the impulsive decline could extend to 131.65 later on. The current USD weakness is intact as long as USD does not move above 134.40 (‘strong resistance’ level).”

In the view of economists at Commerzbank, it all comes back to the question of whether or not the pandemic shock and energy crisis catapulted us out of the lowflation world. For the time being, analysts at Commerzbank expect high volatility in the markets.