“A cut in our EUR/USD forecast profile is now more consistent with our Rate Strategy Team’s view on the eurozone/US two-year swap spread divergence. It has this spread continuing to move against EUR/USD into year-end, with Fed easing expectations only starting to make their mark in 1Q23.”

“Combining macro, monetary policy, valuation and geopolitical views together, it now feels like the right time to take 4-5% off our EUR/USD forecast profile curve.”

CME Group’s flash data for crude oil futures markets noted open interest shrank for the second session in a row on Friday, this time by almost 30K contracts. Volume, instead, remained choppy and rose by nearly 73K contracts.

Gold plunged down to support levels near $1,772, after the release of much stronger-than-expected US July payrolls data. In the view of strategists at TD Securities, the gold rally is ready for a significant reversal as traders are increasingly considering the possibility that the market has priced a premature Federal Reserve pivot away from its current hawkish stance.

EUR/USD is treading water below 1.0200 in early Europe. Moody’s cut Italy’s credit rating amid political jitters, Investors assess the US NFP-led big Fed rate hike bets. US-China tensions over Taiwan underpin the US dollar’s safe-haven demand. EU Sentix awaited. 

AUD/USD attracts fresh buying on Monday and recovers further from over a two-week low. A positive risk tone offers support to the risk-sensitive aussie amid a modest USD downtick. Recession fears, US-China tensions, hawkish Fed expectations could limit losses for the USD.

Here is what you need to know on Monday, August 8:

Boosted by the upbeat July jobs report, the US Dollar Index (DXY) gained 0.8% on Friday and ended up snapping a two-week losing streak. Markets stay relatively quiet early Monday and the DXY consolidates Friday's gains. The European economic docket will feature the Sentix Investor Confidence Index data for August. There won't be any high-impact data releases from the US and the risk perception could drive the market action in the second half of the day. The US stock index futures are up modestly in the European morning, pointing to a neutral market mood.

The Bureau of Labor Statistics reported on Friday that Nonfarm Payrolls rose by 528,000 in July, surpassing the market expectation of 250,000 by a wide margin. According to the CME Group FedWatch Tool, the probability of a 75 basis points Fed rate hike in September now stands at...

Gold price remains sidelined, recently bouncing off intraday low amid sluggish markets. Easing risk-aversion, pullback in Treasury yields favor recent consolidation in metal prices. China, inflation are the key catalysts amid a likely calmer week ahead.

24-hour view: “The sharp drop in AUD to 0.6870 came as a surprise (we were expecting sideway-trading). Despite the decline, downward momentum has not improved by much and AUD is unlikely to weaken further. For today, AUD is likely trade sideways between 0.6880 and 0.6945.”

Next 1-3 weeks: “We highlighted last Friday (05 Aug, spot at 0.6955) that downward momentum has fizzled out and we expected AUD to consolidate and trade between 0.6885 and 0.7035. AUD subsequently dropped to 0.6870 before closing on a soft note at 0.6911 (-0.82%). Downward momentum has improved somewhat and AUD could edge lower from here. At this stage, any weakness is likely limited to 0.6855. On the upside, a breach of 0.6965 would indicate that the current mild downward pressure has eased.”

European companies’ return on equity (RoE) will inevitably decline in the future due to four reasons. These developments will result in significant changes in the functioning of capitalism, economists at Natixis report.

“In order to remain technically bullish, XAU/USD needs to confirm $1,780, where the Fibonacci 23.6% retracement of the latest downtrend and the descending trend line meet, as support. In that scenario, $1,800 (psychological level 50-day SMA) and $1,830 (Fibonacci 38.2% retracement) align as next bullish targets.”

“On the downside, the first support is located at $1,740 (20-day SMA) before $1,700 (psychological level) and $1,680 (July 21 low, static level from March 2021).”

 

Gold started the month of August on a firm footing and climbed toward $1,800 before erasing a portion of its weekly gains on Friday. According to FXStreet’s Eren Sengezer, recovery could end if US CPI data confirms a 75 bps Fed hike.

Open interest in gold futures markets remained erratic on Friday and dropped by nearly 7K contracts, according to preliminary readings from CME Group. On the other hand, volume reversed two daily drops in a row and increased by around 13.3K contracts.

Steel price rebounds from one-week low amid cautious optimism in metal markets. Turkish entry into global scrap market, easing fears of US-China tension over Taiwan also underpin corrective pullback. Maintenance closures in European steel manufacturing units, strong China trade numbers for July favor steel buyers. Hawkish expectations from Fed, recession fears challenge metal prices.

24-hour view: “We did not expect the sharp drop in GBP to 1.2004 last Friday and the subsequent strong rebound from the low. Despite the strong rebound, the immediate pressure is still on the downside. While there is room for GBP to weaken, a break of the major support at 1.2000 is unlikely (minor support is at 1.2025). On the upside, a breach of 1.2115 (minor resistance is at 1.2085) would indicate that the current downward pressure has eased.”

Next 1-3 weeks: “Our latest narrative was from Wednesday (03 Aug, spot at 1.2160) where GBP is in a consolidation phase and is likely to trade within a range of 1.2040/1.2255. On Friday (05 Aug), GBP cracked 1.2040 and dropped to 1.2004. Shorter-term downward momentum is beginning to improve and the risk for GBP is tilted to the downside. That said, GBP has to crack the major support at 1.2000 before a sustained decline is likely. Overall, only a break of 1.2155 (‘strong resistance’ level) would indicate that the downside risk...

USD/JPY is expected to witness more gains if the asset oversteps 135.50 decisively. Fed’s intention to elevate interest rates will remain intact despite lower US CPI print. The BOJ is committed to bringing pre-pandemic growth rates.

“Attention now turns towards the critical US inflation data due this Wednesday, which could likely cement a 75 bps Fed rate hike next month. The greenback could regain the upside traction amid unnerved markets and aggressive Fed tightening calls.”

“The renewed downside has opened up floors for a retest of the $1,750 psychological barrier. Ahead of that, buyers could challenge the August 3 high of $1,754.”

“Buyers need acceptance above the $1,800 mark to continue with its recovery momentum. The next stop for bulls is seen at the horizontal trendline resistance connecting the July 5 high at $1,812.”

 

USD/CAD remains mildly offered while paring the biggest daily gains in three weeks. US dollar retreats amid sluggish session, oil prices cheer firmer China trade numbers, easing fears surrounding Taiwan. Canada jobs report failed to favor bulls but US NFP propelled hawkish Fed bets. US inflation will be important data for the week, risk catalysts may entertain intraday traders.

A test of H&S formation has sidelined the retail participants. Declining 20-and 50-EMAs add to the downside filters. A drop below 40.00 by the RSI (14) will trigger the downside momentum.

Analysts at Goldman Sachs note that they stick to their call of a 50 bps rate hike by the Reserve Bank of New Zealand next week, despite a modest easing in the Q3 inflation expectations.

EUR/USD consolidates the first weekly loss in three, retreats from intraday high of late. Moody’s cut Italy’s credit rating amid political jitters, US NFP propelled hawkish Fed bets. US-China tension over Taiwan also underpins the US dollar’s safe-haven demand. Intraday traders should focus on risk catalysts amid a light calendar.

24-hour view: “We highlighted last Friday ‘the chance for EUR to break 1.0260 has increased’. However, instead of breaking 1.0260, EUR plunged to 1.0139 during NY session before rebounding to close at 1.0181 (-0.61%). The rapid decline appears to be running ahead of itself and EUR is unlikely to weaken much further. For today, EUR is likely to consolidate and trade between 1.0135 and 1.0205.”

Next 1-3 weeks: “Last Friday (05 Aug, spot at 1.0245), we highlighted that shorter-term upward momentum is beginning to build. We added, ‘EUR has to break 1.0300 before a sustained advance is likely’. EUR did not break 1.0300 as it plummeted to a low of 1.0139. The build-up in momentum fizzled out quickly. Overall, EUR does not appear to be ready to break out of the 1.0100/1.0300 range just yet and it could trade within this range for a while more.”

USD/CHF takes offers to refresh intraday low, extends pullback from 100-SMA, 200-SMA. RSI retreat, sluggish MACD signals also keep sellers hopeful. One-week-old ascending trend line challenges bears, short-term bullish channel keeps buyers hopeful.

The Eastern Theater Command of China's People's Liberation Army said on social media Weibo that it is continuing drills in the seas and skies around Taiwan on Monday.

The military has carried out an unprecedented set of naval and air force drills in areas near Taiwan following US House Speaker Nancy Pelosi's visit to the island.

 

more to come ...

Asian equities are displaying a mixed performance as the DXY turns sideways. The DXY may remain on the sidelines ahead of the US Inflation. Oil prices are establishing below $90.00 as supply worries have trimmed.