• Prior +7.6%
• CPI +0.9% vs +0.6% m/m expected
• Prior +0.1%
• HICP +8.5% vs +8.1% y/y expected
• Prior +8.2%
• HICP +0.8% vs +0.4% m/m expected
• Prior -0.1%

The state readings earlier were mixed but evidently, the rise in consumer inflation in Germany’s industrial state outweighed the drop in annual inflation elsewhere. That’s not a comfortable set of figures with the EU-harmonised reading just short of the May high of 8.7% y/y. The increase in the monthly figures is also disconcerting as there will likely be a further spike come September once government subsidies expiries on 31 August.

This article was written by Justin Low at www.forexlive.com.

Headlines:

• Dollar pushes back, US Q2 GDP data in focus
• Treasury yields pull higher in European morning trade
• Eurozone July final consumer confidence -27.0 vs -27.0 prelim
• Saxony July CPI 7.2% vs 7.7% y/y prior
• Bavaria July CPI 8.0% vs 7.9% y/y prior
• North Rhine Westphalia July CPI 7.8% vs 7.5% y/y prior
• Japan says no plans to impose movement restrictions even as COVID-19 cases surge

Markets:

• JPY leads, EUR lags on the day
• European equities mostly higher; S&P 500 futures down 0.3%
• US 10-year yields up 5 bps to 2.782%
• Gold up 0.3% to $1,739.93
• WTI crude up 2.3% to $99.47
• Bitcoin up 1.3% to $23,084

The market continues to reflect on the Fed meeting yesterday and today, the dollar is finding a bit of a footing against most major currencies bar the yen. The Japanese currency surged higher in Asia trading, with USD/JPY falling to a low of 135.11 before sticking around 135.30-60 for the most part in European morning trade. That comes despite higher Treasury yields on the day. 10-year yields are up 5 bps to 2.78% with the high earlier coming in close to 2.83%.

The dollar was initially sluggish but as the euro slumped following another torrid set of economic data, the greenback managed to find some footing on the day. Euro area economic confidence slumped to a 17-month low and the selling kicked in later with EUR/USD falling from 1.0215 to 1.0120 and is holding at the lows now.

GBP/USD also slumped with a drop from 1.2190 to 1.2105 while USD/CAD moved up from 1.2800 to 1.2820 levels. Meanwhile, AUD/USD saw gains ease up near 0.7000 in a fall to 0.6965 during the session.

Risk trades are looking more guarded on the day with US futures keeping lower but all eyes are on the US Q2 GDP data now, with it being a potential catalyst for market moves now that the Fed has stressed data dependency.

This article was written by Justin Low at www.forexlive.com.

It started with some selling in the euro but as that deepened, it is turning into a broader bid for the dollar and the yen in European trading at the moment. EUR/USD has tumbled to a low of 1.0125, down 0.7% on the day, while GBP/USD has fallen from a high of 1.2190 to 1.2110 during the session.

Elsewhere, USD/CAD has erased losses to turn flat at 1.2825 now after briefly slipping below 1.2800 and we are also seeing AUD/USD fall lower by 0.2% to 0.6975 at the lows for the day after attempting to push above 0.7000 earlier. Those are key levels as highlighted in the post earlier here.

It looks like dollar buyers are showing some appetite as the post-FOMC rumblings continue, but just be wary that we do we have US Q2 GDP data to come later today and that could be a market mover in its own right.

This article was written by Justin Low at www.forexlive.com.

Things are not looking good for the euro as it continues to struggle to stay afloat despite all that is going on in the major currencies space. The dollar has been the main focus amid the Fed but the euro is stealing a bit of the spotlight today as it drops further across the board. If that isn’t an ominous signal, I’m not sure what else is there to take away from the euro’s inability to get off the floor.

While most major currencies are seeing a modest push against the dollar, the euro has struggled to get above the 50.0 Fib retracement level at 1.0283. In fact, the single currency has even struggled to contest that level and there hasn’t been much optimism after the ECB policy decision last week.

Economic data and sentiment continues to deteriorate and today’s economic confidence reading saw a drop to 17-month lows.

Surging inflation, a central bank which tends to only hike into a recession, a looming gas crisis ahead of winter, and the worst part? There doesn’t seem to be much relief on any fronts even as we dig in to the second half of the year. Sure, supply chain issues have eased slightly and energy prices have come off the boil but the continuation in the Russia-Ukraine conflict just ensures that there are more isolated problems than there are common solutions for the euro area at the moment.

Germany is set to face a serious gas crunch and a recession in Europe’s biggest economy looks more than likely at the moment. Meanwhile, Italy is facing a political upheaval and is giving more problems for the ECB to do their job – in which policymakers have already been rather slow in trying to address inflation pressures.

It’s hard to look at positives for the euro when the fundamental outlook is so dire. EUR/JPY is also now approaching its 100-day moving average to its lowest in two weeks at 137.67 while EUR/CHF is dribbling lower and threatening a push back towards 0.9700 after the break of parity.

This article was written by Justin Low at www.forexlive.com.

European indices are more mixed on the day with the early gains dissipating as US futures are also tilting lower, following a big day of gains yesterday. S&P 500 futures are down 0.5% while Nasdaq futures are down 1.1%, chipping away slightly at some of the Wall Street rally in the day before. It is still early though and we have US Q2 GDP data to work with before the open later.

Meanwhile, Treasury yields are keeping higher after holding at a key level again as noted here. 10-year yields are up 5 bps to 2.78% with the high earlier hitting nearly 2.83% – being pushed back by the 100-day moving average.

As for the dollar, it is trading mostly lower – only being little changed against the euro. EUR/USD is sitting close to 1.0200 and is still holding within a consolidation range of sorts between 1.0100 and the 50.0 Fib retracement level at 1.0283.

Meanwhile, USD/JPY is keeping lower on the day despite higher yields as the pair is down 0.9% to 135.30 currently. The 135.00 level is the key support level to watch out for at the moment:

GBP/USD is keeping just a touch higher after yesterday’s break, with the high earlier touching 1.2191. The next key resistance region to watch will be the 1.2200 level for offers and the 50.0 Fib retracement level of the swing lower from last month at 1.2213:

Besides that, commodity currencies are holding light gains against the greenback with AUD/USD flirting with a push above 0.7000 at the moment. That remains a key psychological level for the pair and buyers are looking poised after the push above the 50.0 Fib retracement level at 0.6982 yesterday:

A firm break above the figure level will tee up a potential push towards the 61.8 Fib retracement level at 0.7053 with the 16 June high at 0.7069 also in focus.

Then we have USD/CAD, which is testing 1.2800 at the moment and threatening a steeper drop after a breach of support around 1.2815-20 in trading yesterday:

A drop below that will put into focus the 100-day moving average at 1.2773 as the next key support level.

The US Q2 GDP data could provide a catalyst for market moves and overall, it looks like the dollar is showing some vulnerabilities but there are key technical levels to work through for a further breakdown in the greenback.

So far, the immediate reaction post-FOMC is just carrying with the recent pullback in the dollar and there needs to be more to convince of a significant breakdown in the bigger trend.

This article was written by Justin Low at www.forexlive.com.

There’s a slight nudge lower in the dollar now with the euro hitting a session high of 1.0171 against the greenback after hovering around 1.0130-50 levels for the most part during the session. It isn’t much but the dollar is holding slightly softer on the day as we continue to wait on the Fed decision later today.

I wouldn’t look much into price action at the moment as it is very much fueled by positioning flows going into the main event.

EUR/USD is still seeing sellers hold near-term control with price keeping below the 200-hour moving average (blue line) at 1.0176. Meanwhile, even if the dollar is weaker on the day, key technical levels are still very much intact as outlined here against other major currencies as well.

This article was written by Justin Low at www.forexlive.com.

Headlines:

• All your Fed previews in one place
• Italian bond yields rise after S&P revises outlook to stable from positive
• Physical flows through Nord Stream 1 pipeline fall as expected
• Germany August GfK consumer sentiment -30.6 vs -28.9 expected
• Switzerland July Credit Suisse investor sentiment -57.2 vs -72.7 prior
• US MBA mortgage applications w.e. 22 July -1.8% vs -6.3% prior

Markets:

• EUR leads, NZD lags on the day
• European equities higher; S&P 500 futures up 0.9%
• US 10-year yields up 1.1 bps to 2.797%
• Gold up 0.3% to $1,721.93
• WTI crude up 1.2% to $96.14
• Bitcoin up 1.6% to $21,318

European morning trade today featured the usual pre-Fed lull although the dollar did ease slightly while equities are looking fairly optimistic after the declines yesterday. German and French consumer sentiment continue to show further signs of deterioration as the economic outlook for Europe remains bleak.

US futures were higher since Asia trading and have held on to gains, keeping steadier and looking to erase the drop from yesterday. Despite the rebound, it will all come down to the Fed today to see how the remainder of the week will play out.

As for the dollar, some positioning flows ahead of the main event is seeing it slip a little but key technical levels continue to hold up as they have since the end of last week.

EUR/USD moved up from 1.0135 to 1.0171 while GBP/USD nudged higher from 1.2050 to 1.2087 during the session, both keeping within the ranges seen in the past few days.

USD/CAD also nudged lower to 1.2848, down 0.3% on the day, but is still seeing support around 1.2815-20 intact. Meanwhile, AUD/USD recovered from a 0.6912 to move up to 0.6950 currently though still keeping below the 50.0 Fib retracement level at 0.6982 and the 0.7000 mark.

The bond market is a key spot to watch in any post-Fed reaction but isn’t showing much appetite on the day with Treasury yields little changed.

This article was written by Justin Low at www.forexlive.com.

JP Morgan sees a recession coming to Europe as a looming gas crunch and Italy’s political upheaval will pressure economic activity in the region. That said, the firm sees just a mild recession in the works but that would be enough to limit the ECB’s tightening cycle.

They are forecasting Eurozone GDP growth to slow to 0.5% in Q3 before contracting by 0.5% in both Q4 this year and Q1 next year. As for their ECB outlook, they say that:

„We expect the ECB to deliver another 50 bps of hikes by year-end. We now expect 25 bps in September and 25 bps in October.“

The firm previously called for 75 bps more worth of rate hikes by the ECB with a 25 bps rate hike penciled for December.

This article was written by Justin Low at www.forexlive.com.

• Prior -6.3%
• Market index 276.0 vs 281.1 prior
• Purchase index 206.4 vs 208.0 prior
• Refinancing index 631.4 vs 655.7 prior
• 30-year mortgage rate 5.74% vs 5.82% prior

Mortgage activity continues to decline with both purchases and refinances falling once again. Housing market sentiment isn’t looking good and that may be a spot that the Fed needs to watch in the months ahead.

This article was written by Justin Low at www.forexlive.com.

In case you missed it earlier, Adam put up a great preview here earlier in the day. We’ve been stuck in a bit of a pre-Fed lull in Europe and that isn’t anything too surprising. All eyes are on the Fed today and that will set the tone for the remainder of the week – alongside the US GDP report tomorrow.

Anyway, here’s a list of previews to wrap your head around before the main event later today:

• Morgan Stanley: Dollar to get a boost
• ANZ: 75 bps no longer feels significant
• Moody’s: Fed to stick with 75 bps rate hike
• MUFG: 75 bps and a hawkish message (BofA preview also)
• Goldman Sachs: Watch for any shift in Fed approach
• TD: 75 bps and option for more similar increases to come
• Scotia: Is there a dollar-trading pattern around FOMC decisions?

/US dollar

This article was written by Justin Low at www.forexlive.com.