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.

Headlines:

• Dollar stands its ground ahead of the Fed tomorrow
• European bond yields stay on the retreat
• EU countries reach deal on regulation for emergency gas cuts this winter
• EU energy policy chief: No technical reason for Russia to further cut Nord Stream flows
• UK July CBI retailing reported sales -4 vs -5 prior
• Japan raises overall view on economy for first time in three months

Markets:

• USD leads, EUR lags on the day
• European equities lower; S&P 500 futures down 0.3%
• US 10-year yields down 6 bps to 2.76%
• Gold down 0.1% to $1,717.41
• WTI crude up 1.6% to $98.27
• Bitcoin down 4.8% to $21,106

There weren’t much key headlines on the session as the dollar stood its ground while bonds were bid once again with all eyes on the Fed tomorrow. The jitters in Europe continues to reverberate as the region is set to face a gas crunch, even if there was a deal reached for emergency gas cuts during the winter. Do take note that the deal is a watered down version of the original proposal, so it is rather mehhhh.

The euro is the worst performer in trading today as the problems continue to mount for the single currency, with EUR/USD falling from 1.0220 to 1.0130. The pound also dropped as the dollar firmed, with cable falling from 1.2060 to 1.1975 during the session.

As risk sentiment remains rather sluggish, commodity currencies also retreated with USD/CAD moving from 1.2820 to 1.2880 while AUD/USD slumped from a high of 0.6983 in Asia trading to 0.6925 in European morning trade.

It looks like the dollar is standing its ground as we await the Fed tomorrow. It is going to be a big one for markets with bond yields looking to potentially crack lower and the greenback managing to keep a hold of key technical levels after the drop last week.

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

The recent bounce in stocks is not one that is too convincing and almost everyone seems to hold some belief that any decent rebound at this point screams a ‚bear market rally‘. So, what exactly will it take for the naysayers to go away?

At this point, I would argue that traders and investors have somewhat decently priced in odds of a recession. As much as central banks are closing their ears to stick with raising interest rates, it seems inevitable that we will experience some form of economic slowdown over the next 6-12 months.

The question is, how bad are things going to be and will it last longer than just a few quarters? In other words, a soft landing or a hard landing – particularly for the US economy?

As equities continue to brave the storm clouds of persistently high inflation, central bank tightening and recession risks, it is tough to find comfort for a major turnaround in sentiment. But if a recession is what it takes to put an end to interest rate increases, that might turn out to be a strong tailwind for stocks to really turn the ship in the other direction.

If the pandemic is any lesson, it is that markets love easy money. And while we are not going to see such over-stimulus again from major central banks, a U-turn in the direction to cut interest rates will surely be a welcome development for equities. So, is a recession really bad news for equities? It depends but if we are to experience a rather shallow one – which seems to be the case in point for markets now, I reckon that’s reason enough for investors to start to regain confidence in risk trades.

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

On the surface, it looks like the EU is finally showing some unity but this proposal has been watered down significantly with member states tweaking it so that there are exemptions and reductions to the gas cuts for certain countries and industries. The proposal is supposedly calling for EU countries to cut gas use by 15% from August through to March next year.

We’ll see about the details but the exemptions and such is pretty much another way of saying that it is every man for himself when it comes to dealing with the situation.

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

With key technical levels holding, the dollar is pushing back in trading today and is moving up to fresh highs since the end of last week. EUR/USD is now down 0.6% to 1.0155 as price threatens to fall back below its 200-hour moving average at 1.0161:

A drop below that will see sellers seize near-term control and will put pressure on minor support around 1.0140-55 next. If that gives way, the technical picture will turn more bearish for the euro with a look towards parity again perhaps. That said, it will all come down to the Fed tomorrow for any real conviction for such a move.

Meanwhile, GBP/USD is also trading down to just below 1.2000 and testing its 100-hour moving average at 1.1997 as outlined here.

Commodity currencies are also not spared from the dollar’s wrath with AUD/USD down 0.3% to 0.6935 on the day after the high earlier touched 0.6983 and testing the 50.0 Fib retracement level:

These are all key levels that were highlighted since the end of last week and the dollar is certainly showing that it is standing its ground. I wouldn’t chalk up the moves to any headlines on the day as this looks to be more like positioning plays ahead of the Fed tomorrow.

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

• Prior -5

The reading for the expected retail sales for August is seen down to -14 from -2 in the previous month. That’s the lowest since March 2021 as UK retailers are feeling rather downbeat about the outlook in the month ahead. The cost-of-living crisis continues to deepen and while retail sales balance edged up slightly as per the headline reading, it is hardly comforting when you weigh the report as a whole.

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

• Hopes that TPI will not need to be used

This will be more of a focus as we get closer to the Italian elections in late September. In any case, the ECB has bigger problems to worry about as the latest data out of Europe has been rather abysmal. Can they keep hiking through to year end with a recession looming large?

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