• The GBP/USD has attempted to bounce during the trading session on Tuesday as the selling pressure seems to be letting up a bit.
• We are in the midst of the Jackson Hole Symposium, and central bankers will be speaking quite a bit this week.
• People will be trying to figure out what happens next, as a lot of traders have decided to call the bluff of central banks.

There’s been this narrative going around that perhaps central bankers are going to pivot, because of poor economic numbers. What traders seem to be ignoring is the fact that inflation is out of control, and even though it is slowing down a bit, in places like the United States it’s 8.5% year over year, and in the United Kingdom, it’s over 10% year over year. Because of this, central banks are going to have to tighten, despite the fact that it will almost certainly cause a recession.

Recession is Coming

The Bank of England already said that a recession is coming, essentially confirming what most people want to say out loud. The market continues to see a lot of narrative from time to time that has people thinking differently, especially in stock markets. However, in the Forex world, you can see that traders are running towards the US dollar. That should continue to be the case, especially if Jerome Powell ends up putting rumors to rest about the Federal Reserve and pivoting.

It’s been quite an interesting sideshow, watching traders try to talk themselves into a pivot that’s not coming.The US dollar is going to be like a wrecking ball for the entire world, and the United Kingdom is not going to avoid this problem. However, rallies will happen from time to time, but those are going to be opportunities to pick up “cheap US dollars.” Going forward, I suspect it’s probably a “fade the rally” type of situation. In fact, is not to we break above the 1.25 level that I would consider buying the British pound. Even then, I will have to see what the fundamental noise and news is, because although technical analysis can help, in times like this it’s more about the fundamentals than anything else, as there have been so many crosscurrents at the same time.

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After sharp selling last week, the USD/JPY currency pair was pushed towards the 131.73 support level. The bulls are trying to return the currency pair on its stronger upward path with gains that extended to the resistance level 133.90, and with the expectation of more stimulus, it settled around the 133.25 level at the time of writing the analysis.

According to the economic analysis, the USD/JPY currency pair is trading influenced by the announcement of the preliminary US consumer confidence index in Michigan for the month of August, better than expected at 55.1 versus expectations at 52.5. On the other hand, last week’s initial US jobless claims outperformed the expected 263K with a lower statistic of 262K, while the PPI for July matched expectations of 7.6% (annualized).

The US Consumer Price Index excluding food and energy for the month of July fell both from expectations (year-on-year) and (monthly) at 6.1% and 0.5%, respectively, by 5.9% and 0.3%. The general CPI for this period also came in below expectations in both cases. Economic data last week indicated that every official measure of US inflation was either slowing or declining in July, while separate measures of producer prices and import costs also surprised to see declines in the recent period. Meanwhile, a New York Fed survey showed expectations of future inflation falling on all horizons last month, and a significant University of Michigan survey indicated that expectations fell on all but the longer horizons.

In Japan, bank lending for July beat the expected change (y/y) by 1.4% with a change of 1.8%. On the other hand, the seasonally adjusted current account balance for June exceeded the estimate of -703.8 billion yen with -132.4 billion yen.

USD/JPY Technical Analysis

In the near term and according to the performance on the hourly chart, it appears that the USD/JPY is trading within an ascending channel formation. This indicates a significant short-term bullish momentum in the market sentiment. Therefore, the bulls will look to extend the current move of gains towards 133.88 or higher to 134.26. On the other hand, the bears will look to pounce on pullbacks around 133.05 or lower at 132.54.

In the long term and according to the performance on the daily chart, it appears that the USD/JPY pair is trading within the formation of a sharp descending channel. This indicates a strong long-term bearish bias in market sentiment. Therefore, the bears will target long-term profits at around 131.75 or lower at the 129.30 support. On the other hand, the bulls – the bulls – will look to pounce on profits at around 135.55 or higher at the 138.07 resistance.

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I’ll be looking for signs of exhaustion to sell, or break down below the lows of the last 48 hours to sell.

• The West Texas Intermediate Crude Oil market bounced a bit Monday as we continue to see this market throw a lot of volatility back and forth.
• The $90 level is currently being tested, an area that previously had been supported.
• This is a market that is so negative in general that I think it’s difficult to get aggressive to the upside at this point.

It’s All About Demand

In fact, I think this has become more or less a “fade the rallies” type of situation, as the market has been trying to focus on quite a few different things, not the least of which of course will be the fact that the market has to worry about whether or not there is going to be demand. After all, the world seems to be slowing down, which has a major effect on whether or not prices will rally.

If we were to break down below the lows of the last couple of days, it’s likely that we will continue to see noisy behavior, and therefore I think we have a situation where you continue to see a lot of momentum going into this market. This is a market that I think will continue to be very difficult to get excited about, and will more likely than not go looking to the $85 level, followed by the $80 level.

Even if we were to rally from here, the $95 level looks to be an area that is going to be difficult to break above. Think of it this way: OPEC recently had a minuscule production increase, and prices actually fell. In other words, even though they are not pumping as much oil as one would hope, it still cannot pick up prices. This tells you just how fragile the economy seems to be at the moment, and I think we’ve got a situation where you have a market that is going to continue to look at this through the prism of something bad coming. When the economy slows down, the demand for crude oil drops off the face of the earth. With this, I’ll be looking for signs of exhaustion to sell, or break down below the lows of the last 48 hours to sell.

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Gold futures extended their gains since the start of trading this week. Gold prices were the closest to testing the psychological top of 1800 dollars an ounce. The price of the yellow metal moved towards the resistance of $ 1788 an ounce before settling around the level of $ 1765 an ounce at the time of writing the analysis. The gains in the gold market came amid a weak US dollar and lower Treasury yields. However, with the US Federal Reserve expected to ease its tightening efforts, investors are once again flocking to gold and investors are covering their shorts.

All in all, the price of gold is up about 5% over the past week, but it’s still down about 2% since the start of 2022 to date. At the same time, the price of silver, the sister commodity of gold, is taking a breather. Silver futures fell to $20.29 an ounce. The price of the white metal is also up about 8% over the past week, although it has remained down about 12% so far this year.

What do gold’s gains mean?

The price of the yellow metal tried to record its fifth win in a row, which is the best performance since April. Surprisingly, things are not just about the economy that underpins gold’s gains. Commenting on the performance, Ravi Boyadjian, chief investment analyst at XM, wrote: “Risk sentiment took a big hit on Tuesday as it emerged that US House Speaker Nancy Pelosi was on her way to Taiwan, defying China’s strong advice not to visit the disputed region.”

This has alarmed global financial markets as it may reduce the bilateral relationship between Beijing and Washington.

The gains were likely to be capped by a stronger dollar. The US dollar index (DXY), which measures the performance of the US currency against a basket of currencies, rose 0.5% to 105.97, from an opening at 105.45. A stronger profit value is usually a bad thing for dollar-priced commodities because it makes them more expensive to buy for foreign investors. Another factor affecting the gold market was the treasury bond market mixed in performance, with the 10-year bond yield rising two basis points to 2.625%. The spread between the 2- and 10-year notes has widened to -35 basis points. Higher bond yields increase the opportunity cost of holding non-yielding bullion.

In other metals markets, copper futures fell to 3.507 dollars a pound. Platinum futures rose to $905.50 an ounce. Palladium futures fell to $2,149.50 an ounce.

Overall, the price of gold rose to its highest level since early July as investors braced for a stormy period in US-China relations with House Speaker Nancy Pelosi heading to Taiwan. The precious metal often benefits from bouts of geopolitical turmoil, and Pelosi’s trip adds to the tailwinds that helped gold rebound from its 15-month low. The reversal of the rising dollar and growing concerns about the global economy also helped bullion prices.

Today’s XAU/USD Gold Price Forecast:

So far, bulls’ attempts to control the price of XAU/USD are still valid, and stability above the $1,780 resistance is important to anticipate the next psychological top $1,800 an ounce. Skipping it will increase the technical purchases of gold and complete the bullish rebound. The price of gold may witness some relative stability until the US jobs numbers are announced by the end of the week. Gold can be bought from every descending level, and the closest support levels for gold are currently 1758 and 1740 dollars, respectively.

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For the second day in a row, the price of the USD/JPY currency pair is trying to recover higher with gains to the resistance level of 133.90 today. This is after strong selling recently that pushed it towards the 130.40 support level, the lowest in two months. We recently witnessed an uprising of the Japanese yen against the other major currencies. The US dollar has fallen since the recent policy update of the US Federal Reserve, in addition to the announcement that the US economy has entered a recession.

Dollar Economic Data

US employers recorded fewer job openings in June as the US economy faces severe inflation and rising interest rates. US job vacancies fell to 10.7 million in June from 11.3 million in May, the Labor Department said. Jobs, which did not exceed 8 million in the previous month last year, exceeded 11 million per month from December through May before declining in June.

The number of Americans who left their jobs fell slightly but remained high at 4.2 million in June, while layoffs fell to 1.3 million from 1.4 million in May, the Labor Department said in its monthly survey on job opportunities and employment turnover.

The US labor market has been resilient so far this year, and companies have complained of difficulty filling vacancies: employers added an average of 457,000 jobs per month in 2022; US unemployment is near its lowest level in 50 years. This is one reason why many economists believe that the US economy has not yet gone into a recession even though GDP, the broadest measure of economic output, has shrunk for two consecutive quarters – a baseline for the onset of the downturn.

The Labor Department’s July jobs report, released on Friday, is expected to show employers processed another 250,000 jobs last month, a number that would be fine in normal times but the lowest since December 2020, when the global economy was devastated. from the epidemic. Economists also expect US unemployment to remain at 3.6% for the fifth consecutive month, according to a survey by data company FactSet.

The US economy is under pressure as the Federal Reserve raises interest rates to combat inflation, which is running at the fastest pace in four decades.

Forecast of the US dollar against the yen:

On the daily chart below, USD/JPY is trying to return to the vicinity of the general bullish trend and that may happen if the bulls move in the currency pair towards the resistance levels 134.60 and 136.00 respectively. On the other hand, and as I mentioned in the recent technical analyses, it will be important to break the psychological support level of 130.00 to turn the general trend into a bearish one. The US dollar will be affected today by the announcement of the ISM Services Purchasing Managers’ Index reading.

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The only thing that can save the euro at the moment is going to be the Fed loosening monetary policy, or the ECB deciding to tighten it. 

• The euro initially plunged on Friday but then turned around to show signs of life again.
• The pair formed a hammer, a bullish candlestick which shows a potential reversal coming.
• This reversal is going to be short-lived, and I think it only extends for a move to the 1.04 level at best.
• The 1.04 level has been important for several weeks previously, and now that we have busted through it, it looks like the “market memory” could come into the picture and offer resistance.

Breaking Through the Friday Candlestick

The alternate scenario is that we simply break through the candlestick on Friday which is a real possibility as well because one would have to think that a certain amount of the bullish pressure in this pair was probably short-covering heading into the weekend. If that’s the case, then parity is all but assured. I believe that we are going to parity given enough time anyway, but I’m the first to admit that we got here much quicker than I anticipated. The destruction of the euro has been quite impressive.

If we can break down below parity, and at this point, I don’t know any reason why we can’t, it’s likely that we will see the euro enter an even deeper spiral lower, and it could become a major trend waiting to play out all the way down to the 0.85 level. Having said that, let’s not get too far ahead of ourselves because it is at these extremes that markets do tend to find some type of reason to turn around. After all, there are already people in New York clamoring for the Federal Reserve to start loosening monetary policy again, and if they were to do that it would change the entire dynamic of this currency pair.

The only thing that can save the euro at the moment is going to be the Fed loosening monetary policy, or the ECB deciding to tighten it. Yes, they will probably have a couple of 25 basis point rate hikes this fall, but realistically that’s about all they can do as the European economy is so fragile, and of course they have issues with energy production, not exactly a bullish thesis for the region.

The US dollar will probably continue to strengthen.

The British pound initially slid against the US dollar Friday but has recovered quite nicely as you can see on the chart. The resulting candle is a hammer, suggesting that we may see a bit of a bounce in the short term. That being said, I would consider this more or less a relief rally than anything else. I suspect that the 1.22 level offers a bit of resistance above, as it has been both support and resistance recently, suggesting that there should be a significant amount of “market memory” in that area.

• While the market may rally for the next day or two, I will be looking for signs of weakness that I can start shorting again.
• I do not believe that this is the end of the trend, just that we had gotten a bit overdone.
• The 50-day EMA sits at the 1.2350 level and is sloping lower, offering a significant amount of dynamic resistance that we will have to pay close attention to.

If we were to break above there, then it’s likely that we could see even more momentum to reach the 1.26 level. At that point, you have to start to take a trend reversal as being a real threat.

Breaking Down from Last Week

The size of the candlestick is not overly impressive, because this is essentially a market that’s just hanging around the 1.20 level. If we were to break down below the lows of the week, that opens up fresh selling, but quite frankly I think a bounce is healthy because it gives you an opportunity to pick up “cheap US dollars.” Remember, you are looking at a relative value play here, so the US dollar is the desired currency, but if you can get it at a better price that’s always what you want to do.

It will break down below the lows last week, then I think we start to focus on the 1.18 level, and then eventually the 1.15 level where I would anticipate another big fight. We are at relatively low extremes at the moment, but this is a market that has to deal with rising interest rates in America, recessionary concerns around the world, and quite frankly just a lot of general angst, meaning that the US dollar will probably continue to strengthen.

The strength of the US dollar, supported by the expectations of raising US interest rates throughout 2022, and the classic political collapse of the Boris Johnson government was a strong motivation for the bears to push the price of the GBP/USD pair to collapse towards the 1.1875 level. This is the lowest support level for the currency pair since the markets collapsed at the height of the Corona epidemic in March 2020. Boris Johnson’s resignation as British Prime Minister contributed to a cautious recovery of the pound sterling against the dollar towards the level of 1.2056 before closing trading around the level of 1.2016. Overall, according to experts, the UK market’s indifference to the overthrow of Prime Minister Boris Johnson may change quickly.

Johnson’s ouster has increased the odds of an early general election, according to market analysts at NatWest Markets and Citigroup Inc. and Mizuho International Plc. It opens the door to a spending spree to lure voters before they head to the polls, followed by the prospect of the opposition Labor Party coming to power and paying more cash.

It will affect everything from Bank of England policy and taxes to sterling, bonds and stock markets – and will also see past risks resurface like another Scottish independence vote and the reopening of BREXIT negotiations. Although there are still a lot of terms and conditions, the election is already permeating the minds of investors.

For their part, said NatWest analysts including Imogen Bachra: “The probability of the election itself will be unequivocally negative for the currency with the escalation of broader political risks.” Acting “strongly” in the second half of 2023 and higher long-term bond yields.

And after three turbulent years in office, Johnson’s reign appears to have come to a chaotic end after the mass resignation of members of his cabinet last week. His Conservative Party is urgently making plans for an accelerated contest to choose his successor this summer. The next election won’t be until January 2025 at the latest, and Johnson’s successor will not be obligated to return to the polls before then. However, they may be tempted to take advantage of any political honeymoon in the early months of their term in hopes of retaining another five years of power and general legitimacy. This prospect has already led the NatWest team to change the Bank of England’s forecast, anticipating faster rate increases and a slower bond sale program due to the prospect of increased government spending. They revised the 10-year Treasury yield target by the end of the year to 2.25%.

Overall the picture for sterling, which is already down about 11% this year, is more complex. While easing government fiscal constraints or lowering taxes could give the British economy a boost, it could also drive up inflation and put public finances under pressure. The new leadership will introduce other changes to market sensitive policy as well.

And for the UK stock market, domestic-focused companies are likely to get a boost if a new leader raises question marks over a planned increase in corporate tax next year. The British benchmark FTSE 250 is down 20% in 2022. Severe interest rate increases in the Bank of England and the British pound could have a negative impact on the FTSE 100, where about 75% of corporate sales take place overseas. Higher borrowing costs would also hurt consumers, and thus retail stocks such as Next Plc and Marks & Spencer Group Plc.

While a rate hike would widen profit margins for lenders such as Lloyds Banking Group Plc and NatWest, British bank stocks may remain under pressure as the country faces a recession. Investors in utilities and oil companies such as Centrica Plc and Shell Plc will keep a close eye on pressure to raise taxes on the sector to help with energy bills.

Regarding the broader trade and political risks, some analysts point to the possibility of improving the relationship with the European Union. Johnson has introduced legislation that would give Britain the ability to unilaterally adjust a post-Brexit settlement for Northern Ireland, threatening a trade war with the bloc. On the other hand, a new election could raise the existential risk of Scotland’s secession from the United Kingdom.

GBP/USD Forecast

Despite the recent correction, the GBP/USD price is still in the range of a strong bearish trend, and stability below the psychological support 1.2000 opens the way for the bears to move further down. The most important support levels for the currency pair will be 1.1825 and 1.1700, respectively. The continuation of the British political vacuum and concern about the future of economic stagnation there will negatively affect any gains for the pound against the rest of the other major currencies, and therefore I expect to sell the GBP/USD from every rising level.

On the upside, there will not be an important first break of the current downtrend without the GBP/USD moving towards the resistance level of 1.2390 as seen on the daily chart below.

This could be accumulation season, but I think there is so much time to do it that you can enter the market very slowly.

The Bitcoin market has rallied a bit during the trading session on Thursday as we continue to go sideways. Ultimately, the market is trying to figure out whether or not this is a floor, or if it’s Further to go to the downside. Quite frankly, it does not really matter at this point, because any rally will be treated with significant suspicion.

While I do not necessarily think that the market is going to completely collapse, the reality is that we could see a bit of a pullback from here. When you look at longer-term charts, it would not take much to imagine a scenario where we reached the $18,000 level, and then eventually break through it. If we did, it opens up the possibility of a move down to the $1200 level, an area that I think will continue to see a lot of support as well. This is based upon “market memory” that happened in that area, so I think it’s probably only a matter of time before we would see a bit of accumulation in that area. In fact, I would be more likely than not willing to start buying and building a big position.

If we do break to the upside, basically clearing the $22,000 level, it’s possible that we could go looking to the 50 Day EMA, and then possibly the $28,000 level. There is a massive amount of resistance between the $28,000 level that extends to the $32,000 level, and therefore I think it’s only a matter of time before we see exhaustion that will kick off more selling. I just don’t see the argument for Bitcoin taking off to the upside from here, at least not until the Federal Reserve does something about its monetary policy, and lifts the idea of risk appetite coming back into the financial markets.

As things stand right now, I think you have plenty of time to build up a position, so don’t feel necessarily overly pressed to get involved here. We are most certainly still in a downtrend and need to form a huge basing pattern before things turn around again and take off. In other words, this could be accumulation season, but I think there is so much time to do it that you can enter the market very slowly.

The stock market is oversold at the moment, and I think this rally is simply a way to remedy that.

The S&P 500 did rally a bit on Tuesday, showing signs of life again, but at this point it’s likely that we will continue to cease selling pressure eventually. The 3800 level is an area that could cause some resistance, due to the fact that we had bounced from there, but if we break above there, then the market is likely to go looking to the 3900 level, possibly even the 5000 level.

The S&P 500 will have to contend with higher interest rates in the United States, as the Federal Reserve is looking to tighten everything. Ultimately, the market will continue to see plenty of reasons to fall, and I just don’t see how traders will have a longer-term bullish outlook on the market, at least not at this point. The market will continue to be very noisy and I think that anytime somebody gets an opportunity to short this market, they will do so.

The 50-day EMA currently sits near the 4100 level, as it is going to continue to draw from here. If we see the 50-day EMA continues to drop from here, it will be dynamic resistance. Ultimately, signs of exhaustion will get jumped upon, and I will most certainly not hesitate to take advantage of that. The 3650 level is an area that I will be paying close attention to as well, as it has been important previously. If the market broke down below there, then it’s likely that we could go down to the 4500 level.

The Federal Reserve will continue to be very tight with its interest rates, and the market is doing everything it can to price in massive quantitative tightening. Ultimately, this is a situation that will find plenty of reasons to drop. However, I would anticipate that if the market were to break above the 4200 level, it would be a major shift in attitude, and it could be a sign that the market is finally changing trends. However, it does look very likely to happen until something changes with the Fed itself. Yes, inflation could be slowing down a bit, but it is still extraordinarily elevated and will continue to be. The stock market is oversold at the moment, and I think this rally is simply a way to remedy that.