Gold prices are headed for a fifth monthly decline, the longest stretch in four years, after the Federal Reserve raised interest rates, weakening the allure of the non-interest-bearing metal. 

Gold prices are headed for a fifth monthly decline, the longest stretch in four years. This happened after the Federal Reserve raised interest rates, weakening the allure of the non-interest-bearing metal. The strong dollar also affected gold, which is priced in the US currency. The two-year Treasury yield has reached its highest level since 2007.

“Restoring price stability is likely to require maintaining a restrained political position for some time,” Said the US Federal Reserve Governor Powell Friday, in remarks at the Federal Reserve’s annual policy forum in Jackson Hole, “Historical record warns severely from the policy of premature mitigation,”  he added.

He reiterated that another “unusually large” increase in the benchmark lending rate may be appropriate when officials meet next month. However, he did not commit to one, saying the decision will depend on “the totality of incoming data and changing expectations.”

Commenting on the market performance, John Finney, director of business development at Sydney-based bullion dealer Guardian Gold Australia, said that “This has to be the most hawkish rhetoric from the Fed chair at some time.”

“Although gold is under pressure from the strength of the US dollar at the moment, if we see an increase in volatility in the US stock market, we can expect gold to receive a safe-haven bid,” he added.

Meanwhile, Senator Elizabeth Warren took aim at the Federal Reserve’s anti-inflation game plan on Sunday, saying she was concerned the central bank could push the US economy into recession.  The senator remarked that she did not believe an interest rate hike could contain current price pressures.

The DXY US dollar index rose to its highest level in 20 years, making gold priced in US dollars expensive for those holding other currencies.

Matt Simpson, chief market analyst at City Index, said gold’s momentum has shifted to the downside, and while there will be a safe haven influx at some point, investors are currently focused on keeping interest rates high.

Echoing the Fed’s position, ECB Governing Council member Isabel Schnabel said central banks must act aggressively to combat inflation, even if it drags their economies into recession. While gold is often considered a safe haven during financial uncertainties, it is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion while strengthening the dollar.

Gold Forecast:

According to gold experts. Gold is likely to head towards $1,700 and has room to go to $1,680. You can get some buyers stepping in around $1,680 to support the market and back to $1,750 again. Data from the US Commodity Futures Trading Commission showed that speculators reduced their net long positions in Comex gold by 15,910 contracts to 30,326 in the week

Today’s Gold Price Analysis:

The continued strength of the US dollar impedes any efforts and attempts for the gold price to recover. Therefore, it is expected that the downward pressure for the gold price will continue until the announcement of US job numbers, the main driver of the markets. Stronger readings would support the dollar and negatively affect gold and vice versa. Until then, it may test new buying levels, the strongest of which are currently 1716 dollars and 1675 dollars, respectively. Whatever the buying opportunity, we do not advise taking any risks.

On the upside, there will be no real change to the current trend without the gold price testing the psychological resistance level of $1800 an ounce.

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The rising cost of European energy supplies has driven deep declines in many financial model-derived estimates of the single currency’s fair value this year, and with little respite on the horizon, some of the market’s most bearish forecasters are feeling upbeat about their EUR/USD outlook.

The EUR/USD will decline significantly in 2022. While factors such as the US economy and Fed policy have been a significant driver of this decline, it is the rising cost of energy supply disruptions that is giving most confidence to some other markets, which implies the eventual collapse of the euro.

The EUR/USD currency pair against the dollar EUR/USD fell last week to the 0.9900 support level, its lowest in 20 years, and in reaction to Jerome Powell’s statements, he tried to recover on Friday to the 1.0090 resistance, but he returned in his strongest downward path towards the 0.9964 support level and closed trading around it.

The euro gained a respite for most of the last week after falling below parity with the dollar during Monday’s session, but European gas prices remained at high levels after days of massive increases. These costs and their expected impact on companies and households alike is what prompts some forecasters to feel confident that the fall of the euro for more than 18 months may still have a long way to go.

The price of electricity in Germany will increase over the next year by more than 1000 US dollars in terms of Brent oil energy equivalent. This is far from normal, and so says Jordan Rochester, the expert at Nomura: “It is a crisis that does not only stem from the restricted energy supplies from Russia, but a series of unfortunate issues.”

In addition to energy constraints, the Eurozone faces the brunt of climate change with record-breaking flash floods and droughts, as well as slowing trade with China and the risk of a recession in the United States. However, we believe that the biggest challenge that Europe will face this winter is not inflation, but inflation accompanied by recession.

“This is why we expect the EUR/USD to drop to the 0.90 support this winter,” added Rochester.

European gas prices have more than doubled over the past week after the Russian gas monopoly said it would halt supplies through a key pipeline for three days in September, adding pressure on an already tight market. It is likely that the economic burdens created by these price increases will remain a headwind for the single European currency in the absence of credible supply-side responses from European countries to the ongoing Russian gas diplomacy.

“These incomprehensible price increases add pressure on European leaders to find a solution to the unfolding energy crisis that will put pressure on many families,” said Bas Van Giffen, chief economic analyst at Rabobank.

At the same time, American families are struggling to pay their utility bills. However, this situation pales in comparison to the rising prices faced by European consumers.

The rising cost of European energy supplies has driven deep declines in many financial model-derived estimates of the single currency’s fair value this year, and with little respite on the horizon, some of the market’s most bearish forecasters are feeling upbeat about their EUR/USD outlook.

Both Rabobank and Nomura have predicted a sustained break without parity in the EUR/USD rate over the coming months. According to their forecasts, the EUR/USD is likely to fall to 0.90 this winter with a terms of trade shock pointing to 1980s levels at 0.65 as a possibility.

Expectations of the EUR/USD:

• In the near term and according to the performance on the hourly chart, it seems that the EUR/USD currency pair is trading within the formation of an ascending channel.  This indicates a slight upward trend in the short term in market sentiment.
• Therefore, the bulls will target short-term profits at around 1.0039 or higher at 1.0083. On the other hand, bears will look to pounce on possible pullbacks around 0.9963, or lower at 0.9913.
• In the long term and according to the performance on today’s chart, it seems that the EUR/USD currency pair is trading within the formation of a descending channel. This points to a significant long-term downward wound in market sentiment.
• Therefore, bearish speculators will look to extend the current path of declines towards 0.9810 or lower to 0.9612. On the other hand, the bulls will target rebound profits at around 1.0182 or higher at the 1.03 level.

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The GBP/USD has fallen a bit during the trading session on Wednesday as we continue to see the US dollar strengthen against almost everything. As we are in the midst of the Jackson Hole Symposium, traders are out there waiting to see what Jerome Powell has to say on Friday morning, as the stock markets have been arguing with the central bank as to whether or not they are going to be able to stay tight.

The Bank of England has tightened interest rates recently, but they have also acknowledged that the United Kingdom is going to end up in a recession rather quickly, so therefore I think it makes quite a bit of sense that the British pound continues to suffer. With that being the case, it’s likely that we continue to see a “fade the rally” type of situation, and therefore I am looking for rallies to show signs of exhaustion that I can start selling again. Now that we are threatening to make a fresh, new low, then it’s likely that we could go looking to the 1.15 level which is my target at the moment.

Interest Rates Favors the US Dollar

• The 1.20 level above should be resistance, just as the 50 Day EMA above there should be.
• We have been in a very strong downtrend for quite some time, and less Jerome Powell pivots, or perhaps traders think that he is pivoted, the market still is going to favor US dollars.
• Furthermore, the interest rate differential still favors the US dollar in the bond market, which of course is a huge factor on currency markets.

Beyond all of that, there is quite a bit of concern when it comes to the global economy anyway, and that is pro-US dollar. This is because people will buy things like bonds in order to protect their trading capital. In other words, this is probably a one-way trade given enough time, but that does not mean that there will not be the occasional rally that we can take advantage of or that signs of exhaustion won’t be something that you should jump on. In fact, it’s not till we break above the 1.23 level at the bare minimum that I would consider looking to the upside in this market. Even then, we would have to break above the 200 Day EMA.

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The chance of the lira rising against the dollar is still weak, as the pair is heading in a general bullish direction in general.

Today’s recommendation on the lira against the dollar

•  Risk 0.50%.
• Yesterday’s buy deal was activated, and a profit was exited with closing half of the contracts and moving the stop loss point with the price movement

Best selling entry points

Entering a short position with a pending order from levels of 18.33

• Set a stop-loss point to close the lowest support levels at 18.55.
• Move the stop loss to the entry area and continue to profit as the price moves by 50 pips.
• Close half of the contracts with a profit equal to 55 pips and leave the rest of the contracts until the strong resistance levels at 17.70.

Best entry points buy

Entering a long position with a pending order from 17.98 levels

• The best points for setting stop-loss are closing the highest levels of 17.74.
• Move the stop loss to the entry area and continue to profit as the price moves by 50 pips.

Close half of the contracts with a profit equal to 55 pips and leave the rest of the contracts until the support levels 18.31

Analysis of the Turkish lira

The USD/TRY has stabilized at its lowest levels during the current year, as investors followed the statements made by Turkish President Recep Tayyip Erdogan, whose purpose was to provide some reassurance. The Turkish President said that the Turkish government will face the high cost of living starting from the first months of 2023. He also expressed his regret over the high inflation figures as he called for the impact of this inflation on the economy, explaining that the country does not need to raise the interest rate as the country does not need hot money. He also called on citizens to trust his economic model. With these statements, the Turkish president, who has effective control over the Central Bank of Turkey, cut off any hope of tightening monetary policy in the country. This means that the bank’s next steps will be limited to stabilizing or reducing interest rates. Which reflects the continuing pressures on the price of the lira during the coming period.

Turkish Lira Technical Analysis

The US dollar pair against the Turkish lira traded near its highest levels during 2022, as the pair returned to trading in a narrow trading range, which is shown on the chart. The pair is also trading above the moving averages 50, 100 and 200, respectively, on the four-hour time frame as well as on the 60-minute time frame, indicating the long-term bullish trend. The pair traded the highest support levels, which are concentrated at 18.08 and 17.98 levels, respectively. While the lira is trading below the resistance levels at 18.16 and 18.33, respectively. The chance of the lira rising against the dollar is still weak, as the pair is heading in a general bullish direction in general. As each decline of the pair represents a good buying opportunity, please adhere to the numbers in the recommendation, with the need to maintain capital management.

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The price of gold may remain under pressure until the Jackson Hole symposium.

• Gold futures continued their longest losing streak since July, as the rise of the US dollar led to the decline of the yellow metal at the beginning of this week’s trading.
• The price of XAU/USD fell to the support level of $ 1728 an ounce, the lowest for the price of gold in nearly a month.
• Investors had been expecting more hawkish comments from the Federal Reserve, reducing the prospects for a slowdown in tightening efforts.
• The price of the precious metal is retreating from a weekly loss of 2%, which adds to its performance since the beginning of the year 2022 to date by about -4.5%.

As for the price of silver, the sister commodity to gold, it is also retreating and tumbled to $ 18,835 an ounce. The price of the white metal fell more than 6% last week, exacerbating its horrific performance in 2022 by 19.35%. Since investors priced interest rates at around 3.5% by the end of the year, gold prices have become a victim in this market. Several US Federal Reserve officials dismissed the market’s suggestion that the central bank might start cutting interest rates in the face of slowing growth. The aggressive nature of the Federal Reserve has bolstered the US currency. The US Dollar Index (DXY), which measures the value of the US currency against a basket of major currencies, rose to 108.41, and a strong dollar is bad for dollar-priced commodities because it makes it more expensive to buy for foreign investors.

Commenting on the performance, Han Tan, Senior Market Analyst at Exinity said: “Precious metals are fading as the burning US dollar continues its quest to return to recent highs, as markets regain their bets on the Fed and the tightening path.”

The US Treasury market was also higher overall, with the benchmark 10-year yield unchanged at 2.989%. One-year yields rose 6.4 basis points to 3.307%, while 30-year yields rose 0.1 basis points to 3.226%. The spread between the two-year and 10-year bond yields is stable at -31 basis points.

Relative to the prices of other metallic commodities, the price of copper fell to $3.6315 per pound. Platinum futures fell to $861.30 an ounce. Futures contracts for palladium fell to $ 2004 an ounce.

All eyes on Federal Reserve

Overall, gold traded at its lowest level in more than three weeks as Federal Reserve officials reiterated their commitment to tighten monetary settings to curb inflation. Bullion prices capped their first weekly decline in five as investors weighed optimistic statements by policy makers that warn of a rise in US interest rates. Richmond Fed President Thomas Barkin said Friday that the US central bank is determined to return inflation to its 2% target, even if that means risking a recession in the US.

All eyes will be on Federal Reserve Governor Jerome Powell when he speaks Friday at the annual meeting of central bankers in Jackson Hole. He is expected to reiterate the Fed’s determination to continue raising interest rates to control inflation, though he may stop indicating how senior officials will go when they meet next month.

High interest rates weigh on non-interest bearing bullion. Investor demand has faltered, with holdings in exchange-traded funds falling for the 10th consecutive week, according to preliminary data compiled by Bloomberg. Ravindra Rao, Head of Commodity Research at Kotak Securities Ltd. ETFs, said ETFs showed modest buying interest on Friday “the price of gold may remain under pressure as we see a shift from riskier assets to the safety of the US dollar.” He said investors were re-entering.

Today’s XAU/USD Gold Price Forecast:

Bears control over the gold price direction is still the strongest, and the recent losses pushed the technical indicators on the daily chart towards oversold levels. Therefore, it is possible to think about buying gold from the following support levels of 1715 dollars and 1685 dollars, respectively. The uptrend for the XAU/USD price will not return without moving towards the top of $1800 an ounce. The price of gold may remain under pressure until the Jackson Hole symposium.

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Significant short-term bearish momentum in market sentiment.

Amid the recovery of the US dollar in the forex market, the pound sterling was the main loser against it. Accordingly, the Pound sterling fell against the dollar, GBP/USD, to the support level of 1.1792, the closest to its lowest during the trading of the year 2022. It closed trading last week, stable around the 1.1825 level. The pair’s losses pushed the technical indicators towards oversold levels However, the weakness factors still warn of further losses for the currency pair. This week, the US dollar will be the focus of investors’ attention, and this time it will be monitoring to announce the growth rate of the US economy, and what will be mentioned in the Jackson Hole symposium organized by the US Federal Reserve. Jerome Powell’s statements in this event will receive more attention and monitoring.

GBP/USD Economic Analysis

The GBP/USD currency pair is trading affected by the announcement that the US initial jobless claims for the week ending August 12th exceeded expectations at 265 thousand with the number of claims recorded at 250 thousand. Continuing claims also exceeded 1.438 million with a proceeds of less than 1.437 million. Prior to that, US retail sales figures for July exceeded expectations at 0.6% with a growth rate of 0.8%. On the other hand, US general retail sales for this month came out against expectations (MoM) at 0.1% with a change of 0%.

From the UK, UK CPI for July rose again to 10.1% (y/y) compared to expectations of 9.8% and 9.4% recorded in the previous month. The change (MoM) was 0.6% compared to a forecast of 0.4% but lower than the previous month’s 0.8%. The seasonally adjusted core PPI for July outperformed the forecast (MoM) by 0% with a print of 1%. On the other hand, the equivalent (on an annual basis) beat expectations at 15.9% with a rate of 14.6%.

There has been a sudden rise in retail sales, but consumer confidence is dropping to a 50-year low. Despite rising British inflation, UK retail sales surprised with growth in July, despite the much-watched gauge of consumer confidence dropping to an all-time low.

As announced, UK retail sales volume rose 0.3% in July 2022 after declining 0.2% in June 2022, according to the Office for National Statistics. This exceeded expectations as the consensus was looking for another reading of -0.2%. Retail sales are now down 3.4% y/y, slightly worse than the consensus had expected of -3.3%, but up in June -5.9%. The Office for National Statistics notes that despite a better-than-expected result for July, retail sales have been trending downward since the summer of 2021.

The data showed that for most categories, although the total value of goods sold increased in many cases, the quantities sold decreased. This reflects the effect of higher prices which raise the amount of money in circulation but at a lower turnover. The data comes in the same week that the UK reported year-on-year inflation growth of 10.1% for the month of July, with the Bank of England expecting the peak to be closer to 13%. Given the rising inflation expectations, other data released on Friday showed that British consumer confidence fell to another record low.

According to the advertiser, the GfK consumer confidence gauge fell to an all-time low of -44 in August, from a reading of -41 in July. At -60, a sharp drop in consumers’ expectations for the economy in the next 12 months was one reason for this record result. GfK says the result was due to a persistent rise in inflation, which is expected to peak later in the year.

Although the retail sales data for July beat expectations, the outlook remains tough. The upside surprise was driven by a massive 4.8% m-o-m increase in out-of-store retail, i.e. online. Comments from retailers suggest that this is due to a combination of online promotions that boost sales. Overall, the data released on Friday is clear: the British consumer is feeling the impact of higher prices and is likely to ease further, especially given that peak UK inflation is still some way off.

GBP/USD technical analysis

On both the short and long term, the recent losses of the GBP/USD pair pushed the technical indicators towards oversold levels. In the near term and according to the performance on the hourly chart, it appears that the GBP/USD is trading within a descending channel formation. This indicates a significant short-term bearish momentum in market sentiment. Therefore, the bears will look to extend the current declines towards 1.1800 or lower to 1.1720. On the other hand, the bulls will target potential recovery profits at around 1.2025 or higher at 1.2114.

In the long term and according to the performance on the daily chart, it appears that the GBP/USD currency pair is trading within the formation of a descending channel. This indicates a significant long-term bearish momentum in market sentiment. Therefore, the bears will look to maintain control of the pair by targeting profits at around 1.1660 or lower at 1.1295. On the other hand, the bulls will target potential retracements around 1.2241 or higher at 1.2605.

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This week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 years of Forex prices, which show that the following methodologies have all produced profitable results:

Let us look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:

Monthly Forecast August 2022

For the month of August, I forecasted that the EUR/USD currency pair would decline in value. The result so far is shown below:

 

Monthly Forex Forecast Performance

Weekly Forecast 14^th August 2022

Last week, I forecasted that the NZD/USD currency pair would fall in value over the week, as it made a strong counter-trend price movement over the previous week.

This was a great call, as the NZD/USD fell by 4.26% over the week.

The Forex market saw a slight decrease in directional volatility last week, with 52% of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to be lower over this coming week as although there are a few key news releases scheduled, we are unlikely to see any with a very strong impact on the market, possibly excepting a surprise in the forthcoming US preliminary GDP data release.

Last week was dominated by relative strength in the US Dollar, and relative weakness in the New Zealand Dollar.

 

You can trade my forecasts in a real or demo Forex brokerage account.

Key Support/Resistance Levels for Popular Pairs

I teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that can be watched on the more popular currency pairs this week.

Key Support and Resistance Levels

Let us see how trading two of these key pairs last week off key support and resistance levels could have worked out:

USD/JPY

We had expected the level at 132.65 might act as support in the USD/JPY currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 chart below shows how the price rejected this level right at the start of last Monday’s New York session with a doji candlestick, marked by the up arrow signaling the timing of the bullish bounce. This is typically a great time of day to be entering trades in major Forex currency pairs. This trade has been extremely profitable, achieving a maximum positive reward to risk ratio of more than 13 to 1 so far based upon the size of the entry candlestick structure.

USD/JPY Hourly Price Chart

EUR/JPY

We had expected the level at 134.97 might act as support in the EUR/JPY currency cross last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 chart below shows how the price rejected this level right at the start of last Tuesday’s Tokyo session with a bullish hammer candlestick, marked by the up arrow signaling the timing of the bullish bounce. This is typically a great time of day to be entering trades in Forex currency crosses involving the Japanese Yen. This trade has been nicely profitable, achieving a maximum positive reward to risk ratio of more than 5 to 1 so far based upon the size of the entry candlestick.

 

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The price of gold fell after four consecutive weeks of gains as investors assessed the outlook for the hawkish path of the Federal Reserve and on further indications that China is struggling to recover. The price of XAU/USD gold declined at the beginning of this week’s trading, towards the support level of 1773 dollars for an ounce, starting from the psychological resistance of 1800 dollars. The price of gold is stable around the level of 1780 dollars at the time of writing the analysis.

Gold bullion prices fell, after the longest streak of weekly gains in nearly a year. The price of the precious metal has risen amid slowing inflation in the US, supporting the argument that the Fed is less aggressive in raising borrowing costs. China’s central bank unexpectedly cut its key interest rate as it ramped up its support for an economy wracked by virus lockdowns and a deepening property crisis.

Economic data released on Monday showed that the country’s recovery is faltering, which could lead to a decline in physical demand for gold in the world’s largest consumer.

Investors will look forward to the release of the minutes of the Federal Reserve’s July meeting on Wednesday, which may provide clues to conditions that could push the US central bank to tighten again in September. Bets in the financial markets on the size of the next increase ranged between 50 and 75 basis points. Richmond Fed President Thomas Barkin said Friday that the US central bank needs to keep raising interest rates until inflation is on track with its 2% target, even if the economy weakens, to avoid a policy error similar to the 1970s.

How will inflation affect gold?

Inflation in the US is likely to remain elevated in the fourth quarter, which could lead to some headwinds in the near term for gold, although the worst is likely over, said Yeap Jun Rong, market analyst at IG Asia Pte. “Today’s drop could be due to some profit-taking as markets may have already largely priced the inflation-peak narrative.”

Investors are also watching a two-day visit by a US congressional delegation to Taiwan, which risks keeping tensions with China high after House Speaker Nancy Pelosi’s visit earlier this month.

Gold price forecast today:

Despite the recent sales, the price of gold can still rise.

• Stability above the resistance of $ 1780 an ounce supports the movement of the bulls towards the psychological resistance of $ 1800 an ounce, which supports the upward trend of the XAU/USD price.
• The continuation of the current selling operations may push the price of gold towards new buying levels and the closest to it currently 1760 and 1745 dollars, respectively.
• We prefer buying gold from every bearish level, despite the tendency of global central banks to tighten their policy, which is negative for gold.
• It finds momentum from the increase in global geopolitical tensions.

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I have often recommended selling the GBP/USD pair from every bullish level and last week’s trading moves confirmed the strength of what we mentioned. The GBP/USD pair recovered towards the 1.2293 resistance level, the highest for the currency pair in more than a month, from which the pair rebounded strongly to the vicinity of the 1.2003 support. This was after the announcement of stronger than expected numbers of US jobs, which in turn supports the path of raising US interest rates strongly throughout the coming months. The GBP/USD pair closed the week’s trading around the 1.2073 level, but the bears’ control might move it towards stronger support levels.

GBP/USD Fundamental Analysis:

The GBP/USD is trading affected by the results of the important economic data recently, as the US jobs data for the month of July came in stronger than expected with 528 new jobs recorded against the market expectations of 250K. Moreover, the country’s unemployment rate fell to 3.5% from 3.6% in June, also exceeding the consensus forecast of 3.6%. On the other hand, average hourly wages rose 5.2% year over year, topping the average estimate of 4.9%. The equivalent (monthly) also outperformed 0.3% by 0.5%.

From the UK, the Bank of England raised its policy rate by 50 basis points to 1.75%, in line with expectations. Prior to that, the British S&P Global/CIPS PMI for July fell from expectations at 52.8 with a reading of 52.1, while the services PMI came in below expectations of 53.3 with a reading of 52.6.

Sterling dollar technical analysis:

In the near term and according to the hourly chart, it appears that the GBP/USD is trading within a descending channel formation. This indicates a significant short-term bearish momentum in market sentiment. Therefore, the bears will look to extend the current declines towards 1.2022 or lower to 1.1964. On the other hand, the bulls will target short-term retracement profits around 1.2122 or higher at 1.2184.

In the long term and according to the performance on the daily chart, it appears that the GBP/USD is trading within a sharp descending channel formation. This indicates a strong long-term bearish momentum in the market sentiment. Therefore, the bears will look to maintain control of the currency pair by targeting profits at around 1.1924 or lower at 1.1766. On the other hand, the bulls will look to pounce on profits at around 1.2235 or higher at 1.2387.

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USD/JPY has declined recently to complete the downside breakout from forming an ascending channel.

A trading week dominated by bears towards the US dollar pairs, and the price of the US dollar against the Japanese yen (USD/JPY) currency pair moved amid bearish momentum towards the 132.50 lowest support level for the currency pair in a month and a half. It closed the week’s trading stable around the 133.22 level. The losses of the currency pair were primarily due to Investors abandoned the US dollar, even temporarily, after the announcement of the latest update of the Federal Reserve and economic growth figures, which confirmed a technical recession in the United States.

USD/JPY Economic Forecast

The USD/JPY currency pair is trading affected by the announcement that the US core PCE price index for June exceeded expectations (monthly) and (annual) at 0.5% and 4.7%, respectively, with readings of 0.6% and 4.8 %. Personal income and personal spending also beat expectations by 0.5% and 0.9%, respectively, with readings of 0.6% and 1.1%. On the other hand, the Michigan Consumer Confidence Index for July exceeded expectations at 51.1 with a reading of 51.5, while the Chicago PMI fell from the forecast of 55 with a reading of 52.1.

In Japan, the proportion of job applicants for June came in at 1.27 versus expectations of 1.25, while the Tokyo CPI for July outperformed 0% with a (annual) change of 2.5%. On the other hand, the Japanese unemployment rate for June remained unchanged at 2.6%, slightly ahead of expectations at 2.5%, while the preliminary industrial production for the month of June rose by 8.9% (MoM), beating the expected growth rate of 3.7%. Elsewhere, retail sales data for June missed out on all counts.

The US dollar fell slightly after the US Federal Reserve raised interest rates by 75 basis points, and the US GDP report confirmed that the US economy has now entered a recession with the economy contracting – 0.9% q/q in the second quarter and this is the second quarterly contraction.

This appears to be priced well, but the Japanese yen has risen strongly, and the US dollar is showing signs of weakness across many currency pairs. The Fed has little incentive to undo its fast-paced rate-raising cycle after its preferred measure of inflation came in above expectations. The dollar recovered after the Bureau of Economic Analysis said its measure of inflation, the core PCE price index, rose 0.6% month-over-month in June, topping analysts’ consensus expectations of 0.5% and doubling May’s reading of 0.3%. The index is up 4.8% in the year to June, higher than the 4.7% the market was looking for and the previous figure of 47%.

According to the Federal Reserve Bank. Personal consumption expenditures are hugely important to his policy. The FOMC inflation target is set in terms of the rate of change in the price index of total personal consumption expenditures (PCE). Wells Fargo says they don’t think the US economy is still in a recession, but they expect it will slide into one by the beginning of next year. There was more data released on Friday that indicated that investors may be premature in anticipating a rollback of the current Fed policy.

Technical Outlook for the USD/JPY:

In the near term and according to the performance on the hourly chart, it appears that the USD/JPY is trading within a descending channel formation. This indicates a significant short-term bearish momentum in market sentiment. Therefore, the bears will look to extend the current decline towards 132.58 or lower to 131.82. On the other hand, the bulls will target short-term profits at around 134.04 or higher at 134.73.

In the long term and according to the performance on the daily chart, it appears that the USD/JPY has declined recently to complete the downside breakout from forming an ascending channel. This indicates that the bears are trying to control the pair. Therefore, they will target extended pullback profits at around 129.94 or lower at 126.73. On the other hand, the bulls will target long-term profits at around 136.58 or higher at 139.38.

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