The US dollar’s gains were temporarily halted against the other major currencies after data released yesterday showed that the slowdown in the US economy may have accelerated in August. The USD/JPY pair retreated to the support level 135.80, after gains at the beginning of the week’s trading, towards the resistance level 137.70 and settled around the 136.75 level at the time of writing the analysis.

As announced, the S&P Global PMI survey of the US economy showed a sharp decline in service sector activity, with the services PMI reading at 44.1, well below the 49.2 markets expected and July’s 47.3. A reading below 50 indicates deflation. By contrast, UK Services PMI came in at 52.5 in August, which was above expectations. The US manufacturing PMI read at 51.3, but it was lower than the 52.0 that markets had expected. The Composite PMI – which adjusts readings to better reflect the broader economy – came in at 45.0, well below expectations of 49.0 and 47.7 in July.

For its part, S&P Global said the decline in production was the fastest since May 2020 and exceeded anything recorded outside the initial epidemic outbreak since the chain began nearly 13 years ago. The data indicates that the US economy is slowing amid rising inflation and higher interest rates at the Federal Reserve.

Signs of slowdown

From a forex market perspective, another sign of a slowdown will dampen investor expectations about the number of interest rate hikes the Fed is willing to deliver over the coming months. Expectations of a rate hike in the cooldown are in turn creating headwinds for the US dollar as it leads to lower bond yields.

Standard & Poor’s Global also said material shortages, delays in delivery, rise in interest rates and strong inflationary pressures have all dampened customer demand. The Fed may be tempted to slow the pace of increases given the report that companies raised their selling prices at the weakest pace in 18 months.

This data suggests a significant slowdown in the US, provided that it tracks GDP closely. “I’m a huge fan of PMIs, but even I would have treated this recession with a pinch of salt,” says independent economist Julian Jessup. “The reason for the weakness was the sharp drop in the services index, which has only a short track record, while the alternative ISM index has held up well,” he added.

Thus, the Fed will read the PMI report with interest, but it will likely not be affected by its rate hike policy. Therefore, despite the decline of the dollar, the general premise of further strength remains.

US new home sales in July were reported to have fallen for the sixth time this year to the slowest pace since early 2016, extending a months-long slump in the housing market fueled by higher borrowing costs and declining demand. Government data on Tuesday showed that purchases of new US single-family homes fell 12.6% to a 511,000 annual pace from 585,000 in June. The median estimate in a Bloomberg survey of economists called for 575,000. Overall, the fall in July sales is the latest example of how the housing market has buckled under the weight of higher prices and higher borrowing costs. Construction has slowed, home purchase orders are down, and more buyers are pulling back from deals.

Inventories are booming amid a decline in demand, which is likely to put downward pressure on home prices in the coming months. And there were 464,000 new homes for sale at the end of the month, the most since 2008. However, 90% of them were either under construction or not yet started.

Data released last week showed that housing starts fell in July to the slowest pace since early 2021, and sales of existing homes – which make up most of the market – fell for the sixth month in a row to the lowest level in more than two years. The New Home Sales report, released by the Bureau of Statistics and the Department of Housing and Urban Development, showed that the median sales price for a new home rose 8.2% from the previous year to $439,400, the slowest pace of price increases since late 2020.

Dollar yen forecast today:

• The general trend of the USD/JPY currency pair is still bullish.
• The currency pair may remain stable around its gains until the reaction from the Jackson Hole symposium and the Federal Reserve’s hints about the future of raising US interest rates, the most important factor for the dollar in achieving its gains.
• Currently, the nearest resistance levels for the currency pair are 137.75 and 138.40, and from there to the historical peak of 140.00.

On the downside and according to the performance on the daily chart, there will be no break in the current trend without the currency pair moving towards the support levels 134.70 and 133.00, respectively.

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If we were to break down below the bottom of the candlestick for the day, that could be a very negative sign, perhaps sending this market much lower.

The AUD/USD pair has fallen rather hard during the early hours on Wednesday, as the Royal Bank of New Zealand decided to raise interest rates by another 50 basis points. This move was in sympathy for the Kiwi dollar, slamming the Aussie down into the 50-Day EMA.

Later in the day, we had the FOMC Meeting Minutes, which traders interpreted as showing signs of potential dovishness. Because of this, we did get a little bit of a lift, but it is probably worth noting that we are still very much in a consolidation area that will probably cause major problems. With that in mind, I think this is a market that remains choppy, and therefore probably one that you need to focus on short-term charts. That 0.70 level above is the beginning of relatively significant resistance, which could extend all the way to the 200 Day EMA, which is currently at the 0.7150 level. Keep in mind that the Australian dollar is highly levered to the Chinese economy.

Will AUD Return to a Bullish Trend?

• If we were to break down below the bottom of the candlestick for the day, that could be a very negative sign, perhaps sending this market much lower.
• It is likely that we would see the Aussie drop back down to the 0.67 level, an area that has been important previously.
• Not only did we bounce from there recently, but it’s also longer-term support and resistance area, and therefore it does make a certain amount of sense that we would struggle in that region.

If we do break down below the 0.67 level, it opens up a move down to the 0.65 level, and then possibly even lower than that. It should be noted that this level has been important going back several years, so it should not be a surprise that we had bounced from there. Furthermore, if we were to break down below that level, it would be a severe breach of support, so it could open a big flush lower. On the upside, if we were to take out the 200 Day EMA going forward, that would obviously be bullish, and would technically make the Australian dollar back in a bullish trend again. I don’t see that happening, but it’s something that you need to be aware of.

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The pair will likely remain in this range as traders wait for the upcoming US consumer and producer inflation data.

Bearish View

• Sell the EUR/USD pair and set a take-profit at 1.0100.
• Add a stop-loss at 1.0250.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.0235 and a take-profit at 1.0300.
• Add a stop-loss at 1.0160.

The EUR/USD price moved sideways during the American and Asian sessions as investors focused on the latest spending package by the Senate. The pair was trading at 1.0188, where it has been in the past few days.

EU Energy Crisis

The EUR/USD pair moved sideways after the American Senate voted for Joe Biden’s climate, tax, and healthcare bill. The bill will provide billions of dollars in funding for clean energy projects like wind and solar.

It will also lower some drug prices by letting Medicare negotiate with manufacturers. Most importantly, the bill will be funded by introducing a 15% minimum tax for companies making over $1 billion in sales every year. Also, it aims to raise billions by introducing a 1% tax on share buybacks.

The pair also moved sideways as more Federal Reserve officials warned that the bank will continue hiking interest rates in a bid to fight inflation. In a statement, Mary Daly warned that the bank will continue hiking interest rates in the coming months.

There is no major economic data scheduled from the United States and Europe on Tuesday. Therefore, investors will focus on the upcoming US inflation data scheduled for Wednesday. Economists expect the data to show that the country’s inflation retreated slightly in July this year as gas prices declined.

Another thing to watch will be the ongoing European energy crisis. Russia has slashed gas supplies to Europe to about 20% of capacity and analysts believe that the situation will worsen towards summer.

The situation will likely get worse as the hotter-than-usual summer continues. In a statement on Monday, Norway’s government warned that it could stop selling electricity to European countries soon. The government said that the country’s hydropower plants were having extremely low levels of water. This could hurt European countries like Germany and Denmark.

EUR/USD Forecast

The four-hour chart shows that the EUR/USD pair has been moving sideways recently. As a result, it is consolidating along the 25-day and 50-day moving averages. It is also between the important support and resistance point at 1.0131 and 1.0276. It is also between the 23.6% and 38.6% Fibonacci Retracement level.

Therefore, the pair will likely remain in this range as traders wait for the upcoming US consumer and producer inflation data. In the near term, however, the pair will likely have a bearish breakout as sellers target parity.

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The price of the USD/JPY currency pair may remain stable around its recent gains, following the strong US jobs numbers, until the most important event this week is announced. So far, the Fed’s policy tightening factors are increasing and continuing and US job numbers have dispelled fears of US economic recession even for some time. At the beginning of this week’s trading, the dollar-yen pair settled around its gains of 135.60, waiting for any news.

Future of Japanese Yen

A growing group of analysts says the biggest profits from betting on the yen – one of the hottest macro trades of 2022 – is a thing of the past. Three main pillars of the yen-selling trade are collapsing – a widening interest rate gap between the US and Japan, higher oil prices and the loss of the currency’s status as a haven as mounting recession fears keep a cap on yields, pressure crude oil and return investors to the arms of traditional safe-haven assets. The dollar-yen, which rose 38% from its lows in March 2020 to mid-July this year, is on the decline.

Rodrigo Cattrell, an analyst at National Australia Bank Ltd. In Sydney: “The big short-term yen as we know it this year is over.” And “It is now possible that the dollar-yen peak is behind us.”

Catril is joined by the likes of Rabobank and Daiwa Securities Group Inc. In anticipation of slowing losses for the Japanese currency, the worst performer in the G10 this year. Strategists see the Japanese yen rising to 130 against the dollar on average by the first quarter of 2023, according to data compiled by Bloomberg, a stark contrast to calls that 140 and above await at the peak of the drop in mid-July.

An end to what was threatening to become the currency’s worst-ever decline would be welcomed by businesses to consumers to politicians in Japan, as high import costs weigh on the post-pandemic recovery. It would justify the resolutely hawkish stance of BoJ Governor Haruhiko Kuroda and put pressure on hedge funds that came late to the popular macroeconomic strategies for the short-term yen.

The Japanese yen is closely correlated with moves in US government bonds, as the dynamic of the Bank of Japan keeping interest rates on hold even as the Federal Reserve raises significantly is weighing on the relative attractiveness of Japanese assets. Treasury yields have now slipped from their highs as traders adjust their estimates of peak US Federal Reserve interest rates and reconsider bonds on fears of a US slowdown.

“The monetary policy divergence between the US and Japan won’t be a factor anymore, as the markets have largely priced that,” said Yukio Ishizuki, senior forex analyst at Daiwa in Tokyo. It appears that the selling of the yen has reached its climax.

Benchmark Treasury yields have fallen more than 60 basis points from their June peak to 2.82% on Monday. The yen strengthened more than 3% from its low to around 135.25. “It follows that if the trend of US yields is less than some of the upside pressure that is removed from the currency pair,” said Jane Foley, an expert at Rabobank in London. It expects USD/JPY to trade as low as 130 in the coming months.

It left Japan, a net oil importer, reeling earlier this year as Brent crude futures rose around $140 a barrel. With prices now below the $100 mark, the devastating impact on import costs has eased. Accordingly, Yuki Masujima of Bloomberg Economics predicts that Japan’s trade deficit narrowed in July and that the country’s import bill increased at a slower pace thanks to cheap commodity prices.

Japanese currency is also re-emerging as a safe haven.

The yen jumped 1.3% last Monday when investors learned that US House Speaker Nancy Pelosi would visit Taiwan, raising fears of possible retaliation from China. It has risen more than 4% in the past three weeks as fears of a global recession deepen. “It looks like the Japanese yen has rediscovered its safe haven status,” said David Forrester, senior FX analyst at Credit Agricole CIB in Hong Kong. He added that weaker-than-expected US economic data limits US interest rate hike bets, which “reduce the safe-haven dollar with a high-yield attractiveness, allowing the Japanese yen to reconfirm its appeal as a safe haven.”

Hedge funds seem to be voting with their feet. Recent data from the Commodity Futures Trading Commission showed that leveraged investors cut their negative bets on the yen to the lowest level since March 2021.

Forecast of the dollar against the Japanese yen:

The price of the USD/JPY currency pair may remain stable around its recent gains until the US inflation figures are announced, which complete the picture for the US economy and the path of raising US interest rates. Currently, the nearest resistance levels for the dollar pair are 135.85, 136.20 and 137.00, respectively. On the other hand, on the daily chart, a break of the support 132.25 will be important for the bears to control. The general trend of the dollar-yen is still bullish.

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The pair will likely remain in the current range and then have a bearish breakout after the US jobs data.

Bearish View

• Set a sell-stop at 1.0130 and a take-profit at 1.0045.
• Add a stop-loss at 1.0235.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.0225 and a take-profit at 1.0300.
• Add a stop-loss at 1.0125.

The EUR/USD currency pair came under intense pressure after the strong American jobs numbers pointed to more tightening by the Federal Reserve. The pair dropped to a low of 1.0160, which was slightly below last week’s high of 1.0300.

More Fed Tightening Likely

The EUR/USD pair made a strong bearish breakout as investors reflected on the latest US non-farm payroll data. According to the Bureau of Labor Statistics (BLS), the economy added over 528k jobs in July, a strong surprise since analysts were expecting it to add just 225k jobs. It was also better than the adjusted 392k jobs that were created in June.

Additional data revealed that the unemployment rate dropped from 3.6% to 3.5% in July. This decline was equally better than what analysts were expecting. Further, the labor participation rate and wages continued rising. These numbers imply that the American economy took two years to recover the 22 million jobs it lost during the pandemic.

Therefore, these numbers imply that the Federal Reserve will likely continue with its rate hike campaign to defeat the soaring inflation. Data published in July showed that America’s inflation rose to a multi-decade high of 9.1% in June.

The next major catalyst for the pair will be the upcoming US inflation numbers scheduled for Wednesday. Economists expect the data to show that the country’s inflation fell from 9.1% to 8.7% on a year-on-year basis. They also believe that it dropped from 1.3% to 0.2% on a month-on-month basis as the price of gasoline dropped. Still, inflation remains significantly above the bank’s target of 2.0%.

There is no major scheduled economic data from Europe this week. Therefore, focus will remain on the US dollar as global risks rise. The war in Ukraine is going on while China has ramped pressure on Taiwan.

EUR/USD Forecast

The four-hour chart shows that the EUR/USD pair has remained between the important support and resistance levels at 1.0100 and 1.0296 in the past few weeks. It dropped slightly after the latest US jobs data and moved slightly below the 25-day moving average.

At the same time, the pair remained above the 23.6% Fibonacci Retracement level. Notably, it has formed a small head and shoulders pattern. Therefore, the pair will likely remain in the current range and then have a bearish breakout after the US jobs data.

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Every time the EUR/USD price attempts to bounce higher, weaknesses come to remind investors and markets that the euro may remain under downward pressure for a longer period of time. The EUR/USD pair’s recent rebound gains stopped at the 1.0280 resistance level, as the faltering European energy file returned due to Russia’s continued measures to force Europe to lift sanctions due to its war against Ukraine. The Euro-dollar returned to the vicinity of the 1.0100 support level. The US dollar is still stronger with expectations of raising interest rates and investors’ demand for it as a safe haven.

The European Central Bank will only offer 50 basis points of additional interest rate increases this year as the eurozone succumbs to recession in the fourth quarter, according to JPMorgan Chase & Co. Economists at the bank, led by Greg Fouzy, see a 25 basis point hike in interest rates in September and October. They no longer expect a similar move in December. They said, “A move of 50 basis points is also likely in September, but we believe that the uncertainty about economic growth will already lead to some caution by the September meeting and will lead to a pause after October.”

The eurozone economy is expected to contract during the first quarter of 2023, as inflation and concerns about Russian energy supplies affect production. This week also a recession in the Eurozone, although analysts say it has already started this quarter. For Germany, Europe’s largest economy, the hope of avoiding deflation is fading by the day, as the country depends more than most on Russian natural gas.

After the decisions of the US Federal Reserve:

TD Securities has released its “cheat sheet” for the possible outcomes of the forex foreign exchange market in the wake of the Federal Reserve’s interest rate decision and guidance in July. The strategy note outlines the possible outcomes of the EUR/USD exchange rate under three scenarios: a hawkish outcome (20% probability), a base case (65% probability) and a peaceful outcome (15% chance).

Under the hawkish scenario, EUR/USD falls back to parity as the market reacts to a 100bp rate hike. At the moment, the market strongly sees a price hike of 75 basis points as likely, highlighting the initial surprise such a move could bring. Under the hawkish scenario, the Fed will also point to the possibility of other similar big hikes, with Federal Reserve Governor Jerome Powell saying at the press conference that lowering inflation remains the Fed’s number one priority.

Under TD Securities’ base case scenario, the Fed meets market expectations with a 75bp hike and signals the possibility of further hikes given that inflation remains uncomfortably high. Accordingly, TD Securities says, “Powell indicates that the Fed is prepared to continue raising rates early as growth remains strong, opening the door for another 75 basis point move in September.”

Under the best case scenario, the EUR/USD price is trading at 1.0100. The pessimistic scenario includes a 75 basis point Fed hike but provides softer guidance.

That could further slow growth momentum and uncertainty about the outlook, according to TD Securities. “Powell is hinting that a slower pace of rallies is possible as the Fed becomes more cautious now that the neutral rate has been reached,” the company added. The president refers to slow growth momentum as a material risk to the outlook,” and here the EUR/USD will rise to 1.0280.

Euro forecast against the dollar:

As I mentioned at the beginning of the EUR/USD technical analysis, the currency pair is a candidate for more downward pressure and for a longer period, and therefore any attempts for the EUR/USD pair to go higher will be an opportunity to sell again. The divergence in the future of raising interest rates and economic performance will be in favor of the US dollar in the end. The nearest resistance levels for EUR/USD are currently 1.0220 and 1.0335, respectively.

Continued control of the bears will not prevent the EUR/USD pair to break below the parity price again

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SOL/USD is trading near short-term highs in early trading this morning, and the ability of Solana to produce rather quick results on speculative wagers can prove enticing.

SOL/USD is trading near short-term highs as of this morning near the 36.0000 ratio.  On the 21^st of June SOL/USD did trade above the 39.0000 mark, this reversal higher was achieved after the cryptocurrency traded near the 28.6500 vicinity on the 19^th of June. Solana has mirrored the major digital asset marketplace and has suffered a strong bearish trend. However, SOL/USD continues to offer speculators a place to look for quick trading results which could attract those who like fast wagers.

Entry price orders should certainly be used when pursuing movement in SOL/USD. A live market order in SOL/USD is an open invitation to receive an unexpected price fill which could deliver a rather difficult trading path for a speculator.

While SOL/USD trades near short-term highs momentarily, traders may feel inclined to seek downside momentum which aims for nearby support levels. Because of the speed which Solana trades, speculators are also urged to use take profit and stop loss orders too, this so market action doesn’t escape trading targets in a dramatic fashion.

SOL/USD has been able to produce a rather stimulating move upwards the past handful of days after falling to its lower depths.  The move higher however, also occurred as the major counterparts of Solana were able to produce some buying power. Nervous sentiment remains abundant in the cryptocurrency marketplace and speculators who believe additional upside can be found beyond current resistance levels may want double check their perceptions.

36.8000 looks to be a rather solid resistance level for short term traders, if it is not toppled this may send a negative signal to traders.  If the 36.0000 juncture cannot be passed and sustained, this may ignite selling in SOL/USD.  Trading conditions in Solana dictate that conservative amounts of leverage are needed to make sure moves that go against the chosen direction of the trader doesn’t wipe out their account with a single adventure.

Support levels of 35.5000 to 35.000 should be monitored in the short term. If these support ratios start to look vulnerable, SOL/USD could quickly find that it is testing the 34.8000 ratio. If this lower value proves vulnerable this would likely indicate another downward dose of selling is taking hold and it could produce a near term move below the 34.0000 mark.

Solana Short-Term Outlook

Current Resistance: 36.8500

Current Support: 34.9000

High Target: 38.6000

Low Target: 33.6000

The stronger and continuous control of the bulls on the price performance of the USD/JPY currency pair pushed it towards the 135.20 resistance level, the highest for the currency pair in 20 years. It is settling around the 134.50 level at the time of writing the analysis, and the move may remain stable around its gains until the US central bank policy is updated tomorrow, Wednesday. Expectations of a sharp rise in US interest rates throughout 2022 guarantee the US dollar strong gains in the forex currency market.

In the view of Barclays experts, “We believe that the FOMC now has good reason to surprise the markets by walking more strongly than expected in June. Accordingly, we have changed our forecast to call for a 75 basis point increase.” The Federal Reserve is widely expected to raise US interest rates via a massive 50 basis point increase, which would bring the Fed funds rate to a range of 1.25% to 1.5%, although US inflation data on Friday increased the risks of the bank going forward this week.

That data suggests that US inflation could remain above the Fed’s 2% target for much longer than the bank had projected, and so may ultimately leave the Fed with little choice but to continue raising rates in larger-than-normal increases.

This could lead to the Federal Reserve raising US interest rates to 3% or more by the end of the year, which would be very supportive of the dollar, and another drag on the other currencies. “Inflation is very high in major developed markets, and central banks need to tighten financial conditions to slow the economy and bring down inflation,” says Zach Bundle, forex analyst at Goldman Sachs.

“At some point financial conditions will tighten enough and/or growth will weaken enough that the Fed can stop taking a walk.” “But we are still far from that point, which indicates upside risks to bond yields, continued pressure on risky assets, and the potential for broad strength in the US dollar for the time being,” the analyst said.

A measure of US dollar strength rose to its highest level since the early months of the pandemic as investors bet that the Federal Reserve would ramp up monetary policy tightening. Accordingly, the Bloomberg Dollar Spot Index, which measures the performance of the US currency against a basket of ten leading global currencies, rose 0.8% to the highest level since April 2020. The measure is on track for its largest gain in two sessions since March 2020. The last stage of data was stimulated US inflation came in higher than expected on Friday, prompting traders to bet on faster rate increases. They are now pricing in a full 75 basis point hike by September, which would be the US central bank’s biggest hike since 1994.

According to the technical analysis of the pair: There is no change in my technical view of the price performance of the USD/JPY currency pair, as the general trend is still bullish. It may maintain its gains around the highest in 20 years until the US Central Bank announced on Wednesday the closest targets for the bulls. According to the current performance, the resistance levels are 134.85, 135.20 and 136.00, respectively.

On the other hand, according to the performance on the daily chart, it will be important to break the 130.65 support level to start controlling the bears. The US dollar will be affected today by the announcement of inflation readings from the producer price index.

The pair will likely consolidate in this range today. 

Bullish View

• Set a buy-stop at 30,500 and a take-profit at 32,000.
• Add a stop-loss at 27,500.
• Timeline: 2 days.

Bearish View

• Set a sell-stop at 28,700 and a take-profit at 27,000.
• Add a stop-loss at 31,000.

The BTC/USD price is still in a tight range as investors watch the overall market sentiment. Bitcoin is trading at $29,897, which is in the same range it has been in the past few days. This price is about 17% above the lowest level this month.

Fear and Greed Retreats

The BTC/US pair has been moving sideways in the past few days as investors remain pessimistic and fearful about the market. The fear and greed index has declined to the extreme fear level of 11, which explains why both stocks and cryptocurrencies have declined sharply.

The latest cause of fear was the ongoing margin compression in the United States after the recent results by Target, Walmart, and Kohls. All these retailers said that their profit margins have thinned sharply in the past few months as the cost of doing business rose.

As a result, shares of most retailers have plummeted in the past few days, with Target falling by 29% in the past five trading sessions. Walmart shares plummeted by 19% while Kohls fell by 20%.

These companies are important because of the special role that consumer spending has on the American economy. As a result, their results helped to push the Dow Jones and Nasdaq 100 indices sharply lower, with the S&P 500 hovering above its bear market level.

All these factors have an impact on the BTC/USD pair because of the ongoing correlation between stocks and digital currencies.

Meanwhile, recent options data show that the decline has more room to run. The put/call ratios for bitcoin open interest has jumped to the highest level in 12 months of 0.72. This is a signal that investors are still more bearish since investors are anticipating that the sell-off will continue.

BTC/USD Forecast

The BTC/USD pair remained in a consolidation mode. It is trading at 29,700, where it has been in the past few days. It has formed a symmetrical triangle pattern that is shown in red. Also, the pair has moved to the 25-day and 50-day moving averages while the MACD indicator has moved slightly below the neutral level.

Therefore, the pair will likely consolidate in this range today. Later this week, a strong bullish or bearish breakout cannot be ruled out. If this happens, the key support and resistance levels to watch will be at 28,500 and 30,770.