2022

MONDAY’S ASIA-PACIFIC OUTLOOK
Asia-Pacific traders face a potentially volatile week, with several high-impact events ahead that may shift market sentiment. Equity indexes moved higher across US, European and APAC markets as the US Dollar pulled back. The DXY Index fell for a second week, weighed down by an advancing Yen, Euro and Australian Dollar.

The Australian Dollar may see more gains this week if risk appetite holds up, although market sentiment has been fragile as traders continuously digest economic data, central bank commentary and other indicators. Later this week, Australia’s second-quarter inflation rate may lift AUD/USD if the data surprises to the upside. The Bloomberg consensus forecast sees a 6.3% year-over-year increase, up from 5.1%.

{{GUIDE|AUD}

China’s property sector woes and its broader economic condition will likely continue to play a large part in influencing market sentiment. Hong Kong’s Financial Secretary Paul Chan wrote in a blog post over the weekend that Hong Kong’s financial situation is sound. Mr. Chan’s comments are in response to the large number of capital outflows seen over the last several months, causing some to speculate that the city’s monetary system may soon become illiquid.

Traders face a relatively light economic docket for today, but several potentially high-impact events loom. The United States will see a consumer confidence update and an advance read on second-quarter gross domestic product (GDP) growth. Those events may cause big shifts in the US Dollar, which has broad-ranging potential to disrupt financial markets. Europe is also due for its Q2 GDP print to cross the wires.
— Written by Thomas Westwater, Analyst for DailyFX.com

AUSTRALIAN DOLLAR TECHNICAL PRICE OUTLOOK: AUD/USD WEEKLY TRADE LEVELS
Australian Dollar technical trade level update – Weekly Chart
AUD/USD holds downtrend support for a fourth week – risk for price inflection
Aussie resistance 6991-7016, 7187-7206 (key), 7270- Support 6785, 6660/70 (key), 6461
The Australian Dollar rallied more than 2% off the yearly / monthly lows against the US Dollar with AUD/USD responding to downtrend support for the past month. While the broader outlook remains weighted to the downside, the immediate decline may be vulnerable here and the threat for a recovery rises while above the weekly open. These are the updated targets and invalidation levels that matter on the AUD/USD technical price charts this week. Review my latest Weekly Strategy Webinar for an in-depth breakdown of this Aussie technical setup and more.
— Written by Michael Boutros, Technical Strategist with DailyFX

FRIDAY’S ASIA-PACIFIC OUTLOOK
AUD/USD is little changed after swinging between gains and losses over the past 24 hours. The US Dollar strengthened after a government report showed an 11.3% y/y rise in US wholesale prices, which firmed up Federal Reserve rate hike bets. Those stronger bets eased earlier this morning when Fed Governor Christopher Waller appeared to throw his support behind a 75 basis-point hike. The Dow Jones Industrial Average (DJIA) fell 0.46% at the close.

Crude oil prices fell more than 4% before trimming losses. WTI crude oil is nearing a 10% loss for the month as demand shows signs of cooling. Data from the US Energy Information Administration (EIA) revealed a sharp drop in gasoline demand for the week ending July 08. That is reflected in the 1:1 oil/gasoline crack spread, a proxy for refiner margins.

Iron ore prices are down in early trading, presenting a headwind for the Australian Dollar. However, China may lift its ban on Australian coal. Chinese policymakers worry that increased competition amid Russian sanctions will make coal harder to source. Australia stands to benefit from higher export revenues if the two-year ban is lifted. Newcastle coal futures traded at $430 a tonne, just below its record high set back in March.

China’s second-quarter gross domestic product (GDP) growth rate is slated to cross the wires today. Analysts expect the Q2 figure to show a 1.0% y/y increase, which would be down from 4.8% y/y in Q1. The lockdowns in Shanghai and other cities from April to June likely weighed on economic activity. Meanwhile, China’s property sector continues to struggle as developers miss interest payments. Moreover, reports of protests over mortgage payments are surfacing, which may draw a response from Beijing. China Merchants Bank, a firm with heavy mortgage debt exposure, fell 3.75% in Shanghai on Thursday.

（From — Written by Thomas Westwater, Analyst for DailyFX.com）

The US Dollar Index ripped to fresh yearly highs this week with DXY surging to levels not seen since October of 2002. The rally is now approaching technical levels of interest and while the broader outlook remains constructive, the bulls will need to stabilize up here to keep the uptrend viable and maintain the momentum needed for a test of uptrend resistance just higher. These are the updated technical targets and invalidation levels that matter on the US Dollar Index weekly price chart. Review my latest Strategy Webinar for an in-depth breakdown of thisDXY technical setup and more.
In last month’s US Dollar Weekly Price Outlook we noted that DXY had, “responded to uptrend resistance for the second time on building momentum divergence and once again highlights the threat for near-term exhaustion in the index. From a trading standpoint, a good time to reduce portions of long-exposure / raise protective stops – losses should be limited to 101.87/95 IF the index is indeed heading higher on this stretch.” The Dollar fell 2% off those highs in the following weeks with the index registering a low at 103.67 before reversing sharply higher. The rally has now extended for a third consecutive week with the advance now attempting to break uptrend resistance around the 2001 swing low at 108.09. The focus is on the weekly close with respect to this threshodl for guidance.

A topside breach from here keeps the focus on a sliding parallel of the 2011 trendline extending off the 2020 highs (currently ~109.10s) backed by the 78.6% Fibonacci retracement of the 2001 decline at 110.25- look for a larger reaction in price there IF reached. Initial weekly support now rests with the 1989 high at 106.56 backed by the 1999 high at 104.88. Broader bullish invalidation now raise do the 2019 high close at 103.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line: The US Dollar rally has accelerated into uptrend resistance and stabilization above 108 is needed to keep the immediate advance viable in the weeks ahead. From a trading standpoint, a good zone to reduce portions of long-exposure / raise protective stops – losses should be limited to the objective monthly open at 104.77 IF price is indeed heading higher on this stretch. Stay nimble into major event risk this week with key US inflation data (CPI) and retail sales on tap. I’ll publish and updated US Dollar Price Outlook once we get further clarity on the short-term DXY technical trade levels.
(From DailyFX)

WEDNESDAY’S ASIA-PACIFIC OUTLOOK
Investors flocked to haven assets overnight amid a volatile trading session in New York. US stocks started the day with steep losses but rallied into the close as falling bond yields helped take pressure off valuations. The benchmark 10-year Treasury yield fell to its lowest level since May. Investors are turning bullish on bonds amid signs that inflation may have peaked, reflected by easing market bets for future Fed rate hikes.

Oil prices plummeted as recession fears picked up. Energy traders are betting that demand may have hit a peak following the busy US holiday that typically brings near-record travel numbers. The rising Dollar was another headwind for energy prices. Moreover, a new round of mass testing was launched in Shanghai, China, following reports of multiple Covid-19 cases from earlier in the week. Given the prospect of increased restrictions should cases continue to rise, it may put a dent in regional sentiment for today’s session. That said, the Australian Dollar’s fall versus the US Dollar may continue.

The New Zealand Dollar faces mounting headwinds as milk prices continue to slide. Milk is a major export for the Kiwi economy, making its currency vulnerable to outsized price swings in the commodity. New Zealand’s global dairy trade price index recorded a 4.1% drop this morning, following a 1.3% decrease two weeks ago. The move in diary echoes the activity seen in the broader food-based commodity market, with the grain market sliding further overnight. Corn and wheat futures fell nearly 5% overnight in New York.

The Reserve Bank of Australia’s chart pack is set to cross the wires today, as is typical following a rate decision. The data will be useful in analyzing the RBA’s recent decision and its possible path forward, but it is likely to play second fiddle to market risk trends. News out of China regarding lockdowns is likely to pose the highest risk to traders.
— Written by Thomas Westwater, Analyst for DailyFX.com

The Australian Dollar made a 2-year low against the US Dollar in May as global central banks jockeyed for position in the fight on inflation.

The monetary policy tightening cycle pivoted dramatically in the second quarter toward a far more aggressive stance from both the Reserve Bank of Australia (RBA) and the Federal Reserve, among others. Notable exceptions from contracting monetary conditions are the Bank of Japan (BoJ) and the Peoples Bank of China (PBOC).

Going into the third quarter, the latest year-on-year headline CPI for the US is 8.6% and 5.1% for Australia.

MONETARY POLICY MATTERS
The response from the Fed was to go toward a jumbo hike of 75 basis points at their last Federal Open Market Committee (FOMC) meeting. The RBA also added an outsized rate rise of 50 basis points in June. The language coming from both camps is that further hikes of a similar size are on the cards.

The above highlights the differences and the consequent acceleration in US Dollar appreciation more broadly. USD/JPY for instance, is at a 24-year high, illustrating the markets focus on policy disparities.

AUD/USD remains vulnerable to swings in perceptions on where interest rates are headed. RBA Governor Philip Lowe recently stated that Australians should prepare for a potential cash rate of 2.5% later this year, when they expect inflation to reach 7%. With the cash rate at 0.85%, this implies at least one more lift of 50 basis points.

INFLATION IS THE FOCUS
A key driver of any addition or subtraction to the RBA’s cash rate guidance is CPI. Second quarter CPI is building up to be a pivotal data point and it will be delivered 27th July. Dr Lowe has made it very clear in recent public comments that the rate of change in inflation will be the emphasis in shaping policy.

The RBA have consistently spoken of the rate of change in CPI as being a crucial factor in determining monetary policy changes. While the RBA monetary policy meeting in early July appears likely to deliver a 50 bp lift, the CPI number later that month will tell the market if another 50 bp hike in August is coming or not.

The importance of this CPI number for future guidance on rate rises cannot be overstated. The consequences for AUD/USD will flow from this data point. The Federal Reserve saw US inflation accelerating at an alarming pace going into the end of 2021 and were too slow to act. Inflation in the US has never fallen by 2% or more without a recession.

Despite what President Biden et al might like to happen, any astute observer finds it difficult to see US inflation getting back toward the Fed’s target of 2% without a recession.

The Fed are now paying a dear price for inaction. The RBA have said all the right things to avoid such a disastrous situation, but the economy will judge them on their actions.

COMMODITIES ARE ADDING VALUE
In the background, commodity market volatility hums along. The Russian invasion of Ukraine underpins Australian exports, while China’s approach to managing Covid-19 undermines them. Net-net, circa AUD 10 billion is still being added each month to Australia’s bottom line via trade.

Rolling into the third quarter, the Australian economy is in the best shape it has been in for generations. This gives the RBA plenty of scope for outsized rate hikes. For now, the market is focused on the rate hike path for AUD/USD. If you have read to this part of the article, mark 27th July in your calendar.
(From Daniel Mccarthy)

The Australian dollar has rallied significantly during the trading session on Tuesday in the early hours but has seen a lot of selling pressure just above. Keep in mind that the Australian dollar is highly sensitive to the commodity markets, which has a major shift coming. After all, we have seen copper nosedive, right along with natural gas. On the other side of the spectrum, oil has taken off, but it should be noted that commodity markets are simply showing just how “lumpy” the overall supply chain is at the moment.

The 0.70 level above is a major round figure that a lot of people will pay close attention to, as it is a large, round, psychologically important figure, and an area where we have seen a lot of “flipping” recently. All things being equal, I think this is a market that will continue to find sellers on rallies, with the 50 Day EMA also racing below the 0.71 level to cause major issues.

The “double bottom” underneath is near the 0.68 level, and if we can break down below there, then it’s likely that the market could go much lower. In fact, when you look at the longer-term charts, that is a crucial level that needs to hold, or else the US dollar will destroy the Aussie dollar in the short term. On the upside, it’s really not until we break the 0.73 level that the trend could be looked at as being positive for something that’s going to be bigger than a simple short-term bounce.
(From YahooFinance)

The Australian dollar has fallen on Monday, to kick off the week on its back foot. Ultimately, the 0.6850 level is an area that I think could offer a significant amount of support, as we have seen action there previously. I think it is going to end up being a 50 PIP support level that extends down to the 0.68 handle, so once we get below that level, I think we have a high likelihood of the Aussie continuing to go lower.

The Australian dollar is highly levered to commodity markets, so pay attention to those as well. There is concern about a global slowdown, as the economy seems to be crumbling. If that’s going to be the case, it’s likely that we would see the Aussie suffer as a result. Furthermore, you need to pay close attention to China, and how is behaving. Keep in mind that the Australian dollar tends to be very sensitive to the Chinese mainland, which is currently in the process of trying to stimulate the economy, so you will have to keep an eye on how things pan out there.

The Federal Reserve continues the tight monetary policy, so that does favor the US dollar in general, especially as it looks like the Federal Reserve is insistent on becoming aggressive. As long as that’s going to be the case, the US dollar will continue to be relatively strong against multiple currencies, not just in the AUD/USD pair. Furthermore, if we continue to see a lot of “risk off behavior”, it’s possible that the US dollar will gain as well.
（From YahooFinance）

CENTRAL BANK WATCH OVERVIEW:
Bank of England rate hike odds keep rising: the 2022 terminal rate is up to 2.827%, from 2.099% in mid-May.
The European Central Bank is expected to raise rates by 150-bps through 2022.
Retail trader positioning suggests both EUR/USD and GBP/USD rates have a mixed bias.
EVEN MORE RATE HIKES
In this edition of Central Bank Watch, we’ll cover the two major central banks in Europe: the Bank of England and the European Central Bank. While both the Eurozone and the UK are struggling with diminishing growth rates, policymakers remain squarely focused on taming multi-decade highs in inflation rates. Rate hike odds have jumped significantly for both the BOE and the ECB, with at least 150-bps worth of hikes discounted through the end of 2022.

For more information on central banks, please visit the DailyFX Central Bank Release Calendar.

BOE HIKE ODDS KEEP CLIMBING
The British Pound has proved resilient in recent weeks, no doubt fueled by the continued climb in BOE rate hike odds. UK inflation rates continue to edge higher, and with few signs that the rises in food and energy prices will halt anytime soon, rates markets are now their most aggressive they’ve been all year in terms of BOE hike odds.
— Written by Christopher Vecchio, CFA, Senior Strategist

Global financial markets moved diligently to price in the latest action from the Federal Reserve last week when Mr. Powell’s FOMC raised the US benchmark rate by 75-basis-points. The jumbo rate hike tempered inflation expectations, and perhaps returned some credibility to the institution. However, the impact on equity markets was undeniably bearish. The Dow Jones Industrial Average (DJIA) fell over 4% to its lowest level since November 2020.

The US Dollar benefited from the safe-haven flows despite an immediate reaction to the downside. The DXY index was up around 0.50% going into the weekend. However, there are technical signs across major crosses, such as EUR/USD, GBP/USD, AUD/USD and USD/CAD, that show the Dollar’s ascent is perhaps at or near a critical juncture. The Bank of England remained in a relatively dovish stance, hiking its benchmark rate by 0.25%. The Dollar advanced against the Pound, but trimmed some of those gains in the second halve of the week.

Oil prices plummeted on Friday as traders baked in growing fears over a Fed-induced recession. That comes amid the summer driving season, which typically sees higher demand for fuels persist into the fall months. Natural gas prices found relief in the United States after an LNG terminal suffered a catastrophic failure, likely to take months to repair. European prices, however, skyrocketed. The development is likely to keep prices in Europe elevated, further complicating Europe’s inflation outlook.

Speaking of energy prices, Canada is set to report inflation data for May on Wednesday. The country’s consumer price index (CPI) is expected to cross the wires at 7.5% on a year-over-year basis. That would be up from April’s 6.8% y/y increase. A hotter-than-expected print would likely inspire already-aggressive Bank of Canada rate hike bets, potentially bolster the Canadian Dollar.

Japan is also slated to release inflation data for May. The Bank of Japan held firm in its dovish stance last week against a market that appeared to be trying to force the BoJ’s policy stance. That didn’t happen. The mantra of “don’t fight the Fed’ seems to be just as appropriate for the Bank of Japan. The Yen fell versus the Dollar last week, although the pace of losses started to cool. A hotter-than-expected CPI print out of Japan may actually see USD/JPY fall.
（From DailyFX）