The US Dollar Index surged nearly 6.6% off the September lows with DXY stretching to multi-yearly highs this week. An outside-day reversal off uptrend resistance yesterday may be signaling the threat for topside exhaustion here and while the broader outlook remains constructive, immediate advance may be vulnerable in the day ahead. These are the updated technical targets and invalidation levels that matter on the US Dollar Index weekly price chart heading into the October / Q4 open. Review my latest Strategy Webinar for an in-depth breakdown of this DXY technical setup and more.
— Written by Michael Boutros, Technical Strategist with DailyFX

CONSUMER CONFIDENCE KEY POINTS:
U.S. consumer confidence rises to 108.00 in September from 103.6 in August, topping consensus expectations calling for an advance to 104.6
A sharp increase in the present situation and the expectations indicator can be attributed to the recovery
U.S. dollar trims losses after the survey results cross the wires
Most Read: S&P 500, Dow Jones, Nasdaq 100 Outlook – Bounce May Unfold, but Be Short-lived

A popular gauge of U.S. consumer attitudes extended its recovery this month and climbed to its best level since April, as falling gasoline prices, coupled with strength in the labor market, served to offset concerns about the slowdown and persistently high inflation in some areas of the economy.

According to the Conference Board, consumer confidence in September rose to 108.00 from 103.02, beating expectations for an advance to 104.06. While the gain is not significantly large, it is still a step in the right direction and represents a positive sign for future consumption, the main driver of the U.S. economic activity.
Delving deeper into today’s numbers, the present situation index, based on the current business and labor market outlook, jumped to 149.6 from 145.4 on perceptions that hiring conditions are still healthy. This strong gain is consistent with stabilizing activity, a scenario that reduces the likelihood of an imminent downturn.

Elsewhere, the expectations index, which tracks short-term prospects for income, the business environment, and the jobs market surged to 80.3 from 70.1, exceeding the 80.00 level that is indicative of improved growth prospects.

The U.S. dollar, as measured by the DXY index, trimmed most of its early session losses to trade around 114.05 after the survey results were released, as brightening sentiment among Americans bodes well for spending in the final months of 2022, which could add to inflationary pressures and prompt the Fed to continue aggressively raising interest rates.

With the American consumer holding up well despite sky-high inflation and tightening financial conditions, the U.S. central bank will have to slam on the breaks even harder to bring about the kind of demand destruction needed to knock inflation down and force it back to the 2.0% target. This reduces the probability of a monetary policy pivot in 2023, a situation that will bias U.S. Treasury yields to the upside. In this environment, the U.S. dollar is likely to retain strong momentum in the FX market, paving the way for the DXY index to keep conquering fresh multi-decade highs in the near-term.
—Written by Diego Colman, Market Strategist for DailyFX

We are closed Thursday 22 September 2022 for the National Day of Mourning for Her Majesty The Queen and Friday 23 September for the AFL Grand Final Public Holiday. We will re-open at 8.30am on Monday 26 September.

AUSTRALIAN DOLLAR TECHNICAL PRICE OUTLOOK: AUD/USD WEEKLY TRADE LEVELS
Australian Dollar technical trade level update – Weekly Chart
AUD/USD plunges back towards downtrend support US post-CPI release
Aussie resistance 6930s, 6991-7016 (key) 7139- Support 6621/70 (critical), 6461, 6196

The Australian Dollar plunged more than 2.2% against the US Dollar on the heels of a hotter than expected US inflation read with AUD/USD now approaching multi-year downtrend support. We’re looking for possible price inflection here with a break lower threatening an even sharper Aussie sell-off. These are the updated targets and invalidation levels that matter on the AUD/USD weekly technical chart.

Notes: In our July, AUD/USD Technical Forecast we highlighted that that AUD/USD had rebounded off the lower parallel of this multi-year descending pitchfork formation – that recovery failed into the median-line / August 2021 low-week close at 7138 last month before reversing sharply with the decline now once again approaching the lower parallel. It’s decision time for the Aussie bears.

A break below this slope exposes a key support pivot at 6621/70- a region defined by the 100% extension of the 2021 decline , the 2008 low-week close and the 2019 low. Ultimately, a close below this threshold would be needed to fuel the next leg lower in price towards the 61.8% Fibonacci retracement of the entire 2020 rally at 6461. Initial weekly resistance is eyed at the 25% parallel (currently ~6930s) backed by the November 2020 low / 2020 yearly open at 6991-7016. Broader bearish invalidation now lowered to the 52-week moving average which converges on the median-line around 7139.

Bottom line: The Australian Dollar is approaching multi-year downtrend support and we’re looking for a reaction in price on a stretch towards the lower parallel – watch the weekly close. From a trading standpoint, rallies should be capped by the monthly open at 6840 IF price is indeed heading lower with a close below 6621 needed to fuel the next major-leg lower in price. I’ll publish an updated Australian Dollar Price Outlook once we get further clarity on the short-term AUD/USD technical trade levels.

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

A summary of IG Client Sentiment shows traders are net-long AUD/USD – the ratio stands at +2.43 (70.85% of traders are long) – typically bearish reading
Long positions are 2.41% higher than yesterday and 18.31% lower from last week
Short positions are26.43% lower than yesterday and 19.54% lower from last week
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias from a sentiment standpoint.

— Written by Michael Boutros, Technical Strategist with DailyFX

FX WEEK AHEAD OVERVIEW:
The final days of August and early days of September will feature a smattering of growth, inflation, and jobs data from Europe and North America.
The calendar is relatively quiet at the beginning of the weak, most dense on Wednesday, and then tapers off again into the end of the week.
The August US jobs report is the highlight of the week, due out on Friday.

The Chinese economy continues to struggle as government-mandated zero-COVID policies continue, with 2Q’22 Chinese GDP at its lowest level since the onset of the coronavirus pandemic. Amid the struggle for the world’s second largest economy, Chinese policymakers have cut interest rates several times to help spur growth – but the impact is likely not yet seen. The August China NBS manufacturing PMI reading is set to come in at 49.2 from 49, suggesting that contraction remains afoot, if only at a slightly moderated pace.

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08/31 WEDNESDAY | 09:00 GMT | EUR INFLATION RATE (HICP) (AUG)
With European gas prices surging in recent weeks, it’s unlikely that the Eurozone saw any reprieve on the inflation front in August. According to a Bloomberg News survey, the flash August Eurozone inflation rate is expected at +0.3% m/m from +0.1% m/m and +9% y/y from +8.9% y/y, while the core reading is due in at +4.1% y/y from +4% y/y. Inflation remains stubbornly high and appears set to accelerate in forthcoming readings, which is why European Central Bank policymakers have been publicly discussing the potential for a 75-bps rate hike in September.

The initial 2Q’22 Canada GDP report came in at +4.6% annualized, but the upcoming revision is likely to lower the projected pace of growth. According to a Bloomberg News survey, the revised 2Q’22 Canada GDP growth rate is forecast at +4.4% annualized. It will be a potentially immaterial revision, as the Bank of Canada, according to Canada overnight index swaps (OIS), is projected to raise their main rate by 75-bps to 3.25% in September.

09/01 THURSDAY | 14:00 GMT | USD ISM MANUFACTURING PMI (AUG)
The US economy has clearly slowed down in recent months, but is it just a slowdown or a full blown recession? The upcoming August US ISM manufacturing PMI may help provide some more color to that answer. According to a Bloomberg News survey, the manufacturing gauge is due in at 52 from 52.8, which is a deceleration but still in growth territory. A revision to the Atlanta Fed GDPNow growth tracker for 3Q’22 US GDP is expected afterwards; the reading currently resides at +1.6% annualized.

09/02 FRIDAY | 12:30 GMT | USD NONFARM PAYROLLS & UNEMPLOYMENT RATE (AUG)
Even as US recession concerns swirl, the US labor market has remained resilient. According to a Bloomberg News survey, the US economy added +300K jobs in August from +528K jobs in July, with the US unemployment rate (U3) holding at 3.5%. The US participation rate is expected to edge higher to 62.2% from 62.1%, while US average hourly earnings are anticipated to come in at +5.3% y/y from +5.2% y/y.

According to the Atlanta Fed Jobs Growth Calculator, the US economy needs +343K jobs growth per month over the next 12-months in order to return to the pre-pandemic US labor market of a 3.5% unemployment rate (U3) with a 63.4% labor force participation rate.

It remains the case that ‘good news is bad news’ for risk assets as the Fed Chair Jerome Powell has reiterated the FOMC’s policy stance: a strong US labor market report could further reinvigorate Fed rate hike odds, which are discounting a 62% chance of a 75-bps rate hike in September.

— Written by Christopher Vecchio, CFA, Senior Strategist

TUESDAY’S ASIA-PACIFIC OUTLOOK
Asia-Pacific markets face increasing headwinds after stocks fell and the US Dollar surged overnight in New York. The benchmark S&P 500 index closed 2.14% lower, while the tech-heavy Nasdaq-100 Index fell 2.66% to the lowest since early August. The VIX volatility index jumped over 15%, posting its biggest daily gain since June.

Treasury yields rose as traders positioned themselves ahead of this weekend when central bankers from around the world will meet at Jackson Hole. The Fed pivot thesis, which largely drove equity strength over the last few weeks, appears to have fallen apart. That may lead to additional Treasury buying throughout the week. Traders expect Federal Reserve Chair Jerome Powell to reaffirm the central bank’s stance against fighting inflation.

The People’s Bank of China (PBOC) cut the 1- and 5-year loan prime rates on Monday by 5 and 15 basis points, respectively. The larger-than-expected cut in the 5-year LPR, linked to mortgage lending, sent a signal of government support for the ailing property sector. Chinese equity markets closed mostly higher following the moves. Still, many remain skeptical and see broader measures being necessary to provide an adequate backstop to the country’s housing market.

Gold prices fell against a surging US Dollar and US Treasury yields. The yellow metal has lost ground for seven straight days, bringing XAU to the lowest level since July 27. Copper held up better against the USD, likely underpinned by the PBOC’s recent actions. In Europe, natural gas prices rocketed higher once again, this time over fears that a key Russian pipeline will remain closed after a 3-day maintenance period scheduled for next week.
— Written by Thomas Westwater, Analyst for DailyFX.com

AUSTRALIAN DOLLAR, AUD/USD, CHINA, PBOC, RATES, TECHNICAL OUTLOOK – TALKING POINTS
APAC markets set to open the week on shaky ground after China extends power cuts
The People’s Bank of China (PBOC) is expected to slash two key lending rates
AUD/USD’s technical posture points to more losses after a big 3.5% weekly drop
How to Trade AUD/USDHow to Trade AUD/USD

Asia-Pacific markets look vulnerable after Wall Street traders closed the week on the back foot, with equity losses accelerating on Friday in New York. The benchmark S&P 500 fell 1.21%, and the high-beta Nasdaq-100 (NDX) closed 2.38% lower. A large number of options, around $2 trillion worth, expired on Friday, likely bolstering volatility.

Sichuan province, one of China’s most populous, extended power rationing across the region amid extreme heat and drought. Factories and other industrial plants are to remain closed until August 25, extending the original order by five days. The protracted industry shutdown will likely add to the economic headwinds from sporadic Covid lockdowns and could even reverse some progress made on congested supply chains.

According to a Bloomberg survey, the People’s Bank of China (PBOC) is expected to cut its 1- and 5-year loan prime rates today. Credit growth has been lackluster recently, likely underpinning the central bank’s commitment to easing policy. The PBOC unexpectedly cut several other lending rates last week. China’s property sector is another problem still looming over the economic powerhouse. AUD/USD fell 3.5% last week. Currency traders increased their net short position on AUD, according to the latest CFTC data.

An eight-day strike at the United Kingdom’s Felixstowe port started on Sunday, threatening to inflict further damage on global supply chains and adding to Europe’s price pressures. PMI readings for the United Kingdom’s services and manufacturing sectors are due. Analysts expect to see both gauges remain in expansion for July but fall from the prior month.

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AUD/USD TECHNICAL OUTLOOK
AUD/USD’s technical positioning doesn’t offer an optimistic view. The currency pair set a fresh August low last week, although the 61.8% Fibonacci retracement level provided some support but only after an already big move. The 50-day Simple Moving Average was broken shortly after RSI crossed below its midpoint. The MACD oscillator is also on track to cross below its own midpoint, another bearish sign.
— Written by Thomas Westwater, Analyst for DailyFX.com

Investing.com — The dollar made up some losses on Thursday after a steep drop the previous day on softer than expected inflation data out of the U.S.

The dollar index, which measures the greenback against a number of other global currencies, was trading 0.08% higher at 105.28 as of 02:47 ET (06:47 GMT).

The headline U.S. consumer price index rose by 8.5% on an annual basis in July and was flat compared with June, below estimates of 8.7% and 0.2%, due in part to a decline in petrol costs. The print led some investors to revise their expectations for a Federal Reserve interest rate hike in September, with the uptick now seen at 50 basis points instead from 75 basis points, according to the CME’s Fedwatch tool.

Fed policymakers also warned following the data that they would maintain rate hikes until inflation pressures subside.

Aggressive Fed monetary tightening to quell soaring price growth has undergirded recent strength in the dollar, as traders seek the relative safety of the currency amid concerns that the rate increases may weigh on broader economic growth.

The dollar touched a one-month low in the wake of the release of the inflation data.

Meanwhile, the EUR/USD pulled back slightly from its largest daily percentage gain since mid-June, with the European common currency now changing hands up 0.16% at $1.0313.

The Japanese yen was down 0.11% against the dollar at JPY 132.70, after a 1.6% fall on Wednesday.

Elsewhere, the AUD/USD, another gauge of risk appetite, edged higher by 0.27% to $0.71, while GBP/USD held mostly steady at $1.22.

Additionally, Bitcoin rose 7.04% to $24,553.4, nearing a two-month high for the cryptocurrency.

By Scott Kanowsky

TUESDAY’S ASIA-PACIFIC OUTLOOK
The Australian Dollar is searching for direction in Asia-Pacific trading after rising more than 1% overnight. Stocks closed mixed on Wall Street. The tech-heavy Nasdaq-100 Index (NDX) fell, and the small-cap Russell 2000 rose. Rising oil prices helped support energy stocks, with WTI crude oil and Brent oil prices rising more than 2%.

Copper and iron ore prices are higher, aiding the commodity-sensitive Aussie Dollar. China’s trade balance data showed a renewed appetite for many commodities in July. Goldman Sachs cut its Brent crude oil price forecast for the third quarter from $110 to $140. Energy traders are watching for monthly reports from OPEC and the International Energy Agency this week, along with inventory data from the API and EIA.
OZ Minerals rejected an unsolicited offer from BHP Group worth A$8.34 billion. The CEO of OZ Minerals appeared unimpressed with the offer, but it is unknown if BHP will adjust its bid. Overall, however, it’s a positive sign for the copper industry. The recent drop in prices does favor the position of larger companies that are likely better capitalized.

New Zealand’s electronic retail card spending fell 0.2% from the prior month in July. NZD/USD climbed above its 50-day Simple Moving Average during New York hours. A move higher in iron ore prices helped support AUD, but prices face a potentially volatile session today, with Westpac consumer confidence due shortly. The gauge has fallen since January, and the RBA’s recent rate hike may have dragged sentiment further.

NOTABLE EVENTS FOR AUGUST 09:
Philippines – Balance of Trade (June)

Australia – NAB Business Confidence

Philippines – GDP Growth Rate QoQ (Q2)

Thailand – Consumer Confidence (July)

Japan – 30-Year JGB Auction

Indonesia – Retail Sales YoY (June)

AUD/USD TECHNICAL OUTLOOK
AUD/USD is trading back above its 50-day Simple Moving Average (SMA) after rising from its 20-day SMA. A break above the 0.7036 level may clear a path for more gains. However, RSI and MACD, while positive, have started to moderate. A pullback would aim for support around the 20- and 50-day SMAs.
— Written by Thomas Westwater, Analyst for DailyFX.com

US stock indexes closed mixed overnight on Wall Street as traders prepare for the United States non-farm payrolls report. The jobs report is a vital component to help gauge Federal Reserve policy as rhetoric among Fed members pushes back against softening rate hike bets. Cleveland Federal Reserve President Loretta Mester reaffirmed the Fed’s commitment to fighting inflation. Short-term Treasury yields rose but failed to lift the Greenback.

The Bank of England’s policy announcement sent the British Pound lower against its major peers. The central bank sees a recession taking hold in the fourth quarter until 2023. That, and a stronger inflation outlook, clouds the United Kingdom’s economic outlook. The Sterling fell more than half a percent against the Euro despite a 50-basis-point rate hike from the BOE. That was somewhat surprising, seeing as how Europe is subject to the same energy-driven cost pressure, perhaps even more so than the UK.

Gold prices rose, hitting the highest level since July 5 after gaining over 1.5% overnight. The weaker Greenback helped support bullion even as US Treasury rates. Rose. The VanEck gold miners ETF closed 3.48% higher, the biggest daily gain since June. Bitcoin fell following Chinese missile strikes around Taiwanese water, which revived geopolitical risks stemming from the US House Speaker’s visit. While a direct military conflict is unlikely as of now, the strikes represent an increase in hostility between China and Taiwan.

The Reserve Bank of Australia’s Statement on Monetary Policy may elicit a strong Australian Dollar response. Traders will analyze the economic assessment and inflation outlook updates to help gauge future policy actions. RBA Governor Philip Lowe was less hawkish than many expected after his institution hiked its rate by 50 bps earlier this week. Mr. Lowe’s rhetoric disappointed policy hawks and punished the AUD. The market believes the RBA is behind the curve on inflation. That puts AUD prices at risk, should today’s report temper rate hike bets further.

The Indian Rupee is at risk of falling to a fresh low against the US Dollar if the Reserve Bank of India (RBI) delivers a rate hike below the expected 35-bps increase. Australia’s Ai Group Services Index (Australian PSI) rose to 51.7 in July from 48.8 in June, putting the performance of services index back into expansion, a bright sign for economic growth.
— Written by Thomas Westwater, Analyst for DailyFX.com