Analytics

The Bank of Japan maintained ultra-low interest rates and dovish policy guidance this week. The central bank confirmed that it will stick to its tight policy further in contrast to other major banks that continue to hike rates in aggressive manner.

The BoJ’s decision added to the yen’s weakness, sending the USDJPY pair to fresh 24-year highs just below the 146.00 figure. The rally in the pair was also due to another aggressive rate hike by the Federal Reserve. The Fed raised rates by another three-quarters of a percentage point and indicated it will keep hiking well above the current level.

As the currency kept bleeding amid a contrasting combination of central banks’ decisions, the Japanese government intervened in the currency market on Thursday to buy yen for the first time in 34 years. However, the attempt to shore up the national currency failed. USDJPY did come off the mentioned multi-year peaks, but the downside momentum was limited, with the dollar resuming the ascent the next day.

Yen to stay on the defensive

The pair briefly dipped to hold above 140.00 before bouncing back above 142.00 on a daily closing basis. On Friday, the US dollar is back on the offensive, holding around 143.00, up more than 0.6% on the day. In the near term, however, USDJPY may refrain from a more robust ascent as traders could get more cautious after the recent intervention.

However, the overall uptrend should remain intact, with upside risks persisting while above the ascending 100-DMA, today at 135.45. This zone is also strengthened by the 20-week SMA, suggesting it won’t be easy for the yen bulls to push the greenback through this support area. USDJPY is unchanged on the weekly timeframes so far as the pair is yet to settle above the 143.00 figure that could attract some profit-taking ahead of the weekend.

The price of bitcoin dipped to June lows around $18,300 earlier in the week, struggling to attract solid demand since then. The BTCUSD pair has been on the defensive since September 13 when the price was rejected from a local high of $22,700. After yesterday’s drop by nearly 3.5%, the coin is trading marginally higher on Wednesday. However, the digital currency lacks the impetus to regain he $20,000 psychological level that represents the immediate target for BTC bulls.

The top cryptocurrency has lost about 60% of its value since its all-time high. The recent sell-off in the digital space mirrored similar decline witnessed in the stock market as investors face aggressive tightening by major central banks at a time when the global economy shows signs of weakness while geopolitical tensions keep escalating globally.

BTC remains vulnerable

As such, worsening economic conditions imply that stocks and other risk-sensitive assets including cryptos could stay under pressure, especially as central banks continue to fight elevated inflation through aggressive rate hikes, thus hurting the economic health. As a reminder, the OECD said earlier this month that the combined gross domestic product of its members expanded by just 0.3% in the second quarter, well below the average quarterly growth rate of more than 1.2% last year.

Technically, the largest cryptocurrency by market capitalization remains vulnerable to fresh losses after the recent plunge. The latest rebound showed that market players continue to sell rallies as the broader outlook for the market remains cloudy, with bearish trend intact. As such, bitcoin is probably yet to find a bottom in the months to come. In the immediate term, BTCUSD needs to regain the $20,000 mark in order to retarget $22,700. However, the path of least resistance remains to the downside at this stage.

The US dollar switched into consolidation mode after the recent spike in volatility. The USD index, which tracks the greenback against a basket of six global currencies, failed to overcome the 110.00 mark earlier in the week and has been struggling since then. Still, the broader bullish trend remains intact while downside risks look limited at this stage.

In part, dollar demand has cooled somehow after fresh data showed that the headline US PPI increased 8.7% versus the 9.8% rise in the previous month. The annual figure was the lowest since August 2021. Core PPI increased 5.6% from a year ago, matching the lowest rate in over a year.

Also, the bullish momentum surrounding the buck was capped by reports from Japan where authorities are preparing to intervene in currency markets in order to support a weakened yen, which is trading at four-decade lows. Today, the USDJPY pair is back on the offensive, however, as the recent slide from long-term peaks was short-lived and modest.

Fed in focus

As US consumer prices rose unexpectedly in August, market expectations suggest a nearly 30% chance of a 100-basis-point rate hike by the Federal Reserve next week. Around 70% of market participants still expect the central bank to deliver a 75-basis-point hike. Against this backdrop, the US currency stays strong and could resume the ascent towards fresh multi-year highs after some consolidation.

The DXY slipped to the 109.60 zone in recent trading and could see a dip towards the 109.30 zone, followed by the 109.00 figure which may attract renewed demand as investors shift their focus towards the Federal Reserve’s upcoming two-day meeting due on September 20-21. The major event will set the tone for markets globally.

Bitcoin has been rising for the seventh session in a row on Tuesday. The price of the largest cryptocurrency by market capitalization extended the ascent to nearly one-month highs in the $22,500 zone that represents the immediate barrier for the coin.

Earlier this month, the BTCUSD pair bounced off June lows around $18,500 and has been retaining strong bullish bias since then. In the process, the price reached the 50- and the 100-DMAs which converge in the $22,000 area.

The crypto space continues to take cues from the traditional financial markets where upbeat sentiment has been prevailing these days. Market participants bet on slower inflation and thus expect global central banks to proceed to less aggressive tightening at some point. Also, relatively strong economic reports out of the United States help ease recession concerns, pushing Wall Street indices higher along with cryptos.

Further ascent in question

Now that the price of bitcoin is back above the $20,000 figure, the question is whether the digital currency could preserve the upside momentum and extend gains in the coming days or weeks as uncertainty persists globally. The rally has left many wondering whether or not the bear market might be over. For now, it looks like BTC has been in correction mode, with downtrend persisting as central banks continue to tighten policy in order to tame inflation.

In other words, the prospect of a bull market looks bleak for now. Furthermore, worrying signs start flashing already. First, the coin is yet to overcome the mentioned moving averages on a daily closing basis. Second, there is the $24,000 strong resistance level that could cap the momentum. Third, failure at these barriers could easily bring bitcoin back below $20,000, down to the $18,000 area.

Crude oil prices struggle to stage a rebound following the recent losses, trading just marginally higher on Thursday. During the latest sell-off, Brent crude fell below $88 a barrel for the first time since January to register fresh multi-month lows around $87.70. The barrel has rebounded slightly since then, adding nearly 0.7% on the day.

The oil market was in part pressured by fresh comments from the Federal Reserve Vice Chair Lael Brainard as she said interest rates would likely remain elevated for some time. As such, traders are now betting the central bank will deliver a 75-basis point rate hike later this month. Also, market players are nervous ahead of the ECB decision as the bank is expected to hike rates by 75 basis points as well.

Bearish drivers overweigh

In industry news, the API data showed that US crude inventories rose by 3.6 million barrels for the week ended September 2 versus -700,000 expected. On the positive side, gasoline inventories fell by 836,000 barrels last week, and distillate stocks decreased by 1.8 million barrels. Should the official government inventory report confirm a solid increase in crude oil inventories, prices may come under renewed selling pressure.

In a wider picture, the market is also pressured by lockdowns in China that continue to threat oil demand. Instead of lifting lockdown, authorities in Chengdu extended the order without providing a tentative exit date.

Brent crude remains vulnerable to downside risks at this stage and could continue to distance itself from the $100 psychological level last seen in late-August. A failure to regain the $90 mark in the coming days could send the prices to fresh January lows, with 2020 lows arriving at $77 a barrel. The immediate support comes in the $89 region, while a more significant upside target arrives at $95.50.

Gold price stays on the defensive these days, struggling to attract solid demand as the US dollar keeps rallying, refreshing two-decade highs despite overbought conditions. Last week, the XAUUSD pair derailed the $1,690 zone before bouncing marginally. However, the precious metal lacked recovery momentum to regain the $1,730 zone, followed by the descending 20-DMA, today at $1,742.

On Wednesday, gold price has settled just above $1,700 after a brief dip towards $1,691. The fact that the bullion struggles to see a more robust and sustained bounce suggests downside risks continue to persist at this stage. So, should the bearish momentum extend, the price will inevitably test the 2022 low of $1,680.

Dollar rules

As the relentless US dollar buying represents the key factor pressuring the dollar-denominated commodity, the unabated ascent in the greenback should keep gold’s bullish attempts further in the near term.

The recent rally in the buck was triggered by strong US economic data in the context of the Federal Reserve's aggressive tightening campaign, while rising Treasury yields added to the momentum. August non-manufacturing PMI rose to 56.9 from 56.7 in July, topping expectations calling for a decline to 55.1. The release thus reinforced expectations for aggressive Federal Reserve rate hikes.

Now, gold traders shift their focus to the European Central Bank's meeting scheduled on Thursday. The central bank is widely expected to deliver a 75 basis-point interest rate to tame stubbornly high inflation. Later in the month, investors expect another big rate hike from the US Federal Reserve.

The US dollar has been retreating for the second session in a row on Tuesday as traders take profit after recent rally towards fresh twenty-year highs. The USD index peaked around 109.50 at the start of the week before correcting back below 109.00. The greenback extended losses to 108.40, shedding 0.33% so far on the day.

In the immediate term, the buck could stay pressured as profit-taking continues, but the broader bullish trend should remain intact, with upside potential persisting as the Fed continues to outperform its counterparts in terms of tightening. Of note, more hawkish expectations surrounding the ECB’s September meeting added to the dollar’s downside momentum recently. However, aggressive rate hikes raise recession risks for the Eurozone economy battered by the escalating energy crisis.

USD demand to reemerge

Now that market participants have digested Powell’s hawkish message, investor focus shifts towards the US NFP employment report due on Friday. Traders continue to closely monitor the incoming economic reports out of the US as the Federal Reserve reiterated its data dependence in decision-making. Should the figures come in stronger than expected, expectations for another 75-basis point rate hike will rise further, thus fueling USD demand across the market.

Furthermore, the dollar could resume the ascent in anticipation of the key release of this week. In the immediate term, the greenback could hold above the 108.00 support zone to stage a bounce back above 109.00, with the mentioned multi-year tops in focus. On the downside, should the selling pressure intensify in the coming days, the index may fall below the 108.00 level, followed by the 107.60 support area. However, it looks like the buck could regain the bullish bias earlier.

Earlier in the week, bitcoin refrained from a sell-off unlike US stocks, suggesting it is somehow disconnected from the traditional market these days. Wall Street equities fell earlier in the week as investors continued to fear a hawkish message from the Federal Reserve ahead of Jackson Hole symposium. Adding to risk aversion, Fed’s Kashkari reiterated the central bank's focus on controlling inflation ahead of all else.

Meanwhile, bitcoin has settled above $21,000 after rejection from the $21,800 resistance zone that capped the ascent towards $22,000. As a reminder, the BTCUSD pair briefly exceeded the $25,000 figure earlier this month and has been on the defensive since then. However, the selling pressure has eased this week as the prices managed to hold above the $20,000 handle during the latest sell-off.

Everything hinges on Fed, data

Now, the largest cryptocurrency by market capitalization seems to have reached an equilibrium between the sell-off lows around $20,500 and the $22,400 intermediate barrier. After the current consolidation period, bitcoin could decide on the direction, with downside risks persisting while below at least the $23,000 level last seen on August 19th.

Apart from Powell’s speech, the cryptocurrency market could be affected by the incoming economic data out of the United States. In particular, the next inflation reading due on September 13 will be in the market focus. Of note, St. Louis Federal Reserve President James Bullard said recently that markets are mispricing inflation and that price pressure will be sticky for longer than most investors anticipate.

In the immediate term, should investors read Powell dovish, weakness in the greenback after the speech could trigger a so-called buy-the-fact bounce in the cryptocurrency market. BTC may bounce from the $21,500 zone to turn positive on the day and could try to regain the $22,000 mark on a daily or even weekly closing basis.

A failure to hold above the 1.2000 figure last week triggered even more intense selling pressure surrounding the cable these days. Early on Tuesday, GBPUSD dipped to fresh March 2020 lows around 1.1717 before bouncing during the European hours. The pair climbed back to the flat-line, holding below 1.1800, and it looks like it’s too early to call a bottom in GBP as the UK currency could yet see even deeper losses down the road.

The US dollar extended the advance to the area of two-decade highs around 109.30 before correcting slightly below the 109.00 mark amid a sell-off in the US Treasury yields across the curve. Also, traders took profit on their USD longs after the recent aggressive rise and ahead of a fresh US economic data including manufacturing and services PMIs and the new home sales report.

The greenback is likely to resume the ascent after a pause, with upside risks persisting despite the overbought conditions. The buying pressure should stay elevated ahead of Powell’s speech at the Jackson Hole Symposium later this week. Should the Federal Reserve Governor express a hawkish tone, the index could exceed the mentioned tops and advance towards the 110.00 mark. Further deterioration in risk sentiment could add to the buying pressure surrounding the safe-haven USD.

GBP shrugs off mixed data

On the data front, the UK manufacturing PMI headed into contractionary territory for the first time in more than two years. However, the GBPUSD pair shrugged off the news as the focus is on the services sector that generates roughly 80% of the UK GDP. Meanwhile, activity in the services sector remained near July's 52.6, while the composite PMI arrived at 50.9 to remain marginally within the expansionary territory.

Technically, the cable now needs to hold above 1.1700 in order to avoid deeper losses. However, the path of least resistance remains to the downside, especially as the prices keep holding below the 20-DMA that was derailed earlier in the month. Further slide could bring the pound down to 1.1630, followed by 1.1600.

Brent crude bounced marginally following a dip to fresh six-month lows around $91.50 a barrel earlier in the week. In the process, oil futures encountered a barrier above $97 to retreat marginally on Friday. As such, the barrel remains on the defensive, also holding below the $100 psychological level for more than a week already.

The recent recovery was due to both oversold conditions and some renewed hopes for a stronger fuel demand after a larger-than-expected decline in US crude oil inventories. As the Energy Information Administration data showed, US crude stocks fell by 7.1 million barrels in the week to August 12 while total motor gasoline inventories fell by 4.6 million barrels. Furthermore, the United States exported a record 5 million barrels of oil a day in the most recent week while the output contracted by 100K barrels per day.

Short-term risks skewed to the downside

However, the overall tone in the market remains bearish, with persisting worries about a global economic slowdown capping potential recovery for oil prices. In addition to lingering recession fears, a possible increase in output by OPEC+ limits the upside pressure. Ahead of the next meeting due on September 5, the producer group's new Secretary General Haitham Al Ghais said it was premature to say what it will decide. At the same time, he expressed optimism over the outlook for next year.

As such, near-term risks remain skewed to the downside at this stage, especially as the US dollar rallies across the board, adding to the bearish pressure surrounding the USD-denominated commodity. The greenback jumped this week due to hawkish statements from the Fed officials, with traders betting on another 75-bps rate hike in September as the monetary authorities continue to fight elevated inflation.

On the upside, Brent needs to regain the $100 handle in order to stage a more sustained and decisive recovery. However, it looks like the futures will lack the momentum to challenge this barrier any time soon while the $90 figure remains in the market focus despite the recent bounce.