Daily Market Analysis from ForexMart

Gold's rally pauses, with new surge on horizon

Gold's upward momentum has paused after this week's mixed performance. However, analysts remain optimistic and believe that gold will surge to new highs. Despite the current setback, unfavorable external factors continue to drive capital inflows into gold, bolstering its future ascent.

This week, gold had a mixed performance, regaining ground after a two-day decline.The anticipation of the Federal Reserve's May meeting minutes fueled the precious metal's growth. On May 24, June futures on the New York Comex exchange edged up by 0.27% to reach $1,979 per ounce.

The Fed meeting minutes revealed that most policymakers believe further interest rate hikes are unwarranted. Additionally, the FOMC economic outlook projected the economic climate will worsen, as well as tighter lending conditions. Although officials foresee a moderate recession, they expressed concern over persistently high inflation, which currently is well above the 2% target. If inflation's decline remains sluggish, additional monetary policy tightening may be necessary.

These developments, combined with a stronger US dollar, sent gold into a retreat. On the evening of May 24, June futures on the New York Comex exchange slid by 0.45% to settle at $1,965 per ounce.

Gold currently faces considerable pressure from the surging USD, which has created headwinds for the precious metal. This week, gold stepped back from its key multi-year highs of $2,063-$2,075. However, Credit Suisse analysts believe that gold will eventually break through to new record highs.

Several factors, including concerns surrounding the US debt ceiling, have hindered gold's ascent for the time being. It has temporarily retreated from its key resistance level of $2,063-$2,075, the highs it hit in 2020 and 2022. Nonetheless, this appears to be a temporary setback. According to Credit Suisse, the next support level for gold stands at $1,949. A breakout below this level could push XAU/USD down to $1892 per ounce.

However, after this correction, analysts at the bank anticipate a resurgence in gold prices, driven by declining real yields in the United States. This drop is expected to intensify by the end of 2023. In a bullish scenario, gold could rally to $2,075, signifying a breakthrough for the precious metal. This would open the way towards new highs, particularly the range between $2,330 and $2,360, as highlighted by Credit Suisse.

Currently, gold's rally has taken a breather, settling at modest levels. On May 25, the price of gold stood at $1,963, ready to surge higher. The recent decline can be attributed to the US dollar's advance. The US currency gained strength against other major currenices ahead of the release of US economic data.

Investors are closely monitoring the US GDP data, which are set to release on Thursday, May 25th. Early forecasts suggest that the US economy has grown by 1.1% in the first quarter of 2023, in line with an earlier outlook by the US Commerce Department.

The greenback upsurge has also influenced the precious metal significantly. It is worth noting that gold is sensitive to signals emanating from the Federal Reserve. The current monetary policies of the regulator, coupled with the performance of USD, have a tangible impact on the precious metal's price. Hawkish signals from the Fed lend support to the dollar, making gold more expensive for foreign buyers. Conversely, dovish comments from FOMC policymakers weigh down on the American currency, driving gold higher.

Currency strategists at Commerzbank remain convinced that gold will move higher, as mounting default risks in the US make the precious metal more attractive for investors. In the event of a default, gold would come to the forefront, emerging as the most popular safe-haven asset. The bank underscores that the Federal Reserve will have ample opportunities to reduce interest rates, offering gold a competitive edge over other safe-haven assets such as the US dollar, the Swiss franc, and the Japanese yen.

UBS and Bank of America are particularly bullish on gold, expecting it to rise up to $2,200 per ounce. UBS currency strategists believe that gold will hit that level by March 2024, whereas analysts at Bank of America expects that level to be reached by the end of 2023. A key driver behind gold's assured growth lies in its sustained high demand from central banks.

Experts argue that the rise in gold prices requires the dollar to slide down gradually. UBS forecasts suggest that over the next 6-12 months, the greenback will experience a modest decline as the Federal Reserve prepares to conclude its monetary tightening cycle. This view is shared by the Bank of America, which expects the Fed's rate hike cycle to end, as well as substantial gold purchases by central banks.

Another factor favoring a gold rally is the mounting risk of a recession in the United States. Further key interest rate hikes and a deteriorating economic situation in the world's leading economy are making an economic downturn in the US more likely.

No progress in the negotiations on the U.S. debt ceiling. Markets are getting more nervous. Overview of USD, CAD, JPY

U.S. stock markets are down for the second straight day without any sign of an agreement on the debt ceiling, and the clock is ticking louder in anticipation of the "day of decision", which, according to current calculations, is set for June 1st, as confirmed by Treasury Secretary Yellen.

FOMC minutes reflect a somewhat contradictory nature of most comments. "Some" officials felt that additional tightening was probably warranted, while "some" concluded that it might be time to end the hikes. That's it, and understand it however you want.

Nevertheless, the futures market shows a weak momentum in favor of a more prolonged tightening. The probability of another rate hike on June 14th has reached 30%, and in July, it is already 44%, while expectations of the first cut have shifted to December.

Expectations for interest rates, albeit weak, are in favor of the US dollar, which continues to strengthen across the entire currency market.

On Thursday morning, Germany's GDP data for Q1 was published, which turned out to be noticeably worse than expected, causing EUR/USD to decline. This is another factor in favor of the dollar.

The main focus remains on discussions about the debt limit, and any specific details can sharply increase volatility.

USD/CAD

Bank of Canada Governor Tiff Macklem expressed concerns about inflation risks at the end of last week. Core inflation remains stable and shows no signs of decline, and the housing market is growing confidently, largely due to the highest migration rates to Canada among all developed economies.

The probability of the Bank of Canada reconsidering its decision to pause rate hikes, which was made in January, currently appears high. Scotiabank analysts expect that the rate could be raised as early as the next meeting in June. If these expectations are confirmed, the Canadian dollar will receive a strong driver for growth.

Speculative positioning on CAD remains consistently bearish, with a net short position of -3.2 billion at the end of the reporting week. The calculated price is below the long-term average, but there is no direction.

Trading continues near the mid-range values of the sideways range, without a clear direction, and there are currently no obvious reasons capable of causing a strong movement in either direction. A bit more likely is a movement towards the upper limit of the technical pattern at 1.3770/90.

USD/JPY

Bank of Japan Governor Kazuo Ueda delivered his first speech as the head of the central bank. He expressed a strongly dovish approach, giving no hints of any need for immediate action.

Regarding monetary policy, Ueda stated, "BoJ will patiently sustain the easy monetary policy." It appears that no adjustments to yield curve control are expected at the upcoming meeting on June 15-16, and expectations of possible changes are shifted to the next meeting on July 27-28.

It is also worth noting that the BOJ was the only major central bank that refrained from changing its monetary policy while others hastily raised rates to combat inflation. These efforts paid off as global inflation began to decline, and Japan experienced a decrease in external inflationary pressure without taking any action of its own. This reduces the need for the BOJ to take measures to change its policy.

The net short position on JPY increased by 0.3 billion during the reporting week to -5.9 billion, and the calculated price sharply increased, indicating the strength of the bullish momentum.

USD/JPY managed to update the previous local high at 137.92, and the yen reached resistance at 139.60 (50% retracement of the sharp decline from November to January), with the next resistance at the channel limit of 140.80/141.00. The main reason for the yen's weakness is that expectations regarding the BOJ's monetary policy change after the new leadership took office did not materialize, and now a downward reversal is possible only in the event of a sharp increase in demand for safe-haven assets or after a clear signal from the BoJ, which the markets do not expect before July.

Positive news contributes to an increase in risk demand, and the dollar braces to strengthen. USD, EUR, GBP overview.

The main news of the weekend was the agreement on the US debt limit, which may serve as a basis for increased risk demand at the beginning of the week. The House of Representatives is expected to vote on Wednesday.

It was reported that the debt ceiling will be approved until the 2024 presidential elections. Non-defense spending will remain at current levels in 2024 and will increase by only 1% in 2025. This is a compromise between Republican demands for sharp spending cuts and Democratic intentions to raise taxes.

The aggregate short position in the US dollar decreased by 3.3 billion to -12.1 billion during the reporting week. Overall, sentiment towards the dollar remains negative, but the trend may have changed.

Long positions on gold have noticeably decreased by 4 billion to -31.7 billion, which is also a factor in favor of the US dollar.

The core PCE deflator increased by 0.4% MoM, which is slightly higher than the consensus forecast of 0.3%. Despite the faster-than-expected price growth, real consumer spending rose by 0.5% MoM, surpassing the expected 0.3%. The rise in the PCE deflator shows that the fight against inflation is far from over, with the 3-month annualized core PCE deflator at 4.3%, the same amount as a year ago in April 2022.

The combination of higher spending and faster price growth is expected to lead to the Federal Reserve raising rates in June. Cleveland Fed President Loretta Mester, commenting on the released data, stated that "the data that came out this morning suggests that we still have work to do."

The CME futures market estimates a 63% probability of a Fed rate hike in June, compared to 18% the previous week, making the strengthening of the dollar in the changed conditions more than likely.

Monday is a banking holiday in the US, so by the end of the day, volatility will decrease, and we do not expect strong movements.

EUR/USD

The European Central Bank maintains a firm stance on continuing rate hikes as part of its fight against inflation. Preliminary inflation data for the eurozone will be published on June 1st, and the forecast suggests a slowdown in core inflation from 5.6% to 5.5%. If the data aligns with expectations, it will lower the ECB rate forecasts and put more pressure on the euro.

The net long position on the euro decreased by 2.013 billion to 23.389 billion during the reporting week, marking the first significant decline in the past 10 weeks. The calculated price is moving further south, indicating a high probability of further euro weakening.

EUR/USD has declined to 1.0730, where support has held firm, but we expect another attempt to test its strength, which will likely be more successful. Within a short-term correction, the euro may rise to resistance at 1.0735 or 1.0830, but the upward movement is likely to be short-lived and followed by another downward wave. Our long-term target is seen in the support zone of 1.0480/0520.

GBP/USD

The decline in UK inflation is once again being called into question. The core Consumer Price Index rose from 6.2% YoY to 6.8% in April, with yields sharply increasing. The retail sales report for April, published on Friday, showed that the slowdown in consumer demand remains more of a goal than reality itself.

Retail sales excluding fuel increased by 0.8% MoM, significantly higher than the forecast of 0.3%. If it weren't for the sharp decline in energy demand, both the monthly and annual retail growth would have been noticeably higher than expected.

Monday is a banking holiday in the UK, and there are no macro data this week that could influence Bank of England rate forecasts. Therefore, the pound will be traded more in consideration of global rather than domestic factors. We do not expect high volatility or significant movements.

The net long position on the pound slightly decreased by 84 million to 899 million during the reporting week. The bullish bias is small, and the positioning is more neutral than bullish. The calculated price is below the long-term average and is downward-oriented.

The pound has moved towards the support zone at 1.2340/50, but the decline has slowed down at this level. We expect the pound to fall, with the nearest targets being the technical levels at 1.2240 and 1.2134. There is currently insufficient basis for reviving growth.

Hot forecast for GBP/USD on 02/05/2023

Yesterday, the pound showed impressive growth. Similarly, the euro also showed significant gains. Considering that there was no macro data from the UK, unlike the eurozone, it is more accurate to say that the pound followed the euro. However, this growth contradicted all the macro data. After all, eurozone inflation slowed down significantly more than expected, while employment in the United States increased substantially more than anticipated. So, the dollar should have extended its growth. But the market went in a different direction, and the formal reason for this was the minutes of the European Central Bank's governing council meeting, which mentioned the possibility of more interest rate hikes.

However, the meeting itself took place before there were even rough forecasts for the current inflation. Just a couple of days ago, several ECB officials explicitly stated that the cycle of interest rate hikes may have come to an end. So, the rise of the euro and, along with it, the pound, goes against common sense. Unless we consider the excessive overbought condition of the dollar, which became the main reason why European currencies increased.

However, there is a high probability that today everything will return to the values at the start of yesterday's trading. Employment data clearly suggests that the content of the US Department of Labor report will be slightly better than expected. In particular, unemployment, which was expected to increase from 3.4% to 3.5%, may well remain unchanged. But if unemployment does increase, the dollar may continue to lose its positions, primarily due to the persistent overbought condition.

During the intense upward movement, the GBP/USD pair jumped above the 1.2500 level. This served as the primary signal of the pound's recovery process relative to the recent corrective move.

Due to the sharp price change, on the four-hour chart, the RSI reached the overbought zone, which indicates that long positions are overheated in the intraday period.

On the four-hour period, the Alligator's MAs are headed upwards. This indicates a shift in trading interests.

Outlook

In this situation, the sharp price change from the day before is a signal of the pound's overbought conditions in the intraday and short-term periods. The target level is set at 1.2550, around which the upward cycle slowed down, which reduced the volume of long positions and resulted in a stagnation. We can assume that the process of the pound's recovery will be temporarily interrupted by a pullback. However, if the price remains stable above 1.2550, speculators may ignore the technical signal of overbought conditions. In this case, the pair can rise towards the peak of the medium-term trend.

The complex indicator analysis in the short-term and intraday periods points to the pound' recovery process.

Hot forecast for EUR/USD on June 9, 2023

It seems that the market is simply tired of the excessive overbought condition of the dollar, and investors initiated a sell-off, even despite fairly good US data. The number of initial unemployment claims increased by 28,000, which is quite significant. However, the number of continued claims fell by 37,000. And they have much greater significance than initial claims. And logically, the dollar should have been rising. But the dollar's overbought condition has persisted for quite some time. In fact, it's still overbought. Yesterday's growth only managed to relieve a bit of the tension. But if the corrective movement started without any reason, it is likely to persist today.

The EUR/USD is ending the trading week with a sharp rise, during which the local June high was updated. The price approached the level of 1.0800, which acts as resistance for buyers.

On the four-hour chart, the RSI almost reached the overbought territory during the overnight sharp rise, but it did not cross the signal level. Take note that the indicator's convergence with the overbought territory coincides with the price approaching the resistance level of 1.0800. Thus, the combination of technical signals may indicate a decline in the volume of long positions on the euro.

On the four-hour chart, the Alligator's MAs have changed direction and it currently points to growth.

Outlook

The decline in the volume of long positions on the euro has led to a slowdown in the upward cycle, where the 1.0800 level plays a special role in the distribution of trading forces. In this case, in order to continue the upward movement, the price needs to stay above the control level, at least in the four-hour period. Otherwise, a full-scale price rebound may occur.

The complex indicator analysis unveiled that in the short-term and intraday periods, indicators are providing an upward signal.

The Fed and the ECB will provide new guidance to the markets. Overview of USD, EUR, GBP

This week, several of the largest central banks will start monetary policy deliberations following the recent hawkish surprises from the Reserve Bank of Australia and the Bank of Canada. The Federal Reserve, European Central Bank, Bank of Japan, and the People's Bank of China could trigger significant movements in the currency market.

The Fed will be the first to announce its decision, which will take place on Wednesday evening. It is expected that the FOMC will pause and hold rates steady but maintain the suspense in favor of another rate hike in July, while expectations for the start of a rate-cutting cycle confidently shift towards the end of the year. Overall, the expectations favor the dollar.

Bearish sentiment towards the US dollar has been declining for the third consecutive week. The aggregate short position has decreased by $3.5 billion to -$8.26 billion, marking the largest single change in favor of the dollar since the beginning of the year.

Take note that all major currencies have adjusted in favor of the dollar without exception. At the same time, the net position in gold has increased by $1.313 billion to $34.487 billion, which indirectly indicates both persistent inflationary expectations and the fact that risks for the global economy sliding into a global recession are still high.

Oil prices are declining, despite overall positive risk sentiment. It appears that Saudi Arabia's decision to reduce production by 1 million barrels per day did not help sustain oil prices at high levels, perhaps markets are now more focused on the ongoing sale of oil reserves.

Simultaneously, concerns about a slowdown in economic growth in China are growing, which could further pressure global demand. Goldman Sachs has revised its oil price forecasts downwards for the third time in six months.

EUR/USD
The ECB will hike its key interest rate by 25 basis points on June 15 (Thursday), which is already fully priced in by the markets. In addition, an announcement will be made regarding the end of reinvestments within the APP program from July. The meeting will also include new staff forecasts and commentary on monetary policy going forward.

As markets are now focused mainly on signs of lower inflation, there could be a strong reaction to a possible dovish signal from the ECB, which would lead to a sell-off in the euro, but a hawkish sounding central bank could be ignored.

At present, the rate forecast implies another 25 bps hike in July, meaning the final rate is expected to be 50 basis points higher than the current level of 3.25%.

The net long position in EUR has decreased by $1.063 billion to $21.175 billion over the reporting week. The bullish bias is still high, but a reduction has been observed for the third consecutive week, with the calculated price moving further downward.

A week ago, we saw a high probability of further decline in EUR/USD. This forecast remains valid, and the recent local high at 1.0797 is considered a correction. We expect that bulls will encounter resistance near the technical level of 1.0810. If the ECB confirms its hawkish stance on Thursday, the corrective rally may generate another upward trajectory towards the resistance at 1.0865. However, take note that the long-term trend is bearish, and once bullish attempts have ended, a reversal to the downside is expected. The long-term target is still seen in the support zone of 1.0480/0520.

GBP/USD
The Bank of England will hold its next meeting next week, and the upcoming macroeconomic data in the following days can be crucial for its position.

The labor market report was just released, and despite the decline in the unemployment rate, the growth in average wages continues, at a higher pace than expected. The growth in average wages for the three months up to April reached 7.2% compared to the previous month's 6.8% (forecast 6.9%). The growth including bonuses also accelerated from 6.1% to 6.5%.

The report strengthens inflation expectations and increases the chances of a hawkish sounding BoE, which may be reflected in the Bank's inflation forecast to be published on Friday. Comments from BoE officials appear hawkish - Haskell supports further rate hikes, and Mann notes the persistent upward pressure on inflation. These comments have increased the yield of British bonds and reinforced expectations of further rate hikes. The futures market now sees the peak of the BoE's rate at 5.50% by the end of the year.

Thus, in the short-term perspective, the pound has the potential to strengthen slightly. However, investors are not rushing to make bets on the pound in the long run. The net long position in GBP has slightly decreased by £57 million to £969 million over the reporting week. The positioning is bullish, but the excess is insignificant. The calculated price is below the long-term average and is downward-directed.

Based on this, we continue to prioritize the bearish momentum, despite the pound's attempts to correct higher. We expect that the corrective rally will end below the local high of 1.2678, and any attempt to test it will be unsuccessful, leading to a reversal of GBP/USD to the downside. The nearest target is 1.2305, followed by 1.2240 and 1.2134.

USD gains momentum following FOMC meeting

The US dollar has rallied robustly following the Federal Reserve's latest FOMC meeting, outpacing its European counterpart. USD found its wings, soaring on the back of the FOMC meeting outcomes which signaled another rate hike in 2023.

Following the June FOMC meeting, the committee maintained the federal funds rate within the range of 5.00%-5.25%, after a series of ten consecutive increases, meeting market expectations. The regulator hasn't ruled out another rate hike before the end of this year.

At the same time, Fed Chairman Jerome Powell unveiled an updated forecast, indicating that FOMC members anticipate an additional 0.50% increase in the federal funds rate in 2023.

According to experts, the Fed has now implemented the most aggressive series of rate hikes since the 1980s. This measure was necessary to combat inflation, which has decreased from its peak (9.1%) in June 2022 to the current 4%.

In the light of these developments, US government bond yields showed steady growth, bolstering the greenback. Consequently, the US dollar significantly appreciated against other major currencies, especially the euro.

Analysts assert that high rates impact the cost of US debt placement. According to the US Treasury Department's estimates, as of the end of April 2023, interest payments on the national debt stood at $460 billion, accounting for 12.5% of the total US budget.

After raising the debt ceiling, US authorities intend to issue new debt obligations that could exceed $1-$1.5 trillion. Therefore, the Fed has paused the rate hikes to avoid increasing the cost of placement and creating additional strain on the budget.

Experts underscore that if the interest rate is raised this year, we can expect a strengthening of the dollar. Against this backdrop, the EUR/USD pair confidently crossed the 1.0800 threshold and moved higher. The euro found balance while the greenback gained momentum for further growth. On Thursday morning, June 15, EUR/USD was trading at 1.0806, striving to reach new highs and establish a foothold at these levels.

Post FOMC meeting, the Fed's chief, Jerome Powell, held a press conference and commented on the monetary policy outlook. He emphasized the Fed's decision to maintain the federal funds rate at 5%-5.25%, stating that "rate cuts this year would be imprudent." However, the situation may change at the next meeting which will take place on July 25-26.

The FOMC statement underscored that US inflation remains high, but monetary authorities are aiming to bring it down to the target of 2%. According to the Fed Chairman, getting inflation back to 2% "is a long journey ahead." Meanwhile, the FOMC members remain very vigilant about inflationary risks.

Almost all FOMC members deem it appropriate to continue increasing rates in 2023. Special attention from the regulators is directed towards creating conditions for a "soft landing" of the US economy. The FOMC believes that this is facilitated by a strong US labor market, which is "gradually cooling down."

In addition, the Federal Reserve has published updated economic forecasts, which have been revised since the March meeting. The forecasts for US GDP growth in 2023 were raised, while they were slightly lowered for 2024-2025. As for the inflation forecast for this year, it has also been slightly worsened. However, the improvement in core inflation plans in the US provided a silver lining.

As for the median forecast for the key rate at the end of 2023, the situation is also positive: it was raised by 0.5% to a level of 5.6%. It's worth noting that this forecast anticipates two more rate hikes of 25 basis points each. As for the key rate forecast at the end of 2024, it was improved by 0.3% to the level of 4.6%, and at the end of 2025, also by 0.3% to 3.4%.

According to Jerome Powell's statement, rate increases should occur not abruptly but at a "moderate pace". The Fed chief believes that it will go hand in hand with a decrease in inflation. However, the latter will require US economic growth and "some easing of labor market conditions". Currently, markets are pricing in the probability of a 25 basis point rate hike at the next regulatory meeting scheduled for July 25-26. It is expected that this will once again help the dollar reach new highs.

Pressure on the dollar may intensify. USD, CAD, JPY overview

The highly anticipated speech of Fed Chair Powell in the House of Representatives did not bring any new information. Powell justified the decision not to raise rates in June by saying that the speed of interest-rate increases is "not very important," now and outlined the criteria for sustainable inflation reduction. The dollar had a minimal reaction to Powell's speech, with slight selling pressure that resulted in a shallow correction.

The main cause of high inflation in the United States is considered to be the high level of consumption, as demand does not allow prices to start a sustainable decline. However, adjusting the overall accumulated household wealth for inflation shows that the "excess wealth" created by pandemic stimulus measures has already been eroded.

The decrease in consumption is inevitable, which will lead to a recession by the end of the year. As a result, in order to manage inflation expectations, the Federal Reserve will be forced to change its rhetoric to a more dovish stance, which will intensify pressure on the dollar.

The Bank of England held its regular monetary policy meeting on Thursday, and after its unexpected inflation report for May, there are no doubts that the Bank of Canada will raise rates. This increase has already been priced in by the markets and is unlikely to cause a rise in GBP on its own. However, the probability of another rate hike has increased, and if the meeting minutes are sufficiently aggressive, the pound may have grounds for another upward trajectory.

USD/CAD
The Canadian dollar strengthened after the release of the minutes from the Bank of Canada's latest meeting on June 7, as the markets received confirmation that the Bank of Canada is ready to consider further rate hikes and that the June hike was not a one-time action.

It was noted that GDP growth in the first quarter exceeded forecasts (3.1% versus 2.3%), with consumption growth being very strong at 5.8%, not only in the services sector but also in interest rate-sensitive goods. Consumption growth in Canada was stronger than expected, even considering population growth, and business investment and exports were stronger and more widespread than anticipated. There is clearly excess demand in the economy, and the measures implemented so far are not sufficiently restrictive.

The Bank of Canada expected inflation to decrease to 3% in the summer, but an unexpected increase from 4.3% to 4.4% was recorded in April. Trends in core inflation data raised doubts about the strength and longevity of the ongoing disinflation and heightened concerns that inflation could remain significantly above the 2% target.

Therefore, by raising rates on June 7, the Bank of Canada has left the door open for at least one more rate hike. If the inflation data for May (to be released on June 27) do not show a significant decrease, which is quite likely, the chances of another rate hike will increase. Accordingly, the Canadian dollar has grounds for further strengthening.

The net short position on CAD decreased by 106 million during the reporting week, reaching -2.753 billion. The positioning remains confidently bearish, and the estimated price has turned downward again.

A week earlier, we speculated that the USD/CAD could extend its decline if it receives a good reason. Now it has such grounds, and the main scenario is that the pair will continue to fall, with the nearest target being the lower band of the 1.3050/70 channel. A corrective upward retracement may stop near the resistance at 1.3225, followed by a downward reversal and a build-up of the downward momentum.

USD/JPY
The Bank of Japan left its current monetary policy unchanged, but the markets were more interested in whether there would be any explicit hints of a readiness to tighten in the future. From this perspective, the comments from BoJ Governor Kazuo Ueda appear ambiguous.

Ueda directly linked the possibility of policy change to two factors. The first factor is the deterioration in the functioning of the money market, which was the reason for expanding the yield curve control in December of last year. The second factor is the trend of inflation growth. There is no reason to intervene in policy due to the first factor, as the market is much more stable after the yield control policy change. The second factor is too uncertain, and there are no clear signs of inflation strengthening. Accordingly, there are no grounds to expect changes from this perspective.

Another factor that could influence the BOJ's stance is the sustained growth in average wages. The position here is that wage growth should not exceed 2% plus productivity growth, but since it is difficult to calculate productivity growth and it is quite volatile, we can conclude that the BOJ does not intend to take unexpected actions even in the case of higher wage growth.

Therefore, the market currently sees low chances of monetary tightening, which suggests that we shouldn't expect the BOJ to take significant actions to strengthen the yen in the near future.

The net short position on JPY slightly adjusted by 114 million during the reporting week, reaching -9.269 billion. The bearish bias is unquestionable. The estimated price is above the long-term average, indicating a bullish trend.

USD/JPY, as expected, continued its rise and stopped a few points away from the technical resistance at 142.50. Considering that the estimated price has slowed down its growth, the chances of a corrective decline have increased, with the nearest support at 140.90. In the event of hawkish hints from the BOJ, a decline towards the middle of the 138.50/90 channel is possible. However, the long-term trend remains confidently bullish, so a deep correction is not expected. The nearest goal is to consolidate above 142.50, followed by a transition into a sideways range, as there are also few grounds for a strong continuation of the upward movement.

EUR/USD and GBP/USD: Trading plan for beginners on July 10, 2023

Details of the economic calendar on July 7
U.S. labor market continues to show strength. Statistical data on the U.S. labor market indicates that the number of non-farm payrolls increased by 209,000 in June, slightly below the expected growth of 225,000. The unemployment rate also decreased to 3.6%, in line with expectations. These indicators indicate the ongoing strengthening of the American labor market.

Analysis of trading charts from July 7
The EUR/USD currency pair has nearly fully recovered its value after a recent correction. However, a resistance level around 1.1000 still stands in the way of buyers.

The GBP/USD pair has reached a local high in the process of inertial movement within a medium-term upward trend. As a result, there has been a reduction in long positions, leading to a price pullback.

Economic calendar for July 10
Monday is traditionally accompanied by an empty macroeconomic calendar. No important statistical data is expected to be published in the European Union, the United Kingdom, and the United States.

Therefore, investors and traders intend to rely on the incoming flow of information and news.

EUR/USD trading plan for July 10
Due to the technical overbought signal of the euro in the short-term and intraday periods, a price pullback is possible. To continue the current upward cycle, market participants need to overcome the resistance level around 1.1000. If the price remains consistently above this level, it may stimulate an increase in long positions.

GBP/USD trading plan for July 10
In this situation, the return of the price to the local high indicates a prevailing bullish sentiment among market participants. The pullback we are observing can serve as a stage for regrouping trading forces before further growth. To confirm the continuation of the upward trend, it is necessary to keep the price above the level of 1.2850, which may trigger a technical signal for further growth.

What's on the charts
The candlestick chart type is white and black graphic rectangles with lines above and below. With a detailed analysis of each individual candle, you can see its characteristics relative to a particular time frame: opening price, closing price, intraday high and low.

Horizontal levels are price coordinates, relative to which a price may stop or reverse its trajectory. In the market, these levels are called support and resistance.

Circles and rectangles are highlighted examples where the price reversed in history. This color highlighting indicates horizontal lines that may put pressure on the asset's price in the future.

The up/down arrows are landmarks of the possible price direction in the future.

The dollar train has already left

The Federal Reserve has clearly won the fight against inflation. Victory is not inevitable, and its timing is not determined, but no one is talking about stagflation or hyperinflation at the moment. The markets responded favorably to the June consumer price index, fueling the dollar sell-off. EUR/USD surged to 15-month highs, and this is far from the limit. Economists at Deutsche Bank expect EUR/USD to rise to 1.15 by Q4 2023, while Eurizon SLJ Capital suggests the 1.2 level.

When the divergence in monetary policy between the European Central Bank and the Federal Reserve is accompanied by heightened global risk appetite and the decline of American exceptionalism, the US dollar is forced to raise the white flag. Currently, the gap between consumer and producer prices is at a record high. When such situations have occurred in the past, stock markets have risen. This has happened either in the very late stages of a recession or in the early stages of an upturn.

Dynamics of final demand and finished goods prices in the US
It is quite possible that the United States will be able to avoid the recession that has been talked about for so long. The markets are envisioning a Goldilocks scenario—a combination of slowing inflation and steady GDP growth just below trend. It's no wonder that the S&P 500 reached a 15-month peak. It is difficult for the US dollar, as a safe-haven asset, to withstand such a significant improvement in global risk appetite.

The Fed's aggressive policies will eventually start to slow down the economy. Meanwhile, China is likely to accelerate the recovery of its GDP, which will have a favorable impact on the export-oriented eurozone. As a result, the bullish factor of American exceptionalism for the US dollar will become a thing of the past.

The hawkish comments from FOMC officials don't help the EUR/USD bears either. Christopher Waller still expects a federal funds rate hike to 5.75% and claims that making decisions based on a single inflation report is reckless. We can't sit and wait for the economy to cool down. It's like waiting on the platform for a train that has already left.

At the same time, the euro is supported by the minutes of the June ECB meeting and a speech by Isabel Schnabel. The ECB official said that despite the slowdown in inflation, markets are sending different signals. They reflect investors' concerns about whether the central bank has done enough to tackle high prices. In the latest Governing Council meeting, one official voted for an immediate 50 bps rate hike.

It seems that the ECB is not planning to stop, while the Fed may force a significant inflation slowdown. Along with heightened global risk appetite and the loss of American exceptionalism, this allows us to expect that the euro will continue to rally against the US dollar.

Technically, on the EUR/USD daily chart, reaching targets at 127.2% and 224% based on the AB=CD pattern increases the risk of a pullback. For this to happen, the pair would need to drop below the pivot level of 1.1215. Any decline should be used to form long positions.