GBP/USD dives to a fresh 37-year low on Thursday amid the post-FOMC USD rally. Expectations for more aggressive Fed rate hikes, the risk-off mood underpins the buck. Oversold conditions on short-term charts offer some support ahead of the BoE meeting. The GBP/USD pair falls to a fresh 37-year low during the Asian session on Thursday as the post-FOMC US dollar breakout momentum remains uninterrupted. The Federal Reserve raised interest rates by another 75 bps on Wednesday and struck a more hawkish tone, signalling more large rate increases at its upcoming policy meetings. The Fed's so-called dot plot revealed that policymakers expect the benchmark lending rate to top 4% by 2022. Central bank officials anticipate further hikes in 2023 and rate cuts beginning only in 2024. The Fed expects inflation to stay above the 2% target for at least the next two years. In the post-meeting press conference, Fed Chair Jerome Powell reiterated that the central bank would act aggressively to bring inflation down. Powell added that the historical record high inflation cautions strongly against prematurely loosening policy, suggesting that the Fed will not pivot as soon as the economy starts to slow. This, in turn, pushed the yield on the benchmark 10-year US government bond to an 11-year high. Apart from this, the prevalent risk-off mood remains supportive of the ongoing USD rally to a 20-year high. The market sentiment remained fragile amid growing recession fears and was further hit by geopolitical risks. In the latest development, Russian President Vladimir Putin announced an immediate partial military mobilization and threatened to use all the means to defend Russia and its people. This marks a further escalation in the protracted Russia-Ukraine war and tempers investors' appetite for riskier assets, evident from a sea of red across the equity markets. However, the GBP/USD pair manages to find some support ahead of the 1.1200 mark as the focus now shifts to the Bank of England policy meeting on Thursday. The UK central bank is expected to step up its efforts to curb inflation and deliver a jumbo rate hike at the end of the September meeting. The markets are pricing roughly a 75% chance of a 75 bps increase. This, along with UK Prime Minister Liz Truss’s energy relief plan could help soften the economic downturn and lend some support to the British pound. The immediate market reaction, however, is more likely to remain limited amid looming recession risk, suggesting the path of least resistance for the GBP/USD pair. Hence, any attempted recovery might still be seen as a selling opportunity and risk fizzling out rather quickly. Technical Outlook From a technical perspective, the overnight decline confirms a fresh bearish breakdown through the lower end of a downward sloping channel from May 2022. That said, RSI (14) on the daily chart is already flashing overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest recovery before considering any further depreciating move. Any attempted bounce might now confront stiff resistance near the said channel support breakpoint, currently around the 1.1300 mark. The latter should act as a pivotal point for short-term traders, which if cleared decisively might trigger a short-covering rally. The GBP/USD pair could accelerate the momentum towards the 1.1375-1.1380 region, though any subsequent move up is likely to remain capped near the 1.1400 mark. On the flip side, the Asian session low, around the 1.1220 region, now seems to protect the immediate downside ahead of the 1.1200 round figure. Some follow-through selling will reaffirm the near-term negative outlook and make the GBP/USD pair vulnerable to prolonging the downward trajectory. 

With the rate differential widening, there is little room for USD/JPY slides. The Bank of Japan is widely anticipated to maintain its monetary policy unchanged. USD/JPY is in a consolidative phase near a two-decade high of 144.98. Following the US Federal Reserve’s policy announcement, it will be the turn of the Bank of Japan to decide on its monetary policy. Against the tide, the BOJ is widely anticipated to maintain the status quo, leaving rates at record lows of -0.1% and the yield curve control policy on hold. The latter means the central bank will continue unlimited bond purchases to keep the yield on the 10-year government bond around 0%. Finally, the central bank is expected to confirm the end of its special coronavirus financing program in September, as previously announced. The Japanese central bank´s strategy to maintain inflation at 2% stopped working five months ago. According to official figures, the annual inflation rate rose by 3% in August from 2.6% in the previous month. The Consumer Price Index rose for twelve consecutive months, and while it remains far below that of its major counterparts, the global pressure points to a further upside. As Japan is a net energy importer, the Russian conflict is also causing an increased trade deficit in the country. As a result of this situation, the Japanese yen plunged to a two-decade low against its American rival. However, there are null chances the BOJ will suddenly change course and decide on quantitative tightening. Formal intervention in the making? There is, however, one caveat. Bank of Japan Governor Haruhiko Kuroda has reportedly conducted a foreign exchange check, which somehow opens the door for formal intervention. The central bank meeting could be the perfect time to announce a measure in that direction The imbalance with all other central banks is likely to keep USD/JPY on its way up, although an unexpected tightening could result in the pair plummeting hundreds of pips. Nevertheless, and as long as the rate differential keeps widening, the pair will likely continue to reach record highs. USD/JPY possible reactions The USD/JPY pair has been consolidating gains after reaching 144.98 on September 7, without technical signs of long-term bullish exhaustion. Should policymakers hint at some form of tightening, there’s still little room for the JPY to add. Market players would need action to react to the event rather than promises. The base of the latest range is the 141.50 price zone, a potential bearish target should Japanese policymakers drop the yield curve control or unexpectedly hike rates. A break below the level could trigger large stops and result in USD/JPY nearing the 140.00 figure. Formal intervention could also take its toll on USD/JPY, although the potential slump will depend on the measures announced. The impact of the latter could be short-lived. On the other hand, an on-hold decision could take the pair beyond the aforementioned two-decade high.

EUR/USD came under renewed selling pressure on Tuesday amid resurgent USD demand. Bets for aggressive Fed rate hikes trigger a sharp spike in the US bond yields and the USD. Bearish traders turn cautious and await the crucial FOMC policy decision on Wednesday. The EUR/USD pair witnessed an intraday turnaround on Tuesday and retreated nearly 100 pips from a one-week high, reversing its modest gains recorded over the past four sessions. The US dollar caught aggressive bids as investors geared up for another supersized interest rate hike from the Fed and turned out to be a key factor exerting downward pressure on the major. The current market pricing suggests over 80% chances of a 75 bps increase and a small probability of a full 100 bps tightening. This, in turn, pushed the US bond yields higher across the curve and provided a goodish lift to the greenback. The two-year US government bond yield, which is highly correlated to rate expectations,  jumped to its highest level since October 2007. Furthermore, the benchmark 10-year US Treasury note reached a level not seen since April 2011. This, along with the risk-off impulse, acted as a tailwind for the safe-haven buck. The market sentiment remains fragile amid concerns that rapidly rising borrowing costs will lead to a deeper global economic downturn. The headwinds stemming from China's zero-COVID policy and the protracted Russia-Ukraine war have fueled recession fears. On the economic data front, the German Producer Price Index (PPI) climbed 7.9% in August and the yearly rate rose to 45.8% from 37.2% in the previous month. In the US, Building Permits fell by 10% in August, while Housing Starts were up by 12.2% during the reported month. The market reaction, however, was muted as the focus remained on the critical central bank event risk. Even comments by the European Central Bank President Christine Lagarde, saying that the appropriate pace of future rate increases will be decided on a meeting-by-meeting basis, failed to provide any impetus to the EUR/USD pair. Nevertheless, spot prices settled near the lower end of the daily trading range and remained on the defensive through the Asian session on Wednesday amid some follow-through USD uptick. Market participants now seem to have moved to the sidelines and await the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session. Moreover, updated economic projections, the so-called dot plot and Fed Chair Jerome Powell's remarks at the post-meeting press conference will be examined for clues about the future rate-hiking path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the EUR/USD pair. Technical Outlook From a technical perspective, repeated failures to find acceptance above the parity mark suggest that the bearish pressure might still be far from being over. Some follow-through selling below the 0.9950-0.9945 region will reaffirm the negative bias and make the EUR/USD pair vulnerable. The subsequent downfall could then drag spot prices to the 0.9900 round-figure mark en route to the 0.9865 region, or the lowest level since 2002 touched earlier this month. On the flip side, the 1.0000 psychological mark now seems to act as an immediate strong barrier ahead of the 1.0030-1.0050 supply zone. Sustained strength beyond the latter might trigger a short-covering rally and lift the EUR/USD pair to the 50-day SMA resistance, just ahead of the 1.0100 round figure. Some follow-through buying will suggest that spot prices have formed a near-term bottom and pave the way for a move towards the 1.0145-1.0150 intermediate barrier. Bulls might then aim to conquer the 1.0200 mark.

Dollar index and Euro may trade within 109-110.30 and 0.9940-1.006 respectively while EURJPY can trade below 145 to head towards 143. USDJPY is holding below 143.80 and can fall towards 142. USDCNY and USDRUB can remain in a range of 7.00-7.0250 and 62-59.20 respectively. Pound and Aussie can be bullish while above crucial supports of 1.14/1.1350 and 0.67-0.6670 respectively. USDINR can fall to 79.55/40 while below 79.80 today. EURINR can rise towards 81.50 The US Treasury yields are moving up ahead of the US Federal Reserve meeting outcome tomorrow. Key resistances are ahead, and the Fed meeting outcome would decide whether the yields can break above them or not. The German yields have risen across tenors and have come closer to their crucial resistances. The price action in the coming sessions will need a close watch to see if a reversal is happening or not. The 10Yr and 5Yr GoI sustain higher and are likely to move up from here. Supports can limit the downside for them. Dow and DAX have rebounded from 30500 and 12600 levels respectively. Nikkei and Shanghai have bounced back from the support at 27500 and 3100 respectively. Nifty has risen well above the support at 17400 and while above it the index can move up further on the upside. Brent and WTI may remain in a range of 87.5-95 and 80-90 respectively for some time. Gold looks vulnerable while below the resistance at 1700-1725. Silver could remain in a range while below the resistance at 20. Copper needs a strong rise past 3.6-3.65 to negate a possible fall on the downside. Visit KSHITIJ official site to download the full analysis

This week, central banks are in focus. Both the Federal Reserve and the Bank of England are expected to raise interest rates when they meet on Wednesday and Thursday, by 75 basis points and 50 basis points, respectively. Financial markets are rattled to say the least, Wall Street recorded the biggest weekly drop in months, the S&P 500 fell 4.8%, while the Nasdaq dropped more than 5%. The plethora of central banks announcing their rate decisions, the Bank of Japan will also join the chorus, could inject further volatility into financial markets.  Symbolic Fedex sends shiver down traders’ spines  Looking at last week’s stock market performance in more detail, the driver of the decline for US and global stocks was firstly, stronger than expected US headline CPI and secondly, a warning from Fedex, the shipping company, that it would close offices, freeze hiring and park aircraft due to a sharp drop in package shipping volumes, which saw the stock lose more than a fifth of its value. The company reported weaker than expected Q2 results and withdrew its full year guidance, after warning of a deteriorating macroeconomic backdrop. Fedex is symbolic of the wider economy, when transport companies start to perform badly it is usually a warning sign for other sectors. This is particularly concerning when we are reaching the end of Q3, with expectations for earnings season rapidly being revised down. In the first half of the year, companies did a stellar job of passing costs onto their consumers. However, with inflation remaining sticky, this dynamic cannot last forever, so underlying conditions for equities across the west have deteriorated. Therefore, stocks sold off so sharply last week. What they do next week is very contingent on the outcome of the central bank meetings, especially the Fed meeting.  Looking ahead to the Fed  There is currently an 82% probability of a 75 bp rate hike from the Federal Reserve this week, with a small chance of a 100 bp rate hike. Not that long ago, some corners of the financial markets were looking for the Fed to pivot away from larger rate hikes, and slow down to 50bp rate hikes from here. However, after last week’s CPI report, there is now no chance of a 50bp rate hike this week, according to trading on the Fed Funds Futures market. We do not think that the Fed will hike by 100bp on Wednesday, for a few reasons: 1, they don’t like to surprise the market, 2, there are clear signs of an economic slowdown and 3, while some areas of inflation are proving to be sticky, inflation expectations in the US have turned lower. The 5-year 5-year forward inflation rate, has fallen to 2.24%, which is within hitting distance of the Fed’s 2% target rate. Thus, we believe that the Fed will deliver some “good” news on Wednesday: it won’t hike rates by 100bps.  The good news from the Fed will be fleeting  Unless the Fed wants to lose all credibility, then the good news at this meeting will be fleeting. Instead, the Fed will need to impress on the market that it means business when it comes to fighting inflation. With the inflation rate proving to be stickier than expected, especially core inflation, then it will need to elongate its rate hiking cycle. By the end of 2023, the Fed Funds futures markets expects interest rates in the US to have risen to 4%-4.25%, which is 1% higher than what was expected a month ago. Thus, the prospect of a Fed pivot is now a 2024 event, not a 2023 event. In trading terms, this means that in the short to medium term, unsurprisingly, we continue to like the dollar. After GBP/USD’s rout last week, which saw it fall to $1.1430, momentum remains to the downside. The sharp decline in cable could slow this week, but ultimately if the UK goes on a massive spending binge at this week’s mini budget on Friday, then the path for the pound is lower.  Will the euro fall?  EUR/USD’s path has been much smoother than the pound’s in recent weeks, and it continues to trade sideways after breaking above the $1.0260 level. However, we believe that the euro’s time will come. Parity will still loom, it could be triggered by this weekend’s Italian elections, that threaten to disrupt the status quo in the Eurozone. Added to this, the technical picture for the dollar looks attractive if the dollar index remains above its 50-day moving average around 108.0. The dollar is also likely to be supported this week by Monday’s trading action in US government debt, which saw Treasury yields jump to their highest levels in a decade. The 10-year yield jumped to 3.5% for the first time since 2011, while the 2-year yield...

Key highlights EUR/USD is attempting a recovery wave above 1.0000. A major bullish trend line is forming with support at 0.9995 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair extended losses below the 1.0020 support, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). It traded as low as 0.9945 before the bulls took a stand. It is now consolidating losses above the 0.9980 level. On the upside, the pair is facing a strong resistance near the 1.0060 zone and the 200 simple moving average (green, 4-hours). The 50% Fib retracement level of the key decline from the 1.0197 swing high to 0.9945 low is also near the 1.0070 level to act as a resistance. A clear move above the 1.0060 and 1.0070 levels could open the doors for a larger increase. In the stated case, the pair might rise towards the 1.0120 and 1.0130 levels. On the downside, an initial support is near the 0.9995 level. There is also a major bullish trend line forming with support at 0.9995 on the same chart. A downside break below the trend line support might spark a sharp decline towards the 0.9950 support.