Today, flash estimates for 2Q GDP growth in the Eurozone countries were released. The EZ surprised markets with strong q/q momentum of +0.7% (1Q: +0.5%), despite inflationary pressures and global uncertainty. Compared to the previous year, 2Q GDP growth was a solid +4.0% (1Q: +5.4%). Top performers included Italy and Spain. Austria also surprised positively. The International Monetary Fund (IMF) has revised its growth forecasts significantly downwards. The IMF now expects global growth of +3.2% (-0.4 pp compared to April) in 2022 and +2.9% (-0.7 pp compared to April) in 2023. The revisions for China and the US are the main drivers of lower global growth expectations. View the full report here

GDP yesterday reported -0.9, we had -1.0 and the Atlanta Fed -1.2. By the data, it was clear the Atlanta Fed was off its forecast. Not that it matters as the currency and market price would've traded to the exact same levels despite the variation to GDP forecasts. The laugh to the forecast is 12 numbers were required and voila, -1.0 was done. Anybody could've performed the same quick operation and found -1.0. Anybody today can factor the new GDP averages and find the next GDP release. Nothing will change in 3 months. The GDP and any economic release is a stand alone entity and factors by itself. The only difference between today and yesterday is a slight change to the averages. And the change is very slight. The 1 year average at 1.04 should drop so the forecast in turn should also drop for the next quarter. NFP is coming and NFP as a stand alone release factors the exact same as GDP averages. The only difference is NFP contains different numbers than GDP. See my blog at btwomey.com for many. many past NFP forecasts. Also see my blog as posted Sunday was weekly levels for 20 currency pairs. Currency markets next week focus is on the big MA break to MA points and terrific movements. Market prices brought us to the brink as markets are known to perform time and time again. USD/JPY is the main focus as 132.36 is here to change the entire USD/JPY trajectory from longs to shorts. JPY cross pairs EUR/JPY broke lower yesterday at 137.88 and now trades 135.00's. GBP/JPY broke below 162.72. NZD/JPY broke below 83.95. AUD/JPY and CAD/JPY are hold outs at 92.45 and 102.96 for CAD/JPY. EUR/USD has a long way to go before 1.0439 breaks higher. Monitor bottoms to EUR/USD by EUR/CHF current 0.9736 and big break for higher at 1.0034. Also USD/CHF at current 0.9515 and big break at 0.9619. Overall EUR/USD trades 1.0439 to 1.0034 and USD/CHF 0.9619. GBP/USD 1.2321 waits fo higher GBP. GBP/CAD is oversold from 1.5826. Recall FX weekly and higher for GBP/CAD. GBP/CAD traded 200 pips higher this week. GBP/NZD remains a problem pair and GBP/AUD trades at the mercy of AUD/USD. Overbought AUD/USD big break is located at 0.6992. NZD/USD 0.6354 waits to trade higher. Oversold EUR/CAD at week's beginning traded 200 pips higher and remins deeply oversold. USD/CAD 1.2852 for higher. Higher is guaranteed if CAD/JPY breaks below 102.96. EUR/AUD trades massively oversold and good longs for next week. From 1.4500;s, good target is 1.4700's. EUR/AUD is the best trade against GBP/AUD and EUR/NZD better than GBP/NZD. Severely overbought AUD/EUR explains AUD/USD to break 0.6992. DXY 106.50's for higher to target 107.00's. Gold/silver ratio Currencies for 2000 years are characterized either as Gold or Silver currencies and the connection was established in antiquity. The connection in the modern day can't ever change. Silver currencies are the lesser valued 0 point currencies. Asia, central and South America are classified as Silver currencies. Mexico is a Silver Currency. USD, Europe and Canada are Gold Currencies and classified by their 1.0 exchange rate designation. If the Gold/Silver ratio is high or at a vital level then the effect is seen from Gold Currencies as Gold currencies will also trade at a vital MA point. Gold on its best days over the past 3 and 4 weeks traded 30 ish points while EUR/USD traded 100 ish pips and a difference of 70 ish points. Silver traded 1 point yesterday Vs  120 pips for JPY/USD 0.7545 to 0.7424. Weekly Silver traded 2 points from 20.22 to 18.21 vs JPY/USD 276 pips from 0.7545 to 0.7269. For every 1 point traded in Silver, JPY/USD trades 100 ish pips. Best to convert exchange rates to work with smaller numbers. Gold and EUR/USD work the exact same as Silver to Silver currencies such as JPY/USD. Roughly 30 points to Gold trades 100 ish pips for EUR/USD. Not much will ever change in the Silver Vs Silver currency ratios nor Gold to Gold Currencies as the relationhsips were established 2000 years ago. If the Gold /Silver ratio relationship is extremely low to Silver then Silver currencies go long as all are oversold. If Gold is high then short Gold Currencies as Gold currencies are overbought. 

Bank of England meeting – 04/08 – having seen the Federal Reserve hike rates by 75bps last week, the pressure is on the Bank of England to at least follow with a bumper rate hike of its own. Since the Bank of England was given its independence the Monetary Policy Committee has never raised rates by more than 25bps, while they’ve never been slow to cut them by much more than 25bps increments. This appears to speak to the conservative nature of the central banks mindset, and thus makes it difficult to move out of that narrow way of thinking. With inflation now at 9.4% and at the Bank of England’s own admission set to go as high as 11% the central bank is running out of excuses not to hike in a more aggressive fashion. With industrial action now part of the background noise, wage growth is likely to remain well underpinned over the coming months. At its June meeting the MPC once again issued a baffling statement of intent over its response to inflationary pressure. They said that they would act “forcefully” on inflation if necessary, following it up by saying they expect inflation to peak at an eye watering 11% by year end, an upgrade from its previous 10%, thus begging the question as to what level of inflation would justify a bigger hike? Sadly, this sort of mixed messaging isn’t a new thing from the Bank of England, his predecessor Mark Carney was famously named “the unreliable boyfriend” however it has got even worse under the stewardship of Andrew Bailey. While the central bank’s flakiness is nothing new to those who have been following its communications in the City of London, it has now attracted the ire of senior politicians. While this isn’t a particularly welcome development, its not altogether surprising, given recent events. There is no question the Bank of England, as do all other central banks, have a thankless task in these difficult times, however to some extent they are authors of their own misfortune, with a complete inability to admit their mistakes. This continues to happen now, with decisions being taken with a very narrow focus. If the Bank of England wants to prevent its mandate being questioned further it could start by doing its job, and stop lecturing the rest of us on whether to ask for a wage rise. This week the Bank of England will also be coming out with a new set of economic projections, and while a 25bps rate rise is the least we can expect, there’s also a good chance the Bank of England will make history and move by 50bps. US non-farm payrolls (Jul) – 05/08 – the June payrolls reports posed more questions than answers when it was released a month ago, even though it was the weakest number this year at 372k. It was still much higher than expected with the unemployment rate steady at 3.6%. Wages growth remained steady at 5.1%, while the May numbers were revised up to 5.3%, however the fall in the participation rate to 62.2% was puzzling. With wages rising at a slower rate than inflation, and vacancies at record levels this ought to be going the other way but isn’t. With the US labour market still looking solid we are now starting to see evidence of weakness in the services sector, while weekly jobless claims have been rising steadily for three months now, and are back above 250k, having hit a 50 year low of 167k back in April. The rise in jobless claims appears to be the first sign the US labour market is showing signs of weakness even if this isn’t being reflected in the actual numbers. July payrolls is expected to see 250k jobs added, which coincidentally was the forecast for June which was beaten quite comfortably. The headline numbers are of lesser importance than the wages numbers which are expected to remain steady at or around 5%. Global Services PMIs (Jul) – 03/08 – the most recent flash PMI numbers for Europe and the US showed a sharp drop-in economic activity in July raising concerns that the increase in energy, as well as food prices is starting to act as a brake on consumption. In Germany, as well as the US we saw sharp drops into contraction territory, although France managed to stand out with a slightly better performance, although this could be because the French government is insulating the French consumer from the worst of the energy price spike. The UK is looking slightly more resilient however even here the economy is facing challenges as orders start to show signs of slowing. RBA rate meeting – 02/08 – having hiked rates by 50bps for two meetings in a row, the RBA is expected...

The coming week is shaping up to be another crucial one for gauging recession risks and monetary policy paths. It’s NFP week in the United States and the RBA and Bank of England will decide whether to accelerate their hiking cycles. The ISM PMIs are bound to attract a lot of attention as well in the US as growth concerns intensify. Elsewhere, employment figures in Canada and New Zealand, and manufacturing PMIs out of China will be the highlights. Meanwhile, a meeting of OPEC+ countries might yet result in a decision to produce more oil.

Gold closed the second straight week in positive territory. Falling US T-bond yields helped XAUUSD gather bullish momentum. Additional gains are likely in case buyers clear $1,780 resistance. Following a consolidation phase above $1,700 at the beginning of the week, gold gathered bullish momentum and climbed to its highest level since early July above $1,760. Although the yellow metal lost its bullish momentum on Friday, it managed to close the second straight week in positive territory. The near-term technical outlook points to a bullish tilt and XAUUSD looks to extend its recovery ahead of the July jobs report from the US. What happened last week? The data from the US fueled recession fears earlier in the week but investors refrained from taking large positions ahead of the US Federal Reserve’s policy announcements. The headline General Business Activity Index of the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey dropped to -22.6 in July from -17.7 in June. On Tuesday, the Conference Board (CB) reported that the Consumer Confidence Index declined to 95.7 from 98.4 in June. “Inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months,” the CB noted in its publication. The US Census Bureau announced on Wednesday that Durable Goods Orders rose by 1.9% on a monthly basis in June, coming in much better than the market expectation for a decrease of 0.4%. On a negative note, Pending Home Sales fell by 8.6% in the same period, compared to analysts’ forecast for a decline of 1.5%. The Fed hiked its policy rate by 75 basis points (bps) to the range of 2.25-2.5% following the July policy meeting as expected. During the press conference, FOMC Chairman Jerome Powell said that they will not be providing any rate guidance from now on. "Our thinking is that we want to get to a moderately restrictive level by end of this year," Powell noted. "That means 3% to 3.5%." These comments triggered a dollar sell-off and weighed heavily on US Treasury bond yields, providing a boost to XAUUSD mid-week. Following the Fed event, the probability of a 75 bps rate hike in July dropped to 20% from nearly 50% in the previous week. Additionally, the US Bureau of Economic Analysis’ (BEA) advanced estimate revealed that the US economy contracted at an annualized pace of 0.9% in the second quarter, missing the market forecast for an expansion of 0.5% by a wide margin. The benchmark 10-year US T-bond yield lost nearly 5% in the second half of the day as investors continued to scale down hawkish Fed bets.  The BEA's monthly publication showed on Friday that inflation in the US, as measured by the Personal Consumption Expenditures (PCE) Price Index, climbed to 6.8% on a yearly basis in June from 6.3% in May. The Core PCE Price Index, the Fed's preferred gauge of inflation, rose to 4.8% from 4.7% in the same period. The dollar staged a rebound on hot inflation data and capped gold's upside ahead of the weekend. Next week On Monday, the ISM Manufacturing PMI data from the US will be watched closely by market participants. In case this print arrives below 50, the USD is likely to have a difficult time finding demand. On the other hand, an upbeat reading by itself might not be enough for investors to reassess the Fed’s rate outlook. The ISM will also release the Services PMI report on Wednesday. The S&P Global’s Services PMI fell to 47 in July’s flash estimate from 52.7 in June, pointing to a contraction in the service sector’s business activity. The dollar weakened against its major rivals after this data and a similar market reaction could be witnessed if the ISM’s Services PMI falls into the contraction territory.  Finally, the US Bureau of Labor Statistics will publish the July jobs report on Friday. Nonfarm Payrolls (NFP) are expected to rise by 260,000 following June’s better-than-forecast increase of 372,000. The Unemployment Rate is seen to remain steady at 3.6%. When commenting on the labor market, Powell said that it was extremely tight and said that the job growth was still robust. "Overall labor market suggests underlying aggregate demand remains solid,” the Chairman added. Although the US central bank acknowledges the slowdown in economic activity, it remains committed to fighting inflation as long as the job market remains healthy. Hence, the market reaction should be pretty straightforward with an upbeat NFP print providing a boost to the dollar and vice versa. Investors will also pay close attention to Fed officials’ comments throughout the week. The fact that there is still a 20% probability of a 75 bps rate hike suggests that the dollar has more room on the downside if markets end up fully pricing in...

EUR/USD reversed modest intraday losses on Thursday amid the emergence of fresh USD selling. A technical recession in the US reaffirmed a gradual Fed rate hike path and weighed on the USD. The European gas crisis acted as a headwind for the euro and kept a lid on any meaningful upside. Investors now look forward to important Eurozone macro data and the US PCE for a fresh impetus. The EUR/USD pair witnessed good two-way price moves on Thursday and the intraday volatility was sponsored by a combination of factors. The shared currency was weighed down by worries that a halt of gas flows from Russia could trigger an energy crisis in the Eurozone. In fact, the Russian state-controlled energy giant Gazprom said on Wednesday that natural gas deliveries to Germany via the Nord Stream 1 pipeline have been cut further to 20% of capacity. The pipeline operator had announced the first reduction on Monday to 40% citing a missing turbine. Apart from this, political instability in Italy - ahead of elections in September - added to concerns about the regions economic outlook and further undermined the euro. That said, the emergence of fresh US dollar selling assisted the pair to recover intraday losses and settle nearly unchanged for the day. The USD struggled to capitalize on its modest intraday gains and met with a fresh supply following the disappointing release of the Advance US Q2 GDP report. According to the first estimate released by the US Bureau of Economic Analysis, the world's largest economy contracted by 0.9% annualized pace during the April-June period. The reading was worse than the 0.4% rise estimated and comes on the back of a 1.6% decline in the previous quarter, confirming a technical recession. Against the backdrop of Wednesday's less hawkish FOMC, a shrinking US economy reinforced expectations that the Fed would not raise interest rates as aggressively as previously expected. This was evident from a steep decline in the US Treasury bond yields. This, along with a strong follow-through rally in the US equity markets, exerted additional downward pressure on the safe-haven greenback. The USD selling bias remains unabated through the Asian session on Friday and continued lending support to the EUR/USD pair. Spot prices, however, lack bullish conviction, warranting some caution before positioning for any further appreciating move. Market participants now look forward to a rather busy economic docket, featuring the release of the preliminary estimates of the second quarter GDP from the Eurozone, Germany, France, Italy and Spain. Apart from this, the flash version of the Eurozone consumer inflation figures would influence the common currency. Later during the early North American session, traders would take cues from the US Personal Consumption Expenditures (PCE report) - the Fed preferred inflation gauge. A flurry of important macro data should infuse a fresh bout of volatility in the markets and provide a fresh impetus on the last day of the week. Technical Outlook From a technical perspective, spot prices, so far, have struggled to confirm a breakout through the top end of a short-term descending trend channel. This makes it prudent to wait for sustained strength beyond the 38.2% Fibonacci retracement level of the 1.0787-0.9952 downfall, around the 1.0270-1.0280 region, before placing fresh bullish bets. Some follow-through buying beyond the 1.0300 mark would be seen as a fresh trigger for bulls and pave the way for additional gains. The EUR/USD pair could then surpass an intermediate resistance near the 1.0365-1.0370 region, or the 50% Fibo. level, and aim to reclaim the 1.0400 mark. The momentum could further get extended towards the 50-day SMA resistance, currently near the 1.0425 region, en-route the 61.8% Fibo. level, around the 1.0470 zone. On the flip side, the 1.0100 psychological mark, nearing the weekly low, now seems to have emerged as immediate strong support. A convincing break below would shift the bias back in favour of bearish traders and make the EUR/USD pair vulnerable. Spot prices could then accelerate the fall towards retesting the parity mark before eventually dropping to challenge the YTD low, around the 0.9950 region touched earlier this month.