Bitcoiners Tip ‘September Breakout’ but Cast Doubt on Near-Term $100K

The Bank of Japan confirmed market expectations and announced a 15bps rate hike earlier today. This is the second tightening move after the March 10bps hike. Citing stronger services inflation, a positive annual change in import prices, solid wage growth and rising inflation expectations, seven members of the policy board voted in favour of the rate hike.

Despite the hawkish commentary, the quarterly BoJ projections saw little change with the exception of the CPI rate excluding fresh food revised higher to 2-2.3% for 2025, a significant jump from April's forecast for an 1.7-2.1% increase.

As preannounced, it was unanimously agreed to gradually taper the pace of the monthly bond purchases with a target to buy around 3 trillion yen in April 2026. The BoJ intends to review the plan and adjust it, if deemed necessary.

The yen was in the red earlier today against the US dollar, as the rate hike was essentially priced in by the market and a more aggressive reduction of the bond purchases was probably expected. However, the new top FX diplomat at the Ministry of Finance has apparently opted for a more aggressive strategy of currency interventions compared to its predecessor, pushing dollar/yen to the lowest level since mid-March.

The focus later today will turn to the US as the ADP employment change will be published at 12.15 GMT and the Fed will announce at 18.00 GMT its decisions after the two-day meeting. The market is expecting a 150k increase in the former, unchanged from the June print, a result that doesn't point to a significant softening in the US labour market.

More importantly, barring a major surprise, the Fed is not anticipated to announce its first rate cut today. However, the market is eagerly waiting for any signs regarding the September rate cut that is currently fully priced in the market. The latest data has been mixed but several officials, including Chair Powell, have highlighted that the data are bolstering their confidence that price pressures are on a sustainable path to remain low.

Having said that, the chances of a dovish shift remain low, which could, in the margin, disappoint the market, keeping stocks under pressure. The Fed will have more opportunities to announce its rate cut intention starting with the Jackson Hole symposium in late August. However, should Chairman Powell et al feel that it is the correct moment to pre-commit to a September rate cut, we could see the dollar underperforming against the euro, but US stocks are probably going to benefit.

Following yesterday's mixed Microsoft results, Meta will report its earnings for the second quarter of 2024 after the market closes.

While most central banks are announcing rate cuts or preparing for the first crucial easing step, the RBA is still facing elevated inflation. The monthly June CPI figure, and more importantly, the Q2 inflation report failed to surprise to the downside with the notable exception of the trimmed mean CPI. Coupled with the stronger retail sales, the door remains open for a rate hike at next week's gathering despite the market reacting negatively to today's figures and pushing the aussie to a 3-month low against the dollar.

Following the assassination of Hamas' political leader, a possible retaliation to the weekend's attack in the Golan Heights, gold and oil are trading higher. The former has managed to reclaim the $2,400 level and it now looks on course to test last week's local peak at $2,431.

AUD/USD declined heavily from well above 0.6650. NZD/USD also tumbled and is now attempting a recovery from 0.5850.

The Aussie Dollar started a major decline below the 0.6610 level against the US Dollar.

There is a connecting bearish trend line forming with resistance near 0.6530 on the hourly chart of AUD/USD at FXOpen.

NZD/USD is attempting a recovery wave from the 0.5850 zone.

There was a break above a key bearish trend line with resistance at 0.5880 on the hourly chart of NZD/USD at FXOpen.

On the hourly chart of AUD/USD at FXOpen, the pair struggled to stay above the 0.6650 pivot zone. The Aussie Dollar started a fresh decline below the 0.6620 and 0.6600 levels against the US Dollar.

The pair even settled below the 0.6550 level and the 50-hour simple moving average. Finally, it tested the 0.6480 support zone. The recent low was formed near 0.6482 and the pair is now consolidating losses near the 23.6% Fib retracement level of the downward move from the 0.6562 swing high to the 0.6482 low.

On the upside, the AUD/USD chart indicates that the pair is now facing resistance near a connecting bearish trend line at 0.6530. The trend line is near the 61.8% Fib retracement level of the downward move from the 0.6562 swing high to the 0.6482 low.

The first major resistance might be 0.65740. An upside break above the 0.6570 resistance might send the pair further higher. The next major resistance is near the 0.6610 level. Any more gains could clear the path for a move toward the 0.6660 resistance zone.

On the downside, initial support is near the 0.6480 zone. The next support could be the 0.6450 zone. If there is a downside break below the 0.6450 support, the pair could extend its decline toward 0.6415. Any more losses might signal a move toward 0.6365.

On the hourly chart of NZD/USD on FXOpen, the pair also declined heavily from well above the 0.6000 zone. The New Zealand Dollar even declined below 0.5915 against the US Dollar.

The pair tested the 0.5850 zone and recently started a recovery wave. There was a break above a key bearish trend line with resistance at 0.5880. The bulls pushed the pair above the 50% Fib retracement level of the downward move from the 0.5949 swing high to the 0.5857 low.

It settled above 0.5880 and the 50-hour simple moving average. The NZD/USD chart suggests that the RSI is still above 50 and signaling more upsides. On the upside, the pair might struggle near the 61.8% Fib retracement level of the downward move from the 0.5949 swing high to the 0.5857 low at 0.5915.

The next major resistance is near the 0.5950 level. A clear move above the 0.5950 level might even push the pair toward the 0.5970 level. Any more gains might clear the path for a move toward the 0.6000 resistance zone in the coming days.

On the downside, there is major support forming near the same trend line at 0.5880. The next major support is near 0.5855, below which the pair might test 0.5820.

If there is a downside break below the 0.5820 support, the pair might slide toward the 0.5765 support. Any more losses could lead NZD/USD in a bearish zone to 0.5740.

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The Bank of Japan (BOJ) raised its policy rate to 0.15%-0.25% on July 31, and its outlook report showed:

Japan's economy has recovered modestly, but weakness has been seen in part. The overseas economy grew moderately. Exports and industrial production were broadly flat. In this context, business fixed investment showed a moderate growth trend, and employment and income situation has improved slightly. Despite rising prices and other factors, private consumption has remained resilient. However, housing investment has been relatively weak, and public investment has been more or less flat.

On the price front, the year-on-year rate of increase in the CPI has been at around 2.5% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices have waned. Inflation expectations have risen moderately.

Core CPI (all items less fresh food) is expected to grow at a YoY rate of around 2.5% in 2024, which will be 2.1% in 2025, and 1.9% in 2026.

The median real GDP growth rate is expected to be 0.6% in 2024, and 1.0% in 2025 and 2026.

At the same time, with the output gap improving, medium- to long-term inflation will rise as the virtuous cycle between wages and prices continues to strengthen. As a result, the underlying CPI inflation rate will rise gradually. In the second half of the projection period, it is likely to be at a level that is generally consistent with the price stability target. In this process, labor market conditions will be tightened. This is partly due to the slower growth in the labor force participation rate among women and the elderly. Therefore, upward pressure on wages is expected to intensify.

If the positive outlook for economic activity and inflation continues, the BOJ will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.

A note from Barclays says, "A hawkish cut by the MPC is an opportunity for the pound," ahead of the Bank of England's eagerly anticipated August 01 policy decision.

Economists at Barclays expect the Bank of England to pull the trigger on the cutting cycle this Thursday, based on "the revealed preference in June by the core of the MPC to start easing soon."

The rule of thumb is that a rate cut can weigh on the Pound. Indeed, we have seen the UK currency come under pressure over the past five days as market expectations for a cut have gradually inched higher to stand close to 60% at the time of writing.

In theory, a cut would require the difference (approx. 40%) to be priced into the Pound, which would mechanically trigger further downside.

"One risk that could also slow the pace of further GBP appreciation is BoE policy," says Joshua Wilcock, FX Strategist at BNP Paribas. "An August move could precipitate some near-term GBP weakness as rate differentials could narrow given that the market has not fully priced in a 25bp cut at the time of writing."

But the extent of this downside, and whether the currency can ultimately rebound, will depend on the accompanying communication.

A plurality of economists expect an August 01 start date, particularly given the odds of a September cut at the Federal Reserve are now close to 100%, offering the much-desired cover Governor Bailey and his team would prefer.

Based on previous voting patterns and subsequent speeches we know two members of the MPC are very unlikely to vote for a cut as soon as August. On the other hand, we have two that are almost certainly to repeat their previous votes for a cut.

This leaves a rump of centrists, including the Governor, his deputy, and the Chief Economist, who will sway the outcome.

Unfortunately, we have heard nothing from these individuals for some time now owing to the pre-election purdah period that forces civil servants into a communications blackout. Analaysts at Oxford Economics say this alone is enough to ensure the Bank delays a cut until September.

But, a delayed cut could still result in a softer Pound if it is accompanied by clear guidance that a September rate cut is coming, meaning Pound Sterling could find itself in a lose-lose situation where it falls regardless of the decision.

What ultimately matters is the guidance and how it gels with the forecasts: what do we learn about the prospect for cuts beyond September? After all, the question markets are interested in is the quantum of rate cuts that are to come, not necessarily the start date.

A shallow rate cut profile would likely support the Pound, but a deep profile would result in selling pressures.

"We now expect the MPC to start cutting rates in September, but we continue to expect a total of 75bp of cuts this year, and a huge 175bp of cuts next year. This is a faster and deeper rate cutting cycle than financial markets expect," says Daniel Vernazza, Chief International Economist at UniCredit.

Any commitment to a steady pace of cuts could spell the end of the Pound's 2024 outperformance.

"We think that the outlook for sterling remains bearish, especially moving into 2025," says UniCredit's Mialich. "Given the intense easing we expect from the BoE. This will likely drag GBP-USD down towards 1.20 and push EUR-GBP back above 0.90 by the end of 2025."

If the Bank is non-commital about further rate cuts beyond September, the Pound could soon recover post-decision losses and rise through the summer. Some analysts say this is a likely path to take and would mirror that of a highly data-dependent strategy at the European Central Bank.

"A hawkish cut by the MPC is an opportunity for the pound," says a note from Barclays.

"Rate differentials should not be much affected by the reallocation of cuts across the cycle, implying limited damage for the pound. Instead, demand resilience and a willingness to re-engage with the EU are far bigger positive influences for the pound, in our view, and we look to re-engage on the long side on any further weakness," adds Barclays.

Currency strategists at BNP Paribas say as long as the BoE pursues policy easing in a cautious manner, we would not view this as a reason to stop expecting GBP outperformance over the medium term.

The French bank forecasts the Pound to Euro exchange rate at 1.2050 by year-end and the Pound to Dollar rate at 1.28.

After a series of mixed European GDP and inflation numbers, some US data hit the market yesterday in late afternoon trading too. June JOLTS job openings were at a higher-than-expected 8.18m, down from an upwardly revised 8.23m. Consumer confidence in the Conference Board indicator picked up from 97.8 to 100.3 in July with an improvement in the expectations component offsetting a drop in the assessment of the present situation to the lowest since mid-2021. After some intraday volatility, yields nevertheless ended the day lower. Geopolitical concerns took the upper hand in late US dealings amid reports of Israel having conducted a Hezbollah-aimed retaliatory strike near Lebanon's capital Beirut. Net daily changes in US yields varied between -2.9 and -4.2 bps. German yields followed by -0.7 and -4.2 bps. Tech sold off again in equity markets, lowering the Nasdaq by some 1.3%. The dollar didn't take up its safe haven role (e.g. EUR/USD only marginally lower at 1.0815) but the yen did. USD/JPY's close at 152.77 was the lowest since mid-April. JPY extended gains this morning going into an important BoJ meeting before paring them again (see below). Other market moves take place in Aussie markets (cfr. infra). Asian equity markets shrug off geopolitics by rising up to 3% in China. Both US yields and the dollar trade little changed ahead of some key data, including the ADP job report (expected job growth of 150k) and the Employment Cost Index (+1% in Q2), and the FOMC policy meeting later today. The Fed's status quo at 5.25-5.5% is widely anticipated. The central question is whether the recent string of beneficial CPI outcomes and mostly below-consensus economic outcomes will prompt clearer clues towards a first cut (in September) in either the statement or the presser. We think there's a possibility of that to happen, be it subtle in order to prevent the recent sharp yield correction go much further against the background of thinner liquidity circumstances and the risk of a technical acceleration should first support zones in the likes of the US 10-yr break. Complementing the case for (short-term) yields not to drop much lower from current levels is the current pricing in money markets (almost three cuts priced in for 2024). The four cuts for 2025, as things currently stand, seem appropriate as well. First support for the dollar kicks in at EUR/USD 1.09. That should hold.

The Australian dollar and swap yields are under pressure this morning. AUD/USD is testing the 0.65 support zone, down from a 0.654 open. Australian swap yields tumble between 11.9 and 19 bps across the curve, the front outperforming. These sharp moves follow the release of Q2 CPI figures. They were bang in line on a headline level, 1% q/q and 3.8% y/y with the latter even quickening from the 3.6% in Q1. Core gauges, though, decelerated more than expected. Advancing 0.8% on a quarterly basis, the yearly prints eased from 4% to 3.9% and 4.4% to 4.1%, depending on the gauge. While still above the Reserve Bank of Australia's 2-3% target range, the sizeable market moves comes amid speculation the central bank was closer to tightening policy further short term on stubborn inflation rather than easing. It was the RBA itself that as recently as June flagged the possibility of doing so. Today's data wipe out all such market bets for the upcoming meetings. A rate cut isn't expected at next week's though with a full 25 bps move priced in for February 2025 currently.

The Bank of Japan surprised some in the market by raising the policy rate from a range of 0-0.1% to “around” 0.25%. The decision follows as economic activity and prices have been developing generally in line with the BoJ's outlook, adding that moves to raise wages have been spreading across regions, industries and firm sizes. The hike came against the background of new forecasts, which entailed a minor growth downgrade for the current FY (0.6%) while leaving forecasts for the next two years unchanged at 1%. Core inflation (ex fresh food) was seen lower this FY at 2.5% (from 2.8%) but was tilted to 2.1% for the FY to March 2026 (unchanged at 1.9% for the FY thereafter). The BoJ said that if this outlook materializes, it will further raise the (still accommodative) policy rate. The central bank also announced to taper its monthly bond buying purchases by JPY 400 bn (from JPY 6000 bn now) each calendar quarter with an interim assessment scheduled April 2026. By then, the bank's balance sheet is seen to have shrunk by about 7-8%. That's slightly softer than markets expected, which was the buying pace cut in half in tops 1.5 years time. The yen whipsawed on the BoJ outcome before trading back to opening levels of USD/JPY 152.8. Japanese yields to jump an unusually big 2-7 bps across the curve, the front underperforming.

The ECB cut its key policy rates by 25 bps at the June policy meeting. A more bumpy inflation path in H2 2024, the EMU economy gradually regaining traction and the Fed's higher for longer US strategy make follow-up moves difficult. Markets are coming to terms with that. Disappointing US and unconvincing EMU data, however, for now brings yields back to their post-French snap election low. The 2.34%-2.4% support zone is being revisited but looks solid.

The Fed indicated that it needs more evidence to lower its policy rate. June dots suggested one move in 2024 and four next year. Disappointing ISM and back-to-back downward CPI surprises put the US money market back on more than two rate cuts this year (September/December). The US 10-yr yield tests the recent lows and the downside of the downward trend channel in the 4.2% area.

EUR/USD tested the topside of the 1.06-1.09 range as the dollar lost interest rate support at stealth pace. Markets consider a September rate cut a done deal and only need confirmation from high-ranked Fed officials. In the meantime, the euro got rid of the (French) political risk premium. EUR/USD recently evolved back to a more neutral positioning but is holding up rather well despite ongoing poor EMU data.

Debate at the BoE is focused at the timing of rate cuts. May & June headline inflation returned to 2%, but core measures do not align a sustainable return to target soon. Some BoE members at the June meeting nevertheless appeared moving closer to a rate cut. Labour revealed a near £22bn of unfunded commitments, setting the stage for a painful Budget release on October 30. EUR/GBP 0.84 support is being tested.