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GBP/USD jumpy after BoE interventionIt has been a volatile day for the pound. GBP/USD started the day with losses but has reversed directions and posted strong gains in the North American session. GBP/USD is trading at 1.0799, up 0.61%. The new Truss government has started off on the left foot, sending the pound to a record low in the process. The trouble began on Friday, as Chancellor Kwarteng's mini-budget promised tax cuts, despite soaring inflation which is hovering around 10%. The mini-budget was widely panned and the pound sank like a stone on Friday, falling a stunning 3.6%. The pound lost another 1.5% on Monday and dropped to a record low of 1.0359. The scathing criticism was not only domestic. The IMF has joined the chorus of boos and attacked the government's fiscal plans, going as far as calling on the UK to "re-evaluate" its tax cuts. Moody's warned that the plan could jeopardize the UK's credit rating. With the new government's credibility seriously undermined, it's no surprise that the pound is taking it on the chin. In a dramatic move, the Bank of England has stepped in order to avoid a possible crash in the bond market. There had been speculation that the BoE might deliver an emergency rate hike in order to prop up confidence and the ailing pound. Instead, the BoE said it would unlimited purchases of government bonds of 20 years or longer. This pushed 30-year bonds sharply lower after they had climbed to 24-year high, and the pound has moved higher. In the US, ten-year Treasury yields pushed above 4.00% earlier today, for the first time since 2008. The markets are showing a healthy respect for Fed hawkishness, even after inflation weakened in the past two inflation reports. There is some optimism that the current rate-hike cycle is reaching its end, with Fed member Evans stating that it will be appropriate to slow the pace of tightening at some point. For now, the US dollar has momentum, driven by an aggressive Fed and weak risk appetite due to worrisome developments in the Ukraine war, including the sabotage of the Nord Stream pipelines and Russia's plan to annex parts of Ukraine. GBP/USD is testing resistance at 1.0742, followed by resistance at 1.1052 There is support at 1.0644 and 1.0431
by OANDA
EUR/USD shrugs as German confidence slipsThe euro is in positive territory at the start of the week. In the North American session, EUR/USD is trading at 1.0245, up 0.30%. The US dollar lost some of its lustre last week and the euro took advantage. EUR/USD posted its first winning week in a month and pulled some distance away from the parity line. The euro has posted gains today but there was some alarming data out of Germany. Ifo Business Sentiment dropped to 88.6 in June, down sharply from 92.2 in May and shy of the consensus estimate of 90.2. The reading marked the lowest level in more than two years and was accompanied by an unusually grim message from the head of the Ifo Institute. Klaus Wohlrabe said that a recession in Germany was "knocking on the door" due to high energy prices and the possibility of gas shortages faced by Germany. The Nord Stream 1 pipeline opened on Thursday as scheduled after being shut for maintenance but only at about 40% capacity, which was the case before it shut down.  At that level, Germany may need to ration gas in order to reach its target of 90% storage capacity before winter sets in. The EU has suggested that member countries scale back their gas needs by 15% starting August 1st, but already some members are pushing back and demanding exemptions, making it uncertain if this voluntary plan will get off the ground. The EU is clearly worried that Russia will weaponise its energy exports to Europe, which has implemented sanctions against Moscow due to the invasion of Ukraine. With each member state having to worry about its own citizens having sufficient gas in the winter, we could see cracks appear in the EU's attempt to have a unified stance against Russia. EUR/USD continues to test support at 1.0191.  The next support level is 1.0105 There is resistance at 1.0304 and 1.0390
by OANDA
Euro unable to hold onto ECB gainsThe euro has reversed directions today and fallen below the 1.02 line. In the European session, EUR/USD is trading at 1.0188, down 0.42%. The markets were glued to the ECB meeting on Thursday, uncertain as to whether the rate lift-off would be a 25bp or 50bp hike. In the end, Lagarde & Co. went hawkish, delivering a 50bp increase. This was somewhat of a surprise, as the ECB has become more aggressive with obvious reluctance, prodded by soaring inflation which Lagarde previously dismissed as transient.  The Bank had provided prior guidance of a 25bp move at the meeting, but in the end, opted for a larger hike. With the 50bp increase, we bid goodbye to the ECB's negative rates, which have been a hallmark of its accommodative monetary policy. The Bank did not stick to its forward guidance and after the meeting, Lagarde announced that policy decisions would be made on a meeting-by-meeting basis, effectively ending forward guidance. What is fairly certain is that more hikes are on the way in the coming months, with the next meeting on September 8th. Predictably, the euro gained ground after the ECB meeting as investors were pleased with the move. However, the gains quickly dissipated. There are plenty of dark clouds hovering above the eurozone, the most important being the Nord Stream pipeline and the political crisis in Italy. Russia renewed gas supplies through Nord Stream yesterday, as scheduled, but only at around 30-40% capacity, similar levels before the pipeline closed for maintenance. There is certainly relief that gas is again flowing through Nord Stream, but it is tempered by fears that Moscow will not hesitate to play hardball with the EU and weaponise energy exports. With winter only a few months away and no end in sight to the war in Ukraine, the potential energy crisis facing Western Europe is not going anywhere. Italy, the number three economy in the eurozone, has been plunged into a political crisis as Prime Minister Draghi has resigned. An election is scheduled for the end of September, but in the meantime, Italy cannot pass the 2023 budget or access billions of euros from the EU's Covid-19 fund. The political instability will only exacerbate investors' concerns about the eurozone and is weighing on the euro. EUR/USD continues to test support at 1.0197.  The next support level is 1.0075 There is resistance at 1.0307 and 1.0429
by OANDA
Euro teasingly flirts with parityFor those following the euro's close encounters with parity, the currency played a game of tease earlier today. In the European session, EUR/USD dropped to parity with the US dollar, a line of psychological importance. However, the euro would not budge any lower, and is currently at 1.0068 in the North American session, up 0.28% today. I would not be surprised if EUR/USD does break below parity in the coming days, for the first time in some twenty years. Germany's ZEW Economic Sentiment has been stuck in negative territory for months, indicative of strong pessimism about the economic outlook. The July release earlier today fell to -53.8, down sharply from -28.0 in June and missing the consensus of -38.3. The eurozone economy is grappling with soaring inflation and the war in Ukraine shows every indication of dragging on. The Nordstream 1 pipeline, the main channel for Russian oil to Germany, closed for maintenance on Monday and there are fears that Moscow could decide to keep the pipeline closed. This would prove a nightmarish scenario for Germany, with winter only a few months away. The US dollar stormed out of the gates on Monday, buoyed by a stronger than expected non-farm payroll report on Friday. The economy produced 372 thousand jobs in June, well above the estimate of 268 thousand and close to the May release of 384 thousand (revised from 390 thousand). The unemployment rate remained at 3.9% and wages rose by 0.3%, which means that the Fed has a clear path to move ahead with a second straight 75bp hike at the July meeting. The Fed is not taking any prisoners in its battle against inflation and is clearly willing to deliver 75bp salvos until inflation eases. It wasn't long ago that a 50bp hike was considered a massive move; now such an increase would barely raise an eyebrow. The US releases inflation on Wednesday, a key release that could move the US dollar. Headline CPI is expected to rise from 8.6% to 8.8%, and if inflation does move higher, it would likely cement a 75bp move from the Fed and send the dollar higher. Conversely, a surprise drop in inflation would raise hopes that inflation has peaked and the Fed might resort to a 50bp increase, sending the dollar lower. EUR/USD tested support at 1.0018 in the European session. Below, there is support at 0.9889  There is resistance at 1.0124 and 1.0242
by OANDA