The Fed meeting, which took place in July continues to affect financial markets and sentiment. While the central bank opted to keep rates at 3.75%, the emergence of three votes in favor of a hike has changed the landscape. As it was mentioned in our previous review, Chair Warsh offered no forward guidance, repeating that future decisions will depend on the upcoming data. However, market participants already expect the Fed to hike rates by 25 bps in September. 

Adding to the complexity, Fed President John Williams, who previously supported a rate cut, changed his view from dovish to hawkish. This shift in tone supported the dollar and 10-year Treasury notes that climbed above 4.5% again. 

Across the Atlantic, the Bank of England held rates at 3.75% last week, but the hawkish fraction has widened as three members voted for a 25 bps rate hike. According to Andrew Bailey, the BoE governor, the committee is ready to react if inflationary pressure remains strong. However, markets are questioning another rate hike as UK growth is slowing and retail sales are softening. 

This week’s calendar is packed with high-impact events. All eyes are on Friday’s US non-farm employment data for July. Analysts expect job creation to moderate slightly. However, in case of an upside surprise, markets may deliver another strong move. 

EUR/USD: Divergence Narrowing, but Dollar Holds the Edge

The euro is trading in quite a complex landscape as the policy differential between the central banks supports the US dollar. The ECB left rates unchanged at 2.25% last month, but signaled a readiness to hike rates if conditions are appropriate. However, the growing hawkish contingent within the FOMC provides more support to the US dollar. Data from the Eurozone has done little to change the sentiment. German production PMI continues to contract, and the French industrial sector declined unexpectedly in June. The dollar index quickly recovered from its recent downside correction.

From a technical analysis view, the currency pair is trading in a narrow range on the hourly chart, close to both lins of the Bollinger Bands indicator. Buyers can find entries above 1.1520 targeting 1.1560 and 1.1600. Sellers may engage below 1.1500 targeting 1.1460 and 1.1400.

GBP/USD: Sterling’s Hawkish Boost Fades Amid Growth Worries

The British pound rallied after the BoE decision and hawkish statement last week, but the momentum has quickly faded. Three hawks in the committee and the removal of the word “patient” were interpreted as a signal that the central bank is ready to act during the meeting in September. However, the pound’s upside is still limited, as retail sales softened. 

From a technical analysis standpoint, the pound is trading within a narrow range showing no clear direction. Buyers can benefit from stepping in above 1.3450, targeting 1.3500 and 1.3560. When it comes to sellers, their chance will come below 1.3440, targeting 1.3400 and 1.3350.

WTI Crude: The Geopolitical Rollercoaster Continues

Crude oil is trading in the epicenter of the drama. US President Trump announced a pause in his operation in the Middle East. This put pressure on WTI as prices lost around 7% on Monday. Traders now expect a diplomatic breakthrough, which may stop the military confrontation. 

Shipping data confirms that Saudi ships have altered course near the Bab el-Mandeb Strait. When it comes to the Strait of Hormuz, traffic has slowed considerably. Analysts warn any new provocation may send prices higher again.

From a technical analysis perspective, crude is trading close to the lower band of the Bollinger Bands indicator. Sellers can step in below 80.00, targeting 79 and 78. On the upside, traders can buy above 82.00, targeting 83 and 84.

XAU/USD: Gold’s Resilience in the Face of Hawkish Headwinds

Gold remains in a range this week due to a lack of new data. The Fed’s hawkish stance puts pressure on the precious metal, together with eroding risk premium. However, the relationship between gold and the dollar has become more complex. While there are many factors that put pressure on Gold, any escalation in the Middle East may provide support to the precious metal. 

From a technical analysis standpoint, Gold is trading close to the upper Bollinger band, and buyers can engage above 4,070, targeting 4,100 and 4,120. When it comes to the downside, sellers should consider entries below 4,040 targeting 4,000 and 3,960.