Currency Pairs Market Analysis

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BOS's Dilemma: Balancing Economy and Inflation

The UK's currency, the British Pound, is falling against the US dollar today. This is due to weaker than expected economic growth data for July and a drop in industrial production. The economy shrank by 0.5% in July, the biggest fall since December 2022. All parts of the economy were affected, with the service sector seeing the biggest drop. This was unexpected, especially as this is usually a time when tourism boosts the economy.

The Bank of England (BoE) is in a tough spot right now. The economy is showing signs of slowing down because of high interest rates. At the same time, average earnings, including bonuses, have gone up from 8.4% to 8.5%. This increase in wages adds to inflationary pressure. Despite already high inflation, this could lead to further interest rate hikes. Experts are predicting another increase of 0.25% at the BoE meeting next week on September 21st.​

 

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EURUSD - Chart of the Day

The European Central Bank (ECB) will make a decision today at 1:15 PM BST, and this could cause some changes in the value of the Euro compared to the US Dollar. The markets are unsure about what ECB's head, Christine Lagarde, will decide. The ECB might keep the interest rates the same at 4.25%.

At the same time, the US will release some economic data at 1:30 PM BST. This includes information about retail sales, inflation, and changes in the number of people without jobs. This could give us more insight into the US job market.

If the ECB keeps the rates the same, it might cause the Euro to decrease in value compared to the Dollar. This could be because people are speculating that the ECB might stop increasing rates due to the weaker economy in the Eurozone. The Eurozone economy might have been affected by the previous nine rate increases. On the other hand, if the ECB increases the rates, the Euro might increase in value compared to the Dollar. This could mean that the ECB doesn't think the economy is weak enough to stop fighting inflation and start stimulating demand. However, the value of the Euro could also be affected by the US Federal Reserve's decision next week.

It's important to note that the economy in Europe is weaker than in the US, which is clear in the industrial sector. So, any increase in the value of the Euro might be due to speculation, and any worsening data could stop further increases. This is as long as the US data continues to be stronger than Europe's. Christine Lagarde will start a conference at 1:45 PM BST.

Looking at the Euro-Dollar chart, we can see that the value of the Euro is decreasing. This trend could only change if the value increases significantly to 1.08. Until then, there might be resistance at 1.078, which is where the value started decreasing in September. If the value decreases below the averages of 200, 100, and 50 days, which are all around 1.073, it might suggest that the Euro will continue to decrease to 1.06, which would be the lowest value this year.​

 

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US30 - Chart of the Day

As we will learn a number of macro data from the US economy today and today, we have 'Freaky Friday' so elevated volatility among Wall Street indices may continue. Although the share of industrial companies in the Dow Jones Industrial Average (US30) is quite limited these days, it is still substantial (including Boeing, Honewyell and General Electric) - it is today that we will learn data from US industry. The industrial production reading at 2:15 PM BST may show whether consumer and business demand is indeed strong enough to stimulate production, and data on consumer sentiment and inflation expectations will complete the picture of overall prosperity in the U.S. economy.

In the results of the rollover in the options and derivatives market, today's volatility on US30 may accelerate - and if investors' new positioning will be in line with the current upward trendline there are chances for a strong session on Wall Street. A Bank of America survey indicated a record $26.4 billion in inflows into US equity market this week, the vast majority of which ($18.7 billion) flowed into large-cap companies. Analysts pointed out that the market consensus is reassuring of a successful scenario for the stock market - a soft landing of the economy in the United States.

Looking at the Dow Jones (US30) contracts, we see that they are quite close to historical highs, and it is possible that the bulls will eventually reach record levels above 36,000 points. The upward trend line is maintained, and the index has not approached the SMA 200 (red line) since September 2022, demand reacted quickly in the 23.6 Fibonacci retracement zone at 32,400 points. So far, the current week has been exceptionally successful for the Dow Jones, as illustrated by the green candle with a large body. Seasonally, September has often proved to be a suitable time for stock accumulation for the last, usually successful 'Christmas quarter.' Bulls are hoping that this will also be the case this time.​

 

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CHN.Cash - Chart of the Day

Today, Chinese stock markets are falling sharply, with CHN.cash down almost 1%. Economic data is weaker than expected. Excluding oil, exports from Singapore, the world's biggest port, dropped 3.8% month over month, which is worse than the 4.2% growth predicted and the previous 3.2% drop. This shows that some economic indicators are weakening for a longer period. China, which depends a lot on demand from Western countries, especially the US, could suffer greatly if demand from developed economies decreases, for instance, due to a recession. The fact that fewer goods are leaving China each month might indicate a wider problem. How a declining Chinese market affects global fund managers' portfolios is a big question because China's economic weakness is somewhat separate from other 'emerging markets'.

Another risk factor was the nearly 20% drop in Evergrande shares at the start of the Chinese session. Although they recovered their losses, it raised wider concerns about China's real estate sector. Country Garden, which is financially troubled, faced two major challenges: the initial deadline for interest payments on more than $50 million in dollar bonds and the end of a creditor vote on a proposal to extend repayment of debt in yuan. While property sales in China increased month over month in August, other key indicators like new housing starts, total construction area and real estate investment continued to fall. Data from the 70 biggest cities show that property prices fell in most cities.

Looking at the CHN.cash chart, we see that supply is maintaining the overall downward trend line and became active again last time at 7000 points. The rebound lost momentum at 6700 and now sellers are back in control again, who may want to test the 61.8 Fibonacci retracement of the upward wave from fall 2022 at 6000 points again. Alternatively, if this support breaks downwards it could lead to a test of 6750 points, which are near 5750 points - 61.6 Fibo retracement. To break the current trend, buyers would have to push the index above the SMA200, which is now at 6672 points.​

 

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USDCAD Technical Analysis

Inflation rates have increased due to a rise in gasoline prices. The inflation rate for the year ending in August was 4.0%, up from 3.3% in July. This was slightly higher than what economists predicted, which was 3.8%. From July to August, inflation increased by 0.4%, which was a bit more than the expected 0.3%, but less than July's 0.6%.

Core inflation, which excludes volatile items like food and energy, also increased to 3.3% from 3.2% in July, but it was less than the expected 3.5%. On a monthly basis, core inflation decreased to 0.1% from 0.5%.

Despite these changes, it's still expected that the Bank of Canada (BoC) will not change interest rates at their next meeting. However, the chances of a rate increase have gone up to about 43%. But with unemployment rates rising since May and signs of slower economic growth, a rate hike is still not likely.

The USDCAD currency pair has recently experienced a bounce from the support area at 1.338. This upward movement suggests that bullish traders might be gearing up to test the resistance level at 1.35. However, it's important to note that the overall trend appears to be bearish.

The bearish outlook remains valid as long as the pair continues to trade within the daily downward channel. This means that despite the recent bounce, we could still see a continuation of the downward trend.​

 

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EURUSD Technical Analysis

The euro has been moving sideways and has had trouble getting past the 1.0700 mark. People are waiting for the FOMC statement today. The cost of living in the Eurozone has dropped a little, from 5.3% to 5.2%, which might mean inflation is slowing down. This could make the euro weaker. People think the Fed will stop increasing interest rates in September, but some believe there might be one more increase this year. This is helping the dollar.

The EURUSD is trading above a level that it's been below for a long time; if it goes above 1.0700, that's a good sign for the euro. The MAACD and RSI indicators suggest the trend might be changing.

The levels to watch are:​

• Resistance (where it might have trouble going higher): 1.0700, 1.0760.​
• Support (where it might bounce back up): 1.0640, 1.0540.​

 

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GBPUSD Analysis

The GBPUSD, also known as Cable, dropped to its lowest level since May 26 on Tuesday. This was due to the UK's inflation rate in August being lower than expected.

The yearly CPI (Consumer Price Index) fell to 6.7%, which is the lowest it's been since February 2022. This was a drop from 6.8% in July and was lower than the predicted increase of 7.0%. The core inflation rate, which doesn't include fluctuating components, also fell to 6.2% in August. This was lower than the predicted 6.8% and the 6.9% from the previous month.

Even though inflation is still high (more than three times the target of 2%), the data from August gives some hope. It also gives some relief to the Bank of England, which was expected to raise interest rates for the 15th time in a row at a policy meeting on Thursday. Now, there's a 50-50 chance that they might not raise rates this time.

However, there's still a risk of inflation increasing again. This is because oil and food prices are still going up, which keeps adding to inflation and might lead to more policy tightening.

The daily chart shows a bearish trend. However, the price is nearing a key short-term support level at 1.2307 (the lowest point on May 25), and this could slow down the downward trend because the market is oversold.

Any increase in price is likely to be limited by the broken 200-day moving average (1.2432) to keep the overall downward trend intact. If the price falls below the 1.2307 level, it could lead to a deeper correction of the larger uptrend from 1.0348 to 1.3141 and could potentially reach 1.2074 and 1.2000 (a key psychological level).

On the other hand, if the price consistently stays above the 200-day moving average, it could signal a stronger correction. A rise above the important 1.2500 level could indicate a possible trend reversal.

The market is waiting for the Federal Reserve's decision (expected later today and likely to remain unchanged) and a more important decision from the Bank of England on Thursday. The British pound could face more downward pressure if the Bank of England decides not to raise interest rates this time. However, if the central bank decides to raise rates again and maintains a hawkish stance, it could boost the currency.

Resistance levels: 1.2432; 1.2482; 1.2504; 1.2522.
Support levels: 1.2332; 1.2307; 1.2274; 1.2190.​

 

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**Intraday Crude Oil Prices Dip Amid US Rate Hike Expectations**

Crude oil prices are experiencing a downward trend in today's trading session. This decline is largely due to the anticipation of a US rate hike, which has overshadowed the tight supply outlook. The recent dynamic rally has also triggered some profit-taking on the instrument.

**US EIA Data Influences Energy Markets**

Energy markets are responding to the latest data from the U.S. Energy Information Administration (EIA). The data revealed a decrease in oil inventories by 2.14 million barrels. ANZ analysts highlighted in their report that the unexpected drop in inventories encouraged investors to secure profits following a 10% increase since the start of the month.

**Brent Crude and OIL Quotes Show Decline**

Today's session sees Brent crude down by nearly 1%, while OIL quotes indicate a decline of approximately 2% after the most recent futures contract rollover.

**Potential Short-lived Decline Amid Tight Global Supply Concerns**

Despite the current decline, it's possible that this could be a temporary dip. There are ongoing concerns in the market about a tight global supply in Q4. Crude inventories at Cushing, the supply hub for WTI, are at their lowest since July 2022. Additionally, production cuts continue to be implemented by OPEC and its affiliated economies.

**BRENT Crude Oil Prices Eyeing Support Level**

Following the futures rollover, BRENT crude oil prices are moving towards a support level established by a consolidation zone near the $90 per barrel mark.​

 

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EURUSD

Several economic reports from the United States were released at 3:00 pm BST today. The most anticipated was the Conference Board report, which was projected to show a slight decline compared to August. However, the actual report revealed a more significant drop than expected, from 106.1 to 103.0.

In addition to the Conference Board data, investors also received the Richmond Fed index for September and new home sales data for August. The Richmond Fed index was a pleasant surprise, while the new home sales data was slightly lower than anticipated.

- **Conference Board consumer confidence index for September**: 103.0, lower than the expected 105.5 (previous figure was 106.1)
- **New home sales for August**: 675k, lower than the expected 700k (previous figure was 714k)
- **Richmond Fed index for September**: +5, significantly better than the expected -6 (previous figure was -7)

Following the release of this data, the USD experienced a slight decline. However, the market reaction was minimal, with EURUSD increasing by approximately 0.05% in the initial minutes of trading, while USDJPY fell by around 0.1%. The stock markets largely disregarded the data.​

 

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Gold - Chart of the Day

GOLD quotations continue the dynamic downward momentum initiated earlier this week. Bullion, for that matter, is responding directly to declines in the EURUSD and weakness in US debt securities, which, in the case of TNOTE, broke out to new lows.

These movements largely reacted to the rise in expectations for one more potential Fed hike. Now, market sentiment has further deteriorated as a result of the sell-off in equity and derivatives markets, which have been dominated over the past week by increasing exposure to short positions. It is worth remembering, however, that since the last FOMC decision, the valuation of the implied interest rate has begun to fall, which not a little reduces the overtones of hawkish comments from bankers.

Gold has broken out below the support set by the 200-day EMA (orange curve) and is currently slightly below the $1,900 per ounce barrier. The previously mentioned levels could be the most important zones to watch if we were to see a rebound on this instrument. On the other hand, the most important support zone at the moment is the $1885 zone, where the local minimums of August are located. ​

 

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USDJPY Technical Analysis

The Japanese yen remains weak against most currencies, including the USD, EUR, and CAD. Coupled with the strengthening dollar, the USDJPY rate is entering higher territories and is currently approaching the historical high of 151.7. Leading representatives of the Japanese government and the Central Bank have repeatedly indicated that the yen is currently too weak.

Today, Japanese Finance Minister Shunichi Suzuki again warned against speculative trading of the yen, which is approaching an 11-month low with USDJPY close to the 150 level. Although the minister did not confirm any plans regarding interest rate control or intervention, he leaves all options open to address excessive currency volatility.

However, an open question remains regarding an agreement with the US government concerning BoJ intervention, which would likely be necessary before any significant actions. For this reason, many analysts argue that the bar for intervention is set higher this time than the last and beyond market current expectations.

Looking at the USDJPY chart, we see that the rate is approaching its historical peak and the psychological level of 150. However, comparing the USDJPY rate to the dollar index, one can notice that reaching the current levels is not only due to the strengthening dollar but also a greater depreciation of the yen compared to October 2022. Currently, the dollar remains 7.5% lower than its peak last year.​

 

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The EURUSD awaits more negative targets

The EURUSD pair settles around 1.0500 barrier, waiting to get negative motive that assist to push the price to resume the expected bearish trend for the upcoming period, which targets 1.0440 as a next negative station.

The EMA50 continues to support the bearish wave within the bearish channel that appears on the chart, noting that breaching 1.0545 will stop the expected decline and lead the price to achieve some intraday bullish correction.

The expected trading range for today is between 1.0420 support and 1.0570 resistance. The expected trend for today: Bearish​

 

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Today's Forex Focus: GBPUSD Pair

The GBPUSD pair is currently experiencing a positive trading trend, testing the MA 50. This situation calls for caution in the upcoming trades. For the bearish trend to remain valid today, it's essential for the price to return below the moving average. However, a close above the moving average could propel the price towards additional gains, potentially reaching 1.2280.

The Stochastic indicator is clearly losing its positive momentum, which bolsters the chances of a decline. It's worth noting that our anticipated target stands at 1.2030. The expected trading range for today lies between the support level at 1.2040 and the resistance level at 1.228. The forecasted trend for today is bearish.​

 

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USD Index - Chart of the Day

The US dollar has been increasing in value recently. This was caused by a large number of bonds being sold, which increased the yield (or return) on US Treasury bonds. The yield on 10-year bonds went above 4.60% and almost reached 4.70%. But then, the situation changed - the bonds regained their earlier losses and the yield on 10-year bonds fell below 4.60%. This also caused the value of the US dollar to decrease.

If we look at the USD index (USDIDX) chart for daily intervals, we can see that the index increased by more than 7% in the last two months and reached 106.50 - the highest it's been since late-November 2022. However, USDIDX has already fallen about 1% from its peak and is getting close to a price range that's around 38.2% lower than the high point it reached in September 2022. The lowest point of this range is near the bottom of this zone, and if it falls below this point, it could mean that the value of the US dollar might start decreasing.​

 

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Yield Curves Rise as US Shutdown Averted, Inflation Remains High

The yield curves have steepened this week, with the 10-year UST and Bund yields reaching new highs. This comes after a potential US government shutdown was avoided, leading to higher yields and firmer riskier assets. Despite this, inflation remains high, with the core PCE release for September close to 4% and the core CPI estimate for the Eurozone at 4.5%.

ECB Cautious on Inflation, Italian Spreads Recover

Luis de Guindos, Vice President of the European Central Bank (ECB), confirmed in a recent interview that discussions about rate cuts are premature. He highlighted the challenges posed by increased oil prices on inflation expectations. Meanwhile, Italian government bond spreads have recovered, with the BTP Valore sale attracting significant demand.​

 

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Oil Analysis

Oil prices have been dropping for four days straight after reaching their highest point in 13 months. The price of a barrel of WTI oil almost hit $94, as buyers tried hard to keep prices high.

This seems to be the third increase in prices since they fell in June. Starting from last Thursday, any attempts to raise the price during the day have been stopped by large sell orders. On Tuesday, WTI's price briefly fell below $87, which is 7.5% less than the highest point last week.

Worries about a slowing world economy led to large sell orders that stopped any attempts to raise the price during the day. This constant pressure seems to be more than just a temporary cooling off of the market and fits the usual pattern of three downward movements.

Last month, there was a divergence on the daily RSI timeframe when a higher price peak happened at the same time as a lower oscillator peak. This often means that bullish momentum is running out. It's also worth noting that the index has already moved away from the overbought zone, which shows the start of the decline.

The next potential drop in price could be to the $84.4 per barrel area. The 50-day moving average is around this area, as are the price peaks from early August and mid-April.

However, oil prices could drop even further. The slowing global economy and decreasing final demand are now working against it. Moreover, oil has been rising against a rising dollar and falling markets for a long time. And now it might catch up with the falling markets with even greater force.

An important signal from exporters: there were reports last month of increased oil exports from Russia and Saudi Arabia, which reduced the market deficit and raised questions about whether the cartel's production limit is really as strict as it seems.

More solid support for oil might only come with a drop to $78. That's the 50-week moving average, but we wouldn't be surprised to see a drop to $75 by the end of the year. These are high levels by historical standards, but they no longer seem like they're holding back the economy or a good reason for further policy tightening.

From a global perspective, lower oil prices will now be good for equity indices rather than a sign of decreasing risk appetite, as is usually the case.​

 

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USDJPY Takes a Dive, Is Bank of Japan Stepping In?

The USDJPY pair saw a significant drop this afternoon. The shift was swift and substantial, happening just as the pair reached the 150.00 mark - a peak not seen since October 2022! This level is crucial as it's often considered the trigger point for intervention by the Bank of Japan, as has happened in the past. Before this drop, the pair was climbing due to a strengthening US dollar, spurred on by a rise in JOLTS job openings data for August.

The USDJPY fell from around 150.00 to approximately 147.30 - a nearly 2% drop. Although much of this decline has been recovered, the pair is still trading close to the 149.00 mark.​

 

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USDJPY Update

On Wednesday, the USDJPY pair stayed above 149 after a lot of ups and downs on Tuesday. It even crossed the 150 mark due to a good US jobs report, reaching a nearly one-year high. But then it fell sharply, possibly because Japan stepped in to help their falling currency.

The pair quickly recovered from its lowest point (147.29), suggesting the dollar is still in demand. Daily trends show a chance for the pair to try breaking the 150 marks again. But Japan might step in again, which could push the pair down. The first sign of this would be if it falls below 148.72, and it's confirmed if it closes below 147.29.​

• Resistance: 149.31; 149.70; 150.00; 151.04.​
• Support: 148.72; 148.29; 147.32; 146.10.​

 

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EURUSD

As we move into the second half of 2023, traders have seen the EURUSD fall steadily since mid-July. This downward trend is clearly marked by parallel black lines, showing a strong bearish trend. This has led to opportunities for consistent bearish positions.

Looking at the trend, it's clear that the pair is weak, especially with the repeated tests of the lower boundary of the channel in recent times. Each time it falls towards this key support level, buyers' step in, temporarily stopping the bearish momentum and hinting at a possible break from the continuous fall.

Despite this bearish trend, there are signs of potential bullish activity. The EURUSD seems to be forming a 'double bottom', marked by yellow rectangles that represent two significant lows in the pair's movement. This pattern often signals a possible reversal, particularly when it appears after a significant downtrend.

Traders are eagerly waiting for a key breakout above the upper black line of the downward channel and an important green horizontal resistance. This line serves as the neckline of the suggested double bottom and is a critical level for those hoping for a bullish turn. A strong daily close above these resistances could signal an exciting move into bullish territory, while a rejection could reinforce the current downtrend.​

 

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WTI Oil

WTI oil is set to continue its downward trend after a brief consolidation period on early Thursday. This follows a significant drop the previous day, marking the largest daily loss since July 5, 2022.

The sentiment has been affected by concerns over demand following recent weak economic data, suggesting a potential further slowdown in global economic growth.

The OPEC+ group, in their meeting on Wednesday, decided to maintain their current oil output policy. Saudi Arabia and Russia have chosen to keep their voluntary output cut unchanged for the rest of the year. Oil prices have dropped to a one-month low, with Wednesday's sharp fall contributing to a reversal pattern on the daily chart.

The price has broken through a key Fibonacci support level at $84.31, indicating that the major downtrend from the 2023 high of $95.00 may continue.

Despite strong bearish momentum, there are signs that the downtrend may start to weaken. However, any price increases should be limited and present better selling opportunities. The previous consolidation floor and broken Fibonacci level at $88.00/40 should limit any significant price increases.

Resistance: 84.90; 86.00; 87.54; 88.00.
Support: 83.88; 81.71; 81.00; 80.00.​