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The US dollar took center stage during the past week, after the release of mixed US Consumer Price Index (CPI) figures, which set the stage for an intriguing sequence of events, later in the week, the Producer Price Index (PPI) and retail sales data were released. These reports not only reinforced the prevailing narrative of a robust US economy but also hinted at the possibility of looming inflationary pressures. Traders and investors keenly monitored these developments, as they provided valuable insights into the state of the US economy and its potential impacts on the currency markets.
Looking ahead to next week’s Federal Reserve rate announcement, the focus shifts toward what lies ahead regarding monetary policy. While the Federal Reserve has consistently signaled a ‘higher for longer’ approach to interest rates, the upcoming announcement is expected to bring about a pause in the rate hike.
The critical question on everyone’s mind is not whether rates will increase but rather when and how. The economic calendar (referenced below) provides us with an opportunity to anticipate what might come next. However, it’s essential to recognize that the most critical factor will be the guidance provided by Federal Reserve Chair Jerome Powell.
Powell’s messaging is anticipated to underscore the importance of remaining data-dependent in shaping monetary policy. At the same time, it’s expected to leave the door ajar for the possibility of future rate hikes if economic conditions warrant such actions.
The EUR/USD currency pair witnessed a continued decline over the course of the last five trading sessions, marking its ninth consecutive weekly drop and reaching levels not seen since late May.
The downward momentum of the euro gathered pace, particularly on Thursday, coinciding with the European Central Bank’s (ECB) highly anticipated monetary policy announcement. During this event, the ECB announced its tenth consecutive interest rate hike. However, what captured the market’s attention was the accompanying message from the central bank.
In a notable shift in tone, the ECB signaled that its tightening campaign will be paused. The central bank believed that it has “made sufficient contributions, under the current assessment, to returning inflation to target in a timely manner.” This statement implies that the ECB believes its recent actions have been effective in addressing inflation concerns and that further interest rate hikes are not currently on the agenda.
This development had a significant impact on the EUR/USD pair, as traders reacted to the changing outlook for monetary policy in the eurozone. The market will now closely monitor any additional communication from the ECB and assess its implications for the future direction of the euro against the US dollar.
EUR/USD rejected the 1.06338, a critical support technical level. A breakdown below this could lead to substantial selling pressure and a potential move towards 1.0500. On the upside, if it breaks the resistance between 1.07637 and 1.07749, it may gain momentum, targeting the 200-day simple moving average at 1.08349 and potentially reaching 1.09704
- 1.07637 – 1.07749
EUR/JPY has been trading within a falling wedge pattern, characterized by converging downward sloping trendlines, suggesting a potential bullish reversal.
Confirmation of this pattern occurs when prices break above the upper trendline, which is a significant resistance level at 158.653. This level is crucial in determining the pair’s future direction.
If the bullish scenario plays out, we may witness a rally toward 159.768. Beyond that, attention would turn to the channel resistance.
On the other hand, if there’s a downturn, initial support can be found at 156.638. A breach of this level could lead to a short-term bearish bias, potentially resulting in a move down to 155.562, followed by 151.702, as indicated on the daily chart.
GOLD (XAUUSD) Forecast
Gold experienced a bullish momentum towards the end of the week breaking out of the channel, due to the slightly weakened US dollar and a decline in risk sentiment, particularly in the US and, to a lesser extent, in Europe. Notably, North Korean leader Kim Jong Un’s visit to Russia; added to geopolitical tensions, prompting a flight to safe-haven assets like gold.
As a traditional safe-haven asset, gold often sees gains during such uncertain times, and it has responded accordingly. Nevertheless, this recent rally may be short-lived as market attention turns to the upcoming Federal Reserve meeting.
The Fed is scheduled to meet next week, and after the hotter-than-expected headline inflation figures for August, there’s anticipation that Jerome Powell will emphasize the importance of maintaining the current course on interest rates. The central bank is also set to release its summary of economic projections, where the projected peak in interest rates is expected to indicate the likelihood of another rate increase before year-end.
However, the key focus for markets will be the inflation forecasts, especially in light of the significant rise in oil prices. If the Fed, similar to the European Central Bank (ECB), acknowledges upside risks to the inflation outlook, this could potentially strengthen the US dollar, putting pressure on gold prices.
In this situation, gold traders should closely monitor the Fed’s message and its implications for both the US dollar and gold’s price trajectory later this week
SILVER (XAGUSD) Forecast
Similar to gold, last week silver rejected the support area around 22.00, and moved towards the 50MA and 200 MA on the daily chart.
The current price action is situated below a widely observed trend line, signaling the potential for further selling in the market. However, much of the market’s direction in the upcoming period will rely on significant economic events scheduled later this week, with a particular focus on the Federal Open Market Committee (FOMC) press conference and the release of Fed economic projections.
These high-impact events can significantly influence market sentiment and direction. The FOMC press conference, in particular, is a critical moment where the Federal Reserve communicates its monetary policy decisions and provides insights into its outlook for interest rates and the economy.
Traders and investors should closely analyze the Fed’s economic projections to gauge the central bank’s expectations for inflation, growth, and interest rates. Any hints of a more hawkish stance, which could imply a faster pace of interest rate hikes, may impact market dynamics and asset prices.
Therefore, as we move into the week, market participants should remain vigilant, as these pivotal economic events have the potential to shape trading strategies and risk management decisions in the days ahead.
As forecasted last week, the USDJPY is currently trapped in the channel. The Japanese Yen continues to exhibit a bearish stance against the US Dollar. Although USD/JPY closed last week with minimal changes, the noteworthy aspect is the reversal of strength witnessed earlier in the week, emphasizing the overall bullish technical outlook for this currency pair.
The 20-day Moving Average played a crucial role by providing significant support, thus preserving the upward trajectory, particularly around the 146.56 inflection zone. However, it’s essential to be mindful of a negative RSI (Relative Strength Index) divergence that has emerged. This divergence suggests a waning of the upside momentum, which, in some instances, can lead to a potential reversal.
Therefore, traders and investors should remain watchful of these technical signals, as they can offer valuable insights into the potential future direction of USD/JPY. While the broader bias remains tilted to the upside, caution needs to be taken in the face of potential shifts in market sentiment.
Moreover, the Fed Interest rate, press conference, and the release of Fed economic projections will be a determinant factor on the next move for this pair
NASDAQ (US100/NAS100) Forecast
The Nasdaq finds itself within the confines of a triangle pattern, setting the stage for a pivotal moment in the coming days. The market’s behavior at the opening later this week will be critical in determining the direction of the Nasdaq ahead of the Federal Reserve (FED) meeting scheduled for later in the week.
Should we witness a break below the triangle pattern, coupled with a daily candle close confirming this move, it would likely trigger a retest of the 14,960 support area.
In another scenario, if there’s a breakout above the triangle’s boundaries, it could open the path to the 16,000 level, increasing the chances of revisiting the all-time high at 16,757. However, it’s worth noting that this scenario currently appears less likely, given the economic and political uncertainties both in the United States and across Europe.
Market participants should closely monitor these developments, as they will provide crucial insights into the Nasdaq’s short-term trajectory and its response to external factors like central bank policies and geopolitical events.
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