Dollars Strength:
In August 2023, the EUR/USD currency pair experienced fluctuations due to various factors. The pair started the year around 1.0688 and reached a low of 1.0516 for the year, followed by a rise to 1.1275. As of the beginning of August 2023, quotes were hovering around 1.0900, indicating a slight decline in the dollar against the euro from early 2023. Factors affecting the EUR/USD in August included strong U.S. economic data, higher odds of additional Fed tightening in 2023, and rising U.S. Treasury yields.
The European Central Bank’s hawkish rhetoric allowed the Euro to outperform its rivals, but the technical outlook pointed to oversold conditions in the near term. Some of the key events that took place in August 2023 that have impacted the EUR/USD currency pair include:
- US CPI (Aug) and Inflation Rate YoY (Aug): Higher-than-expected CPI figures and an increase in the inflation rate could have strengthened the USD, while lower-than-expected results could have weakened the currency. This could have led to a bearish impact on the EUR/USD pair.
- ECB Interest Rate Decision: The European Central Bank’s hawkish rhetoric allowed the Euro to outperform its rivals, but the technical outlook pointed to oversold conditions in the near term. This could have influenced the EUR/USD currency pair.
Considering these factors, the US dollar gained momentum in August 2023 due to strong economic data, higher odds of additional Fed tightening, and rising U.S. Treasury yields.
Upcoming Events for the week:
UK Unemployment Rate (Jul):
- Market Impact Criteria: A lower unemployment rate is generally positive for the GBP, while a higher rate is negative.
- Potential Currency Market Impact: A decrease in the unemployment rate may support the GBP, indicating a healthier labor market. An increase could lead to GBP depreciation.
UK GDP MoM (Jul):
- Market Impact Criteria: Positive GDP growth is bullish for the GBP, while negative growth is bearish.
- Potential Currency Market Impact: A positive MoM GDP figure might strengthen the GBP, showing economic expansion. Conversely, a negative figure could weaken it.
USA CPI (Aug):
- Market Impact Criteria: A higher CPI figure can be bullish for the USD, while a lower figure may weaken it.
- Potential Currency Market Impact: A CPI reading above expectations could strengthen the USD, indicating potential interest rate hikes. A lower-than-expected CPI might weaken the USD.
USA Inflation Rate YoY (Aug):
- Market Impact Criteria: A higher YoY inflation rate is generally positive for the USD.
- Potential Currency Market Impact: If the YoY inflation rate exceeds expectations, it may boost the USD, signaling potential tightening of monetary policy.
EUROZONE ECB Interest Rate Decision:
- Market Impact Criteria: Changes in the main refinancing rate can impact the EUR.
- Potential Currency Market Impact: Similar to the deposit rate, any changes in the main refinancing rate by the ECB can affect the EUR’s value.
USA PPI MoM (Aug):
- Market Impact Criteria: A higher PPI MoM figure might be bullish for the USD.
- Potential Currency Market Impact: If PPI exceeds expectations, it may strengthen the USD, potentially affecting expectations of future inflation and monetary policy.
USA Initial Jobless Claims (Sep/09):
- Market Impact Criteria: A lower number of jobless claims could be positive for the USD.
- Potential Currency Market Impact: Fewer jobless claims may strengthen the USD, reflecting a robust labor market.
The EUR/USD currency pair experienced fluctuations due to strong U.S. economic data, expectations of Fed tightening, and rising U.S. Treasury yields, while the European Central Bank's hawkish rhetoric provided support for the Euro.
EUR USD Outlook:
The upcoming Eurozone Deposit Facility Rate and ECB Interest Rate Decision are significant events. The previous deposit facility rate stood at 3.75%, while the main refinancing rate was 4.25%. Market consensus suggests that these rates will remain unchanged at 3.75% and 4.25%, respectively. If the ECB confirms these expectations, the impact on EUR/USD may be limited. However, any unexpected moves, such as rate hikes, could strengthen the Euro (EUR) and lead to EUR/USD appreciation. Conversely, rate cuts or dovish guidance might weaken the EUR and result in EUR/USD depreciation. Turning to the USA, the CPI and Inflation Rate YoY are vital indicators. The previous Consumer Price Index (CPI) was 305.691, with a YoY inflation rate of 3.20%. Market consensus anticipates a CPI of 306.987 and a YoY inflation rate of 3.60%. If these figures align with expectations, the effect on the US dollar (USD) may be limited. However, higher-than-expected inflation figures could strengthen the USD, potentially leading to EUR/USD depreciation. Conversely, lower-than-expected inflation may weaken the USD and support EUR/USD.
Next, the USA Retail Sales YoY data is important. The previous figure was 3.20%, and the consensus expects 2.90%. A Retail Sales YoY figure below consensus could weaken the USD, potentially supporting EUR/USD. Conversely, a figure above consensus might strengthen the USD and lead to EUR/USD depreciation. Lastly, Initial Jobless Claims in the USA play a crucial role. The previous figure was 216,000, and the consensus expectation is 226,000. A lower figure compared to consensus could boost the USD, potentially leading to EUR/USD depreciation. Conversely, a higher-than-expected figure may weaken the USD and support EUR/USD.
Technical Summary:
Scenario 1 (Bullish):
- If the price continues to rise, it may retest the 1.07455 to 1.07656 level.
- A successful test at this level could trigger further upward movement.
- Resistance levels to watch include 1.07943, 1.08231, 1.08459, 1.08819, and 1.09005.
Scenario 2 (Bearish):
- Conversely, if the price reverses from current levels, it could head lower.
- Initial support to monitor is at the 1.07036 level. A successful test at this support level might lead to further downward movement.
- Additional support levels include 1.06889, 1.06700, and the range of 1.06565 to 1.06359.
- 1.06359 is highlighted as a major support level, and a breach of these levels could signal a deeper bearish trend.
GBP USD Outlook:
The upcoming economic events hold substantial importance for the GBP/USD currency pair. First, the UK’s Employment Change and Unemployment Rate figures are pivotal. In the previous release, the UK reported an employment change of -66,000 and an unemployment rate of 4.20%. The market consensus now anticipates an employment change of -80,000 and an unemployment rate of 4.30%. Should the employment change align with the consensus at -80,000 and the unemployment rate meets expectations at 4.30%, the impact on the GBP/USD pair may be relatively muted. However, any significant deviation from these figures could lead to market reactions, potentially influencing the GBP’s value against the USD.
In contrast, the US economic data, such as the CPI, Inflation Rate YoY, Retail Sales YoY, Initial Jobless Claims, and Michigan Consumer Sentiment, will influence the GBP/USD exchange rate indirectly. Stronger US economic indicators can potentially strengthen the USD, which may weaken the GBP/USD pair.
Technical Summary:
Scenario 1 (Bullish):
- If the price successfully retests the level at 1.2615, it may continue to rise.
- Resistance levels to watch are at 1.2654, 1.2673, 1.2704, and 1.2727.
- The topmost resistance line is located at 1.2750.
Scenario 2 (Bearish):
- Alternatively, a downward movement could lead to tests of support levels.
- Key support levels include 1.2467, 1.2429, and the significant level at 1.2391.
- Further bearishness may take the price to the 1.2363 to 1.2320 range, with 1.2320 acting as a major support level.
Overall, the GBP/USD exchange rate’s movement will be influenced by the UK’s economic data as well as the broader economic performance and monetary policy stance of the US. Additionally, market expectations and sentiment will play a crucial role in determining the impact of these events on the currency pair. Traders should keep a watchful eye on these indicators and their respective deviations from consensus forecasts to make informed trading decisions.
USD/JPY Outlook:
The USD/JPY exchange rate is influenced by several significant economic events. In Japan, the Bank of Japan (BoJ) typically controls monetary policy, and changes in its policy rates can affect the yen. Therefore, any updates related to the BoJ’s policy stance can have a direct impact on USD/JPY. Regarding the US economic data, events like the CPI, Inflation Rate YoY, Retail Sales YoY, Initial Jobless Claims, and Michigan Consumer Sentiment can influence the USD’s strength or weakness. Strong economic indicators in the US can potentially strengthen the USD, leading to an appreciation of the USD/JPY pair.
However, it’s important to note that the Japanese yen (JPY) is often considered a safe-haven currency. In times of global economic uncertainty or market volatility, investors tend to flock to the JPY for its perceived stability. As such, any geopolitical events or shifts in market sentiment can also impact the USD/JPY exchange rate. Additionally, interest rate differentials between the US and Japan play a critical role. If the Federal Reserve in the US adjusts its interest rates, it can affect the USD’s attractiveness relative to the yen.
Technical Summary:
Scenario 1 (Bearish):
- The pair is positioned between the 50 and 200-day moving averages, signaling a potential bearish trend.
- A possible downward movement could lead to testing the 146.075 level.
- Below this, the 61.8% Fibonacci level at 145.930 becomes a significant support.
- Further downside targets include the 145.682 to 145.372 levels.
- The most critical support to monitor is at 145.097, with 144.488 serving as a major support level.
Scenario 2 (Bullish):
- Conversely, in a bullish scenario, the price may rise to retest the 146.546 level.
- A successful retest could trigger further upward momentum.
- Resistance levels to watch include 147.542 and 148.035.
- If these levels are breached, the market may continue to climb, potentially testing the 148.035 level.
Overall, the USD/JPY exchange rate is influenced by a combination of factors, including the monetary policies of both the US and Japan, economic data releases, global events, and investor sentiment. Traders and investors should carefully consider these factors and monitor market expectations to make informed decisions regarding the USD/JPY pair.
XAU/USD Outlook:
The price of gold (XAU/USD) is subject to influence from various economic events and factors. Firstly, changes in the Eurozone’s interest rates, specifically the Deposit Facility Rate and the ECB’s Interest Rate Decision, can impact the strength of the Euro (EUR). A hawkish stance by the ECB may strengthen the EUR, potentially weakening the US dollar (USD), and this can exert upward pressure on the price of gold.
Secondly, the inverse relationship between gold and the USD is a key consideration. Gold often rises when the USD weakens due to factors such as higher inflation. Therefore, if US inflation figures surpass expectations, it may erode the USD’s strength and potentially support higher gold prices.
Moreover, US economic data, including Retail Sales YoY and Initial Jobless Claims, can influence market sentiment and risk appetite. Positive retail sales data may indicate robust economic growth, potentially reducing demand for safe-haven assets like gold, which can lead to pressure on its price.
Technical Summary:
Scenario 1 (Bullish):
- Gold is currently in a bearish downtrend in the short term, but the long-term trend maintains a bullish bias.
- The price is positioned below the 200-day and 50-day moving averages, reflecting a neutral market sentiment.
- If the price moves higher, it could test the 1928 level.
- Further upward movement may lead to testing the 1933.50 level, followed by the critical 1940 level.
Scenario 2 (Bearish):
- Alternatively, the price of gold may head lower and test the 1916 level.
- Continued bearishness could lead to a test of the 1913 level, a major support level for the market.
- Further bearish momentum may find support at the 1908 and 1901 levels.
Additionally, gold’s appeal as a safe-haven asset can intensify during times of economic uncertainty or geopolitical tensions, causing investors to seek refuge in gold and drive its price higher.
In summary, the price of gold is sensitive to a combination of factors, including interest rate changes, inflation expectations, risk sentiment, and the USD’s strength. It is also influenced by its status as a safe-haven asset during periods of instability. Traders and investors should closely analyze how these events align with market expectations and monitor broader economic and geopolitical developments to assess their impact on the price of gold.
Volatility Considerations:
- Interest Rate Decisions and Monetary Policy: Changes in central bank interest rates, particularly the European Central Bank (ECB) and the US Federal Reserve, can significantly impact currency markets and, consequently, gold prices. Hawkish monetary policies, involving rate hikes or signals of future tightening, can strengthen the respective currencies (EUR and USD) and potentially lead to gold price fluctuations.
- Inflation Data and the US Dollar: Inflation figures in the United States are closely monitored as they can affect the purchasing power of the US dollar. Higher-than-expected inflation rates can erode the USD’s value and potentially drive up gold prices as investors seek to hedge against currency depreciation.
- Economic Indicators and Risk Sentiment: Economic indicators such as US Retail Sales and Initial Jobless Claims can influence market sentiment and risk appetite. Positive economic data can bolster risk-on sentiment, reducing the appeal of safe-haven assets like gold and potentially introducing volatility to its prices.
- Global Uncertainty and Safe-Haven Demand: Gold is often considered a safe-haven asset, sought after during times of global economic uncertainty, geopolitical tensions, or market volatility. Any unexpected events, such as geopolitical conflicts or major economic shocks, can increase demand for gold and lead to price spikes.
Disclaimer: This is not an Investment Advice. Investing and trading in currencies involve inherent risks. It’s essential to conduct thorough research and consider your risk tolerance before engaging in any financial activities.
