Dollar Index:
As of September 18, 2023, the US Dollar Index (USDX) is at 104.877
This week, several events could potentially impact the USD. Some of the key events include:
- Central bank decisions from four major banks, including the Federal Reserve, which could affect currency markets
- New Zealand’s GDP, Canada’s and the UK’s CPI data, and PMI reports from around the world.
In spite of the strong economic data last week and upcoming this week, the US Dollar has been on a strong uptrend positive US Data last week.
Upcoming Events for the week:
Eurozone CPI (Aug):
- Deviation from Consensus: A significant deviation from the consensus CPI figure can lead to market volatility.
- European Central Bank (ECB) Implications: Higher-than-expected CPI may raise expectations of ECB tightening, potentially strengthening the Euro (EUR).
UK Inflation Rate YoY (Aug):
- Deviation from Consensus: A YoY inflation rate above the consensus (7.10%) could lead to GBP appreciation.
- Bank of England (BoE) Implications: Higher inflation may influence BoE’s monetary policy decisions.
US Fed Interest Rate Decision:
- Change in Interest Rates: Any deviation from the current rate of 5.50% can significantly impact the USD.
- Federal Reserve Forward Guidance: Statements from the Federal Reserve about future rate changes can influence USD strength.
UK BoE Interest Rate Decision:
- Change in Interest Rates: Any change in the BoE’s interest rates can have a significant impact on the GBP.
- Forward Guidance: Statements or guidance from the BoE about future monetary policy can influence market sentiment.
US Initial Jobless Claims (Sep/16):
- Deviation from Consensus: A significant difference from the consensus number (225K) can affect USD strength.
- Labor Market Sentiment: Jobless claims data can impact market sentiment about the US labor market.
Japan Inflation Rate YoY (Aug):
- Deviation from Consensus: A significant deviation from the consensus (3.30%) can affect market sentiment and the Japanese Yen (JPY).
- Impact on BoJ Policy: Higher inflation figures may influence the BoJ’s monetary policy stance.
Japan BoJ Interest Rate Decision:
- Change in Interest Rates: Any changes in the BoJ’s interest rate can have a substantial impact on the JPY.
- Forward Guidance: Statements or guidance from the BoJ regarding future monetary policy can influence market sentiment.
The US Federal Reserve's interest rate decision is of paramount importance for EUR/USD traders. While the consensus expects the Fed to maintain the current rate of 5.50%, any deviation from this expectation can significantly impact the USD's strength. An unexpected rate hike by the Fed could strengthen the USD, potentially causing EUR/USD depreciation
EUR USD Outlook:
Firstly, the Eurozone’s Consumer Price Index (CPI) for August is a critical factor to consider. Any significant deviation from the consensus figure of 124.05 could have repercussions. A higher-than-expected CPI might prompt expectations of tighter monetary policy by the European Central Bank (ECB), which, in turn, could lead to EUR appreciation against the USD. Conversely, a CPI figure below consensus may raise concerns about subdued inflation and weaken the EUR relative to the USD.
Lastly, the US Federal Reserve’s interest rate decision is of paramount importance for EUR/USD traders. While the consensus expects the Fed to maintain the current rate of 5.50%, any deviation from this expectation can significantly impact the USD’s strength. An unexpected rate hike by the Fed could strengthen the USD, potentially causing EUR/USD depreciation. Conversely, a rate cut or dovish statements from the Fed may weaken the USD, potentially leading to EUR/USD appreciation.
Technical Summary:
Scenario 1 (Bullish)
- If prices keep going up, they might reach levels between 1.06889 and 1.06964.
- A successful test there could push prices even higher to around 1.07273 and 1.07649.
- Beyond that, we could see prices aiming for 1.07792, and if the momentum continues, levels of 1.08004 and 1.08231 are possible.
Scenario 2 (Bearish)
- Alternatively, if prices turn around from where they are now, they could drop to the 1.06505 level.
- If that level holds, we might see prices go down further towards 1.06359 and then potentially to 1.06099, which is a significant support level.
- Depending on market sentiment, prices could even dip to levels between 1.05867 and 1.05678, with 1.05449 being a major support level – a break below which could indicate a bearish market sentiment.
- In a bearish market, prices may revisit the 1.07273 levels seen in the previous week.
GBP USD Outlook:
Starting with the UK’s Inflation Rate YoY for August, any deviation from the consensus figure of 7.10% could impact the currency pair. If the YoY inflation rate exceeds expectations, it may lead to GBP appreciation against the USD. Higher inflation often triggers expectations of tighter monetary policy from the Bank of England (BoE), bolstering the GBP. Conversely, a figure below consensus may result in GBP depreciation against the USD, indicating reduced pressure on the BoE to raise interest rates.
Shifting focus to the United States, the Federal Reserve’s Interest Rate Decision holds substantial sway over the GBP/USD pair. While the consensus anticipates the Fed maintaining the current rate of 5.50%, any deviation from this expectation can lead to market volatility. An unexpected rate hike by the Fed could strengthen the USD, potentially causing GBP/USD depreciation. Conversely, a rate cut or dovish statements from the Fed may weaken the USD, which could result in GBP/USD appreciation.
Moreover, the UK’s Retail Sales MoM data for August will be closely watched. A significant deviation from the consensus figure of 0.50% can impact market perceptions of the UK’s retail sector and subsequently influence the GBP/USD exchange rate. A stronger-than-expected MoM figure could support the GBP, while a weaker figure might lead to GBP depreciation against the USD.
Technical Summary:
Scenario 1 (Bullish)
- If the price successfully retests 1.2429, it could move upwards to resistance levels at 1.2447, 1.2467, 1.2500, and 1.2523.
- The highest resistance to watch for is at 1.2565.
Scenario 2 (Bearish)
- Alternatively, if prices go down, they might test support at 1.2362.
- A successful test there could lead to further declines to 1.2330.
- The 1.2280 level is significant as strong support.
- If bearishness continues, prices could reach a range between 1.2239 and 1.2211, with 1.2190 as a major support level.
USD/JPY Outlook:
The USD/JPY currency pair faces potential volatility as a result of several key economic events and central bank decisions.
Beginning with Japan’s Inflation Rate YoY for August, any significant deviation from the consensus figure of 3.30% can impact market sentiment and the JPY. A higher-than-expected inflation rate may lead to JPY appreciation as it signals potential tightening of monetary policy by the Bank of Japan (BoJ). Conversely, a figure below consensus might weaken the JPY against the USD.
The subsequent event, the Bank of Japan’s Interest Rate Decision, is crucial for understanding the direction of the JPY. Any changes in the BoJ’s interest rate or forward guidance that deviates from expectations can significantly impact the JPY. A hawkish stance by the BoJ may strengthen the JPY, while a dovish stance could lead to JPY depreciation.
Turning to the US, the S&P Global Manufacturing PMI for September can also affect the USD/JPY pair. A figure below 50 indicates a contraction in the manufacturing sector, potentially weakening market sentiment and favoring safe-haven assets like the JPY. Conversely, a figure above 50 may support the USD, potentially leading to USD/JPY appreciation.
Technical Summary:
Scenario 1 (Bearish)
- Possible downward movement in price.
- Testing of 147.230 level.
- Further tests at the 61.8% Fibonacci level at 146.934.
- If successful, potential for continued decline targeting 146.621 to 146.274.
- Critical support level at 146.092.
- Major support at 145.682.
Scenario 2 (Bullish)
- Suggests a bullish scenario with higher price movement.
- Price may rise to retest 148.112 level.
- Successful retest could lead to more upward momentum to 148.404 to 148.913 levels.
- If these levels are surpassed, potential for further climb to test 149.430 level.
XAU/USD Outlook:
First, the Eurozone’s Consumer Price Index (CPI) for August can impact Gold prices. A CPI figure higher than expected may lead to concerns about potential inflation, increasing demand for Gold as a hedge against rising prices. Conversely, a CPI figure below consensus could have the opposite effect, potentially weakening Gold prices.
Japan’s Balance of Trade data for August can indirectly affect Gold prices. If Japan reports a larger trade deficit than the previous month’s -¥78.7 billion, it might weaken the Japanese Yen (JPY). A weaker JPY can increase risk appetite, potentially dampening demand for safe-haven assets like Gold. Consequently, this could exert downward pressure on Gold prices.
The US Federal Reserve’s Interest Rate Decision holds significant sway over Gold prices. While the consensus expects the Fed to maintain the current rate of 5.50%, any deviation from this expectation can impact the USD and, consequently, Gold. An unexpected rate hike by the Fed could strengthen the USD, potentially leading to lower Gold prices. Conversely, a rate cut or dovish statements from the Fed may weaken the USD and support Gold prices.
Technical Summary:
Scenario 1 (Bullish)
- Price could go up and test 1931.
- If momentum continues, it may reach 1933.50.
- Further bullish movement might lead to retesting 1940.
- A critical level to watch is 1950.
Scenario 2 (Bearish)
- Alternatively, gold’s price could drop and test 1920.
- If bearish trends persist, it might reach 1913, which is a significant support.
- Continued bearishness could push it down to 1908 and 1901 levels.
Volatility Considerations:
Eurozone Inflation Surges
- In this scenario, the CPI (Consumer Price Index) for the Eurozone (EUR) exceeds consensus expectations, coming in significantly higher at 125.00 or more.
- The Euro (EUR) could experience a sharp and immediate increase in value as traders anticipate potential ECB (European Central Bank) actions to combat inflation.
Japanese Trade Shock
- Japan’s Balance of Trade (JPY) plunges even further below expectations, reaching a staggering -¥800B or worse.
- The Japanese Yen (JPY) may weaken substantially due to concerns about Japan’s economic performance and potential intervention by the Bank of Japan.
UK Rate Hike
- The Bank of England (BoE) surprises the market with a more aggressive interest rate hike, raising it to 5.75% instead of the expected 5.50%.
- The British Pound (GBP) could experience a sharp rally as higher interest rates attract foreign investment.
US Economic News
- The US reports a surprisingly high number of initial jobless claims, surpassing 250K, and existing home sales drop further, hitting -3.00% or more.
- The US Dollar (USD) may weaken as concerns about the health of the US economy and the potential for a more dovish Federal Reserve emerge.
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.
