This article was submitted by Michael Stark, market analyst at Exness.
Established trends have mostly continued in markets this week so far with a relatively less important week of American data on the economic calendar. However, various instruments including oil, gold and American shares bounced in the afternoon GMT of Wednesday 28 September. This midweek preview of upcoming data considers EURUSD and GBPJPY ahead of American final GDP and PCE.
Last week the Fed hiked its funds rate by 0.75% as widely expected, taking the rate to 3-3.25%. Jerome Powell’s subsequent comments were generally received negatively by markets. Participants are now fairly evenly split between expecting a double and a triple hike at the next meeting of the FOMC on 2 November. Switzerland, Norway, Sweden, Denmark and South Africa’s central banks all hiked rates as well.
The Bank of England’s meeting last week also resulted as expected with a double hike. However, this was completely overshadowed by Friday’s ‘mini budget’ from the UK at which the government announced a large-scale programme of tax cuts. The reaction to this was extremely negative, with the pound crashing against most currencies and the Bank of England considering emergency measures to stabilise the currency.
This week’s upcoming releases centre on Thursday’s final GDP for Q2 from the USA and Friday’s personal consumption expenditure (‘PCE’), also from the USA. PCE is a potentially important release because as the Fed’s preferred measure for inflation it’s one of the factors affecting the next move in American monetary policy. Traders are also looking ahead to German inflation on Thursday and American personal spending and income on Friday.
Euro-dollar, daily
The euro’s losses against the dollar have continued in recent days as participants are almost universally pricing in restrictive policy, that is rates at least 4%, from the Fed by the end of the year. The ECB meanwhile remains significantly behind while the risk of a serious recession in the eurozone is higher as the energy crisis continues. Participants have also concentrated on the Italian elections and high levels of debt in Italy plus asymmetric yet high inflation across the EU.
The chart would traditionally suggest a bounce in the near future, but TA’s reliability at the moment is limited given the nervousness of many participants and the speed of the euro’s latest drop. Very clear selling saturation with the slow stochastic below 10 and the price closing outside the lower deviation of Bands for four days running would usually signal a move up, as would the higher volume of buying recently. That might be capped by the 161.8% weekly Fibonacci extension area before another possible drop.
However, sentiment on monetary policy and economic conditions has changed rapidly over the last few days, so it makes sense in the context not to rely too much on the chart. In the unlikely event of a significant revision upward in American GDP for the second quarter, the price might push sharply lower in the short term. Conversely, a revision downward from the second estimate could drive the possible bounce described above. The exceptionally large amount of data from the eurozone on Friday is likely to drive further volatility for the euro in most of its pairs.
The pound has made dramatic losses against the yen as most other major currencies in the days since the mini budget. The main factor driving sterling down has been the lack of clear costing for the large batch of tax cuts announced by the government; the IMF criticised the UK this week for increasing inequality with this policy and credit agencies have also noted that uncosted tax cuts are very likely to impair the UK’s ability to service its national debt.
Meanwhile in Japan the government announced last week an intervention in favour of the yen in the form of selling dollars. Comments from Governor Kuroda of the Bank of Japan supported this policy. While dollar-yen hasn’t seen a significant drop in response, this has been a further negative factor for GBPJPY despite the divergence in policy between the BoE and the BoJ.
26 September’s eventual slight recovery was capped around the 161.8% weekly Fibonacci extension, so this might function as a resistance in the short term, while to the downside one might point to the 61.8% area of the weekly Fibo fan slightly above ¥151 as a possible support. Conventionally, then, selling from the former area might be favourable unless there’s a significant change in the fundamental situation. As for euro-dollar, though, sentiment is particularly unstable at the moment and Friday’s British GDP might have a strong effect on the chart if the result is surprising.
Key data this week
Bold indicates the most important releases for this symbol.
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.
