Forex Signals Brief October 17: Dovish ECB Rate Cut Expected!

With profit-taking in USD/CAD continuing yesterday, the Canadian dollar emerged as the strongest major currency by day’s end, closely followed by the USD. The UK’s CPI inflation report revealed a notable drop to 1.7%, dipping below 2% for the first time since 2021, which contributed to a sharp weakening of the pound.

In contrast, the CAD strengthened despite a report from RBC indicating that Canada’s economy remains vulnerable to the labor market, with particularly poor cardholder spending data. The Euro also continued its decline, approaching the 1.08 level as the upcoming ECB meeting draws near.

Meanwhile, Gold briefly retested September’s record highs of $2,685.44 but pulled back after falling short of a new peak. After yesterday’s declines, US stock indices rebounded too. The Dow recouped all of its prior losses, closing 337 points, or 1%, higher at 43,077. The S&P 500 climbed 27 points, or 0.5%, reaching 5,842 points.

Today’s Market Expectations

Today started with the employment report from Australia early in the morning.

The European Central Bank (ECB) meeting is the highlight of the day and it is expected to lower its policy rate by 25 basis points, bringing it down to 3.25%. This anticipated cut follows weak PMI data from late September, which led the market to quickly price in a move that wasn’t initially expected to be consecutive. The dovish tone from ECB officials and the subdued Eurozone CPI further fueled expectations. The market is now also forecasting another 25 basis point cut in December and four more rate cuts throughout 2025.

In the US, Continuing Jobless Claims have shown significant improvement after steady rises over the summer, while Initial Claims have remained in the 200K–260K range since 2022. Both metrics spiked to cycle highs recently, surprising markets, with the increase attributed to distortions from the Boeing strike and Hurricane Helene. For the upcoming week, Initial Claims are projected at 255K, slightly down from 258K last week, while Continuing Claims are expected to increase to 1,870K from 1,861K.

In terms of retail sales, the month-over-month US Retail Sales are predicted to rise 0.3%, up from 0.1%, with the ex-Autos measure anticipated at 0.2%, up from 0.1%. The Control Group figure is also expected to stay at 0.3%. Consumer spending remains stable, bolstered by a strong labor market and positive real wage growth. While retail sales data often moves markets, its volatile nature can sometimes result in initial reactions that later diminish.

Yesterday most markets picked some pace and we saw a reversal in the price action late in the US session, with the USD and stock markets advancing higher while everything else was retreating, but the USD reversed somewhat late in the day. The volatility was low, so we ended the day with 5 closed trading signal, out of 9 trades issued during the day. Four of them were winning forex signals, and just a losing trade.

Gold Continues to Respect the Triangle

Early last week, the easing of concerns over a broader conflict in the Middle East shifted risk sentiment in financial markets, leading to a drop in gold prices. Even though the US CPI and PPI inflation data for September came in higher than expected, it did little to boost gold’s appeal. Instead, gold found support around the 20-day Simple Moving Average (SMA) at approximately $2,605, which helped fuel a rebound. Recently, gold prices have shown resilience, testing the record high from September as risk sentiment has again turned cautious. Gold has risen about $50 this week, though it pulled back slightly after reaching $2,685.44, just shy of a new high.

XAU/USD – Daily Chart

EUR/USD Continues to Slip Lower Ahead of the ECB

EUR/USD exchange rate had previously surged from below 1.07 to 1.12 in June and July. However, resistance above 1.12 quickly halted this uptrend, and the pair saw a sharp decline in early October. The 50-week SMA, which had provided support, was broken last week, with the 100-week SMA now the next significant support. The EUR/USD has fallen below 1.09, facing little resistance at current levels.

EUR/USD – Daily Chart

Cryptocurrency Update

Bitcoin Rallies Above $67K

BTC/USD – Daily chart

Ethereum Remains Subdued by the 100 Daily SMA

Ethereum has faced similar selling pressure since March, briefly rallying to the 50-day SMA by June. It remains range-bound near $2,200, with the 100-day SMA now acting as overhead resistance at $2,500. Broader economic concerns have kept it from breaking above key resistance levels, even as it continues to consolidate within this range.

ETH/USD – Daily chart