Forex Signals Brief September 4: Third Rate Cut by the BOC Today

Yesterday we had a taste of September markets, as the US traders came to their desks after the long holiday that followed August. September brought negative seasonals for stock markets and crude oil, leading to significant declines in both categories. The Chinese and US manufacturing PMI data suggested the possibility for further growth slowdown, which, although not particularly surprising, shifted market focus back to concerns that the Federal Reserve might fall behind in its response to economic conditions.

Oil prices dropped amid signs of a potential agreement in Libya, fears about global economic growth, and some technical selling. Despite these factors, oil has managed to hold above $70 per barrel, although it has reached its lowest point since January of this year. Run for safety dominated the markets, with the yen surging 2 cents higher, playing its typical safe-haven role. Despite the decline in crude oil prices, the Canadian dollar managed to outperform the Australian and New Zealand dollars.

Today’s Market Expectations

Today started with the Q2 GDP report from Australia, which was expected to show another slowdown to 1.0%, from 1.1% in Q1. Australia’s GDP grew by 0.2% in the second quarter of 2024, which was slightly below the anticipated 0.3% increase. This follows a revised GDP growth rate of 0.2% for Q1, initially reported as 0.1%. On an annual basis, GDP for Q2 2024 matched expectations with a 1.0% increase, down slightly from the 1.1% growth recorded in Q1. These figures highlight ongoing challenges in the Australian economy, including slower-than-expected progress due to global economic uncertainties and domestic constraints. Despite the slight revision in Q1 growth, overall economic momentum remains subdued.

The Bank of Canada (BoC) is expected to cut rates by 25 basis points, lowering the policy rate to 4.25%. This decision is set to be the main focus of the day. Recent CPI data has shown a further decline in core inflation measures, while labor market figures have been relatively weak. Although a 50 basis point rate cut seems unlikely, it cannot be completely ruled out. The market anticipates a total of 75 basis points of rate cuts by the end of the year, including the expected reduction today.

On the U.S. side, the Job Openings and Labor Turnover Survey (JOLTS) is expected to show 8.100 million job openings, slightly down from the previous 8.184 million. While the last report indicated a small increase, the broader trend of a significant decline in job openings that began in 2022 persists. Despite this, quit rates, hiring rates, and layoff rates remain low, suggesting that the labor market is softening more through a slowdown in hiring rather than an increase in layoffs.

Yesterday we had rough start to the week as the price action was irrational, despite the price action being mostly slow, with the USD gaining on some fronts, while losing against other assets. We opened 7 trading signals in total, ending with one winning forex signa and three losing trades, however, we will make up during the week.

The Support Zone Holds for Gold

Last month, gold reached a new high of $2,531 but quickly dropped to $2,470. This decline was triggered by positive U.S. economic data, including a rebound in home sales that countered the previous month’s losses, and a strong Services PMI score above 55 points, signaling robust growth in the services sector. However, gold found support at the 50-day SMA (yellow) and rebounded, with buyers attempting to push prices higher, though they fell short of setting a new high. Gold prices resumed their downward trend but found support at the 100-day SMA (green). The release of the US ISM manufacturing report caused another dip below this support, bringing gold back to the zone above $2,470. This level held again, leading to a rebound later in the U.S. session.

XAU/USD – Daily chart

AUD/USD Decline Escalates Ahead of Australian GDP

Meanwhile, AUD/USD experienced a significant rally in August, climbing about 5 cents from a low of 0.6350 to a 2024 high of 0.6823. However, it struggled to break through the 0.68 resistance level, and sellers have since taken control. AUD/USD failed to sustain gains above this key resistance, leading to a reversal last week. The decline accelerated yesterday, with the pair dropping to lows around 0.67 ahead of the release of Australia’s second-quarter GDP data.

AUD/USD – Daily Chart

Cryptocurrency Update

Bitcoin Consolidates Below $60K

BTC/USD – Daily chart

Ethereum Consolidates Below $2,500

Ethereum has been trending downwards since March, marked by a series of lower highs suggesting more losses could be on the horizon for August. After a sharp decline from $3,830 to below $3,000, Ethereum saw a brief recovery in June, moving above the 50-day SMA. However, persistent selling pressure led to another drop, pushing the price below the 200-day SMA before it bounced back to around $2,600. Currently, buyers are testing the 20-day SMA, indicating a likely clash between bulls and bears over the market’s direction. The outcome of this battle over the 20-day SMA is expected to be a key factor in determining whether Ethereum can sustain a long-term recovery or if the bearish trend will persist.

ETH/USD – Daily chart