Forex Signals Brief Sept 18: Financial Markets Await the Big Event

Yesterday, the German and Eurozone ZEW economic confidence indicators continued to decline, but the Euro remained relatively stable. However, EUR/USD finished the day near the 1.11 lows as the US dollar saw modest gains across most pairs ahead of the upcoming FOMC decision. The key driver was a stronger-than-expected retail sales report, which further fueled the debate over whether the Fed would opt for a 0.25% or 0.50% rate cut, pushing both rates and the dollar higher.

Meanwhile, the commodity dollars also weakened, exacerbated by a late-day pullback in stock markets after the S&P 500 futures and Dow Jones reached new highs. The most notable move came in USD/JPY , which surged from 139.57 to 142.47 on the back of strong US demand for the second consecutive day, as traders cover dollar shorts ahead of the Fed’s decision.

USD/CAD saw a brief rise following a softer Canadian CPI report, raising the likelihood of a 50 basis point rate cut by the Bank of Canada in October, which now stands at about 50/50. However, after a brief rally, the pair ended the day mostly unchanged. Bank of Canada Governor Macklem shifted the focus to growth data, suggesting that strong US numbers may allow Canada to maintain a moderate pace of easing.

Today’s Market Expectations

The UK Consumer Price Index (CPI) is forecasted to remain steady at 2.2% year-on-year (Y/Y), the same as last year. On a month-on-month (M/M) basis, inflation is expected to rise to 0.3%, up from -0.2% previously. The Core CPI, which excludes volatile items like food and energy, is predicted to increase to 3.5% Y/Y, up from 3.3%, while the M/M figure is anticipated to reach 0.4%, an increase from 0.1% last year. Market expectations suggest that the Bank of England will hold interest rates unchanged at its next meeting, before implementing 25 basis point rate cuts in both November and December. This comes amid inflation concerns and a somewhat fragile economic outlook.

In the US, economists generally expect the Federal Reserve to cut rates by 25 basis points at its next meeting. However, market sentiment is divided between a 25 basis point cut and a more aggressive 50 basis point reduction. Some believe that a 25 basis point cut would be a cautious approach, as the economy remains relatively stable. On the other hand, a 50 basis point cut might be considered an safe move to prevent further economic downturn, a decision that might not trigger market panic given the current split in expectations.

The Fed’s decision-making is also influenced by the timing of labor market data. After the previous meeting, labor data was released two days later, which might have pushed the Fed to act more cautiously. Had the data been available earlier, smaller rate cuts might have already started. Fed Chair Jerome Powell, speaking at the Jackson Hole Symposium, made it clear that the Fed will not tolerate further weakness in the labor market and will take all necessary measures to keep it strong.

Yesterday markets wobbled after the US Retail Sales report, which the USD gaining some ground after the previous losses. We trader the expectations of the FOMC and opened 7 trading signals in total, ending the day with five winning forex signals and two losing signals.

Gold Makes Final Adjustments Before the FOMC

Gold continues its upward momentum, reaching new record highs nearly every day, driven by expectations of a Federal Reserve rate cut. Last week, gold hit an all-time high of $2,589, and it’s up another 0.3% today. As the Federal Reserve meeting approaches, gold is expected to maintain its bullish trend, especially as a safe-haven asset, with the US dollar weakening amid anticipated rate reductions. But yesterday we saw a retret lower as market adjusts for the major event today.

XAU/USD – Daily chart

USD/JPY Climbs Above 142 Before the FOMC

USD/JPY hit a new yearly low yesterday, briefly dropping below the critical 140 level. However, the pair rebounded, gaining 2 cents after stronger-than-expected US retail sales for August. This bounce came amid speculation around the upcoming FED decision. WSJ FED watcher Nick Timiraos tweeted that the Federal Reserve is reportedly divided between a 25 bps and a 50 bps rate cut, which is more favorable for the USD than market expectations, currently pricing in a 67% chance of a 50 bps cut. In early August, USD/JPY dropped by 20 cents to 141.70 before a slight recovery. The pair resumed its decline shortly afterward, falling an additional 2 cents lower. But yesterday we saw a retrace higher ahead of the FED, sending the price above 142.

EUR/USD – Daily Chart

Cryptocurrency Update

Bitcoin Returns to $60,000 Again

BTC/USD – Daily chart

Ethereum Returns to the 100 SMA

Ethereum has been in a steady decline since March. After a sharp fall from $3,830 to below $3,000 in June, it briefly recovered above its 50-day moving average before succumbing to heavy selling pressure, dropping below $2,200. Despite this, Ethereum found solid support at that level, and last week saw a bounce off the 100-week SMA, forming a bullish candlestick pattern. This signals renewed buying interest and hints at a potential reversal in the ongoing bearish trend for Ethereum.

ETH/USD – Daily chart