Forex Signals Brief October 16: UK CPI Inflation Highlighting the Day

The day started off quietly, but risk sentiment weakened during the US session, with the dollar generally strengthening. However, it wasn’t as strong as other safe-haven assets like gold, the Swiss franc, and the Japanese yen. Remarks from Mary Daly of the Federal Reserve attracted some attention, as she hinted at a potential pause this year and the possibility of one or two rate cuts through the end of 2024. This statement was unexpected, given her typically dovish stance, and it helped boost the dollar.

Chipmakers and the broader stock market were likely larger influences on the market dynamics. ASML’s earnings, which were released ahead of schedule, revealed a weaker outlook for the coming year, leading to a 17% drop in its shares and a 5% decline for major chipmakers. While ASML noted that AI sales remain unaffected, profit-taking emerged as Nvidia tested its June highs.

Global growth traders also moderated their expectations regarding China’s potential for stimulus. After a 3-4% drop in Chinese stocks, particularly in the tech sector, the MCHI ETF fell 5%. In addition, selling pressure on the Canadian dollar increased after a soft Canadian CPI reading, pushing USD/CAD to a two-month high at 1.3838. Profit-taking on these moves later allowed the Canadian dollar to recover slightly, dipping back below 1.38.

Today’s Market Expectations

Today started with the New Zealand Q3 CPI inflation report. New Zealand’s Q3 CPI came in at 0.6% quarter-on-quarter, just below the expected 0.7%, and up from 0.4% in Q2. The annual CPI matched expectations at 2.2% year-on-year, though it has dropped from 3.3% in Q2. Non-tradable prices rose by 1.3% for the quarter and 4.9% annually, while tradeable prices fell by 0.2% for the quarter.

The UK inflation data is expected to show a slight deceleration, with the M/M CPI at 0.2%, down from 0.3%, and the Y/Y CPI expected to drop to 1.9% from 2.2%. The Core CPI is also expected to soften to 3.4% from 3.6%. Given that the market has largely priced in a single rate cut by the end of the year, a stronger report is unlikely to move market expectations significantly. In the case of a softer report, however, the market might anticipate a modest rate cut of 50 basis points in November, followed by an additional 25 basis points in December.

Yesterday most markets were slow and the price action was predictable, with the USD and stock markets advancing higher while everything else was retreating. 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

Gold briefly dipped below a triangle formation last week but quickly rebounded off the 20-day SMA. This indicates continued optimism among gold traders who are likely eyeing record highs. The triangle chart pattern remains, with falling highs suggesting that buyers might be waiting for a new catalyst to drive the next major upward move.

XAU/USD – Daily Chart

MAs Turn Into Resistance for NZD/USD

In currency markets, the USD’s upward momentum has weakened since early October, and the USD/NZD pair has been consolidating after a three-cent decline. This pair has been trading within a tight range, finding support at 0.6050. Yesterday, it was pushed back by moving averages on the daily chart, which have now likely turned into resistance as the market awaited New Zealand’s Q3 CPI inflation, while after the soft CPI numbers we saw a dive to last week’s lows.

NZD/USD – Daily Chart

Cryptocurrency Update

Bitcoin Rallies Above $65K Again

BTC/USD – Daily chart

Ethereum rejected by the 100 SMA

Ethereum has faced similar selling pressure since March. By June, it managed to regain some ground around the 50-day SMA, but it remains near $2,200. Previously, the 50-daily SMA (yellow) was acting as resistance, but now the 100-daily SMA has taken its place as resistance above $2,500, keeping Ethereum range-bound amid broader economic worries.

ETH/USD – Daily chart