CB Decisions and Geopolitical Tensions Drive Market Movements (10.17.2024)

The EUR/USD continues its decline as the US dollar strengthens ahead of the ECB’s anticipated rate cut, trading near 1.0850. 

Meanwhile, USD/JPY hovers around 149.3, reflecting a stronger dollar and cautious remarks from the Bank of Japan on rate normalization. Gold rallies to $2,680 as dovish central bank outlooks and geopolitical tensions in the Middle East support demand for safe-haven assets. GBP/USD remains bearish, trading below 1.3000, as UK inflation data fuels speculation of a BoE rate cut. Silver holds steady at $31.60, supported by declining US Treasury yields and Fed rate cut expectations.

EUR/USD Pressured by US Dollar Strength, ECB Rate Cut in Focus

The EUR/USD pair continued its decline, approaching 1.0850 during the early Asian session on Thursday. The strengthening of the US dollar is applying selling pressure on this major currency pair. Investors are particularly focused on the European Central Bank (ECB) monetary policy meeting, where another interest rate cut is anticipated. At its September meeting, the Federal Open Market Committee (FOMC) took the rare step of reducing its benchmark interest rate by half a percentage point, setting it in the range of 4.75% to 5.00%. However, investors now expect the Federal Reserve (Fed) to implement modest rate cuts over the next year, which supports the dollar's strength. Fed Governor Christopher Waller stated on Monday that future rate cuts are likely to be less aggressive than the significant reduction seen in September, expressing concern that the economy might still be operating at a higher level. Later on Thursday, market participants will look for insights from US Retail Sales data, which is projected to increase from 0.1% in August to 0.3% in September. Meanwhile, the ECB is expected to announce its third interest rate cut of the year during its October meeting, with money markets nearly fully pricing in three additional rate reductions through March 2025. ECB President Christine Lagarde mentioned last month that recent developments have bolstered the ECB’s confidence in achieving its inflation target in a timely manner, which will be considered during the October meeting. The dovish remarks from ECB policymakers, along with lower inflation data from the Eurozone, could put additional pressure on the euro against the US dollar.

In the pair, the first support level is at 1.0830. If this level is breached, the next supports to watch will be 1.0795 and 1.0755. On the upside, the first resistance is at 1.0875; if this level is surpassed, the next targets will be 1.0920 and 1.0950.

Yen Rises to 149.3 as BOJ Cautions on Interest Rate Normalization

On Thursday, the Japanese yen rose to about 149.3 per dollar, yet it remained near its lowest levels in 11 weeks as investors reacted to disappointing trade data. September's figures revealed that Japan’s trade balance fell into deficit, with unexpected declines in exports and slowing growth in imports. Regarding monetary policy, Bank of Japan board member Seiji Adachi stated earlier this week that conditions are ripe for normalizing monetary settings, but emphasized that any interest rate increases should occur at a “very moderate” pace. He cautioned against making drastic policy changes due to uncertainties in the global economic landscape and domestic wage growth. Additionally, the yen is under pressure from a strengthening dollar, driven by expectations that the Federal Reserve will adopt a less aggressive stance on rate cuts. The so-called Trump trade has further upheld the dollar, as his policies are perceived as inflationary, potentially hindering the Fed's ability to lower rates.

From a technical perspective, the first resistance level is at 150.00. If this level is surpassed, the next targets will be 151.00 and 151.30. On the downside, the initial support is at 149.20; if this level is breached, the next supports to watch will be 148.70 and 148.00.

Gold Rallies to $2,680 on Dovish Fed Outlook and Escalating Geopolitical Risks

On Thursday, gold surged to approximately $2,680 per ounce, reaching record levels as a dovish outlook from major central banks and slightly declining bond yields increased demand for the non-interest-bearing metal. The Federal Reserve is anticipated to announce rate cuts in its remaining meetings this year, with a 25-basis-point reduction in November looking increasingly likely. Simultaneously, the European Central Bank is expected to implement another rate cut, and the recent decline in British inflation suggests that the Bank of England may also lower rates next month. Several major Asian central banks have recently reduced their rates as well. Moreover, gold prices received additional support from uncertainties surrounding the upcoming US presidential election and escalating tensions in the Middle East, particularly after Israel ramped up air strikes on Lebanon on Wednesday.

Technically the first support level is at 2,665. If this level is breached, the next supports to watch will be 2,630 and 2,605. On the upside, the initial resistance is at 2,685; if this level is surpassed, the next targets will be 2,700 and 2,725.

GBP/USD Remains Bearish as UK CPI Decline Fuels BoE Rate Cut Concerns

The GBP/USD pair remains below the 1.3000 psychological level during the Asian session on Thursday, sitting close to its lowest point since August 20, which was reached the previous day. The current fundamental landscape appears to favor bearish traders, indicating that the most likely movement for spot prices is downward. On Wednesday, data revealed that the annual UK Consumer Price Index (CPI) slowed from 2.2% in August to 1.7% last month, marking the lowest rate since April 2021. This has fueled speculation about a possible interest rate cut by the Bank of England (BoE) in November, further weighing on the British Pound (GBP). Additionally, the recent rally of the US Dollar (USD) to its highest level since early August supports the short-term negative outlook for the GBP/USD pair.

For GBP/USD, the initial support lies at 1.2965, followed by 1.2900 and 1.2830 below. On the upside, the first resistance is at 1.3000, with subsequent levels at 1.3040 and 1.3100 if the pair breaks above this resistance.

Silver Prices Hold Steady Amid US Treasury Yield Decline, Eyeing Fed Rate Cut

Silver prices (XAG/USD) dipped slightly after two consecutive days of gains, trading around $31.60 per troy ounce during Thursday's Asian session. However, the non-yielding metal found some support from lower yields on US Treasury bonds currently at 3.94% and 4.03%, respectively. Market sentiment is leaning toward a total of 125 basis points in rate cuts by the US Federal Reserve over the coming year. The CME FedWatch Tool indicates a 92.1% probability of a 25-basis-point rate cut in November. Lower interest rates tend to make precious metals like silver more attractive to investors. Additionally, the European Central Bank (ECB) is expected to announce a 25-basis-point reduction in both the Main Refinancing Operations and the Deposit Facility Rate during its policy meeting later today. Recent inflation data also suggests that the Bank of England (BoE) and the Reserve Bank of New Zealand (RBNZ) may consider rate cuts next month. Silver could also benefit from safe-haven demand amid rising tensions in the Middle East. On Wednesday, Israel escalated its airstrikes on Lebanon, including an attack that destroyed a major town's municipal headquarters, resulting in the deaths of 16 people, including the mayor. This was reported as the largest assault on an official Lebanese state building since the start of the Israeli air campaign. US President Joe Biden has signaled a new willingness to use US military assistance to Israel as both an incentive and a deterrent in its critical confrontation with Iran and Iran-backed militant groups. This approach could enhance Washington's influence over Israeli decision-making.

From technical perspective, the first resistance level to watch is at 31.85. If silver breaks above this level, the next resistance levels to watch will be 32.10 and 32.70, respectively. On the downside, the initial support level is at 31.40, with subsequent support levels at 30.70 and 30.30.