ECB Considers Rate Cut, Dollar Index Falls as Fed Decision Looms (08.20.2024)

The ECB is considering a rate cut in September due to economic concerns in the Eurozone. The dollar index dropped to its lowest level of the year below 101.5, as investors await the Federal Reserve's upcoming rate decision and Chair Jerome Powell's speech at the Jackson Hole symposium. The market predicts around 100 basis points in rate cuts this year, with uncertainty about the size of September’s cut. Gold prices remain strong above $2,495, holding gains after a record high of $2,532, with key support at $2,500. The Japanese yen paused its rally against the USD, with the USD/JPY pair finding support around 144.00 and resistance near 148.20, amid expectations of a potential BoJ rate hike. The GBP/USD pair is nearing a breakout above 1.3140, with the key resistance level at 1.3050.

Dollar Index Hits Yearly Low, Fed Rate Decision Awaited

The dollar index hit its lowest levels of the year, dropping below 101.5 on Wednesday as investors awaited updates from the Federal Reserve to assess the timing and extent of expected interest rate cuts. The latest Fed meeting minutes will be released later today, and Fed Chair Jerome Powell is set to speak at the Jackson Hole symposium on Friday. Markets are currently expecting approximately 100 basis points in rate cuts this year, although opinions differ on whether the central bank will opt for a 25 or 50 basis point cut in September.

In a recent statement, the ECB’s Olli Rehn indicated that the European Central Bank might need to cut interest rates in September due to economic challenges and increasing risks of negative growth in the Eurozone.

From a technical perspective, the next key levels to watch are the December 2023 high at 1.1140 and the 2023 peak at 1.1275. On the downside, the initial support is at the 1.1100 round number, followed by the 1.1000 psychological level, which the market is likely to keep an eye on.

Yen Pauses Rally Against USD Before BoJ Governor's Speech

The Japanese yen pauses its three-day rally against the US dollar after Wednesday's Trade Balance data release. Despite this, the yen’s decline may be constrained by increasing expectations of another imminent interest rate hike. The market players are also awaiting Bank of Japan (BoJ) Governor Kazuo Ueda's address in parliament on Friday, where he will discuss last month's interest rate hike decision by the central bank.

For support, the USD/JPY pair may find levels around the round numbers of 144.00 and 143.00 before reaching the seven-month low of 141.69 recorded on August 5. On the upside, immediate resistance could be faced around the 148.20 level. If the pair breaks above this level, it could target the next resistance at 149.4050, a level that has shifted from previous support to the current resistance.

Gold Prices Steady Above $2,495 After Hitting Record High

Gold prices remain strong above $2,495 during Wednesday's Asian trading, holding onto gains after reaching a new all-time high of $2,532. Traders are cautious, considering the widespread risk aversion, and are holding off on new positions before the release of the US Federal Reserve's July meeting minutes expected later on Wednesday.

From a technical standpoint, last Friday's breakout above the triple top resistance around the $2,479-2,480 area, followed by a strong move beyond the $2,500 psychological level, served as a new catalyst for bullish traders. If the all-time-high level is broken, then the next target would be $2,575. The $2,500 round figure is likely to support the downside for gold prices near the $2,483 resistance level.

GBP/USD Nears 1.3140 Breakout as Bullish Momentum Builds

The GBP/USD pair is approaching a potential breakout above 1.3140 as bullish momentum continues to build. The RSI indicator has steadily increased in recent sessions.

Technically, the pound faces immediate resistance at 1.3050 and 1.3140, key levels that need to be surpassed for the upward trend to persist. Support is currently at 1.2955 and 1.2895. If these levels are breached, the next support level to watch is 1.2865.