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ECB's Third Rate Cut Sparks Euro Weakness (10.18.2024)

The US economy showed mixed signals in the latest data.

Retail sales beat expectations, while initial jobless claims fell but didn't meet the target. The ECB cut interest rates for the third time this year, and the euro faced downward pressure. The Japanese yen traded lower as inflation rates declined. Gold prices surged to a new record high amid rising geopolitical tensions and market uncertainties. Silver prices also increased, reflecting the broader rally in precious metals. The GBP/USD pair gained ground after the UK's inflation data surprised to the downside, suggesting potential interest rate cuts.

Time (GMT) 
Event
Asset
Survey
Previous
02:00
CHN GDP (YoY) (Q3)
CNH4.6%(Actual)4.7%
06:00UK Retail Sales (YoY) (Sep)
GBP
3.2%2.5%
13:30
FOMC Member Bostic Speaks
USD 
14:30
Atlanta Fed GDP Now (Q3)
USD 
3.4%3.4%

US Jobless Claims Fall, but Retail Sales Beat Expectations

The EUR/USD ended its 4-day losing streak, trading around 1.0840. The USD gained strength, reaching a 2-month high of 103.87 on a strong US Retail Sales report. The CME FedWatch Tool suggests a 90.8% chance of a 25 basis point rate cut in November and a 74.0% chance of another in December. US Retail Sales increased by 0.4% MoM in September, exceeding market expectations of a 0.3% rise. US Initial Jobless Claims fell by 19,000 for the week ending October 11, dropping to 241,000, failing to meet the expected 260,000 target.

The euro faced downward pressure following the ECB's policy decision on Thursday. The ECB cut its Main Refinancing Operations Rate and the Deposit Facility Rate by 25 basis points to 3.40% and 3.25%, respectively. This marks the first consecutive rate cut by the ECB in 13 years. This decision follows a notable decline in inflation, which peaked at 10.6% in October 2022 and fell to 1.7% in September. During the post-meeting press conference, ECB President Christine Lagarde left the markets uncertain about the timing of future rate cuts but indicated that the Eurozone economy is on course for a soft landing.

In the pair,  the first support level is at 1.0810. If this level is breached, the next supports to watch will be 1.0760 and 1.0740. 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.

R1: 1.0875S1: 1.0810
R2: 1.0920S2: 1.0760
R3: 1.0950S3: 1.0740

Japan's Inflation Rates Hit Five-Month Lows, Yen Falls

The Japanese yen traded around 150 per dollar, lingering at 11-week lows. Recent data revealed that Japan’s headline and core inflation rates dropped to five-month lows of 2.5% and 2.4%, respectively, in September. The yen's weakness prompted Japan’s top currency diplomat to reiterate government warnings about closely monitoring currency fluctuations. Earlier this year, Japanese authorities intervened in the currency markets when the yen fell below 160 per dollar. Additionally, the yen faced pressure from a strengthening dollar, fueled by strong US economic data and increasing speculation about a Trump victory.

The first resistance level is at 150.00 for the pair. 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 support to watch will be 148.70 and 148.00.

R1: 150.00S1: 149.20
R2: 151.00S2: 148.70
R3: 151.30S3: 148.00

Gold Prices Top $2,700 as Investors Seek Safe Haven

Gold prices surged past $2,700 per ounce on Friday, reaching a new record high. This increase was fueled by global demand for safe-haven assets and expectations for further interest rate cuts from major central banks. The European Central Bank cut rates for the third time this year, lowering the deposit rate to 3.25% as anticipated, while noting that the disinflationary process is "well on track."

Gold also benefited from rising tensions in the Middle East, particularly following the Israeli military's confirmation that Yahya Sinwar, a prominent Hamas leader, was killed in combat, raising concerns about regional escalation. Additionally, bullion prices rose as investors moved away from riskier assets due to disappointing fiscal measures in China related to its ongoing property crisis and uncertainties surrounding the US presidential election. Strong economic data from the US limited gold's upward momentum by supporting a less dovish outlook from the Federal Reserve.

The first support level is at 2,685 for gold, and if this level is breached, the next supports to watch will be 2,640 and 2,605. On the upside, the initial resistance is at 2,730; if this level is surpassed, the next targets will be 2,760 and 2,800.

R1: 2730S1: 2685
R2: 2760S2: 2640
R3: 2800S3: 2605

UK Inflation Data Sparks GBP/USD Rally

The GBP/USD is experiencing some follow-through buying, attempting to build on the overnight rebound from the 1.2975-1.2970 region. Spot prices are trading around 1.3020-1.3025, reflecting a 0.10% increase for the day. A surprising drop in the UK CPI to its lowest level since April 2021 opens the door for further interest rate cuts. Money markets are now anticipating over a 90% probability that the UK central bank will reduce borrowing costs by 25 basis points at its upcoming meeting in early November. This outlook may deter traders from making aggressive bullish bets on the British Pound, keeping pressure on the GBP/USD pair. Traders are also awaiting the release of UK Retail Sales data for potential market direction ahead of US housing market indicators—Building Permits and Housing Starts—later in the early North American session. Additionally, Fed Governor Christopher Waller's speech is expected to impact the USD and create short-term trading opportunities around the GBP/USD pair, which appears to register losses for the third consecutive week.

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 1.3040, with subsequent levels at 1.3100 and 1.3150 if the pair breaks above this resistance.

R1: 1.3040S1: 1.2965
R2: 1.3100S2: 1.2900
R3: 1.3150S3: 1.2830

Silver Breaks Above $32 as Market Fears Grow

Silver prices surged above $32 per ounce on Friday, approaching a two-week high, as they mirrored a rally in gold prices. This uptick was driven by uncertainties surrounding the upcoming US election and escalating tensions in the Middle East, which boosted safe-haven demand for precious metals. With less than three weeks until the November election, former President Donald Trump and Vice President Kamala Harris are closely matched, with market predictions leaning slightly toward a Trump victory. In the Middle East, the killing of Hamas leader Yahya Sinwar by Israeli forces has heightened concerns about a potential wider regional conflict. Additionally, positive economic data from China has improved demand prospects in the world’s largest metals consumer. In a related note, the European Central Bank announced its third rate cut of the year on Thursday, expressing confidence in its efforts to control inflation.

From a technical perspective, the first resistance level to watch is at 32.30. If silver breaks above this level, the next resistance levels to watch will be 32.70 and 33.00, respectively. On the downside, the initial support level is at 31.85, with subsequent support levels at 31.50 and 31.20.

R1: 32.30S1: 31.85
R2: 32.70S2: 31.50
R3: 33.00S3: 31.20
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