Euro Falls as ECB Rate Cut Looms, Geopolitical Uncertainty Lifts Dollar (10.04.2024)

The EUR/USD pair continued its decline, dropping to a three-week low as Eurozone inflation softened and expectations of an ECB rate cut grew. 

Strong U.S. economic data, including higher ISM Services PMI and ADP Employment Change reports, bolstered the dollar, while geopolitical tensions in the Middle East provided safe haven demand for the USD. In Japan, the yen stabilized around 146.5, with officials cautioning against further rate hikes, while gold prices held steady near record highs due to ongoing geopolitical risks. The GBP/USD pair faced pressure ahead of the U.S. jobs report, while dovish BoE comments added to the bearish outlook. Silver prices neared $32.30, supported by strong buying momentum.

Euro Weakens as ECB Rate Cut Looms, US Data Boosts Dollar

The EUR/USD pair has extended its losses for the sixth consecutive session, trading around 1.1030 during the Asian hours on Friday. A lower inflation reading in the Eurozone has heightened expectations for a rate cut by the European Central Bank (ECB) in October, which would mark the central bank's third reduction this year. Earlier this week, the Harmonized Index of Consumer Prices fell to 1.8% year-over-year in September, dipping below the ECB's 2% target and marking its lowest level since April 2021. Markets are currently pricing in a 95% chance of a 25 basis point rate cut this month. The risk-sensitive euro may encounter challenges as escalating geopolitical tensions in the Middle East affect market risk appetite. US President Joe Biden noted that the United States is in discussions with Israel regarding potential strikes on Iran's oil infrastructure. Israeli Prime Minister Benjamin Netanyahu has warned that Iran "will pay a heavy price" for its recent attack, which reportedly involved the launch of at least 180 ballistic missiles aimed at Israel, according to the BBC. The EUR/USD pair is depreciating as the US Dollar (USD) gains support from stronger-than-expected reports on US ISM Services PMI and ADP Employment Change, which undermine dovish expectations for Federal Reserve (Fed) monetary policy. The ISM Services PMI rose to 54.9 in September, up from 51.5 in August and exceeding market forecasts of 51.7. Meanwhile, the ADP US Employment Change report indicated an increase of 143,000 jobs in September, surpassing the anticipated 120,000.

In the pair, the first support level is at 1.1000. If this level is breached, the next supports to watch will be 1.0970 and 1.0940. On the upside, the first resistance is at 1.1050; if this level is surpassed, the next targets will be 1.1080 and 1.1100.

Yen Stabilizes at 146.5 Amid Cautious Stance on Rate Hikes

The Japanese yen stabilized around 146.5 per dollar on Friday but was still on track to decline by over 3% for the week, as senior Japanese officials tempered expectations for further interest rate hikes. Newly appointed Prime Minister Shigeru Ishiba stated that it was premature to consider additional rate increases given the current economic climate. His economy minister, Ryosei Akazawa, echoed this sentiment, urging the central bank to proceed cautiously with any rate adjustments. Additionally, Finance Minister Katsunobu Kato has been assigned to propose measures aimed at price relief, economic growth, and support for low-income households. The yen has also faced pressure from a strengthening dollar, strengthened by strong US economic data that suggests the Federal Reserve may not need to implement aggressive rate cuts in the near future.

From a technical perspective, the first resistance level is at 147.00. If this level is surpassed, the next targets will be 148.10 and 148.60. On the downside, the initial support is at 145.30; if this level is breached, the next support levels to watch will be 144.60 and 143.40.

Gold Steady Amid Middle East Conflict, Strong US Data Limits Gains

Gold remained close to $2,660 per ounce on Friday, holding at record levels as its safe-haven appeal was heightened by escalating geopolitical tensions. Markets are closely watching developments in the Middle East, particularly after US President Biden refrained from explicitly condemning the possibility of Israel targeting Iran. Additionally, Tel Aviv has pledged to retaliate against Iran and has increased military activity in Beirut amid its ongoing conflict with Hezbollah. Despite gold's strong performance, strong labor market data released earlier this week has limited its upward momentum, as it suggests less need for the Federal Reserve to adopt a more accommodative monetary policy. ISM data also revealed that US services activity grew at its fastest pace in over a year in September. Currently, markets estimate about a 65% chance that the Fed will choose to implement a modest 25 basis point rate cut in November. Investors are also awaiting the release of September jobs data later today for further insights.

Technically the first support level is at 2,660. If this level is breached, the next supports to watch will be 2,640 and 2,620. On the upside, the initial resistance is at 2,675; if this level is surpassed, the next targets will be 2,685 and 2,700.

Pound Faces Pressure Ahead of US Jobs Report and BoE Rate Cut Speculation

The GBP/USD pair is struggling to make headway around 1.3125 during the Asian session on Friday, as traders adopt a cautious stance ahead of key US employment data, including Nonfarm Payrolls (NFP), the Unemployment Rate, and Average Hourly Earnings, which will be released later today. Shifting expectations regarding the US Federal Reserve's (Fed) next move could strengthen the US Dollar (USD) against the Pound Sterling (GBP) in the short term. The upcoming employment data may provide insights into the potential size of a rate cut by the Fed in November. Analysts forecast a 140,000 increase in the NFP, with the Unemployment Rate and Average Hourly Earnings growth projected to remain steady at 4.2% and 3.8%, respectively. A surprising outcome could dampen hopes for a 50 basis point (bps) cut during the November meeting. Increasing tensions in the Middle East may also drive safe haven flows towards the US Dollar. CNN reported on Thursday that an attack in central Beirut resulted in nine fatalities, marking Israel's first military strike in the region since 2006. The Israeli military has vowed to continue targeting Hezbollah in Beirut and southern Lebanon, following additional airstrikes in the capital. On the GBP side, dovish comments from Bank of England (BoE) Governor Andrew Bailey on Thursday may weigh on the currency. Bailey indicated that the BoE might consider becoming "a bit more aggressive" in cutting interest rates as inflation trends remain favorable. The BoE is widely expected to implement a 25 bps rate cut at its November meeting, with increased odds of a similar move in December.

For GBP/USD, the initial support lies at 1.3080, followed by 1.3000 and 1.2920 below. On the upside, the first resistance is at 1.3160, with subsequent levels at 1.3220 and 1.3250 if the pair breaks above this resistance.

Silver Draws Buyers, Nears $32.30 Resistance Amid Strong Momentum

Silver (XAG/USD) drew in buyers for the fourth consecutive day on Friday, trading near the upper end of its weekly range and surpassing the $32.00 mark during the Asian session.

Technically, 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 32.00, with subsequent support levels at 31.70 and 31.25.