EUR/USD Rises, Yen Strengthens, and Gold Holds Steady (08.26.2024)

The Euro surged to a 13-month high against the dollar, driven by Federal Reserve Chair Jerome Powell’s indication of a potential rate cut in September, pushing the dollar index to its lowest level since July 2023. In contrast, the Japanese yen strengthened past 144 per dollar as Bank of Japan Governor Kazuo Ueda hinted at possible policy adjustments amid high inflation. Gold remained firm near $2,510 per ounce, buoyed by expectations of Fed rate cuts and heightened geopolitical concerns. GBP/USD rose to 1.3215, benefiting from a weaker dollar and anticipated Fed rate cuts, while silver stayed within a narrow range, with its direction dependent on upcoming economic data and Fed decisions.

Powell's Jackson Hole Speech Pushes Dollar Index to Yearly Low

The dollar index dropped to around 100.5 on Monday, reaching its lowest level since July 2023, as Federal Reserve Chair Jerome Powell reinforced expectations of an interest rate cut in September. In his Friday speech at Jackson Hole, Powell stated that it is time to adjust monetary policy due to increasing risks to the labor market, while also expressing optimism that inflation will eventually meet the Fed’s 2% target. The market is now leaning towards a 25 basis point rate cut next month, though there is still a one-third chance of a more substantial 50 basis point reduction. As a result, the dollar reached its lowest level against the euro in 13 months.

In the EUR/USD pair, which has been rallying for 2 consecutive weeks, the first support level is at 1.1165. If this level is breached, the next supports to watch will be 1.1130 and 1.1090. On the upside, the first resistance is at 1.1220; if this level is surpassed, the next targets will be 1.1250 and 1.1300.

Japanese Yen Rallies Past 144 as BOJ's Ueda Hints at Policy Shift

The Japanese yen rose past 144 per dollar, reaching a peak in three weeks, as Bank of Japan Governor Kazuo Ueda's hawkish comments stood in stark contrast to Federal Reserve Chair Jerome Powell's dovish outlook. On Friday, Ueda suggested that the Bank of Japan might adjust its monetary policy if its economic forecasts prove accurate, hinting at a potential rate hike. This perspective was supported by recent data showing strong economic growth and persistently high inflation. Specifically, Japan’s core inflation rate climbed to 2.7% in July, marking its third consecutive increase, while the headline inflation rate remained steady at 2.8% for the same period.

From a technical perspective, the first resistance level is at 144.30. If this level is surpassed, the next targets will be 145.15 and 145.75. On the downside, the initial support is at 143.40; if this level is breached, the next support levels to watch will be 142.50 and 141.70.

Gold Prices Remain Strong with Fed Rate Cut on the Horizon

Gold remained steady at around $2,510 per ounce on Monday, staying near record highs following Federal Reserve Chair Jerome Powell’s reinforcement of expectations for an interest rate cut in September. In his speech at Jackson Hole last week, Powell signaled that the Fed is ready to adjust its policy, with the timing and scale of rate cuts contingent on upcoming economic data. He highlighted increased risks to the job market while noting a decrease in inflation risks. The Federal Open Market Committee (FOMC) now feels more confident that inflation is moving towards the 2% target, strengthening the argument for lowering borrowing costs. Market expectations are divided between a 25 basis point or 50 basis point cut at the Fed's September meeting, but investors are anticipating a total of 100 basis points in rate cuts for the remainder of the year. This would lower the opportunity cost of holding assets that do not yield interest. Additionally, gold's appeal as a safe-haven asset was enhanced by growing concerns about a potential broader conflict in the Middle East.

Technically the first support level is at 2,500. If this level is breached, the next supports to watch will be 2,470 and 2,430. On the upside, the initial resistance is at 2,532; if this level is surpassed, the next targets will be 2,550 and 2,600.

GBP/USD Rises to 1.3215 as Fed Rate Cut Expectations Weaken Dollar

The GBP/USD pair is trading higher at around 1.3215 in the early Asian session on Monday. This gain is largely due to expectations that the US Federal Reserve will start easing its monetary policy in September, which has weakened the Greenback and lifted GBP/USD. The anticipated Fed rate cuts are continuing to put pressure on the Greenback, benefiting GBP/USD. Rabobank analysts forecast that deteriorating labor market conditions will lead to four consecutive 25 basis point rate cuts in September, November, December, and January. Meanwhile, speculation that the Bank of England (BoE) will adopt a slower pace of policy adjustments compared to other major central banks is lending some support to the Pound Sterling (GBP). BoE Governor Andrew Bailey noted late Friday that, despite inflation remaining a major concern, many pricing pressures have eased more quickly than anticipated. He also stressed that it is premature to declare victory over inflation.

For GBP/USD, the initial support is 1.3180, followed by 1.3130 and 1.3100, respectively. On the upside, the first resistance is at 1.3240, with subsequent levels at 1.3280 and 1.3320 if the pair breaks above this resistance.

Silver Holds Steady Amid Economic Uncertainty and Fed Rate Decision

Last week, silver, which appeared stronger compared to gold, started the week flat. Since the beginning of the year, silver has benefited from the rise in metals driven by geopolitical risks. However, being a more industrial metal compared to gold, silver has been more sensitive to economic fluctuations and major central bank interest rate decisions. As indicated by Powell's remarks last week, upcoming economic data will play a crucial role in the Fed's interest rate decision. Therefore, this week’s data will be decisive in determining whether silver, which is significantly influenced by interest rate decisions, will break out of its current range and in which direction it will move.

From a technical perspective, silver is currently trapped within a narrow range. The first resistance level to watch is at 30.00. If silver breaks above this level, the next resistance levels to watch will be 30.30 and 30.75, respectively. On the downside, the initial support level is at 29.15, with subsequent support levels at 28.75 and 28.05.