Fed Policy and Global Tensions Drive Market Sentiment Across Key Pairs (10.21.2024)

The EUR/USD stabilizes near 1.0860 as traders await key Fed and ECB policy decisions, with a focus on potential rate cuts. 

USD/JPY strengthens toward 149 following warnings of possible intervention by Japan’s government amid the yen's slide. Gold surges to record highs at $2,730, driven by escalating Middle East conflicts and expectations of looser global monetary policies. GBP/USD fluctuates around 1.3050, pressured by UK inflation data that fuels expectations of BoE rate cuts. Silver surges to $34.10, supported by China's positive news and a PBoC rate cut.

EUR/USD Pauses Near 1.0860, Fed and ECB Policy Moves Eyed

EUR/USD remains stable around 1.0860 during Monday's Asian trading hours, following gains in the previous session. However, potential downside risks are emerging as recent data have dispelled speculation about a 50-basis-point rate cut by the Federal Reserve in November. According to the CME FedWatch Tool, the likelihood of a 25-basis-point rate cut in November has surged to 99.3%, up from 89.5% a week earlier. US Retail Sales increased by 0.4% compared tot the previous month in September, surpassing the 0.1% gain in August and exceeding market expectations of a 0.3% rise. Additionally, Initial Jobless Claims fell by 19,000 for the week ending October 11, marking the largest decline in three months and bringing the total to 241,000, well below the expected 260,000. Rabobank's analysis indicates that the market perceives recent comments from European Central Bank (ECB) officials as a signal of increased confidence in the Eurozone's inflation outlook. Consequently, the ECB appears to be shifting its focus toward supporting regional growth, fueling speculation about a potential quicker pace of easing, including a possible larger 50-basis-point rate cut, which could weigh on the Euro and exert downward pressure on the EUR/USD pair. The Euro has also faced pressure following the ECB's decision to cut interest rates by 25 basis points last week in response to a significant drop in inflation, which peaked at 10.6% in October 2022 but fell to 1.7% in September, now below the ECB's 2% target.

In the pair, the first support level is at 1.0830. If this level is breached, the next supports to watch will be 1.0800 and 1.0770. 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 Strengthens Toward 149 as Japan Warns of Potential Intervention

The Japanese yen strengthened towards 149 per dollar on Monday, marking a second consecutive day of gains. This followed a drop to the 150 level last week, which elicited new verbal warnings from the government and raised concerns about potential currency intervention. Last week, the yen fell to an 11-week low of 150.32 as the dollar strengthened due to strong US economic data and increasing speculation about another Trump presidency. Additionally, data released on Friday indicated that Japan’s headline and core inflation rates slowed to five-month lows of 2.5% and 2.4%, respectively, in September. In response to the yen's decline, Japan's chief currency diplomat, Atsushi Mimura, reiterated that the government is closely monitoring currency fluctuations and considers excessive volatility undesirable. Earlier this year, authorities intervened when the yen fell below 160 per dollar, and the 150 level is now seen as a critical threshold.

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 148.65; if this level is breached, the next supports to watch will be 148.00 and 147.20.

Gold Climbs Higher as Middle East Conflicts Escalade

Gold climbed around $2,730 per ounce on Monday, setting new record highs due to rising demand for safe-haven assets. The focus is now on the escalating tensions in the Middle East, particularly after Hezbollah announced a more intense phase in its conflict with Israel and reports emerged of Israeli strikes in Beirut’s southern suburbs and other regional locations over the weekend. The uncertainty surrounding the upcoming US presidential elections is also making safe-haven investments a strong investment choice. Furthermore, expectations of looser monetary policies from major central banks are supporting gold prices. The People's Bank of China recently cut key rates as part of its stimulus efforts, while the European Central Bank lowered rates for the third time this year. However, strong US economic data has raised expectations for a less dovish approach from the Federal Reserve.

Technically the first support level is at 2,685. 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 2,750; if this level is surpassed, the next targets will be 2,770 and 2,800.

GBP/USD Fluctuates Around 1.3050 as UK Inflation Drop Fuels Rate Cut Bets

The GBP/USD pair is struggling to build on modest gains from the past two days, trading within a narrow range around 1.3050-1.3045 during Monday's Asian session. Current prices are close to a one-month low reached last Thursday and appear vulnerable to extending the recent decline from the 1.3435 level, the highest since March 2022. A surprising drop in the UK Consumer Price Index (CPI) to its lowest level since April 2021, falling below the Bank of England's (BoE) 2% target, has increased expectations for a 25 basis-point interest rate cut at the BoE's meeting on November 7. Additionally, money markets are pricing in the potential for another rate cut in December, which could further weaken the British Pound (GBP). Combined with a generally bullish sentiment towards the US Dollar (USD), this supports a negative outlook for the GBP/USD pair.

For GBP/USD, the initial support lies at 1.3020, followed by 1.2965 and 1.2900 below. On the upside, the first resistance is at 1.3070, with subsequent levels at 1.3100 and 1.3160 if the pair breaks above this resistance.

Silver Surges to $34.10 Amid Positive Chinese News and PBoC Rate Cut

Silver starts the week on a positive note, trading at 34.10. Positive news from China and the rate cut by the PBoC have fueled silver's momentum, pushing it toward new highs above last week's levels. Today, the market will focus on data and speeches from the US to gain insights into the upcoming FOMC meeting and the Fed's direction, which are closely related to industrial metals and non-yielding assets.

From a technical perspective, the first resistance level to watch is at 34.50. If silver breaks above this level, the next resistance levels to watch will be 34.90 and 35.20, respectively. On the downside, the initial support level is at 33.40, with subsequent support levels at 32.90 and 32.30.