Global Markets Brace for ECB Rate Cut (10.15.2024)

The ECB is expected to announce a third interest rate cut on Thursday due to concerns about sluggish economic growth and falling inflation.

A strong US dollar is contributing to the downward pressure on the EUR/USD pair. A decline in the yuan and dovish comments from the Bank of Japan Governor and new Prime Minister further weakened the yen. Gold prices stabilized on Tuesday, supported by increasing tensions between China and Taiwan and ongoing violence in the Middle East. The British pound strengthened against the US dollar after the UK's unemployment rate fell to 4.0% in August, beating market expectations. Silver prices have fallen due to concerns about demand, particularly in China. 

Euro Plunges as ECB Eyes Further Easing

The EUR/USD pair continued its downward trend on Tuesday, slipping for the second day to around 1.0890, nearing its lowest level since August 8, reached the previous day. The European Central Bank (ECB) is set to announce its policy decision on Thursday, with expectations of a third interest rate cut in this easing cycle due to growing concerns about sluggish economic growth. Additionally, inflation in the Eurozone has fallen below the ECB's 2% target for the first time since 2021, reinforcing the case for further easing measures. This backdrop and a strong US dollar are significantly pressuring the EUR/USD pair.

In the pair, the first support level is at 1.0875. If this level is breached, the next supports to watch will be 1.0830 and 1.0800. On the upside, the first resistance is at 1.0900; if this level is surpassed, the next targets will be 1.0920 and 1.0950.

Dovish BoJ and Ishiba’s Stance Pressure Yen

On Tuesday, the Japanese yen was trading around 149.5 per dollar, edging closer to the key 150 mark as the dollar strengthened due to expectations that the Federal Reserve might adopt a more cautious approach to interest rate cuts in upcoming meetings. The yen also weakened in response to a decline in the yuan, following China’s recent fiscal stimulus announcement, which failed to reassure investors regarding the scale of the proposed rescue package. Additionally, dovish comments from Bank of Japan Governor Kazuo Ueda and new Prime Minister Shigeru Ishiba’s opposition to further rate hikes added pressure on the yen. Ishiba mentioned earlier this month that the current economic climate may not justify any additional increases. Investors are now anticipating Japanese trade and inflation data later this week for further insights into the economy.

The first resistance level is at 150.00, and if this level is surpassed, the next targets will be 150.75 and 151.25. On the downside, the initial support is at 149.30; if this level is breached, the next support to watch will be 148.70 and 148.00.

China-Taiwan Tensions Increase Gold Demand

Gold stabilized around $2,650 per ounce on Tuesday after a slight decline the previous day, supported by increasing geopolitical tensions. Reports emerged that China held extensive military drills near Taiwan, deploying a record number of aircraft and, for the first time, involving its coast guard to encircle the island. As the Mideast conflict continues to rise, investors are also looking for guidance on the Federal Reserve’s interest rate strategy, with upcoming retail sales data and speeches from Fed officials on the horizon. Recently, expectations for the extent of future rate cuts in the US have been tempered following monthly jobs reports and consumer inflation figures that exceeded forecasts. However, rising weekly jobless claims and a slowdown in producer inflation offered some balance. Currently, there is an 87% probability of a 25 basis point reduction in the federal funds rate in November.

The first support level is at 2,640. If this level is breached, the next supports to watch will be 2,630 and 2,605. On the upside, the initial resistance is at 2,650; if this level is surpassed, the next targets will be 2,665 and 2,685.

Pound Surges on Unexpected UK Job Growth

GBP/USD traded at 1.3050 in response to the latest employment data. The UK's ILO Unemployment Rate declined to 4.0% for the three months ending in August, down from 4.1% in July, according to data released by the Office for National Statistics (ONS). This figure was better than the market expectation of 4.1%. The positive employment data may take on greater significance following tomorrow's CPI release, particularly in relation to potential interest rate cuts.

For GBP/USD, the initial support lies at 1.3000, followed by 1.2960 and 1.2925 below. On the upside, the first resistance is at 1.3100, with subsequent levels at 1.3160 and 1.3200 if the pair breaks above this resistance.

China Demand Worries Drag Silver Prices Lower

Silver is trading at $31.07 as the metal has declined by more than %1 due to concerns over demand following recent data releases from China. The upcoming GDP data from China and weekly jobless claims from the US later this week will be important in determining silver's future direction.

From a technical perspective, the first resistance level to watch is 31.20. If silver breaks above this level, the next resistance levels to watch will be 31.60 and 31.85, respectively. On the downside, the initial support level is at 30.80, with subsequent support levels at 30.35 and 30.10.