Global Markets Brace for Fed Rate Decision, Dollar and Metals React (09.17.2024)

Markets are on edge ahead of the Federal Reserve's highly anticipated interest rate decision. The EUR/USD dipped to 1.1125, reflecting a modest recovery in the US Dollar as traders await key US Retail Sales data and the possibility of a significant 50 basis point rate cut. In Japan, the Yen held steady near its strongest levels in 13 months, driven by diverging monetary policies between the US and Japan, with the Bank of Japan potentially signaling future rate hikes. Gold maintained its strength near $2,580 per ounce, supported by Fed rate cut expectations, while silver continued its upward trajectory, trading at $30.80 ahead of the Fed’s decision. The GBP/USD consolidated gains above 1.3200, with the British Pound benefiting from the dollar's weakness and speculation of a slower rate-cutting pace by the Bank of England.

EUR/USD Dips as USD Recovers Ahead of Fed Rate Decision

The EUR/USD pair is trading lower around 1.1125 as the US dollar (USD) showed a modest recovery during Tuesday's Asian session. Traders are preparing for US Retail Sales data later today, with the Federal Reserve's interest rate decision on Wednesday being the main event. The Fed's two-day meeting, starting Tuesday, will be closely watched to see if the central bank opts for a 50 basis points (bps) cut or a smaller 25 bps reduction. Markets are increasingly betting on a 50 bps cut, with a 67% probability priced in, up from 50% on Friday, according to CME FedWatch Tool. Such a significant rate cut could support the USD and impact the EUR/USD pair. Last week, the European Central Bank (ECB) cut interest rates for the second time this year. ECB Governing Council member Martins Kazaks indicated that further easing may be on the table but should be approached cautiously due to ongoing inflation risks. ECB policymaker Gabriel Makhlouf also emphasized a data-driven approach to future monetary decisions. Investors are awaiting Eurozone Harmonized Index of Consumer Prices (HICP) data for further direction. If inflation data exceeds expectations, it could strengthen the Euro (EUR) against the USD.

In the pair, the first support level is at 1.1120. If this level is breached, the next supports to watch will be 1.1100 and 1.1050. On the upside, the first resistance is at 1.1150; if this level is surpassed, the next targets will be 1.1200 and 1.1250.

Yen Holds Steady as BOJ and Fed Rate Decisions Loom

The Japanese yen was trading around 140.4 per dollar on Tuesday, remaining near its highest levels in 13 months as investors awaited key monetary policy decisions from both Japan and the US later this week. The Bank of Japan (BOJ) is expected to keep interest rates steady on Friday but may indicate plans for further rate hikes. Market expectations are leaning towards a rate increase in December, with a potential move in October still a possibility. In contrast, the US Federal Reserve is widely anticipated to announce its first rate cut in four years on Wednesday, with markets assigning a two-thirds probability to a more substantial 50 basis point reduction. Meanwhile, Japan's Finance Minister Shunichi Suzuki commented that foreign exchange fluctuations have both positive and negative effects on the economy, emphasizing that rapid changes are undesirable.

From a technical perspective, the first resistance level is at 141.00. If this level is surpassed, the next targets will be 141.50 and 142.00. On the downside, the initial support is at 140.50; if this level is breached, the next supports to watch will be 140.00 and 139.40.

Gold Holds Near $2,580 as Markets Anticipate Fed's Rate Decision

Gold remained steady around $2,580 per ounce on Tuesday, maintaining its record highs due to persistent weakness in the US dollar and growing expectations for a substantial Federal Reserve rate cut this week. Fed fund futures indicate rising anticipation of a 50-basis-point cut, with markets assigning a 67% probability to this scenario, while the likelihood of a smaller 25-basis-point reduction is at 33%, according to the CME FedWatch Tool. In contrast, the Bank of England (BoE) is widely expected to keep UK interest rates unchanged, while the Bank of Japan (BoJ) is anticipated to hold its rates steady but may signal readiness to raise them if economic forecasts are met. Additionally, gold's appeal as a safe haven was bolstered by recent political uncertainty, following reports of a second assassination attempt on Republican presidential candidate Donald Trump.

Technically the first support level is at 2,550. If this level is breached, the next support levels to watch will be 2,525 and 2,500. On the upside, the initial resistance is at 2,585; if this level is surpassed, the next targets will be 2,600 and 2,620.

GBP/USD Consolidates Gains Amid Fed Rate Cut Expectations

During Tuesday's Asian session, the GBP/USD pair traded slightly above 1.3200, consolidating its recent gains from its highest level in a week. Investors are holding off ahead of the Fed's two-day FOMC meeting starting Tuesday and the BoE policy update on Thursday. The Fed is expected to cut rates by 50 basis points on Wednesday, with a 67% probability priced in, which has kept US Treasury yields low and the USD weak. This supports the GBP/USD pair. The GBP benefits from expectations that the BoE will cut rates more slowly than the Fed, though further BoE cuts are anticipated following weak UK wage growth and flat GDP data. With no major UK data on Tuesday, GBP/USD will be influenced by USD movements and US Retail Sales data later in the day. Caution is advised for traders.

For GBP/USD, the initial support lies at 1.3190, followed by 1.3110 and 1.3080 below. On the upside, the first resistance is at 1.3215, with subsequent levels at 1.3265 and 1.3300 if the pair breaks above this resistance.

Silver Rises Ahead of Key Fed Rate Decision

Silver continued its upward trend and started on Tuesday positively, trading around $30.80. This week's Federal Reserve interest rate decision is crucial for silver. The market is anticipating a 67% chance of a 50 basis point rate cut. In the past, recession fears have been a negative factor for silver, which is widely used in various industrial applications. If the Fed's rate cut meets market expectations, it could ease recession concerns and positively impact silver prices.

From a technical perspective, the first resistance level to watch is at 31.15. If silver breaks above this level, the next resistance levels to watch will be 31.50 and 32.00, respectively. On the downside, the initial support level is at 30.60, with subsequent support levels at 30.15 and 29.85.