Global Uncertainty and Central Bank Actions Drive Markets (10.23.2024)

The EUR/USD declines toward 16-week lows as ECB President Christine Lagarde's comments fail to halt the euro's slide. 

The USD/JPY pair weakens to near 151.5 amid rising U.S. Treasury yields and concerns over Japan’s upcoming general election. Gold surges to $2,750 per ounce, driven by geopolitical tensions and safe-haven demand. GBP/USD remains near 1.3000 as the Bank of England signals a focus on financial sector surveillance while speculation of rate cuts grows. Silver rallies to $34.50, fueled by rising demand for clean energy and concerns over supply shortages.

Euro Nears 16-Week Lows as ECB Comments Fail to Halt Decline

The EUR/USD pair continued to decline on Wednesday, approaching a crucial technical level that could lead to fresh 16-week lows if the support beneath the Euro weakens. European Central Bank (ECB) President Christine Lagarde made several appearances on Tuesday, but her remarks were largely unremarkable and failed to provide support for the Euro. She stated that the ECB "is not unhappy with what it has seen" but cautioned that they "can’t jump to the conclusion that the inflation target is assured." This lackluster commentary did little to inspire confidence and offered minimal forward guidance to currency markets, which are seeing the euro set to decline against the dollar for a fourth consecutive week.

In the pair, the first support level is at 1.0780. If this level is breached, the next supports to watch will be 1.0725 and 1.0660. On the upside, the first resistance is at 1.0830; if this level is surpassed, the next targets will be 1.0875 and 1.0920.

Yen Dips as US Dollar Gains Strength, Japanese Election Fuels Instability Fears

On Wednesday, the Japanese yen fell below 151.5 per dollar, hitting a near three-month low as the dollar and Treasury yields rose due to strong economic data and concerns over the US deficit. In Japan, traders are anticipating the general election this weekend, with polls indicating that the ruling Liberal Democratic Party may lose its majority along with its coalition partner, Komeito. This potential outcome raises worries about political instability and could further complicate the Bank of Japan's monetary policy outlook. Meanwhile, Japan’s Deputy Chief Cabinet Secretary Aoki chose not to comment on currency fluctuations, unlike top currency diplomat Atsushi Mimura, who reiterated last week that they are closely monitoring foreign exchange movements and view excessive volatility as undesirable.

From a technical perspective, the first resistance level is at 153.20. If this level is surpassed, the next targets will be 154.40 and 155.20. On the downside, the initial support is at 151.30; if this level is breached, the next supports to watch will be 150.20 and 148.60.

Gold Surges to $2,750 Amid Global Uncertainty

On Wednesday, gold surged towards $2,750 per ounce, reaching a new record high, fueled by its appeal as a safe-haven asset amid heightened geopolitical tensions and broader macroeconomic uncertainties. Investors continued to keep a close eye on diplomatic efforts in the Middle East, concerned about the potential for an escalated conflict as Israel intensifies its actions in Gaza and Lebanon. The upcoming US election also increased demand for safe-haven assets, with both presidential candidates locked in a tight race. Additionally, demand was further supported by monetary easing measures from major central banks, following recent cuts to key lending rates by the PBoC and ECB. At the same time, expectations for aggressive rate hikes by the Federal Reserve have softened in light of a series of positive economic indicators.

Technically, the first support level is at 2,730. If this level is breached, the next supports to watch will be 2,685 and 2,660. On the upside, the initial resistance is at 2,795; if this level is surpassed, the next targets will be 2,820 and 2,850.

BoE Signals Surveillance Focus Amid Rate Cut Speculation

The GBP/USD pair inched closer to 1.3000 during Asian trading on Wednesday. However, the Pound Sterling (GBP) faced challenges due to falling consumer and producer inflation rates, along with weak labor market data in the UK. These developments are raising expectations that the Bank of England (BoE) may opt for a 25 basis point rate cut in November, potentially followed by another quarter-point cut in December. On Tuesday, BoE Governor Andrew Bailey emphasized the need for the central bank to improve its ability to monitor the less transparent non-banking sector. Speaking at a Bloomberg event in New York, Bailey stated, "We are reaching a point where we need to shift from rule-making to surveillance" to better track financial activities outside the traditional banking system. Additionally, BoE Deputy Governor Sarah Breeden is set to join a panel discussion on financial regulation hosted by the Institute of International Finance (IIF) in Washington on Wednesday.

For GBP/USD, the initial support lies at 1.2965, followed by 1.2900 and 1.2830 below. On the upside, the first resistance is at 1.3000, with subsequent levels at 1.3050 and 1.3100 if the pair breaks above this resistance.

Silver Rallies as Clean Energy Demand Soars

On Wednesday, silver remained above $34.50 per ounce, reaching its highest level in 12 years, driven by global uncertainties and signs of physical shortages. Market participants are concerned about the upcoming US election and ongoing conflicts in the Middle East, alongside expectations of further monetary easing from major central banks. Additionally, the global shift toward cleaner energy has significantly strengthened demand for silver, particularly for its use in solar panels, raising concerns about potential supply shortages. Meanwhile, China, the world's largest consumer of metals, has introduced various stimulus measures to stimulate economic growth, including reducing key lending rates and injecting liquidity into capital markets.

From a technical perspective, the first resistance level to watch is at 34.90. If silver breaks above this level, the next resistance levels to watch will be 35.20 and 36.50, respectively. On the downside, the initial support level is at 34.00, with subsequent support levels at 33.50 and 33.00.