Market Reactions Intensify as Fed, BOJ, and ECB Shape Economic Outlook (09.20.2024)

The EUR/USD trades positively around 1.1165, supported by a weakening US Dollar after the Federal Reserve's unexpected 50 basis point rate cut. Focus now shifts to ECB President Lagarde’s speech for further guidance. The Japanese yen strengthens toward 142 per dollar following the BOJ's decision to maintain its policy rate, as markets anticipate further hikes amid rising inflation. Gold remains near record highs around $2,590, benefiting from safe-haven demand fueled by geopolitical risks in the Middle East and the Fed’s rate cut. GBP/USD holds near 1.3300, supported by the Bank of England’s decision to maintain its rates while continuing to reduce its government bond holdings. Silver rises to $31.10 per ounce as the Fed’s rate cut boosts demand for non-yielding assets, with growing expectations for further rate cuts by the end of 2024.

EUR/USD Trades Positively Ahead of ECB President Lagarde's Speech

The EUR/USD pair is trading positively for the third consecutive day, hovering around 1.1165 during the Asian trading hours on Friday. The decline in the US Dollar (USD), following the Federal Reserve's unexpected 50 basis point (bps) rate cut at its September meeting, supports the major pair. Later today, ECB President Lagarde's speech will be critical for the EUR/USD outlook.

In the pair, the first support level is at 1.1150. 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 1.1175; if this level is surpassed, the next targets will be 1.1200 and 1.1250.

BOJ Keeps Policy Rate Unchanged, Yen Strengthens Toward 142

The Japanese yen strengthened toward 142 per dollar on Friday after the Bank of Japan (BOJ) unanimously decided to keep its policy rate at 0.25%, as anticipated. The central bank also maintained its outlook, indicating that the economy is steadily progressing toward a modest recovery. Markets are now looking forward to comments from BOJ Governor Kazuo Ueda later in the session for further insights into this decision. Following interest rate hikes in March and July due to ongoing inflationary pressures, another rate increase is expected before the end of the year. Recent data showed Japan’s core inflation rate rose to 2.8% in August, up from 2.7% in July, reinforcing a hawkish perspective on BOJ policy. However, the yen faced external pressure from a rally in risk assets, fueled by the Federal Reserve's significant rate cut, which improved the global economic outlook.

From a technical perspective, the first resistance level is at 143.00. If this level is surpassed, the next targets will be 143.60 and 144.00. On the downside, the initial support is at 141.80; if this level is breached, the next supports to watch will be 141.10 and 140.50.

Gold Holds at Record Highs Amid Geopolitical Risks and Fed Rate Cut

Gold remained around $2,590 per ounce on Friday, trading at record levels as markets evaluated recent monetary policy decisions from major central banks. The demand for safe-haven assets has been bolstered by rising geopolitical risks. On Wednesday, the Federal Reserve executed its first interest rate cut since early 2020, implementing an unexpected reduction of 50 basis points. Fed officials also indicated that the benchmark rate could decrease by another half percentage point by year-end, which is expected to enhance gold's attractiveness by reducing the opportunity cost of holding non-yielding assets. Meanwhile, the People's Bank of China surprised markets by keeping its benchmark lending rates unchanged, while the Bank of England maintained its bank rate at 5%. The Bank of Japan is expected to keep its policy rate steady after a surprising hike in July. Additionally, gold's status as a safe haven has been further reinforced by escalating tensions in the Middle East, particularly as Israel approaches the Lebanon border, raising fears of a broader conflict.

Technically the first support level is at 2,590. If this level is breached, the next supports to watch will be 2,550 and 2,500. On the upside, the initial resistance is at 2,600; if this level is surpassed, the next targets will be 2,620 and 2,650.

GBP/USD Holds Near 1.3300 as BoE Decision Boosts Pound

The GBP/USD pair maintains a positive trajectory for the third consecutive day on Friday, trading around the 1.3300 level during the Asian session, just below its peak since March 2022 reached the previous day. The British Pound (GBP) continues to receive support from the Bank of England's (BoE) decision on Thursday to keep interest rates steady while reducing its stock of government bonds by an additional £100 billion over the next 12 months. In contrast, the US Dollar (USD) remains near its lowest point since July 2023 due to expectations of further interest rate cuts by the Federal Reserve (Fed), which has contributed to the upward momentum for the GBP/USD pair.

For GBP/USD, the initial support lies at 1.3300, followed by 1.3250 and 1.3200 below. On the upside, the first resistance is at 1.3350, with subsequent levels at 1.3400 and 1.3450 if the pair breaks above this resistance.

Silver Rises to $31.10 as Fed Rate Cut Boosts Demand

Silver prices (XAG/USD) continued to rise for the second consecutive day, trading around $31.10 per troy ounce on Friday. The non-yielding metal received support following the U.S. Federal Reserve's significant 50 basis point rate cut on Wednesday. Additionally, growing expectations for further rate cuts by the Fed by the end of 2024 are driving demand for Silver. The latest dot plot projections suggest a gradual easing cycle, with the median rate for 2024 revised down to 4.375% from the previous estimate of 5.125% in June. In a lower interest rate environment, silver becomes more attractive to investors as the opportunity cost of holding non-yielding assets decreases, potentially leading to better returns than other investments. On the other hand, the People's Bank of China (PBoC) opted to keep its one-year Loan Prime Rate (LPR) unchanged at 3.35%, while the Bank of Japan (BoJ) maintained its interest rate at 0.15% on Friday. Meanwhile, the Bank of England (BoE) also decided to hold its interest rate at 5%, as widely anticipated. Safe-haven demand for Silver has been further enhanced by escalating tensions in the Middle East, with Israeli warplanes carrying out their most intense strikes on southern Lebanon in nearly a year. The White House indicated that a diplomatic solution is both achievable and urgent, while Britain has called for an immediate ceasefire between Israel and Hezbollah, according to Reuters.

From a technical perspective, the first resistance level to watch is at 31.20. If silver breaks above this level, the next resistance levels to watch will be 31.40 and 32.00, respectively. On the downside, the initial support level is at 31.00, with subsequent support levels at 30.70 and 30.00.