USD continues to rise driven by monetary policy expectations

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The USD continued to strengthen against a number of its counterparts yesterday, pushed higher by market expectations for a tightening of the Fed’s monetary policy, while higher than expected pending home sales for August could also have contributed. It should be noted that in the ECB banking forum, Fed Chairman Powell called inflation frustrating and expressed concerns about a possible conflict between jobs and inflation and this should be the main challenge facing the Fed. As the USD continued to strengthen, gold prices were forced to retreat also as US yields tended to stay at rather high levels. On the other hand, the US stock markets have tended to show little volatility with mixed signals provided by the markets. Today we highlight the release of the final rate of US GDP for the second quarter as well as the initial weekly jobless claims figure, while a large number of Fed policymakers are expected to speak up and may influence the mood of the market.

The USD index continued to climb, breaking the 94.10 (S1) resistance line, which has now become support. We tend to maintain a bullish outlook for the index which corrected a bit lower in today’s Asian session. The RSI indicator below our 4-hour chart is clearly above the 70 reading, confirming the dominance of the bulls, but this may imply that a downward correction could be in the charts for the index as it may be overbought. Please note that the index is currently at levels not seen since last November. If the bulls continue to guide the index, we might see it breaking through the 94.60 (R1) resistance line and aiming for the 95.00 (R2) level. If the bears gain the upper hand, we could see the index move below the 94.10 (S1) support line and otherwise aim to break above the 93.70 (S2) support level.

The euro continues to weaken

The common currency retreated against the USD and JPY while remaining fairly stable against the weakening GBP yesterday. It should be noted that ECB President Lagarde had remained rather accommodating in recent days, saying the bank would not overreact to inflationary pressures in the zone, thus allowing a more accommodative monetary policy to remain present. The statements differentiated the ECB’s monetary policy outlook from other central banks such as the Fed and BoE, which are expected to monitor inflation closely and start tightening monetary policies sooner. Today we highlight the release of the preliminary HICP rates for Germany and France for September which are expected to accelerate and, if so, could highlight inflationary pressures in the area, thus adding a pressure on the ECB and could provide some support to the euro.

EUR / USD fell again yesterday, breaking the support line at 1.1615 (R1), which has now become resistance. We tend to maintain a bearish sentiment for EUR / USD given that the RSI indicator for the pairs below our 4 hour chart is below the 30 reading, although this could also signal that the pair is oversold and that ‘an upward correction could be made. . If the ask interest was extended we might see the pair aiming otherwise breaking the 1.1520 (S1) support line, while if an upward correction were to take place we might see the EUR / USD breaking the line. 1.1615 (R1), paving the way for the 1.1695 level (R2).

Other economic highlights today and the following Asian session:

Today in the European session we note UK GDP rates for the second quarter, house prices across the UK for September, preliminary HICP rates for France and Germany for September, Switzerland’s KOF indicator for September and Turkey’s trade balance for August. In the US session, we get from the interest rate decision of the Czech Republic CNB and the US the final GDP rate for the second quarter and the initial weekly jobless claims figure, while a number of Fed policymakers should speak out. During tomorrow’s Asian session, we note the release of Japan’s Tankan indicators for the third quarter.

USD H4 Index Chart

Support: 94.10 (S1), 93.70 (S2), 93.20 (S3)

Resistance: 94.60 (R1), 95.00 (R2), 95.35 (R3)

EUR / USD H4 Chart

Support: 1.1520 (S1), 1.1445 (S2), 1.1370 (S3)

Resistance: 1.1615 (R1), 1.1695 (R2), 1.1785 (R3)


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