EURUSD
- Current Trading: The EUR/USD pair is maintaining modest gains, trading above the 1.1100 level during the European morning on Wednesday. The pair is benefiting from a softer US Dollar and market expectations for Federal Reserve monetary easing
- US Dollar Index Respite: After three consecutive days of losses, the US Dollar Index (DXY) has found some support near the 101.00 level. The DXY had been under pressure due to mounting speculation about aggressive rate cuts by the Fed, but it is now attempting to stabilize.
- Fed Rate Cut Speculation: Speculation around the Federal Reserve’s next policy move has intensified, with markets now pricing in a 50-basis point (bps) rate cut at the September 18 meeting.
- FedWatch: According to the CME Group’s FedWatch Tool, the probability of this larger rate cut has surged to over 60%, compared to just 30% last week, reflecting the market's shifting sentiment about the Fed’s response to economic data.
- ECB Caution: On the other hand, the European Central Bank (ECB) has adopted a more cautious stance regarding additional rate cuts. While there is still market speculation for a potential rate reduction in October, ECB policymakers have so far refrained from providing clear guidance on this front, leaving some uncertainty about the bank’s near-term policy trajectory.
| SMA (20) | Rising |
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| RSI (14) | Slightly Rising |
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| MACD (12, 26, 9) | Falling |
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Closing statement: The EUR/USD is likely to remain supported above the 1.1100 level in the near term, as the market leans toward expectations of aggressive rate cuts by the Fed. However, the pair's upside could be limited if the US Dollar manages to regain strength, especially if the Fed moderates its stance in the upcoming meeting. Traders will be closely monitoring both the Federal Reserve and ECB meetings in the coming weeks for further direction, with particular attention to any shifts in rate cut expectations or economic forecasts.
GBPUSD
- UK CPI Data: The UK Consumer Price Index (CPI) held steady at 2.2% year-on-year in August, matching the previous month’s growth, according to data from the Office for National Statistics (ONS) on Wednesday. This steady inflation data has increased market attention on the Bank of England's upcoming monetary policy decision.
- GBP/USD Rise: The stronger-than-expected inflation numbers put fresh demand under the Pound Sterling (GBP), pushing the GBP/USD pair higher as it approaches the 1.3200 level. Traders are optimistic that the Bank of England (BoE) will take a less aggressive stance on monetary easing considering persistent inflationary pressures.
- BoE Policy Decision: The Bank of England is set to announce its monetary policy decision on Thursday, with inflation playing a key role in determining their next steps. While markets expect some easing, the stickiness of inflation at 2.2% may force the BoE to adopt a more cautious approach, providing additional support for the Pound.
- UK Economy: Despite the recovery from the technical recession experienced in the final quarter of 2023, the UK economy continues to grow at a sluggish pace, raising concerns about a potential future downturn. The economic outlook remains uncertain, with the risk of setbacks threatening the country's fragile recovery.
- US Dollar: The US Dollar is encountering headwinds as rising expectations for a 50-basis point rate cut by the Federal Open Market Committee (FOMC) in Wednesday's meeting intensify. Market sentiment leans toward a significant policy shift from the Federal Reserve, which is weighing on the USD and contributing to the strength of the GBP/USD pair.
| SMA (20) | Rising |
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| RSI (14) | Slightly Rising |
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| MACD (12, 26, 9) | Slightly Falling |
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Closing statement: The GBP/USD pair may continue its upward momentum as the market digests UK inflation data and awaits the BoE's policy decision. Further gains towards the 1.3200 level seem plausible, especially if the BoE maintains a cautious approach to rate cuts. However, the pair's movement will also hinge on the FOMC's decision later in the week, as any deviation from the expected 50-basis point cut could lead to renewed USD strength, potentially capping the GBP/USD gains.
GOLD
- Gold Price: After a minor correction from record highs around $2,590, gold prices are experiencing renewed demand near the $2,570 level early on Wednesday. Buyers are attempting to regain control as the XAU/USD pair looks to recover from Tuesday's pullback.
- Technical POV: The 14-day Relative Strength Index (RSI) is comfortably above the key 50 level, suggesting that bullish momentum remains intact. The RSI has eased from overbought conditions, giving room for further upside without an immediate threat of a correction due to overextension.
- Fed Policy Meeting: Traders appear cautious about making fresh bets on gold ahead of the US Federal Reserve's monetary policy decision later in the day. The market widely anticipates a 25-basis point rate cut. However, the initial reaction to the Fed's decision may depend more on the Fed’s projections and Chair Jerome Powell's tone during his press conference rather than the cut itself.
- Potential US Dollar Upswing: If the Fed confirms a 25-bps rate cut, it could initially boost the US Dollar, which may exert some downward pressure on XAU/USD. However, gold traders will likely look past the immediate knee-jerk reaction and focus on the Fed's longer-term outlook, which could determine the sustainability of the USD's strength and its impact on gold.
- US Retail Sales: Data released on Tuesday showed that US Retail Sales rebounded by 0.1% MoM in August, beating expectations of a 0.2% contraction. The better-than-expected retail data has somewhat eased concerns over a potential US ‘hard landing’, adding to the ongoing economic narrative that could influence the Fed's decisions moving forward.
Closing statement: XAU/USD is expected to trade cautiously ahead of the Fed's policy announcement, with the potential for a volatile reaction depending on the central bank's projections and Powell's commentary. If the Fed strikes a dovish tone despite the rate cut, gold could find additional upside, possibly testing the $2,590 level again. However, any hawkish undertones from the Fed could lead to a stronger USD, capping further gains in gold. Traders are likely to reposition after the Fed's decision, making this a pivotal moment for the XAU/USD pair.
CRUDE OIL
- Current Trading: Crude oil prices saw a reversal at the start of the US trading session on Tuesday, with prices shifting into positive territory. This upward move comes after an initial decline, as traders begin to focus on several bullish factors supporting prices this week.
- Tropical Storm Francine: A key factor boosting oil prices is the aftermath of Tropical Storm Francine in the Gulf of Mexico. The storm led to significant evacuations, resulting in an estimated loss of 3.6 million barrels of oil production last week. This supply disruption has helped tighten the market, supporting higher prices as production recovery may take time.
- Fed Rate Cut Expectations: Traders are also responding to increasing speculation that the US Federal Reserve (Fed) might opt for a 50-basis-point interest rate cut on Wednesday. A larger-than-expected rate cut could weaken the US Dollar and potentially increase demand for commodities, including crude oil, by making them more attractive for holders of other currencies.
- China's Economic Slowdown: Despite the bullish sentiment, concerns remain over the broader global demand outlook, particularly in China, the world’s largest oil importer. Recent reports from Bloomberg indicate the ongoing economic slowdown in China has had a tangible impact, with two major oil refiners declaring bankruptcy, adding a bearish element to the oil demand story.
- Iraqi Oil Pipeline Restart: Additionally, supply concerns continue to support oil prices, with further delays in restarting a key Iraqi oil pipeline that has been closed for over a year. Disagreements over costs are hindering the pipeline's restart, as confirmed by Iraq’s Prime Minister Mohammed Shia Al-Sudani, keeping some of Iraq's oil production off the market for now.
| SMA (20) | Falling |
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| RSI (14) | Slightly Rising |
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| MACD (12, 26, 9) | Slightly Falling |
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Closing statement: Crude oil prices are expected to remain supported by the supply disruptions in the Gulf of Mexico, coupled with growing expectations of a Fed rate cut, which could provide further bullish momentum. However, ongoing concerns about the Chinese economy and potential demand slowdowns may temper gains. The Iraqi pipeline delays add another layer of uncertainty, but the combination of bullish supply factors and market optimism regarding US monetary policy could see oil prices staying elevated in the near term.
DAX
- Market Movers: Zalando SE was the standout performer, surging 7.33% as the stock led the gains on Tuesday. Kingfisher also buoyed the retail sector by raising the lower end of its annual profit forecast, lifting overall demand for retail stocks. Meanwhile, rate-sensitive stocks like Siemens Energy AG and Infineon Technologies rallied by 4.26% and 3.24%, respectively, as investors bet on imminent rate cuts from both the European Central Bank (ECB) and the US Federal Reserve (Fed).
- ZEW Economic Sentiment: The German ZEW Economic Sentiment Index released on Tuesday painted a grim picture of the economic outlook, plummeting from 19.2 in August to 3.6 in September. The sharp decline in sentiment reflects growing concerns about Germany's economic health, raising questions about potential monetary easing measures from the ECB to stave off a downturn.
- Eurozone Inflation: Investors are keenly awaiting the finalized Eurozone inflation figures due on Wednesday, September 18. According to preliminary data, the annual inflation rate for the Eurozone fell from 2.6% in July to 2.2% in August. The decline supports expectations that the ECB might take further dovish steps, potentially cutting rates again to support the slowing economy.
- US Retail Sales: In the US, retail sales data released on Tuesday helped ease some fears of a potential hard landing for the US economy. Sales saw a modest 0.1% increase in August, following a 1.1% surge in July, indicating that consumer demand remains resilient, albeit slowing.
- Upcoming US Economic Data: On Wednesday, beyond the widely anticipated Fed rate cut, investors will also be closely monitoring the US housing sector. Data on building permits and housing starts for August are expected to provide further insights into the strength of the US economy and may influence market sentiment, particularly concerning the potential for additional Fed rate cuts.
| SMA (20) | Slightly Rising |
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| RSI (14) | Slightly Rising |
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| MACD (12, 26, 9) | Slightly Rising |
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Closing statement: The DAX is benefiting from optimism surrounding potential rate cuts from both the ECB and the Fed, as traders look to central banks to stimulate growth amid mounting economic challenges. However, the German ZEW index signals that economic sentiment is deteriorating, which could weigh on market momentum. Investors will be keeping an eye on upcoming Eurozone inflation data and US housing figures, as these reports could drive further movement in the index, especially in the context of ongoing rate cut expectations.